BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1
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          Date of Hearing:   July 7, 2005

                                 Gene Mullin, Chair
                SB 1 (Murray and Campbell) - As Amended:  July 5, 2005

           SENATE VOTE  :   30-5
          SUBJECT  :   Energy: renewable energy resources: Million Solar  
          Roofs Initiative.

           SUMMARY  :   This bill establishes the Million Solar Roofs  
          Initiative (MSRI), the goal of which is to place one million  
          solar energy systems, or the equivalent 3,000 megawatts of  
          capacity, on new or existing residential and commercial  
          buildings by 2018.  Specifically,  this bill  :   

          1)Requires the California Energy Commission (CEC) to develop,  
            implement, and fund the MSRI, and establish an incentive  
            program for solar energy systems, as follows: 

             a)   The incentives shall not exceed the subsidy level in  
               existence on January 1, 2006 [$2.80/watt or $7,000 for a  
               2.5kW (kilowatts) residential system].

             b)   The incentives will decline by 7% per year until the  
               rebate is zero in 2016.

             c)   The incentives can be increased by 50% for zero energy  
               homes or zero energy commercial structures. The CEC shall  
               develop definitions for zero energy homes or zero energy  
               commercial structures.

             d)   The incentives can be increased by 25% for solar energy  
               systems that are installed on structures that that exceed  
               the CEC's established energy efficiency building standards.  

             e)   Incentives shall not be granted for eligible solar  
               energy systems installed on the premises of individuals or  
               entities that are not contributing to the MSRI, except that  
               incentives can be granted to CARE customers and to an  
               electrical corporation. 

             f)   By 2010, 50% of all incentive money shall be spent on  


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               performance incentives that are based on the actual output  
               of the solar energy system.

          2)Requires the CEC to develop eligibility criteria for solar  
            energy systems to qualify for the rebate, including:

               a)     That the incentives only be used for distributed  
                 generation installations and not for large facilities  
                 that are owned by the electric utility or by companies  
                 that sell the electricity directly to the utility.

               b)     The solar energy system must have at least a 10 year  
                 manufacturer's warranty.

          3)Requires that the electrical work to install the solar energy  
            system is performed under contract by a California contractor  
            with an active C-10 license.

          4)Requires the CEC to develop incentives that require siting and  
            installation of solar energy systems to maximize the  
            performance of the systems during peak demand periods and  
            energy efficiency improvements in the structure where the  
            solar energy system is to be placed. 

          5)Requires the CEC to "provide proportional program support" of  
            not more than 10% of over all funds for installation of solar  
            systems on affordable housing.

          6)Allows the CEC, in consultation with the California Tax Credit  
            Allocation Committee (TCAC), to establish a revolving loan or  
            loan guarantee program for affordable housing. 
          7)Requires the CEC in developing the MSRI to:

             a)   Implement, to the extent appropriate, financing options  
               to lower the financing costs of solar energy systems.

             b)   Provide educational materials and assistance to builders  
               to help them understand how to integrate solar energy  
               systems into new construction. 

             c)   Conduct random audits of installed solar energy systems  
               to evaluate their operational performance. 

             d)   Evaluate the costs and benefits of having an increased  


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               number of solar energy systems as part of California's  
               electrical system with respect to the solar energy systems  
               impact on distribution, transmission, and supply of  

          8)Requires the Public Utilities Commission (PUC) to open a new  
            proceeding to determine the level of additional funding needed  
            to finance the MSRI.  Requires cost of this program to be  
            recovered from all investor owned utilities (IOUs) ratepayers,  
            except ratepayers participating in the California Alternate  
            Rates for Energy (CARE) program. (To be eligible to  
            participate in CARE the household income must be below 175% of  
            the federal poverty level.)

          9)Caps the total amount of money that can be collected from  
            customers of the three largest IOUs to fund the program at  
            $1.8 billion.

          10)Requires the PUC to require time-variant pricing for all  
            ratepayers with a solar energy system.

          11)Raises the net metering cap from 0.5% to 2%.  After the PUC  
            has developed a time-variant net metering rate, the cap will  
            be increase to 5%.

          12)Provides that a specified rate structure, in effect as of  
            January 1, 2006, shall remain in effect for non-residential  

          13)Requires the CEC to commence a proceeding by July 1, 2006,  
            and conclude that proceeding within 3 years, to consider if  
            and when solar energy systems should be required on new  
            residential and commercial buildings.  

          14)Requires the CEC to issue an assessment of the success of the  
            MSRI to the Legislature by January 1, 2009, and every third  
            year thereafter.

          15)Requires sellers of production homes, as defined, to offer  
            solar energy systems on new homes for which tentative  
            subdivision maps are completed on or after January 1, 2010.

          16)Requires that existing photovoltaic (PV) programs  
            administered by the PUC and the CEC be terminated when the  
            MSRI is funded and that all money that would have funded the  


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            programs at the PUC and CEC be deposited in the MSRI Trust  

          17)Requires municipal utilities to adopt a similar program with  
            proportionate expenditures.

           EXISTING LAW  

          1)Requires the implementation of a public goods surcharge to  
            fund energy efficiency, renewable energy, and research,  
            development and demonstration programs from January 1, 2002,  
            to January 1, 2012.  The surcharge is a nonbypassable element  
            of the local distribution service and collected on the basis  
            of usage.

          2)Establishes a program of assistance for low-income electric  
            and gas customers called the California Alternate Rates for  
            Energy (CARE) program that establishes a discount on electric  
            and gas bills for eligible customers.

          3)Establishes a net metering program whereby residential and  
            other customers can receive credits to their monthly  
            electricity bills for up to 12 months for producing and  
            placing electricity on the grid from PV or other renewable  
            sources as specified in statute.  

          4)Establishes incentive programs for PV technologies within the  
            CEC and PUC.  These programs offer varying degrees of  
            incentive payments per kilowatt-hour for residential or  
            commercial customers purchasing certain types of renewable  
            technology like PV cells.

          5)Establishes tax exemptions for property tax, interest on  
            loans, or personal or corporate income tax credits for  
            customers as a result of increasing energy efficiency or  
            purchasing renewable technology like solar or wind.

          6)Requires IOUs to increase their existing level of renewable  
            resources by one percent of sales per year until a portfolio  
            of 20% renewable resources is achieved by no later than 2017.   
            Municipal electric utilities are not subject to these  
            standards, but are required to implement and enforce their own  
            renewable resource procurement programs.

           FISCAL EFFECT  :   Unknown.


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           COMMENTS  :  This is the Governor's MSRI.  It establishes the  
          ambitious goal of installing solar energy systems on one million  
          residential and commercial properties by 2018.  Additionally,  
          the bill requires builders of new production homes to offer  
          solar energy systems on all homes at some point after 2010. 

          1)  Current Subsidies:  California has several subsidy programs  
          targeted specifically at PV systems.  The CEC administers a  
          program for residential and small commercial sized PV systems  
          that provides a rebate for a portion of the installation cost of  
          a PV system.  That rebate was initially $4.50/watt, or about 50%  
          of the system cost, and has since been lowered to $2.80/watt.   
          This program is funded through the Public Goods charges (PGC),  
          which is a surcharge on all IOU electric customers. Currently,  
          the program is allocated $125 million per year. 

          The PUC administers a similar program for commercial-sized  
          customer-owned generation, including PV systems.  This program,  
          known as the Self-Generation Incentive Program (SGIP), costs  
          $125 million annually and is paid for out of electric rates.   
          The SGIP PV subsidy is $3.50/watt. 

          Both programs are oversubscribed with the demand for subsidy far  
          exceeding the available rebate money.  Solar advocates believe  
          that this has made it difficult for a larger number of consumers  
          to benefit from the rebate programs and is a reason why the MSRI  
          is needed.  
          In addition to these two subsidy programs, there are numerous  
          other state and federal programs which substantially reduce the  
          after-tax cost of PV systems, particularly for commercial  

          2)  The results of the current programs  : As of the end of 2004,  
          there were 12,000 PV systems in California with an aggregate  
          rated capacity of 93 megawatts (MW) (this includes the PV  
          capacity in municipal utility territory).   Both of the current  
          solar programs are oversubscribed and the programs currently are  
          borrowing money from future years to help meet the demand for  
          rebates today.  Under, these solar programs over 85% of the  
          total installed solar capacity in the United States are located  
          in California.  According to a recent PUC staff report on the  
          MSRI, even with California's leading role in promoting solar  
          energy, "After eight years and close to $1 billion of subsidies,  


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          installed solar costs in California have decreased only  
          slightly, and the industry has made little progress in reaching  
          a self-sustaining market." 

          Compared to the worldwide market, in 2004 California installed  
          51 MW of new solar capacity. This represents 5.5% of the total  
          solar capacity installed worldwide in 2004. The two countries  
          that have aggressive solar energy programs, Japan and Germany,  
          accounted for 30% and 39% of the total world market  
          installations in 2004.  Overall, Japan leads the world with 39%  
          of the total installed solar capacity, compared to 25% for  
          Germany and 11% for the United States (using 2003 figures).

          3)  Programs outside of California  : The State of Washington  
          recently passed a solar subsidy bill.  It provides a  
          production-based incentive where customers can earn a credit of  
          15 cents per kilowatt-hour (kWh) of electricity generated by  
          renewables up to $2,000 annually.  With a production-based  
          incentive, the rebate is paid over time, promoting maximum  
          efficiency of the solar projects over the 20-year life  
          expectancy of the solar panels.  Washington's program also  
          provided for higher incentives for solar energy systems that are  
          manufactured in Washington. 

          Japan initiated a solar rebate program in 1994 that started at  
          $9.00 per watt and declined to $0.45 per watt in 2004. The  
          rebates are set to expire in 2006.  As the rebate levels  
          declined so did the average system cost.  In 1994, average  
          installation costs were close to $20 per watt; in 2004 the cost  
          was $6.12 per watt (as compared to $9 per watt in California  
          today). The combination of declining rebates and declining  
          system costs has meant that the out of pocket expenses for  
          customers has remained about the same. The 11 year program  
          budget exceeds $1.5 billion. 

          Residential electricity rates in Japan are substantially higher  
          than California. These higher rates make solar electricity more  
          cost competitive than in California.  

          Germany's solar incentive program is a performance based  
          program. Incentives are based on the actual energy produced by  
          the solar energy system over a 20 year period. To help offset  
          the initial installation costs, the program provides low  
          interest loans. The per kWh incentives vary from $0.70 for  
          residential customers to $0.55 for large industrial customers. 


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          4)  What the MSRI means to solar customers:   A typical  
          residential PV system is between 2kW - 4kW.  The installation  
          cost is about $9,000/kW ($9/watt), so a 2.5 kW system would cost  
          $22,500. With the current rebate of $2,800 per kW ($2.80/watt)  
          the rebate would bring the cost of the system to $15,500.  A  
          7.5% state tax credit would bring the system cost down to  
          $14,338.  The state tax credit is set to expire at the end of  
          this year.  

          At best, under the current rebate structure and the net metering  
          program that credits consumers electric bills for selling excess  
          electricity back to the utility, over the life of solar energy  
          system the customer would break even on their investment.  For  
          commercial customers, the final after-tax cost is much lower  
          because of greatly accelerated depreciation and a 10% federal  
          tax credit which does not apply to residential installations. 

          As the rebates decline under the MSRI, the customer cost may  
          increase. However, the proponents of the measure believe that as  
          the solar market grows prices will decrease, and even with the  
          smaller rebates customers will continue to break even on their  
          5)  What the MSRI will cost ratepayers  : The total costs of the  
          MSRI are indeterminable, and depend on a number of factors, such  
          as participation; mix of residential to small commercial and  
          industrial; and the future costs of solar energy systems. The  
          costs will not only include the direct incentive programs  
          created in SB 1 but also potentially include other indirect  
          subsidies such as net metering which requires the utilities to  
          credit customer bills for excess power produce at a rate that  
          will far exceed the utility's generation costs.  Actual  
          estimates on costs offered by supporters and opponents of the  
          bill range from between $2 billion and $7 billion over the life  
          of the program.  

          6)  Builder's Must Offer Mandate:  This bill requires all  
          builders of new home developments with 50 or more units  
          (production homes) to give potential home buyers the option of  
          purchasing a solar energy system when the customer purchases the  
          house (a must-offer requirement). The author believes this  
          must-offer requirement will work in the same way new home buyers  
          choose what type of flooring or cabinets to have installed: when  
          they buy the house they will go down a list of optional features  


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          in the house, and solar energy will be one of the options. 

          Currently, this bill provides that the must-offer requirement  
          apply to all production homes for which a subdivision tentative  
          map is completed on or after January 1, 2010.  A subdivision  
          tentative map must be approved before construction can begin and  
          it can be years after a subdivision tentative map is approved  
          before a production home is offered for sale.  While the time  
          lag can vary, on average it takes three years between the  
          approval of the map and the first production home being offered  
          for sale. This average time lag means that the must offer  
          provision in the bill will not go into full effect until 2013,  
          seven years after the MSRI is implemented and only four years  
          before the incentives will terminate.

          This delay in implementation of the must offer provision means  
          that the provision will likely have little impact on the success  
          of the MSRI, since it will not take effect until very late in  
          the program.  To assure that the must-offer requirements start to  
          have actual impact by 2010, the committee may want to consider  
          amending the bill to advance the applicable date for completion  
          of the subdivision tentative maps to 2007  . 

          7)  Contractors' License  :  SB 1 currently requires that any  
          installation of a solar energy system be installed only by a  
          C-10 licensed contractor.  According to the California  
          Contractors' State License Board (CSLB), a C-10 electrical  
          contractor is an electrical contractor who places, installs,  
          erects or connects any electrical wires, fixtures, appliances,  
          apparatus, raceways conduits, solar photovoltaic cells or any  
          part thereof, which generates, transmits, transforms or utilizes  
          electrical energy in any form or for any purpose (832.10 of the  
          Central Contractors Registration).

          Also according to the CSLB, a C-46 Solar Contractor installs,  
          modifies, maintains, and repairs active solar energy systems. An  
          active solar energy system consists of components which are  
          thermally isolated from the living space for collection of solar  
          energy and transfer of thermal energy to provide electricity  
          and/or heating and cooling of air or water. Active solar energy  
          systems include, but are not limited to, forced air systems,  
          forced circulation water systems, thermo siphon systems,  
          integral collector/storage systems, radiant systems, evaporative  


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          cooling systems with collectors, regenerative rock bed cooling  
          systems, photovoltaic cells, and solar assisted absorption  
          cooling systems. A licensee classified in this section shall not  
          undertake or perform building or construction trades, crafts or  
          skills, except when required to install an active solar energy  
          system.  (832.46 of the Central Contractors Registration).

          According to the Associated Builders and Contractors or  
          California, 60% of PV systems funded through existing California  
          solar programs have been installed by those not holding C-10  
          electrical contractor licenses.  Within this majority, the  
          largest sub set is C-46 contractors, whose classification is a  
          specialty in solar installation work.

          The State of California developed the special C-46  
          classification in consultation with representatives from the  
          solar industry.  Limiting eligibility to install solar systems,  
          under this program, would overhaul an established structure of  
          licensed contractors.  

          8)  Affordable Housing Programs  : SB 1 provides that up to10% of  
          the overall funds shall be dedicated for installation of solar  
          energy systems on affordable housing.  The language in this  
          provision is somewhat vague as to how such assistance will be  
          administered.   The committee may wish to consider incorporating  
          provisions contained in AB 1383 (Pavley), heard earlier this  
          year in this committee, relating to financing solar systems for  
          affordable housing  .  

          Recent amendments to AB 1383 would establish, until January 1,  
          2016, the Low-Income Housing Development Revolving Loan Program  
          to help finance solar energy systems in eligible low-income  
          housing located in the service areas of an electrical  

          Language currently contained in SB 1 fails to adequately  
          describe what kinds of affordable housing would be eligible for  
          assistance and how such funds would be applied for, distributed  
          or monitored.

           Double referred:  The Assembly Committee on Rules referred SB 1  
          to Utilities and Commerce and Housing and Community Development  


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          Committee.   The Assembly Committee on Utilities and Commerce  
          held an informational hearing on SB 1 on Monday, June 27, 2005  
          and is scheduled to be heard on Wednesday, July 6, 2005. 

          Access Capital Management Inc., Corte Madera
          Attorney General Bill Lockyer
          Akeena Solar, Los Gatos
          Alliance for Nuclear Responsibility, San Luis Obispo
          American Solar Energy Society, Boulder, Colorado
          American Federation of State, County and Municipal Employees
          American Lung Association of California
          Bluewater Network, San Francisco
          Borrego Solar Systems, San Diego
          California Alliance for Consumer Protection
          California Building Officials
          California Interfaith Power and Light, Oakland 
          California League of Conservation Voters, Oakland
          California Student Public Interest Research Group 
          California Public Utilities Commission
          Carville Sierra, Inc., Grass Valley 
          Circle of Life, Oakland
          City and County of San Francisco
          City of Aliso Valley 
          City of Fresno Councilmember Henry T. Perea
          City of Irvine 
          City of San Diego Council Member Donna Frye
          City of San Jose Council Member Linda Le Zotte
          City of Santa Cruz
          City of Sebastopol 
          City of Thousand Oaks
          Clarum Homes, Palo Alto
          Clean Power Campaign
          Coalition for Clean Air
          Community Environmental Council, San Barbara
          Cooperative Community Energy, San Rafael
          East Bay Municipal Utility District
          Energy Independence Now Coalition, Santa Barbara
          Energy Efficiency Solar Electric Solutions, Pomona
          Environment California, Los Angeles
          Fresno County Green Party
          Global Green USA


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          Gray Panthers
          Green Lease, Inc., San Clemente
          Green Energy Network
          Industrial Environmental Association, San Diego
          Intu Vision, Cardiff by the Sea
          Iota Technology Inc., San Jose
          KYOCERA International, Inc., San Diego
          Marin County Board of Supervisors 
          Merced/Mariposa County Asthma Coalition
          National Wildlife Federation
          Next Generation, Oakland 
          New Vision Technologies, San Clemente
                                                               Northern California Solar Energy Association, Berkeley 
          Our Children's Earth, San Francisco
          Pacific Environment, San Francisco
          Physicians for Social Responsibility, Los Angeles
          Planning and Conservation League
          Power Light Corporation, Berkeley 
          Public Citizen, Oakland
          Rainforest Action Network, San Francisco
          Real Goods, Hopland
          Redwood Rubber, Corte Madera
          Relational Culture Institute, Fresno
          Sierra Club California 
          Solar Hydrogen Company, La Mesa
          Solar Integrated Technologies, Los Angeles 
          Solar Works, Sebastopol 
          South Coast Air Quality Management District
          Stop Waste.Org, San Leandro 
          Sun Power & Geothermal Energy, San Rafael
          The Better World Group, Burbank
          Union of Concerned Scientists, Berkeley 
          Vote Solar Initiative, San Francisco
          Women for: Orange County, Irvine
          Working Assets, San Francisco
          Associated Builders and Contractors of California
          California Chamber of Commerce
          Pacific Gas and Electric Company
          State Building and Construction Trades Council
          The Utility Reform Network, San Francisco


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           Analysis Prepared by  :    Hugh Bower / H. & C.D. / (916) 319-2085