BILL ANALYSIS                                                                                                                                                                                                              1
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                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

           -  Blumenfield                         Hearing Date:  June 29,  
          2010                  A
          As Amended:         June 17, 2010                 FISCAL       B

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                                      DESCRIPTION
           
           Current law  requires the Department of General Services (DGS) to  
          identify state buildings where it is feasible to produce onsite  
          electrical generation or reduce the level of peak demand  
          electricity consumption using alternative energy, storage  
          technologies, or cogeneration.

           Current Executive Order  requires that state agencies,  
          departments, and other entities under the direct executive  
          authority of the Governor cooperate in taking measures to reduce  
          grid-based energy purchases for state-owned buildings by 20% by  
          2015, through cost-effective efficiency measures and distributed  
          generation technologies.

           Current law  requires investor-owned and publicly owned utilities  
          (IOUs and POUs) to develop a standard tariff (aka feed-in-tariff  
          or FIT) for all retail customers to compensate those customers  
          for excess renewable energy produced up to a maximum of 3  
          megawatts (MW). Statewide participation is capped at 1,500 MW  
          which is split evenly between the territories of the large IOUs  
          and POUs and then proportionally between the utilities.  The  
          tariff price is based on the market price referent plus  
          renewable and other attributes.

           This bill  requires a state agency participating in a FIT to  
          consider the total annual amount of kilowatt hours exported to  
          the grid in determining whether the state agency has achieved  
          the policy goals and objectives established by law and executive  
          order.












           Current law  establishes the California Solar Initiative (CSI), a  
          $3.3 billion program to subsidize the installation of  
          photovoltaic (PV) systems for customers of the state's IOUs and  
          POUs and caps the incentives awarded per customer to  
          installations sized at 1 MW.

           This bill  expands CSI eligibility for any state agency for  
          incentive payments for facilities sized up to 5 MW with a cap of  
          26 MW.


                                      BACKGROUND
           
          In 2001, at the height of the energy crisis the Legislature  
          directed the DGS to identify and retrofit state buildings to  
          reduce energy consumption or produce its own electrical  
          generation. (ABX1 29, Kehoe, Chapter 8, Statutes of 2001-02 1st  
          Ex. Session)

          In 2004 the Governor issued a Green Building Executive Order  
          (S-20-04) directing state agencies to implement a variety of  
          actions to reduce electricity usage in state buildings by 20  
          percent by 2015. These actions include the retro-commissioning  
          of existing state buildings to ensure that energy intensive  
          systems are operating optimally and the implementation of  
          cost-effective retrofits to achieve even higher energy savings.   
          The order also directed agencies to reduce grid-based energy  
          usage in its buildings by 20 percent by 2015.  The DGS, as the  
          state's real estate builder, planner, and manager, is  
          spearheading the effort in partnership with the Green Action  
          Team, an inter-agency group chaired by the Secretary of the  
          State and Consumer Services Agency.

          Solar Generation on State Buildings - California state agencies  
          are using on-site renewable energy at a growing number of  
          facilities through the use of power purchase agreements (PPAs).  
          Under these public-private partnerships, solar service providers  
          finance, build and operate the systems, while the customers pay  
          only for the electricity at prices equal to, or less than,  
          utility tariff rates.  The PPA receives CSI rebates and federal  
          tax credits of 30%.

          According to the DGS Renewable Energy Directory, 46 state  










          buildings have installed 13 MW of solar generation ranging in  
          size from 5 kilowatts to 1.6 MW.  More than 8 MW is in the  
          planning stages at 17 state sites.

          California Solar Initiative (CSI) - Effective in 2007, the CSI  
          calls for the installation of 3,000 megawatts (MW) of new,  
          solar-produced electricity by 2016. Targeted expenditures under  
          the CSI, funded by ratepayers, are $3.3 billion over ten years,  
          distributed among three distinct program components: IOUs,  
          $2.167 million/1940 MW; New Solar Homes Partnership, $400  
          million/360 MW; and POUs $784 million/700 MW.

          California now has over 736 MW of solar PV in the IOU  
          territories at over 43,000 residential, commercial and  
          governmental sites.  This includes installed generation and  
          pending applications.  The POUs have installed 26 MW of  
          generation at 7,712 sites and the NHSP reports 7.8 MW of solar  
          PV at 3,002 sites.  

          All CSI programs combined, California has approximately  
          installed 770 MW of solar generation on the customer's side of  
          the meter - 27% of goal.


                                       COMMENTS
           
              1)   Author's Purpose  .  State government facilities are  
               required to reduce their grid based electricity purchases  
               by 20% by 2017 and greenhouse gas (GHG) emissions to 1990  
               levels by 2020 under legislative and executive directives.  
               While reducing consumption is a key strategy, energy  
               efficiency in and of itself will not be sufficient to meet  
               these reduction goals. 

               Increasing use of renewable energy generation is among the  
               accepted and encouraged practices to contribute to achieve  
               these reductions. However, many state agencies do not have  
               the necessary funding to implement renewable energy  
               generating technologies.  The state has successfully  
               employed third party financing through a power purchase  
               agreement at no cost to the state, but is limited in the  
               size of the renewable energy generating system implemented  
               under this public-private partnership, even if the state  
               host facility has a larger demand and energy usage profile.  










                

               Current law limits the state in maximizing renewable  
               electricity generation potential at existing state  
               facilities that are large consumers of electricity and have  
               sufficient real estate for large solar photovoltaic energy  
               generating systems.  Third party financers are willing to  
               finance solar PV systems only to the extent that there are  
               available state solar incentives.  In this case, the limit  
               is 1 megawatt, resulting in underserved load that is not  
               conducive to achieving the reduction goals.  

              2)   State's Solar Plans  .  The DGS wants to utilize the FIT  
               previously authorized by the Legislature to increase the  
               amount of solar generation at state facilities.  They note  
               that some properties such as prisons have very high  
               electrical load and a great deal of roof and ground space -  
               enough to accommodate the significant footprint of large  
               solar arrays of up to 5 MW.  

               Recent PPAs secured by the state have reduced electricity  
               costs for those participating facilities by 20% to 40% over  
               traditional electric service.  The solar installations are  
               generally less than 1 MW on an individual basis allowing  
               the solar contractor to secure a rebate for the full size  
               of the installation.  The DGS reports however that the  
               state cannot secure a PPA for these large installations  
               without additional incentive payments from the CSI program  
               and so they are proposing to allow the state to receive  
               rebates for installations sized up to 5MW.

               However, the DGS bases this report on anecdotal information  
               and has not attempted to take a large project out to bid.   
               Although a larger project may receive a proportionally  
               smaller rebate due to the 1 MW CSI cap, that is not a legal  
               barrier to the agreement.  The inference is that the  
               project would not produce enough savings to the state in  
               its electric rates without the CSI rebate up to 5 MW.   
               Although the PPA can realize a savings as high as 40%,  
               there appears to be enough room in the savings to  
               accommodate a proportional reduction in the CSI rebate.   
               Additionally, the cost of solar has come down significantly  
               in the past few years and as much as 50% in the last year  
               alone for installations in the range of 5 MW. 











              3)   Ratepayer Impact - Inequity  .  This bill proposes that  
               state agencies be given a special preference under the CSI  
               and increase rebate eligibility up to 5 MW rather than the  
               current cap of 1 MW.  The author reports that this inequity  
               is justified because taxpayers would benefit from the  
               reduced electrical rates as a result of the project.   
               However the CPUC writes in opposition to the bill noting  
               that the current program is "customer neutral and does not  
               include set asides for specific customer classes."  They  
               opine that if the state is permitted to go to 5MW then all  
               other customers should be as well.

               The CSI program was not funded nor were the authorized  
               facilities sized to a level that will serve all customers'  
               needs.  The program was provided with a limited amount of  
               funding, for a limited time, with a limit on capacity to  
               jump-start the solar industry and start to introduce  
               customers to self-generation.

               The CPUC reports that the CSI program has seen an  
               unprecedented level of demand in March and April of this  
               year with a total of 146 MW of reservations.  The opine  
               that "given the current demand level, there is reason to be  
               extremely concerned that introducing 5MW projects at this  
               stage in the program will allow a handful of large MW-sized  
               projects to 'hold a reservation, and perhaps no ultimately  
               get developed.  If so, many subsequently smaller projects  
               could be forced into lower-step incentive reservations."

              4)   Author's Amendments  .  The author intends to amend the  
               bill to strike page 4, lines 17 to 22.

              5)   Technical Amendments  .  The definition of state agency in  
               this measure should be consistent with current law that  
               requires DGS to identify and achieve energy retrofits and  
               self-generation for state under Government Code Section  
               14710 et seq.
           

                                   ASSEMBLY VOTES

           Assembly Utilities & Commerce      10-0
          Assembly Natural Resources           8-0










          Assembly Appropriations            17-0
          Assembly Floor                     73-0


                                       POSITIONS
           
           Support:
          
          None on file

           Oppose:
           
          California Public Utilities Commission (unless amended)


          Kellie Smith 
          AB 2724   Analysis
          Hearing Date:  June 29, 2010