IV. Treatment of Clean & Ultra-Clean DG and Net Metered Customers

A. Position of Parties Regarding Small Distributed Generation

A number of parties argue that the cap is unfair to smaller generators, and seek various exemptions from the cap based on public policy considerations.¹⁵ AReM/WPTF, for example, recommends that new small cogeneration projects with a nameplate rating of five MW or less be exempt from the annual MW cap. AReM/WPTF express concern that the annual MW cap could be "eaten up" by a few large cogeneration projects and recommends that new small cogeneration projects with a nameplate rating of five MW or less be excluded from the annual megawatt cap.¹⁶ This concern is heightened by the provision of the Settlement Agreement that sets aside ten percent of the annual cap for one specific customer.¹⁷

The CPA recommends that all small DG¹⁸ projects of one MW or less in size be exempt from the need to qualify under the annual MW cap on departing load exempted from exit fees for CDWR's ongoing costs, and, instead, should be automatically exempt from such charges.¹⁹

CPA also recommends that zero, near-zero and low-emission ("ultra-clean") DG technologies be exempt from paying tail CTC and SCE's past procurement costs.²⁰ Similarly, the South Coast Air Quality Management District (District) seeks exemption for small "ultra-clean" DG of five MW or less in size from all cost responsibility surcharges.²¹ The Center for Energy Efficiency and Renewable Technologies ("CEERT") also calls for the exemption of ultra-clean DG without regard to the MW cap,²² as does Capstone Turbine Corporation ("Capstone").²³

CEERT argues that imposing CRS on emerging, ultra-clean distributed generation will impair the ability of these technologies to compete against dirtier, gas-fired forms of distributed generation, such as single-cycle microturbines and diesel generators.²⁴ CEERT claims that it would be contrary to legislative intent and state policy to apply excessive charges to DG producing zero, near zero, and low-emissions. CEERT argues that the Settlement Agreement will inappropriately penalize customers for choosing to operate zero, near-zero and low-emission DG.

CEERT proposes a three-tiered approach to encourage use of and achieve the greatest environmental benefit from zero, near-zero and low-emission DG: (1) a minimum of several hundred new MW of zero, near zero and low-emission distributed generation technologies should be brought on-line by 2005 (2) discounted fees should be applied to these technologies based on performance; and (3) net metered solar and biogas installations should be exempted from exist fees entirely, primarily due to practical difficulties in implementation.

CEERT expresses concern that the CARB may be pressured to roll back recently adopted DG emissions standards unless a minimum of several hundred MWs of DG, which meet the 2007 standards, are installed by 2005.²⁵ CEERT, therefore, recommends that the Commission act to encourage the addition of as much on-line capacity as possible of zero, near-zero and low-emission DG by 2005. The structure for implementing this goal should include first-in-line priority to entering the system over other dirtier types of technologies, exempting these clean technologies from any potential future cap(s) on DG, and possibly also targeting MW goals and an annual ramp-up schedule.

According to AECA, eligible biogas digester customer-generators are exempt from departing load charges, and therefore no new or additional charges that would increase an eligible digester customer-generator's charges beyond those of other customers in the same rate class may be included.²⁶ Similarly, CEERT argues that the Legislature, in passing AB 2228, "specifically considered and elected to exempt biogas (also known as biodigester) projects from any net metering or other charges for departing the system," and that biogas generators "should be exempted from any fees imposed by this proceeding."²⁷

The CalSEIA recommends a blanket exemption for DL served by distributed solar generation.²⁸ CalSEIA opposes any surcharges on customers investing in solar generation facilities beyond otherwise applicable rates for net power drawn from the grid.²⁹ CalSEIA argues that imposition of surcharges beyond those provided for in otherwise applicable tariffs for net power would erect new and potentially very significant barriers to further development of clean, renewable generation, and would be inconsistent with numerous policies and programs established by the Legislature, the CEC, and the Commission.

PG&E proposes that if exemptions were granted to a limited class of DL customers that install "super clean" and/or efficient DG units, such exemptions should be based upon an evaluation and policy conclusion that the benefits of encouraging these DG technologies outweighs the cost-shifting burden other customers will have to bear.

B. Discussion

Pursuant to AB970, In D.01-03-073 we adopted 3 different levels of incentives to encourage and promote self-generation. D.02-09-051 modified the 3 incentive categories to include an incentive for microturbines and internal combustion engines operating on renewable fuel. We note that this decision does not modify or alter the incentives provided in D.01-03-073 as modified by D.-2-09-051.

However, in D.01-03-073 we found merit in parties' concerns that some non-renewable self-generation systems are less efficient and more polluting than combined-cycle technologies without waste heat recovery.³⁰ In establishing the incentive mechanisms distributed generation, we noted the lack of definition for super-clean technologies to assist us in establishing "differential incentives for renewable and super clean distributed generation resources.

Pub. Util. Code § 353.2 (a) defines "ultra-clean and low-emission distributed generation" as any electric generation technology that commences its initial operation between January 1, 2003, and December 31, 2005, and:

"produces zero emissions during its operation or produces emissions during its operation that are equal to or less than the 2007 State Air Resources Board emission limits for distributed generation, except that technologies operating by combustion must operate in a combined heat and power application with a 60-percent system efficiency on a higher heating value."

Pub. Util Code § 353.2(b) states: "In establishing rates and fees, the [C]omission may consider energy efficiency and emission performance to encourage early compliance with air quality standards established by the State Air Resources Board for ultra-clean and low-emission distributed generation." As such, consistent with the our intent in D.01-03-073 to establish incentives for super clean distribution and the legislature's mandate to encourage early compliance with air quality standards, we therefore adopt an exemption of 200 MW for clean and super-clean DG as defined in Pub. Util. Code § 353.2 (a) from the ongoing DWR power costs.

There was nothing in the record to suggest a proper level of clean/super-clean DG exemption. We selected 200 MW because it represents a cautious amount which minimizes the impact on the bundled ratepayers while providing an adequate level of clean/super-clean dg development. We recognize that this level is not a firm level and will consider in refining the amount as we determine necessary as further analysis is developed.

We do not agree with PG&E that limited exemptions for clean/super clean distributed generation should be based upon an evaluation of societal benefits. While we agree that no societal benefit analysis has been performed, the Legislature has given clear and direct indications of its intent to encourage and promote ultra-clean and low-emission distributed generation development. In considering granting an exemption to clean/super clean and solar distributed generation, we are guided by the intention of the Legislature.

We agree with CalSEIA that absent an exemption of the DA CRS for distributed solar generation, the policy intention of the Legislature to promote further development of clean, renewable generation could suffer a significant setback. For the reasons stated above, we find our limited exemptions to be consistent with the intent of the Legislature to

AB 58 amended § 2827.7 and exempts generation eligible for net metering that has permits on or before December 31, 2002, and is constructed on or before September 30, 2003 from any new or additional surcharges for the life of the system. Additionally, we also agree that the legislature specifically considered and elected to exempt biodigester projects from any net metering or other charges for departing the utility system. Accordingly, such biodigester and other net-metered projects should be exempt from the CRS adopted in this order.

²⁵ Exhibit (Ex.) 116 (CEERT (Starrs)). See also, California Code of Regulations, Title 17(3)(1)(8), Article 3 (Distributed Generation Certification Program).