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<title>October 2007: California Act Promtes Development Of Low-Emission Combined
Heat And Power Cogeneration Units</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<p ALIGN="left"><b><u><br>
<br>
October</u></b><u><b> 2007</b></u><font size="6"><b><br>
</b></font></p><b>
<p class="MsoNormal" align="center" style="text-align:center">
<font size="6">CALIFORNIA ACT PROMOTES DEVELOPMENT OF LOW-EMISSION COMBINED
HEAT AND POWER COGENERATION UNITS</font></p>
<p class="MsoNormal" align="left"> </p>
<p class="MsoNormal" align="left">By Robert A. Olson, Esq.
<span style="font-size: 12.0pt">and Philip R. Braley, Esq.</span><strong> --
Brown, Olson and Gould, P.C.<br>
</strong>
</b><font face="Arial" size="2"><i>(</i><em>originally published by PMA
OnLine Magazine: 2008/01/19</em><i>)</i></font></p>
<p align="left"> </p>
<p align="left">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].” </p>
<center>
<p align="left">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. <i>Id.</i> 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.” <i>Id.</i> at �
2843(e). California’s generally-applicable greenhouse gas emissions
performance standard also applies. <i>Id.</i> 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. <i>Id.</i> 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.” <i>Id.</i> 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.” <i>
Id.</i> at � 2843(b). Finally, the Act applies only to combined heat and
power systems that begin operating “on or after January 1, 2008.” <i>Id.</i>
at � 2840.2(b).</p>
<center>
<p align="left">The Act requires electric utilities to file with the PUC “a standard
tariff for the purchase of excess electricity from an eligible
customer-generator.” <i>Id.</i> 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.”
<i>Id.</i> The PUC is directed to “ensure that ratepayers not utilizing
combined heat and power systems are held indifferent to the existence of
[the] tariff.” <i>Id.</i> 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.” <i>Id.</i> at �
2841(a).</p>
<center>
<p align="left">The Act also requires the PUC to “establish a pay-as-you-save pilot
program” for nonprofit customers. <i>Id.</i> 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. <i>Id.</i> 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. <i>Id.</i> </p>
<center>
<p align="left">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. <i>Id.</i> at � 2841(a). On the other hand, the Act states that
electric utilities “shall” file the required tariff with the PUC (<i>id.</i>
at � 2841(b)) and the PUC “shall” establish the pay-as-you-save pilot
program. <i>Id.</i> at � 2842.4. The Act does not establish due dates for
implementation of its provisions. </p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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