BILL ANALYSIS                                                                                                                                                                                                    



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          SENATE THIRD READING
          SB 1 (Murray)
          As Amended August 31, 2005
          Majority vote 

           SENATE VOTE  :30-5  
           
           UTILITIES AND COMMERCE         7-0                   
          APPROPRIATIONS      13-4        
           
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          |Ayes:|Levine, Baca, Pavley, De  |Ayes:|Chu, Bass, Berg,          |
          |     |La Torre, Jerome Horton,  |     |Calderon, Karnette,       |
          |     |Montanez, Jones           |     |Klehs, Leno, Nation,      |
          |     |                          |     |Oropeza, Laird, Saldana,  |
          |     |                          |     |Yee, Mullin               |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |Nays:|Sharon Runner, Emmerson,  |
          |     |                          |     |Nakanishi, Walters        |
          |     |                          |     |                          |
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           HOUSING & COMMUNITY DEVELOPMENT     6-1                         
           
           ----------------------------------------------------------------- 
          |Ayes:|Mullin, Garcia, Baca,     |     |                          |
          |     |Hancock, Salinas, Torrico |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|La Suer                   |     |                          |
          |     |                          |     |                          |
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           SUMMARY  :  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 (MW) 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 residential system). The incentives will decline by  








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               7% per year until the rebate is zero in 2016;

             b)   The incentives can be increased by 50% for zero energy  
               homes or zero energy commercial structures; 

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

             d)   By 2010, 50% of all incentive money shall be spent on  
               performance incentives that are based on the actual output  
               of the solar energy system.

          2)Requires 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; and,

               c)     Monetary incentives from the MSRI to commercial  
                 customers shall is a "public works." 

          3)Requires that at least 10% of the funds from the MSRI be spend  
            on affordable housing.

          4)Requires the California 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 and the  
            Federal Electric Rate Assistance (FERA) program. (To be  
            eligible to participate in CARE the household income must be  
            below 175% of the federal poverty level (FPL).  To be eligible  
            for FERA the household income must be below 225% of the FPL.)

          5)Caps the total amount of money that can be collect from  
            customers of the three largest IOUs to fund the program at  








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            $1.8 billion.

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

          7)Raises the net metering cap from 0.5% to 2.5%.  

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

          9)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.

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

          11)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 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 photovoltaic (PV) or  
            other renewable sources as specified in statute.  

          3)Establishes incentive programs for PV technologies within 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.








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          4)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.

          5)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

           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.  

          This bill creates a declining rebate program that grants rebates  
          on the installation of solar energy systems starting at $2.80  
          per watt and requires that the rebates decline by 7% a year  
          until they reach $0 in 2015.  Additionally the bill requires  
          that at least 50% of the rebate money ultimately be used on  
          performance based incentives that are based on the actual output  
          of solar energy systems.  The concept behind this rebate program  
          is to provide significant sums of money in the early years of  
          the program to kick start the solar industry, but require the  
          rebate to rapidly decrease so that the industry can become self  
          sufficient and the cost of solar energy systems rapidly  
          decrease.  A similar program in Japan has resulted substantial  
          increase in solar production in the country while the price of  
          installing rooftop solar energy systems has declined  
          dramatically. 

          In California today, a typical residential PV system is between  
          2kW - 4kW in size.  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.  








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          Under the current rebate structure and the net metering program  
          (which credits consumers' electric bills for selling excess  
          electricity back to the utility) over the life of a solar energy  
          system the customer should 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 costs 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  
          investments. 

          While SB 1 caps the amount of funds that can be raised from IOU  
          ratepayers to support the MSRI at $1.8 billion over the life of  
          the program, 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 produced 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.  

          Advocates for SB 1 argue that solar power will benefit all  
          Californians because of its ability to meet peak demand.  They  
          argue that because solar power is most abundant at the times of  
          the year when the weather is hot and demand for electricity is  
          highest and consequently costliest, installing solar power will  
          ultimately lead to lower rates for all ratepayers. The solar  
          panel will replace the need to procure peaking power, which  
          generally comes from the most expensive power plants that only  
          operate at times of peak demand. 

          Today, most solar panels in California are installed to maximize  
          total electricity production (generally facing south) and not to  
          maximize production at the time of day power is needed the most.  
          A solar panel facing south will produce more total electricity  
          than any other configuration, but it will not maximize  
          electricity when the state needs it the most, at times of peak  








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          demand. 

          SB 1 now  requires at least 50% of all MSRI funds be used for  
          performance based incentives that will place a higher value on  
          production at times of peak demand and will require that all  
          solar customers are billed on a time-of-use basis. This  
          provision will create strong incentives for customers to  
          optimize their solar panels for peak load production. 

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

          Currently, this bill provides that the must-offer requirement  
          applies 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, 7 years after the MSRI is implemented and only four years  
          before the incentives will terminate.

          For a more detail discussion of this bill and more information  
          on the current rebate programs in California, other states, and  
          other counties please refer to the July 6, 2005, Assembly  
          Utilities and Commerce Committee analysis. 


           Analysis Prepared by :    Edward Randolph / U. & C. / (916)  
          319-2083
                                                                FN: 0012840