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

          SB 1198 -  Huff                                   Hearing Date:   
          April 20, 2010             S
          As Amended:         April 12, 2010           FISCAL       B

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                                      DESCRIPTION
           
           Current law  requires the CEC to adopt regulatory standards for  
          minimum levels of operating efficiency for appliances the use of  
          which requires a significant amount of energy or water on a  
          statewide basis. The regulations cannot result in any added  
          total costs for consumers over the designed life of the  
          regulated appliances.

           This bill  requires the CEC, when calculating the costs to  
          consumers of proposed regulations, to utilize consumer financing  
          interest rates and to calculate the costs based on the average  
          life of the regulated appliance.  These calculation standards  
          would apply to regulations effective after December 31, 2010.

           Current federal law authorizes the Federal Trade Commission to  
          require energy disclosures for certain consumer electronics,  
          including televisions, personal computers, cable or satellite  
          set-top boxes, stand-alone digital video recorder boxes, and  
          personal computer monitors and preempts state labeling  
          regulations once a rule is adopted for a specific appliance.

           This bill  preempts enactment of a CEC labeling regulation for  
          televisions until and unless the FTC adopts a labeling rule by  
          July 1, 2011.


                                      BACKGROUND
           












          Energy Efficiency - California has pursued its energy demand  
          reduction goals through two primary avenues: utility-sponsored  
          programs to reduce end-user consumption, and codes and standards  
          designed to lower the energy use of buildings and appliances. By  
          2004, these efforts had cumulatively saved more than 40,000  
          gigawatt hours (GWh) of electricity and 12,000 megawatts (MW) of  
          peak electricity, equivalent to 24 500-MW power plants. More  
          than half of the statewide savings has come from the building  
          and appliance standards, with the balance resulting from  
          programs implemented by the state's investor owned utilities  
          (IOUs) and local publicly owned utilities (POUs).  As a result  
          of these efforts California's energy use per capita has remained  
          stable for more than 30 years while the national per capita  
          average has steadily increased and is nearly double that of  
          California. 

          CEC Appliance Standards - California's Appliance Efficiency  
          Regulations were established in 1976 in response to a  
          legislative mandate to reduce California's energy consumption.  
          The regulations are updated periodically to allow consideration  
          and possible incorporation of new energy efficiency technologies  
          and methods. 

          The Appliance Efficiency Regulations include standards for both  
          federally-regulated appliances and non-federally-regulated  
          appliances.  Twenty-three categories of appliances are included  
          in the scope of these regulations which include commercial and  
          residential products including water heaters, clothes washers,  
          dishwashers, traffic signals, lighting and heath and air  
          conditioning systems.  The standards within these regulations  
          apply to appliances that are sold or offered for sale in  
          California, except those sold wholesale in California for final  
          retail sale outside the state and those designed and sold  
          exclusively for use in recreational vehicles or other mobile  
          equipment.

          Pending CEC Television Standards - The CEC has adopted energy  
          efficiency standards for new televisions offered for sale in  
          California beginning in 2011 and 2013.  Currently, statewide TV  
          energy consumption is estimated to be 6,360 million kilowatt  
          hours (kWh) per year, or roughly two percent of California's  
          gross system electricity usage.  This percentage is expected to  
          increase as the current stock (mostly analog cathode ray tubes)  











          is replaced by the newer and larger TV types. There are many  
          "large-screen" digital televisions on the market that use 500 or  
          more kilowatt-hours per year, as much energy as many new  
          refrigerators.  

          The first television standard (Tier 1) will take effect January  
          1, 2011, and reduce energy consumption by average of 33 percent.  
          The second measure (Tier 2) will take effect in 2013 and, in  
          conjunction with Tier 1, reduce energy consumption by an average  
          of 49 percent.

          Televisions sold in California starting January 1, 2011 will  
          also be required to be permanently marked with the on mode power  
          consumption in watts and list the same data in any publication  
          website, document or retail display that is used for selling the  
          product.  The regulation package specifies July 1, 2010 but the  
          CEC reports that this was a typographical error that will be  
          changed to January 1, 2011 at the Office of Administrative Law  
          (OAL). 

          The proposed regulations will generate an estimated 6,515 GWh in  
          energy savings annually after all existing stock is replaced.  
          The overall energy cost savings to consumers for California is  
          expected to be approximately $8.1 billion. The estimated total  
          value of this regulation is approximately $8.7 billion, which is  
          the sum of energy cost savings from the proposed standards and  
          savings in avoided construction cost of a $615 million natural  
          gas power plant.

          The regulation package has been adopted by the CEC but has not  
          yet been submitted to the OAL for approval.  Submission is  
          anticipated in two to four weeks.

          Pending FTC Television Labeling Requirement - The FTC's  
          Appliance Labeling Rules require energy disclosures for a  
          variety of covered products, including home appliances,  
          lighting, and plumbing products.  The Rule requires most covered  
          products to have, at the point of sale, yellow EnergyGuide  
          labels containing estimated annual operating cost information  
          based on Department of Energy (DOE) test procedures. The label  
          information must also appear in catalogs and on Internet sites  
          offering the products for sale.












          The FTC has proposed to extend the labeling rule to televisions.  
           Each television would be required to have specific information  
          consistent with EnergyGuide labels for other products including  
          annual energy costs based on a uniform electricity rate of  
          eleven cents per kWh, an on-mode usage rate of five hours per  
          day and 19 hours per day in standby mode to calculate annual  
          cost and energy consumption information.  The label would also  
          have comparative information to other televisions grouped by  
          screen size. 


                                       COMMENTS
           
              1)   Author's Intent  .  The author proposes amendments to  
               clarify the bill so that it achieves the following: 

                  a.        Suspends the CEC regulation that requires the  
                    labeling and advertising of televisions with  
                    consumption data until July 1, 2011.  At that time the  
                    CEC label requirement would be permanently suspended  
                    if the FTC has adopted its yellow EnergyGuide label  
                    requirement for televisions regardless of its  
                    effective date.  In that instance the CEC label  
                    requirement would not become operative.  If the FTC  
                    fails to act by July 1, 2011, the CEC labeling  
                    regulation would become operative.  If the FTC acted  
                    at a later date the CEC labeling regulation would be  
                    preempted by federal law.

                  b.        Supersedes the CEC's Tier 2 television  
                    efficiency regulation which takes effect on January 1,  
                    2013 and require the CEC to reopen the rulemaking to  
                    use a new calculation for the cost of a television  
                    which would include the cost of consumer financing in  
                    the cost of the regulated product.

                  c.        Apply a consumer's cost of financing an  
                    appliance in all appliance regulations adopted by the  
                    CEC after January 1, 2011.

                  d.        Strike the language regarding discount rates,  
                    payback calculation and life cycle cost estimates and  
                    average life of the product. 












              2)   Cost of the Appliance  .  The adoption of appliance  
               regulations is limited to those which the CEC determines  
               are cost-effective for consumers.  When determining that  
               value the CEC is required to consider the energy saved, the  
               impact of the efficiency regulation on the product's  
               efficacy, and the life cycle cost to the consumer of  
               complying with the standard.  

               The added total cost is obtained by comparing the cost and  
               performance of a typical model that a consumer would be  
               expected to purchase with the proposed upgraded or new  
               standard in effect, to the cost and performance of a  
               typical model that the consumer would be expected to  
               purchase without the proposed upgraded or new standard in  
               effect. In summary, a new or upgraded appliance standard  
               must not result in any added cost to the consumer over the  
               design life of the appliance.

               The author opines that the CEC is using an artificially low  
               number for the cost of the product which inflates the value  
               of the electricity savings when compared to product cost.   
               He reports that the CEC does not include the consumer's  
               cost of financing the product and since most consumers  
               "charge it" and don't pay cash this added cost should be  
               part of the calculation upon which the regulation is based.  


               However the inclusion of the consumer's cost of financing  
               the product would not appear to change the cost analysis  
               since the CEC compares the cost of the product with the  
               efficiency improvement to the cost of the product without  
               the improvement and then compares both costs to the energy  
               saved over the design life of the product.  In both cases  
               adding the financing costs to the cost of the product would  
               have the same result on both sides of the analysis by  
               increasing both costs by the same amount.

              3)   Do-Over  .  The application of the costs of consumer  
               financing to the product cost as called for by this bill is  
               directly intended to require the CEC to reopen its 2013  
               Tier 2 television regulation and apply a new cost standard.  
                The Tier 1 and Tier 2 regulations affect the same products  











               and are primarily directed at LCD and plasma televisions.   
               The Tier 2 efficiency standard is more rigorous.  The  
               efficiency standards apply to the active mode and standby  
               mode power consumption, power factor, and luminance control  
               for televisions with a screen smaller than 1,400 square  
               inches (aka 58" screen).  Larger televisions will be  
               addressed in a Phase II rulemaking at a later date.

               The Consumer Electronics Association was a strong opponent  
               of the regulations finding that the regulations were  
               "detrimental to innovation, consumers, and industry" and  
               "exaggerate the 'problem' to be solved and overestimate the  
               potential energy savings."  They further opined that "when  
               the potential energy savings from the proposed regulations  
               are more reasonably calculated, the costs to consumers  
               outweigh the benefit."

               The CEC found otherwise and adopted the regulations with  
               the support of environmental advocacy groups, electric  
               utilities and some television manufacturers.

              4)   Labeling  .  The CEC's labeling regulation or "marking  
               requirement" has two parts.  First it requires that each  
               television be permanently marked with its on mode power  
               consumption in watts.  Second it requires that  
               publications, websites, and retail displays also include  
               the consumption data.  The FTC's yellow EnergyGuide label  
               is of greater benefit to most consumers than the second CEC  
               label since it clearly states the estimated cost of  
               operating the appliance on an annual basis. 

               The intent of the bill is to prevent the television  
               manufacturers from complying with the CEC regulation.   
               Federal action by the FTC does appear likely; the  
               manufacturers don't want to comply with one regulation for  
               a year or two, suspend that requirement and implement the  
               federal standard.  Both parts of the CEC marking regulation  
               would likely be preempted if the FTC adopts its proposed  
               rule.


                                       POSITIONS
           











           Sponsor:
           
          Consumer Electronics Association

           Support:
           
          Consumer Electronics Association

           Oppose:  

          Breathe California
          Environmental Defense Fund
          Natural Resources Defense Council
          Pacific Gas & Electric Company
          Planning and Conservation League
          Union of Concerned Scientists


          Kellie Smith 
          SB 1198 Analysis
          Hearing Date:  April 20, 2010