BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:   April 11, 2011

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
           AB 1303 (Williams) - As Proposed to be Amended:  April 11, 2011
           
          SUBJECT  :   Energy: public goods charge.

           SUMMARY  :   Extends the sunset date from 2012 to 2020 on the 
          Public Goods Charge (PGC) for public interest energy activities 
          and the programs funded by the Renewable Resources Trust Fund 
          (RRTF).

           EXISTING LAW  :

          1)States the California Public Utilities Commission (PUC) has 
            regulatory authority over public
            utilities, including electrical corporations.

          2)Requires that specified moneys collected between January 1, 
            2007, to January 1,
            2012, from the electrical corporations for public interest 
            research, development, and demonstration, and deposited in the 
            Public Interest Research, Development, and Demonstration Fund 
            be used for the purposes of the Public Interest Research, 
            Development and Demonstration Program.

          3)Requires the PUC to order the three largest electrical 
            corporations in the state to identify and charges a separate 
            electrical rate component to fund energy efficiency, renewable 
            energy, and research, development and demonstration programs.

          4)Requires that 20% of the funds collected pursuant to the 
            renewable energy PGC be used for programs that are designed to 
            achieve fully competitive and self-sustaining, existing 
            in-state renewable electricity generation facilities, and to 
            secure for the state the environmental, economic, and 
            reliability benefits that continued operation of those 
            facilities will provide during the 2007-2011 business cycle.

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   According to the author, California is an 
          environmental policy leader. The PGC is key to our leadership as 
          it provides for innovation and renewables.  The programs funded 
          by the Renewable Resources Trust Fund (RRTF) and Public Interest 
          Energy Research (PIER) are key to meeting our state's energy 
          goals and needs.  





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          However, the author states that PIER and RRTF need to be 
          reevaluated. "We must ensure that those who benefit from the 
          funds are actually helping pay into the fund, place increased 
          emphasis in deployment of ready technologies that can also 
          increase jobs, while remaining a leader in environmental policy 
          and ensuring ratepayer funds are being maximized".  

           1)Background  :  Historically, the three primary investor-owned 
            utilities (IOUs) were completely
          regulated vertical monopolies; on the wholesale and retail 
          level.  The utilities had an obligation to serve every customer 
          who requested service.  In return, the PUC allowed the utilities 
          to charge full recovery for all costs plus a reasonable rate of 
          return for all costs incurred to fulfill their obligation.  
          Because the IOUs had no competition, the PUC authorized the 
          utilities to invest in research, development and demonstration 
          and recover those costs in rates also.  

          AB 1890 (Brulte), Chapter 854, Statutes of 1996, deregulated the 
          California electricity industry.  When AB 1890 was being debated 
          to deregulate the California electricity industry, there was 
          concern that under a perfectly competitive market structure the 
          utilities would not have incentive to invest in research, unless 
          the research resulted in technological breakthroughs.  If the 
          research resulted in success, there was concern that the 
          utility-funded research may remain proprietary, provide the 
          utility a competitive advantage, and would not benefit all 
          California ratepayers.  On the other hand, if a utility needed 
          to compete for customers it might choose to keep its costs as 
          low as possible and not take the risk of investing in research.  
          To ensure research continued to be funded to the benefit of the 
          "public interest," AB 1890 required ratepayers to fund a variety 
          of system reliability, in-state benefit, and low-income customer 
          programs at specified levels from 1998 through 2001.  This 
          funding was intended to ensure that these "public goods" 
          programs continued in the restructured electric industry.

          SB 90 (Sher), Chapter 905, Statutes of 1997, created the 
          Renewable Resources Trust Fund (RRTF) and directed the PUC to 
          order the IOUs to collect specified amounts to fund each account 
          in the RRTF through 2002.  For the Public Interest Energy 
          Research program (PIER), SB 90 required the California Energy 
          Commission (CEC) to designate an independent panel of experts to 
          prepare a report on its programmatic recommendations.  For 
          in-state Renewable RD&D, SB 90 required the CEC to report to the 
          Legislature a description of the allocation of funds, and the 
          need for the reallocation of money. 





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          SB 1194 (Sher), Chapter 1050, Statutes of 2000, extended the 
          collection of a public goods charge from ratepayers until 2012; 
          however, it precluded moneys from being expended between January 
          1, 2007, and January 1, 2012, without further legislative 
          action.  For the PIER and Renewable RD&D programs, the CEC was 
          directed to provide an investment plan to the Legislature that 
          addressed the application of moneys to be collected between 
          January 1, 2007, and January 1, 2012.  The PIER and Renewable 
          RD&D reports were provided to the Legislature and subsequently, 
          SB 1250 (Perata) Chapter 512, Statutes of 2006, extended the 
          continuation of funding but amended the programs focus.

          The electricity PGC funds three primary programs: 1) Public 
          Interest Energy Research (PIER)--$62.5 million annually, 
          administered by the CEC; 2) Renewable Energy Program--$65.5 
          million annually, administered by CEC; and 3) Energy 
          Efficiency--$228 million annually, retained by IOUs with CPUC 
          oversight.

           2)PIER  :  This bill seeks to extend the sunset date for the PIER 
            program from 2011 to 2020. 
          The utilities collect at least $62.5 million per year for the 
          CEC to administer the PIER program.  SB 1250 requires PIER to 
          focus on: 1) advanced electricity generation including systems 
          that generate a dual use from electricity; 2) climate change and 
          the environment; 3) energy efficiency and demand-response 
          strategies that serve to reduce customer demand; 4) renewable 
          energy, and; 5) transmission and distribution of power.  An 
          additional focus includes transportation-related research.  

          Current law permits the CEC special exemptions from state 
          contracting guidelines for the PIER program and only requires 
          the CEC to provide the Joint Legislative Budget Committee a 
          60-day notice of its intent to take a proposed action.  The CEC 
          claims that the PIER is unique and standard state processes and 
          contracting rules are not appropriate. This bill would retain 
          this liberty for the electric utility PIER portion.  According 
          to the CEC, when the PIER program was created, the CEC worked 
          with the Department of General Services, the state's primary 
          contracting and procurement agency, to work out an agreement and 
          impose parameters that would facilitate and encourage innovative 
          and promising PIER proposals, while ensuring state contracting 
          guidelines and accountability measures were maintained.  

          The CEC projects the IOUs will collect $69.7 million in 2010-11. 
           The funds are annually appropriated, which means the 
          Legislature reviews the department's spending priorities every 





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          year during budget hearings.  To date, PIER has funded nearly 
          $700 million for projects that range from building and 
          industrial efficiencies, to environmentally preferred advanced 
          generation.  

          The PIER investment plan is required to include criteria that 
          will be used to determine whether a project provides public 
          benefits to California that are not adequately provided by 
          competitive and regulated markets. The original PIER investment 
          plan identified policy goals; however, it did not include useful 
          criteria to determine public benefits derived by previous 
          expenditures of PIER funds.  

          Section 25620.9 of the Public Resources Code directed the CEC to 
          designate a panel of independent experts with special expertise 
          in PIER projects to conduct a comprehensive one-time evaluation 
          of the program.  The evaluation was supposed to include a review 
          of the public value, and both monetary and nonmonetary benefits 
          aimed at assisting the Legislature in determining how to 
          proceed.  According to the PIER Independent Review Panel Final 
          Report dated June 2005, "? there is no clearly articulated, 
          integrated, agreed upon PIER Strategic Plan that states overall 
          goals, sets specific objectives, establishes priorities, and 
          describes a path forward for meeting California's future energy 
          needs."  

          To try to find consensus for a PIER Strategic Plan, in 2007, the 
          CEC formed the PIER Advisory Board (Board) to provide strategic 
          guidance.  The Board consists of representatives from the PUC, 
          consumer organizations, environmental organizations, the IOUs, 
          and six member of the Legislature or their representatives. The 
          Advisory Board met in 2008 and 2010, and in 2011.  The CEC 
          presented its past expenditures and benefits and elicited advice 
          and guidance from the Board on future expenditures.  The advice 
          was provided and it is unclear whether the CEC was able to 
          elicit useful guidance from the Board.

           3)PIER benefits  :  According to the CEC, the PIER program has a 
            successful track record of\
          delivering benefits to California's electricity ratepayers.  New 
          products have been developed and commercialized.  Businesses and 
          consumers can now benefit from wireless lighting controls for 
          cost-effective building retrofits; improved water heaters; 
          wireless heating, ventilation and air-conditioning thermostats; 
          improved quality light emitting diodes (LED) fixtures; 
          specialized controls for energy intensive data centers, and 
          radiant cooling designed for hot and dry climates.  






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          Further, the CEC states that five PIER funded research programs 
          has been incorporated in recent building and appliance 
          efficiency standards.  It is estimated that these five measures 
          will save $1 billion a year when fully implemented.  The bulk of 
          these savings result from television standards and standards for 
          external power supplies - powering devices like cell phones.

          The CEC states that PIER helps to transition away from fossil 
          fuels towards renewable sources.  For example, a dozen 
          communities from Humboldt County to San Diego are showcasing 
          renewable demonstrations.  The projects integrate up to 100 
          percent indigenous renewable resources, along with storage, 
          electric vehicles and demand response.  Each project is testing 
          various technologies and integration strategies to meet unique 
          customer needs, at the lowest cost, without compromised 
          reliability.  These solutions allow more renewables that are 
          closer to population centers, alleviating new transmission.  

           4)PIER evaluation  :  In August 2010, Senator Alex Padilla wrote a 
            letter to the Legislative
          Analyst Office (LAO) to request that it conduct an independent 
          evaluation of the PIER program to determine if it is operating 
          successfully, if the program should be reauthorized and, if so, 
          if modifications are warranted.  Pursuant to this request, in 
          January 2011, the LAO evaluated whether there should be a 
          continued state role for PIER, questioned whether the focus is 
          still appropriate, and if appropriate, questioned whether the 
          current process for allocating funds via the CEC is the optimal 
          to achieve tangible ratepayer benefits.  The LAO concluded that 
          the CEC has not demonstrated that there had been a substantial 
          payoff from the state's investment.  The LOA supported its 
          findings by noting that due to the various energy-related 
          mandates and fiscal penalties if mandates are not met, the IOUs 
          now have a much greater incentive to invest in research.  The 
          LAO recommended that any legislation to reauthorize a 
          state-supported research program sunset the program after a 
          determined period of time, perhaps five years, and provide for a 
          periodic evaluation of the results of the research program. 

          The LAO recommended the Legislature consider how much 
          flexibility and control to give to the IOUs to make research 
          investment decisions and at what level of governmental 
          involvement in the process is deemed appropriate.  Three options 
          were presented: 1) continue the PIER program under the CEC with 
          a tighter focus; 2) allow IOU rate recovery of public interest 
          research; and, 3) create a public-private partnership for 
          electricity research.






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           5)Renewable RD&D  :  The legislative goals of Renewable RD&D 
            program have been to
          increase the amount of electricity generated from eligible 
          renewable energy resources per year.  In addition, current 
          statute requires the Renewable RD&D program to optimize public 
          investment and ensure that the most cost-effective and efficient 
          investments in renewable resources are vigorously pursued.  

           6)RRTF  : This bill seeks to extend the funding for the programs 
            funded by the Renewable
          Resources Trust Fund (RRTF).  Under current law the Renewable 
          Resources Trust Fund program is divided into three purposes with 
          20% of funds allocated to the Existing Renewables program; 79% 
          to the Emerging Renewables Program; and 1% to Consumer 
          Education.  The CEC also funds administrative overhead 
          associated with its costs related to the Renewables Portfolio 
          Standard Program.  

                a.     Existing Renewables Facilities Program  : The 
                 legislative goals for this program is to
               achieve fully competitive and self-sustaining existing 
               in-state renewable electricity generation facilities and to 
               secure for the state, the environmental, economic, and 
               reliability benefits that continued operation of those 
               facilities will provide.  The statute mandates that 20% of 
               the funds be allocated to this program or $13.1 million 
               annually.  This program provides production-based 
               incentives to biomass, solar thermal, and wind facilities 
               that began commercial operation on or before September 26, 
               1996.  The incentive rate is paid on a cent-per-kWh basis 
               and is calculated as the difference between the facility's 
               contract price and its market price, up to a predetermined 
               cap.  

               This resulted in over 600 MW of biomass facilities 
               (primarily in PG&E territory) and 400 MW of solar thermal 
               (in Edison territory) receiving $16.5 million in fiscal 
               year 2009-10 for 35 plants which supplemented contracts 
               that the generators have with the IOUs.  

                b.     Emerging Renewables Program  : The legislative goals 
                 of this program are to foster the
               development of emerging renewable technologies and to use 
               funds for a "multi-year, consumer-based program to foster 
               the development of emerging renewable technologies in 
               distributed applications" using "monetary rebates, 
               buydowns, or equivalent incentives" to offset the costs of 
               installing renewable generation on the customer's side of 





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               the meter.  According to statute, 79% of funds are 
               allocated to this program which would be approximately $51 
               million annually. The Legislature later directed the CEC to 
               also fund the New Solar Homes Partnership (NSHP) from this 
               program.  

               Although statutory authority for technology support appears 
               broad, the statute does specifically call out small-scale 
               wind and fuel cells.  However, the CEC has only been 
               funding wind systems due to lack of demand for small-scale 
               fuel cells.  In the 2009-10 fiscal year, the CEC paid $1.6 
               million for 87 projects totaling 1,534 kilowatts, most of 
               which were wind.  As of June 30, 2010, there were 
               reservations for 1,344 kilowatts of projects encumbering 
               $3.1 million.

               On March 4, 2011 the CEC suspended the program when it 
               discovered that the incentive payments were covering almost 
               all and possibly more than the total costs of the projects 
               using some technologies.  During the suspension, the CEC 
               will review its current Emerging Program Guidelines and 
               adopt necessary guidelines changes to address deficiencies 
               with the program requirements.  The suspension will remain 
               in effect until further notice.  The CEC anticipates that 
               it will take 60 to 120 days to review the program 
               guidelines and adopt necessary changes.

                c.     New Solar Homes Partnership  : The New Solar Homes 
                 Partnership (NSHP) is part of
               the comprehensive statewide solar program - the California 
               Solar Initiative (CSI) which has three goals: 1) to install 
               3,000 megawatts of distributed solar electric capacity in 
               California by the end of 2016; 2) to establish a 
               self-sufficient solar industry in which solar energy 
               systems are a viable mainstream option in 10 years; and, 3) 
               to place solar energy systems on 50 percent of new homes in 
               13 years.  The NSHP seeks to achieve 400 MW of installed 
               solar electric capacity in California by the end of 2016.  

               As of July 2010, a total of 27 MW of solar had been 
               installed on new homes which equates to 6.7 percent of 
               goal.  For the 2009-10 fiscal year, $12.7 million in 
               rebates were paid for 6,396 PV systems totaling 15,374 
               kilowatts.  

               The CEC and PUC are each responsible for separate elements 
               of the CSI.  The CEC administers the NSHP and the PUC 
               administers the program for existing residential, 





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               governmental and commercial installations.  Both agencies 
               rely on the state's IOUs to collect funds and oversee the 
               program for their respective service areas.

               In 2007, the Legislature ordered the CEC to use the RRTF to 
               fund this program.  The funds are collected by the IOUs, 
               transferred to the CEC, and then disbursed back to the IOUs 
               and consumers for incentive payments.  Funds for the PUC 
               administered components are collected by the IOUs and 
               remain with the IOUs until the incentive payments are made 
               to consumers.  

               The NSHP program provides two incentives structures, one 
               for conventional or market-rate housing and another for 
               qualified affordable housing projects.

               d).  Consumer Education  :  The legislative intent for this 
               program is to promote renewable energy and provide 
               information on renewable energy technologies, including 
               emerging renewable technologies, and to help develop a 
               consumer market for renewable energy and for small-scale 
               emerging renewable energy technologies.  According to the 
               CEC, since 1999 the Consumer Education Program has spent or 
               encumbered approximately $18.6 million to support 3 public 
               awareness campaigns funded through contracts; 21 grant 
               projects awarded for renewable energy information and 
               outreach activities; the development of an electronic 
               tracking system, the Western Renewable Energy Generation 
               Information System (WREGIS), to address long-term Renewable 
               Portfolio Standard (RPS) tracking needs; and other consumer 
               education activities promoting renewable energy.  

           7)A clean energy economy  :  The California Apollo Alliance 
            released a report entitled "The
          California Apollo Program: Creating and Keeping Clean Energy 
          Jobs in California".  This report offers a comprehensive 
          strategy for building the state's economy and creating jobs 
          through the continued expansion of California's clean energy 
          economy.  Further, the report notes a series of recommendations 
          for how the state can create and maintain clean energy jobs in 
          California: 1) create jobs by transforming the way California 
          generates and uses energy; 2) create jobs by maintaining 
          California's global leadership in the clean energy economy; 3) 
          create jobs by making it (the technology) in California, by 
          California's, and 4) create economic prosperity for all and tap 
          the skills and productivity of California's workforce.  

           8)Related legislation  :  This bill is substantially similar to AB 





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            723 (Bradford) which aims to
          extend the sunset date for the electricity PGC from 2011 to 
          2016.

           9)Proposed amendments  : Since the author intends to reevaluate 
            the programs funded by the
          PIER and RRTF programs,  this committee may wish to amend the 
          bill to strike the reference to Public Utilities Code Section 
          399.8  .

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Biomass Energy Alliance (CBEA) (with amendments)

           Opposition 
           
          California Manufacturers and Technology Association (CMTA)
           
          Analysis Prepared by  :    Gina Adams / DaVina Flemings / U. & C. 
          / (916) 319-2083