Distributed Energy Resource Guide: Regulatory Activity & Policy -- Regulatory Activities

Three state agencies are actively involved in the development of rules applicable to the Distributed Generation market place: the California Public Utilities Commission (CPUC), the California Energy Commission, and the California Air Resources Board (CARB).

California Public Utilities Commission

Distributed Generation Policy Proceeding (R.04-03-017)
On March 17, 2004, the CPUC initiated a new proceeding to address outstanding distributed generation policy issues relevant to California. The proceeding is divided into five key areas: 1) developing a cost/benefit analysis methodology for distributed generation and net energy metering; 2) incorporating legislative changes to the CPUCÕs self-generation incentive program and coordinating that effort with the Energy CommissionÕs incentive program; 3) developing guidance for the investor-owned utilities on the use of distributed generation as a planning and procurement resource; 4) examine outstanding interconnection issues; and 5) exploring emerging distributed generation technologies.

A complete history of this rulemaking and copies of key documents can be found at the following CPUC link: www.cpuc.ca.gov/proceedings/R0403017.htm

A previous CPUC proceeding focusing on distributed generation, R.99-10-025, was completed in February 2003. Phase one addressed interconnection rules, distributed generation ownership, distribution system planning, distributed generation valuation and net metering, educational efforts, and outreach to government activities. Phase two addressed rate design, standard costs, distribution, and permit streamlining.

Key CPUC decisions stemming from this rulemaking are as follows:

Departing Load Exit Fees (R.02-01-011):
In April 2003, the CPUC issued Decision 03-04-030, outlining a mechanism for granted a range of distributed generation customers from paying power surcharges known as or "exit fees" or "cost responsibility surcharges" (CRS). A customer with departing load generally refers to utility customers that leave the utility system in part or entirely to self-generate electricity. The surcharge includes costs related to financing the bonds sold to cover revenue shortfalls in 2001-2002 as well as ongoing power costs associated with the StateÕs long-term contracts.

Exemptions to the CRS are provided to the following:

Systems smaller than 1 megawatt that are net metered and/or eligible for CPUC or Energy Commission incentives for being clean and super clean are fully exempt from any surcharge; including solar, wind, and fuel cells.

Ultra-clean and low-emission systems 1 MW or greater that meet Senate Bill 1038 requirements to comply with CARB 2007 air emission standards will pay 100% of the bond charge, but no future DWR charges or utility undercollection surcharges.

All other customers will pay all components of the surcharge except the DWR ongoing power charges. When the combined total of installed generation reaches 3000 MW (1500 designated for renewables), any additional customer generation installed will pay all surcharges.

Regulations outlining the process for obtaining a CRS exemption became effective in January 2004. Companies interested in requesting a CRS exemption can download an application from the Energy CommissionÕs CRS Megawatt Cap web page or through each investor-owned utility's website.

With the approval of CPUC Resolution E-3831 on July 8, 2004, the investor-owned utilities are now authorized to collect CRS and will be immediate steps to do so. Utility advice letters complying with the Resolution were submitted on July 19, 2004 and are awaiting final approval. Customers will soon be contacted to discuss their options for paying the CRS or possibly being exempted from all or a portion of the CRS.

California Energy Commission

The Energy Commission is working closely with the CPUC to address issues raised in the CPUCÕs distributed generation rulemaking. In support of that effort, the Energy Commission opened a parallel proceeding on April 21, 2004 (04-DIST-GEN-1). Further information about that proceeding can be found at www.energy.ca.gov/distgen_oii/index.html.

The Energy Commission also oversees the continuing work of the Rule 21 Interconnection Working Group. The group meets every 4 - 6 weeks to address outstanding issues surrounding the current rules and develop tools that ease the interconnection approval process.

In addition to support for the Rule 21 effort, the Energy Commission is responsible for determining eligibility for exemption from departing load charges, as described in the previous section.

California Air Resources Board

California Senate Bill 1298 (1999-2000 Session) required the development of emission standards for all distributed generation units that begin operating on or after January 1, 2003. The California Air Resources Board initiated this effort in November 2000 and adopted regulations in approximately one year later.

A provision in the regulations requires CARB to conduct a DG Technology Review to evaluate how the industry is responding to these regulations. A final report will be submitted to the CARB Board by July 2005. Details surrounding the adopted regulations and the Technology Review are available on the CARB Website at www.arb.ca.gov/energy/dg/dg.htm.