BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 35 - Padilla Hearing Date:
May 3, 2011 S
As Amended: April 26, 2011 FISCAL B
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DESCRIPTION
Current law that sunsets January1, 2012, requires the State
Energy Resources Conservation and Development Commission (CEC) to
develop, implement, and administer a program to fund public
interest energy research, development and demonstration (RD&D)
activities that, as determined by the CEC, are not adequately
provided for by competitive and regulated markets.
Current law establishes the goal of the CEC's RD&D program, known
as the Public Interest Energy Research program (PIER) as
developing, and helping bring to market, energy technologies that
provide increased environmental benefits, greater system
reliability, lower system costs, and tangible benefits to
electric utility customers.
Current law requires the CEC to give preference to
California-based entities when awarding PIER grants.
Current law authorizes CEC, if it determines that it is in the
best interest of the state, to spend PIER funds with sole course
contracts and interagency agreements and authorizes CEC to
contract with outside entities for technical, scientific and
administrative services, provide awards to any individual or
entity for planning, implementation, and administration of
projects or programs, establish multiparty agreements, and make
advance payments for subcontractors.
Current law authorizes CEC to negotiate with PIER grant
recipients for the state to collect an equitable share of rights
in any intellectual property derived as a result of PIER-funded
research.
This bill would repeal all current law establishing the PIER
program.
Current law establishes state energy goals, including a 33
percent renewable portfolio standard (RPS), developing storage
capacity for electricity, and reducing greenhouse gas emissions.
This bill would establish the California Energy Research and
Technology (CERT) program to be administered by the CEC for the
purpose of funding RD&D that may lead to technological
advancement and breakthroughs to overcome the barriers that
prevent achievement of the state's statutory energy goals.
This bill would establish the CERT Coordinating Council comprised
of state energy officials and stakeholders and require the
council to meet at least twice a year and to annually identify
the technological challenges that are the most significant
barriers to achieving the state's statutory energy goals and for
which CERT funding is most warranted, including energy storage,
integrating renewable energy into the electric grid, and
forecasting the availability of renewable energy.
This bill would require CEC to award CERT funds only for RD&D
projects that may lead to advancement on the technological
challenges identified by the CERT Coordinating Council.
This bill would require CEC to award CERT funds that results in a
portfolio of project awards that is strategically focused on
achieving the state's statutory energy goals; avoids duplication
of research funded by the California Public Utilities Commission
(CPUC), Air Resources Board (ARB), or other public agencies or
private organizations; invests in California-based entities;
equitably distributes funds to geographic regions of California;
and minimizes administration and overhead costs.
This bill would require CEC, prior to awarding any CERT funds, to
establish a process for tracking the progress and outcomes of
each funded project toward achieving the state's statutory energy
goals and to establish appropriate terms for the state to accrue
any intellectual property interest or royalties from CERT
funding.
This bill would require CEC to adopt regulations for award of
CERT funds that require recipients to demonstrate how projects
help achieve the state's statutory energy goals, that specify
intellectual property and royalty conditions, and that prohibit
conflicts of interest.
This bill would require the CEC to make an annual report to the
Legislature on the status and outcomes of CERT-funded projects,
post the report on its web site, and maintain a searchable
database of all CERT and PIER grant awards.
This bill would require CEC at an unspecified date to contract
with an independent entity to review the CERT program and would
sunset the program at an unspecified date.
Current law that sunsets January 1, 2012, requires the CPUC to
require each investor owned utility (IOU) to assess as a
ratepayer surcharge, commonly known as the Public Goods Charge
(PGC), $228 million per year for energy efficiency, $65.5 million
for renewable energy, and $62.5 million for RD&D.
This bill would repeal those provisions.
Current law requires the $62.5 million of the PGC for RD&D to be
deposited into the Public Interest Research, Development and
Demonstration Fund for the PIER program.
This bill would repeal those provisions.
Current law requires the $65.5 million of the PGC for renewable
energy to be deposited into the Renewable Resources Trust Fund
(RRTF) for the renewable energy resources program, including 79
percent of those funds for the Emerging Renewables Program, 20
percent for the Existing Renewables program, and 1 percent for
consumer education.
This bill would repeal those provisions.
BACKGROUND
The Public Goods Charge and PIER - The PGC was established by AB
1890 (Brulte, 1996), which deregulated electricity markets. The
bill directed the three large IOUs - San Diego Gas and Electric
Company, Southern California Edison Company, and Pacific Gas and
Electric Company - to collect from ratepayers as a nonbypassable
system benefits charge including $228 million per year for energy
efficiency and conservation activities, $65.5 million for
renewable energy, and $62.5 million for research, development and
demonstration, with amounts subject to annual adjustment. The
$62.5 million for research is about 18 percent of the total PGC.
AB 1890 also established the PIER program, with the PGC as its
sole source of funding, because of a concern that the IOUs would
no longer fund energy research in a deregulated competitive
market and that overall energy research by the private sector and
federal government was in decline. CEC is required to award PIER
grants to fund research projects that "advance science or
technology" and are "not adequately provided for by competitive
and regulated energy markets" with the goal to develop, and help
bring to market, energy technologies that provide increased
environmental benefits, greater system reliability, lower system
costs, and tangible benefits to electric utility customers.
Subsequent legislation in 2000 (SB 1194, Sher) and 2006 (SB 1250,
Sher) requires PIER to fund RD&D on advanced electricity
generation, climate change and the environment, energy efficiency
and demand-response strategies that reduce demand, renewable
energy, transmission and distribution of power, and
transportation. AB 2267 (Fuentes, 2008) requires CEC to give
preference to "California-based entities" when awarding PIER
grants.
Natural Gas PIER Program - The CEC also administers, in tandem
with the electric PIER program, a public interest energy research
program funded by a surcharge on natural gas ratepayers at an
annual level of $24 million. AB 1002 (Wright, 2000) gave the
CPUC authority for the natural gas program, but the CPUC, by
decision, appointed the CEC to administer in it, although the
University of California also was considered a potential
administrator. The CPUC adopts an annual resolution approving
the CEC's award of natural gas research funds. In the 2004
resolution, CPUC stated that "after four years" it would assess
the program, a review the CPUC commenced in 2010 and is still
ongoing.
Total Funds of $700 Million - Through 2010, the CEC had awarded
nearly $700 million in ratepayer funds for research under the
electric and natural gas PIER programs, which the CEC estimates
has resulted in billions of dollars in savings to ratepayers,
particularly from energy efficiency standards for buildings and
appliances to which PIER research contributed. CEC points to,
for example, $912 million in annual savings from television
standards, $90 million from external power supply standards, and
$5.4 million from residential furnace fan standards. PIER funds
also leverage other research dollars, according to CEC, by
providing critical matching funds for recipients, averaging about
$1.50 for every $1 in PIER funds. The CEC also claims that
existing funding for RD&D is inadequate, pointing to 48 project
proposals totaling $30 million that were rejected in the last two
years for lack of funds even though they passed technical merit
and had potential to advance technologies and provide public
benefits.
Publicly Owned Utilities - SB 1890 also required the publicly
owned utilities (POUs) to collect a PGC, in an amount
commensurate with the IOUs' PGC. The POUs were given discretion
to use their PGC to fund any or all of energy efficiency,
renewable energy programs, public interest energy research, and
rate discounts and other programs for low-income customers. POUs
do not remit their funds to the CEC but instead independently
administer their own programs. Some POUs have been awarded PIER
funds for RD&D projects.
State Coordination of Energy Research - Prior to 1996, IOUs
conducted RD&D with funding recovered through rates approved by
the CPUC. Law in effect at the time required an annual
coordinating meeting among state entities involved in energy
RD&D, including the Electric Power Research Institute, Natural
Gas Research Institute, IOUs, POUs, state energy officials and
representatives of environmental and consumer groups. After PIER
was established, the CPUC limited IOU rate recovery of RD&D
costs, and the law requiring the annual coordinating meeting was
repealed.
SB 1038 (Sher, 2002) requires CEC to convene a PIER advisory
board with representatives from the CPUC, consumer and
environmental organizations, utilities, and legislators, and
requires it to make recommendations to guide CEC's award of PIER
funds. The board met in 2008, November 2010, and March 2011.
Minutes of the last two meetings reveal an expression from
members of uncertainty as to the board's authority and purpose
and a desire to see PIER funding more strategically focused. In
addition to the board, CEC has established an extensive network
of informal collaboratives and advisory committees that provide
input on award of PIER funds. CEC also has some limited informal
coordination with the CPUC and ARB, which each separately
administer energy research programs.
Prior Reviews of PIER - SB 1038 (Sher, 2002) required an
independent review of PIER, which was conducted by the California
Council on Science and Technology. The council's final report in
2005 recommended that PIER needed a clearly articulated strategic
plan with objectives and priorities for meeting the state's
future energy needs and that CEC should develop a new governance
structure, including an option for administration outside of CEC.
A 2009 Department of Finance audit concluded that CEC had not
adequately responded to prior recommendations to improve PIER
governance and reduce overhead and administrative costs. These
issues also were addressed in hearings held by this committee on
August 10, 2010, and March 1, 2011.
LAO Report - The Legislative Analyst's Office (LAO), which
reviews all PIER sole-source contracts, recently conducted an
independent review of PIER and issued a report in January 2011.
LAO concluded that CEC has not demonstrated a substantial payoff
in ratepayer benefits from the more than $700 million in
PIER-funded research since 1996 and challenged the energy savings
that CEC attributes to PIER-funded research leading to the state
building and appliance standards. Nonetheless, LAO concluded
that continued investment by the private sector and the state in
public interest energy research is necessary if California is to
make the technological breakthroughs that will enable it to
achieve its ambitious state energy goals. LAO proposed three
potential approaches for reforming the state's role in energy
research:
1. Continue the PGC and PIER under CEC but improve the
strategic focus of research funded;
2. Discontinue the PGC and PIER and instead direct utilities
to conduct their own research programs and recover their
research costs in rates; and
3. Continue the PGC but discontinue PIER and instead direct
utilities to conduct their own research programs with input
from a new coordinating council with representatives of
state energy officials.
PGC for Energy Efficiency - The $228 million of the PGC for
energy efficiency is not dedicated by statute for any particular
program. The funds are retained by the IOUs and become the base
of the budgets for their energy efficiency programs approved in
three-year cycles by the CPUC and supplemented with funding from
rates. The IOUs' total annual energy efficiency program cost is
about $1 billion.
PGC for Renewable Energy - The $65.5 million of the PGC for
renewable energy is deposited into the RRTF, with 20 percent
allocated to the Existing Renewables program, 79 percent to the
Emerging Renewables program, and 1 percent to Consumer Education.
Since 2007, the RRTF funds the New Solar Homes Partnership. CEC
administrative costs for RPS also are paid from the RRTF.
COMMENTS
1. Author's Purpose . According to the author, this bill
continues California's commitment to public investment in
energy research but establishes a new governance structure
and strategic focus aimed at efficiently aligning resources
to accelerate technological breakthroughs to overcome the
most significant challenges to achieving the state's
statutory energy goals. This bill establishes a framework
for energy research that responds to recommendations from
independent reviews of PIER. It also begins the
conversation about the design and intent of other programs
that will sunset at the end of this year, with the goal of
continuing programs that serve a valid public purpose or
fulfill an unmet need.
2. CERT Updates Research Focus . While current law
authorizes PIER to fund a wide range of energy,
environmental, and climate change research, this bill
requires CEC to award research funds only for projects that
may lead to advancement on the technological challenges that
are the most significant barriers to achieving the state's
statutory energy goals. The bill specifies three of those
challenges - energy storage, integrating renewables, and
forecasting - but authorizes the CERT Coordinating Council
to identify other challenges that warrant research funding.
This strikes a balance between adequate legislative
direction for a narrow focus and flexibility to respond to
additional challenges if identified by state energy
officials and stakeholders with expertise and responsibility
for achieving the state's energy goals.
3. Duties of CERT Coordinating Council . The new council's
duty to annually identify technological challenges for which
CERT funding is warranted is significantly more substantial
than the existing advisory council's job to merely make
recommendations that CEC has no obligation to follow. A
more formal structure and increased transparency is
therefore required. Council members serving three-year
terms include the CEC chair, who shall be chair of the
council, and representatives of IOUs, CPUC, Independent
System Operator, ARB, Division of Ratepayer Advocates,
university research institutions, consumer and environmental
organizations, legislators, and public members. The council
is required to meet at least twice a year and comply with
open meeting laws.
4. Transparency and Accountability in Awarding Ratepayer
Funds . This bill responds to criticism of PIER by requiring
CEC, in its administration of CERT, to avoid unnecessary
duplication of research funded by the CPUC, ARB, or other
organizations, minimize administration and overhead costs,
and enforce conflict of interest requirements. It requires
CEC, prior to awarding CERT funds, to establish a process
for tracking the progress and outcomes of funded projects
and make information about all grant recipients available in
a searchable database on the CEC's web site. These
provisions will help ensure that ratepayer dollars are used
efficiently to overcome barriers to achieving the state's
statutory energy goals.
5. Flexibility in Contracting . This bill does not give CEC
explicit authority for sole-source contracting and other
exemptions from state contracting requirements that CEC has
under PIER. Over the years, PIER has been criticized both
for being too slow to effectively fund cutting-edge research
because of state contracting and for being too willing to
award funds without competitive bidding and full
transparency. The author has indicated that contracting
flexibility for administration of CERT may be appropriate
but that each provision in current law should be justified
with specific examples of public benefit that cannot be
achieved without it.
6. Renewable Resources Trust Fund . A hearing of this
committee held March 29, 2011, raised questions whether PGC
funding for the renewable energy programs currently
specified in statute is still needed. Conversations
continue with the administration, Assembly, agencies, and
other stakeholders to determine the ongoing need for these
programs and whether the fund purposes could be refocused
and redirected to reflect the state's change in priorities
since originally authorized in 1996.
7. Related Legislation . SB 410 (Wright) extends sunset on
public goods charge and PIER for 10 years to 2022. It is
scheduled for hearing in this committee on May 3.
AB 723 (Bradford) extends sunset on public goods
charge and PIER for four years to 2016. It passed the
Assembly Committee on Utilities and Commerce 10-0 and is
in the Assembly Committee on Natural Resources.
AB 1303 (Williams) extends the PIER program for eight
years until 2020. It passed the Assembly Committee on
Utilities and Commerce 10-0 and is in the Assembly
Committee on Natural Resources.
POSITIONS
Sponsor:
Author
Support:
California Biomass Energy Alliance (with amendments)
University of California
Oppose:
None on file
Jacqueline Kinney
SB 35 Analysis
Hearing Date: May 3, 2011