BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1
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           (Without Reference to File)
          SB 1 (Murray)
          As Amended  June 29, 2006
          Majority vote

           SENATE VOTE  :   30-5
           HOUSING                         APPROPRIATIONS                  
                                (vote not relevant)                         
                     (vote not relevant)

           UTILITIES & COMMERCE           6-1                              
          |Ayes:|Levine, Blakeslee, Baca,  |     |                          |
          |     |Cohn,                     |     |                          |
          |     |De La Torre, Keene        |     |                          |
          |     |                          |     |                          |
          |Nays:|Bogh                      |     |                          |
          |     |                          |     |                          |

           SUMMARY  :  Makes statutory changes necessary to expand the scope  
          of a California Solar Initiative (CSI), a solar program  
          implemented by the California Public Utilities Commission (PUC),  
          to apply to all electricity utilities; imposes specific  
          requirements on PUC in implementing CSI; and, requires  
          developers to provide the option of solar panels on new homes.   
          Specifically,  this bill  :   

          1)Requires PUC in implementing CSI to: 

             a)   Authorize the award of monetary incentives for eligible  
               solar energy systems that must decline by an average of 7%  
               per year until the rebate is zero in 2017;

             b)   Only award monetary incentives for up to the first one  
               megawatt (MW) of electricity generated by an eligible solar  
               energy system; 

             c)   Adopt a performance based incentive (PBI) program by  
               2010, such that 100% of incentives for installations of  


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               solar energy systems that are larger than 100 kilowatts  
               (kW) are performance based incentives (PBI) and that at  
               least 50% of the incentives for installations of solar  
               energy systems that are between 30 kW and 100 kW are PBI;

             d)   Require reasonable and cost effective energy efficiency  
               improvements in existing buildings as a condition of  
               providing incentives for the installation of solar energy  

             e)   Require time-variant pricing for all ratepayers with a  
               solar energy system; 

             f)   Not impose any charge on natural gas ratepayers to fund  
               CSI; and,

             g)   Impose any charge necessary to fund CSI on all  
               electricity ratepayers expect for specifically defined low  
               income ratepayers.

          1)Allows the PUC to allocating no more that $50 million for  
            solar research, development, and demonstration projects. 

          2)Provides that the PUC can spend no more than $100,800,000 on  
            solar thermal and solar hot water projects. 

          3)Requires PUC to submit an annual report to the Legislature on  
            the success of CSI which includes specific information on  
            funds allocated for solar thermal projects and for research  
            and development. 

          4)Requires the California Energy Commission (CEC) to develop  
            eligibility criteria for solar energy systems that qualify for  
            the rebates, including:

             a)   The solar energy generated by the system must be used to  
               offset part or all of the customer's electricity demand;

             b)   The solar energy system must have at least a 10-year  
               manufacturer's warranty; and,

             c)   The solar energy system must be located on the same  
               premises of the end-use customer where that customer's  
               electricity demand is located. 


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

          6)Requires CEC to:

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

             b)   Conduct random audits of installed solar energy systems  
               to evaluate their operational performance; 

             c)   Evaluate the costs and benefits of having an increased  
               number of solar energy systems as part of the electrical  
               systems with respect to the solar energy systems' impact on  
               distribution, transmission, and the supply of electricity;  

             d)   Initiate a public proceeding to determine under what  
               conditions a solar energy system shall be required on new  

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

          8)Caps the total cost of CSI statewide at $3,350,800,000. 

          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, 2011.

          10)Requires the State Contractors Licensing Board to review and,  
            if needed, revise its licensing classifications to ensure that  
            contractors authorized to install solar energy systems have  
            the requisite qualifications.

           EXISTING LAW  :

          1)Specifies the development 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 is collected on the  
            basis of usage.

          2)Establishes a net metering program whereby residential and  


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            other customers can receive credits to their monthly  
            electricity bills for up to 12 months for producing and  
            placing electricity on the grid via photovoltaic or other  
            renewable generation as specified in statute.  Larger net  
            metering programs require the customer to calculate how much  
            electricity has been placed and taken off the grid via  
            customer generation in order to calculate the appropriate  
            generation charge to credit and collect public goods charges.

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

          4)Establishes tax exemptions for property taxes, 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 investor-owned utilities (IOUs) to increase their  
            existing level of renewable resources by 1% of sales per year  
            until a portfolio of 20% renewable resources is achieved by no  
            later than 2017.  PUC regulations have accelerated this goal  
            to 20% by 2010.  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  :  In December 2005, PUC approved a decision that  
          created CSI as a $3.2 billion solar program with the goal of  
          installing 3,000 MW of solar power by 2017.  CSI was similar to  
          the Million Solar Roofs Initiative (MSRI) proposed in an earlier  
          version of SB 1.  Since the PUC jurisdiction is limited to IOUs  
          and since certain aspects of the MSRI in SB 1 required specific  
          statutory changes, CSI differs from MSRI in several key aspects:  

          |         |    Million Solar Roofs    |     California Solar      |
          |         |        Initiative         |        Initiative         |
          |         |(August 18, 2005 version)  |                           |


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          |Costs    |Caps total IOU costs at    |Total funding for CSI will |
          |         |$1.8 billion. Anticipates  |be $3.2 billion            |
          |         |that municipal utilities   |with no municipal utility  |
          |         |will contribute $700       |contribution. There is no  |
          |         |million for a total cost   |hard cost cap.             |
          |         |of $2.5 billion.           |                           |
          |Builder's|Builders of new home       |No builder's mandate. This |
          | Mandate |projects of 50 or more     |would require legislation. |
          |         |homes, for which           |                           |
          |         |applications for tentative |                           |
          |         |maps are completed after   |                           |
          |         |Jan. 1 2010, shall offer   |                           |
          |         |solar systems to all       |                           |
          |         |buyers.                    |                           |
          |Funding  |Orders PUC to open a       |Costs would be paid by     |
          |         |proceeding to determine    |electricity and natural    |
          |         |how to fund the solar      |gas customers.             |
          |         |program. PUC then has      |     Contains exemption   |
          |         |authority to increase      |    for CARE customers but |
          |         |electricity rates to fund  |    not FERA.              |
          |         |the program.               |    Will exempt customers |
          |         |      The rate increase   |    whose use is below     |
          |         |     would apply to all    |    130% of baseline.      |
          |         |     customers including   |    Legislation would be   |
          |         |     those that use less   |    needed to change the   |
          |         |     than 130% of          |rate structure.            |
          |         |     baseline.             |                           |
          |         |       The rate increase  |                           |
          |         |     would not apply to    |                           |
          |         |     CARE customers        |                           |
          |         |     (income below 180% of |                           |
          |         |     poverty level) or     |                           |
          |         |     FERA customers        |                           |
          |         |     (families under 220%  |                           |
          |         |     of poverty level).    |                           |
          |Rebate   |Rebates starting at $2.80  | Declining rebate         |
          |Mechanism|per watt in 2007. ($5,600  |  programs similar to      |
          |         |per average residential    |  MSRI.                    |
          |         |unit) and decline by 7%    |  Will look into idea of  |
          |         |per year until the rebate  |  increased rebates for    |
          |         |is $0 in 2015.             |  new construction energy  |


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          |         |                           |efficient homes.           |
          |Performan|Requires that by 2010 at   | Agencies will work on    |
          |ce Based |least 50% of all rebate    |  developing PBI.          |
          |Incentive|money be used for          |  Incentives may be        |
          |s (PBI)  |performance based          |  limited only to largest  |
          |         |incentives.                |  customers.               |
          |         |                           |  Appears that PBI will   |
          |         |                           |  only apply to retrofits  |
          |         |                           |  and not new              |
          |         |                           |  construction.            |
          |Rebates  |At least 10% of the funds  |Sets aside 10% of funding  |
          |for      |must be set aside for      |for affordable housing.    |
          |Affordabl|affordable housing.        |                           |
          |e        |                           |                           |
          |Housing  |                           |                           |
          |Technolog|1)SB 1 only applies to     |1)Will also apply to solar |
          |ies      |  solar systems that       |  heating and cooling      |
          |Allowed  |  produce electricity.     |  systems.                 |
          |         |2)Caps size of units to no |2)  Caps the size at 5 MW. |
          |         |  larger than 1 MW.        |                           |
          |Municipal|Requires municipal         |No requirements for        |
          |         |utilities to adopt their   |municipal utility          |
          |Utilities|own solar homes program    |participation.             |
          |         |consistent with the        |Legislation would be       |
          |         |Million Solar Roofs        |needed to include          |
          |         |program.                   |municipal utility          |
          |         |                           |participation.             |
          |Net      |Raises the current cap on  |Legislation would be       |
          |Metering |net metering from 0.5% of  |needed to raise net        |
          |Cap      |total peak load to 2.5% of |metering cap.              |
          |         |total peak load in each    |                           |
          |         |IOU's service territory.   |                           |
          |Misc.    |1)Requires CEC to annually |1)No reporting             |
          |Provision|  report to the            |  requirements. Though     |
          |s        |  Legislature.             |  annual evaluations will  |
          |         |2)Requires PUC to create   |  be conducted by third    |
          |         |  time-variant pricing     |  parties.                 |
          |         |  tariffs for all          |2)PUC will require time    |
          |         |  customers.               |  variant pricing for      |


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          |         |3)Requires new             |  commercial customers.    |
          |         |  installation standards   |  Will study time variant  |
          |         |  for solar panels.        |  pricing for residential  |
          |         |                           |  customers.               |
          |         |                           |3)  No requirements for new |
          |         |                           |installation standards.    |
          |Energy   |Requires CEC to develop    |1)Requires energy          |
          |Efficienc|standards for energy       |  efficiency audits to     |
          |y        |efficiency improvements on |  receive solar incentive  |
          |         |buildings where solar      |  funding.                 |
          |         |systems are installed.     |2)  Requires new           |
          |         |                           |  construction             |
          |         |                           |  applications to          |
          |         |                           |  participate in utility's |
          |         |                           |  energy commission        |
          |         |                           |programs.                  |
          |         |                           |                           |

          Several necessary aspects of a successful statewide solar  
          program cannot be implemented through PUC action and instead  
          requires legislation.  SB 1 now addresses several of these  

          1)For solar panels to be economically feasible to the customers,  
            they must be able to sell unused power back to the utility  
            through a process know as net metering.  Current law caps the  
            amount of power that can be net metered in Pacific Gas and  
            Electric's (PG&E) and Southern California Edison's (SCE)  
            service territory to 0.5% of total peak load in the service  
            territory and in San Diego Gas and Electric's service  
            territory to 50 MW.  However, the cap will be reached in  
            PG&E's service territory this year and within the next two  
            years for SCE's service territory.  This bill raises the cap  
            to 2.5%.

          2)CSI does not apply to municipal utilities since PUC has no  
            authority to require municipal utilities to implement a solar  
            program.  Since municipal utilities represent 27% of the total  
            load served in California, a successful statewide solar  
            program must include municipal utilities.  PUC has tried to  
            address this problem by imposing a surcharge on all IOU  
            natural gas customers in the state to help fund CSI.  All  
            natural gas customers that pay the surcharge are then eligible  


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            for solar rebate programs.  Since most Californians who are  
            customers of municipal electric utilities receive natural gas  
            from the IOUs, this surcharge mechanism is a rough way of  
            capturing municipal utility customers and creating a statewide  
            solar program.  The problem is that it results in ratepayers  
            who receive both their natural gas and electricity from an IOU  
            paying the surcharge twice and ratepayers who receive their  
            electricity from a municipal utility and natural gas from an  
            IOU only paying one surcharge even though all customers would  
            be equally eligible for the same rebates.  SB 1 now corrects  
            this problem by requiring municipal utilities to implement  
            their own solar programs consistent with the goals of SB 1 and  
            eliminates the natural gas surcharge.

          3)MSRI developed in the 2005 version of SB 1 a builder's mandate  
            that required builders of new developments of 50 or more homes  
            to offer the option of installing solar energy system to all  
            buyers.  PUC could not implement this provision, but it  
            continues to be a provision of this bill. 

          CSI can be made better.  There are multiple areas where further  
          legislative action is not necessary to implement CSI but should  
          be addressed to help guarantee that CSI reaches its goals of  
          creating 3,000 MW of solar power in California and of creating a  
          self-sustaining solar market.  SB 1 now implements some of these  

          This bill requires that the rebates must decline over time and  
          shall be zero by 2017, and codifies that a portion of the  
          rebates shall be used for performance based incentives where  
          rebates are only given for power that is actually produced.   
          While PUC's CSI contains these provisions, some parties are  
          concerned that it is too easy for PUC to change these provisions  
          if prices for solar panels do not fall.  Codifying these  
          provisions will send a strong message to the solar industry that  
          they must lower their costs. 

          This bill also requires that, as a condition of receiving solar  
          rebates, building owners must make reasonable and cost-effective  
          energy efficiency improvements in their existing buildings.  CSI  
          requires new buildings to meet certain energy efficiency  
          standards but does not require existing structures to make  
          needed upgrades.  Requiring energy efficiency upgrades helps  
          maximize overall ratepayer benefits from the solar program.   
          Some parties have argued that requiring energy efficiency  


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          upgrades would increase the overall project costs of installing  
          a solar energy system and thus make it uneconomical in some  
          cases.  However, PUC has also required the IOUs to spend $2  
          billion on energy efficiency programs over the next three years,  
          and these programs can be used in conjunction with the CSI funds  
          to pay for needed energy efficiency upgrades.  

          The MSRIs also required CEC to develop design and installation  
          standards for eligible solar energy systems to ensure that  
          ratepayer money was only used to fund panels that were built and  
          installed to maximize output.  The PUC did not specifically  
          address this issue in the CSI.  SB 1 will require CEC to develop  
          these standards. 

          The MSRI contained in SB 1 capped the total amount of ratepayer  
          funds that could be used on a rebate program at $2.5 billion  
          ($1.8 billion from IOU ratepayers, $700 million from municipal  
          utilities). This cap was developed based on information provided  
          to the Legislature from the solar industry and solar advocates  
          on what was the maximum potential cost.  The cap was intended as  
          a means of signaling developers that they must lower their costs  
          over time or the program funding would end and as a means of  
          insuring that costs did not spiral out of control.  PUC states  
          that CSI will cost $3.2 billion.  SB 1 now caps the statewide  
          cost of the program at $3.2 billion. 
           Current law prohibits PUC from increasing rates for electricity  
          usage below 130%. Consequently, in implementing the CSI, PUC was  
          able to exempt low income ratepayers from the CSI surcharge, but  
          could not impose the surcharge on the below 130% of baseline  
          customers. This results in the costs of the program being  
          shifted to larger residential customers and business customers.   
          To avoid this cost shift, the committee may wish to consider  
          amending the bill to restore the prior SB 1 language that  
          required all ratepayers, excluding low income ratepayers, to  
          fund CSI. 

           Analysis Prepared by  :    Edward Randolph / U. & C. / (916)  

                                                               FN: 0015478