CALIFORNIA ACT PROMOTES DEVELOPMENT OF LOW-EMISSION COMBINED HEAT AND POWER COGENERATION UNITS
By Robert A. Olson, Esq.
and Philip R. Braley, Esq. --
Brown, Olson and Gould, P.C.
On October 16, 2007, California enacted the Waste Heat and Carbon Emissions Reduction Act. 2007 Cal. Stat. Ch. 713 (the “Act”). The Act encourages the development of low-emission cogeneration units designed to capture energy that would otherwise be lost in the form of wasted heat. It does so by authorizing the California Public Utilities Commission (the “PUC”) to require electric utilities to purchase excess electricity generated by their customers using “combined heat and power system[s].”
Under the Act, a “combined heat and power system” is a “system that produces both electricity and thermal energy for heating or cooling from a single fuel input” and meets additional stated criteria. Id. at § 2840.2(a). The additional criteria do not include any restriction on the type of fuel that the system may use, but the system is required to have “a minimum efficiency of 60 percent” and to “meet an oxides of nitrogen (NOx) emissions rate standard of 0.07 pounds per megawatt hour.” Id. at § 2843(e). California’s generally-applicable greenhouse gas emissions performance standard also applies. Id. at § 2843(f). A credit against the NOx emissions rate standard is applied based on the number of British thermal units of heat the system recovers. Id. at § 2843(e). The system must be “sized to meet the eligible customer-generator’s onsite thermal demand” and must have “a generating capacity of not more than 20 megawatts.” Id. at § 2840.2(a),(b). It is the legislature’s stated intent that the program “not permit customers to operate as de facto wholesale operators with guaranteed purchasers for their electricity.” Id. at § 2843(b). Finally, the Act applies only to combined heat and power systems that begin operating “on or after January 1, 2008.” Id. at § 2840.2(b).
The Act requires electric utilities to file with the PUC “a standard tariff for the purchase of excess electricity from an eligible customer-generator.” Id. at § 2841(b). The tariff is required to provide for payment “at a price determined by the commission,” but must “include flexible rates with options for different durations, not to exceed 10 years, and fixed or variable rates relative to the cost of natural gas.” Id. The PUC is directed to “ensure that ratepayers not utilizing combined heat and power systems are held indifferent to the existence of [the] tariff.” Id. The PUC is authorized to “establish a maximum kilowatthours limitation on the amount of excess electricity that an [electric utility] is required to purchase if the [PUC] finds that the anticipated excess electricity generated has an adverse effect on long-term resource planning or reliable operation of the grid.” Id. at § 2841(a).
The Act also requires the PUC to “establish a pay-as-you-save pilot program” for nonprofit customers. Id. at 2842.4. The program is to “enable eligible customers to finance all of the upfront costs for the purchase and installation of a combined heat and power system by repaying those costs over time through on-bill financing” over a period of up to 10 years, payments to be made in amounts equal to the customer’s actual savings in electricity costs. Id. The PUC is directed to “ensure that the reasonable costs of the [electric utility] are recovered” and that all costs of the financing program are “borne solely by” the generators that use the program. Id.
It is unclear from the Act whether implementation of its provisions is mandatory or left to the PUC’s discretion. On the one hand, the Act provides that the PUC “may” require electric utilities to purchase excess electricity. Id. at § 2841(a). On the other hand, the Act states that electric utilities “shall” file the required tariff with the PUC (id. at § 2841(b)) and the PUC “shall” establish the pay-as-you-save pilot program. Id. at § 2842.4. The Act does not establish due dates for implementation of its provisions.