BILL ANALYSIS Ó
Bill No: SB 175
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Bill Analysis
SB 175 Author: Corbett
Introduced: February 7, 2011
Hearing Date: April 12, 2011
Consultant: Paul Donahue
SUBJECT : Public contracts: California-made solar systems
bid preference
SUMMARY : Establishes a 15 percent bidding preference on
state contracts for the purchase or installation of a solar
photovoltaic system to a business certifying that all of
the solar cells and solar panels installed as part of the
solar photovoltaic system have been manufactured in
California.
Existing law :
1) Establishes rules governing the awarding of contracts by
state agencies, including general requirements for
competitive bidding on contracts for construction projects,
goods, services, and information technology.
2) Requires the California Energy Commission to give
priority to "California-based" entities in making awards
under the Public Interest Research, Development and
Demonstration Fund (PIER) program.
3) Entitles California disabled veteran businesses and
small businesses certified by the Department of General
Services (DGS) to a 5 percent preference in bidding on
state contracts for goods, services, information technology
and for state public construction contracts.
4) Requires the state to award a 5 percent preference in
contracts for goods and services to California based firms
that demonstrate and certify that at least 50 percent of
the total labor hours for manufactured goods or 90 percent
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of the total labor hours for services will be performed in
qualifying areas.<1>
5) Establishes a Self-Generation Incentive Program (SGIP)
to provide subsidies for customer-owned electric generation
facilities, with an additional 20 percent incentive for
installation of eligible distributed generation
resources<2> from "California suppliers."
This bill :
1) Requires a state agency that accepts bids or proposals
for a contract for the purchase or installation of a solar
photovoltaic system through a power purchase agreement,<3>
or through a direct purchase, shall provide a preference of
15 percent to a business that certifies that all of the
solar panels installed as part of a solar photovoltaic
system have been manufactured in California.
2) States that, for purposes of this bill , "manufactured"
Ŭin California] means the transformation of raw materials
into a solar panel, including both the manufacture of the
solar cells and the final assembly of the solar panels.<4>
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<1> See, e.g., Target Area Contract Preference Act, Govt.
Code § 4530 et seq.; Enterprise Zone Act, Govt. Code § 7070
et seq.; Local Agency Military Base Recovery Area Act,
Govt. Code § 7105 et seq.
<2> The Public Utilities Commission administers incentives
for solar technologies under a separate California Solar
Initiative program.
<3> A "power purchase agreement" is a financial arrangement
in which a third-party vendor owns, operates, and maintains
a solar system that the state agency places on its roof or
elsewhere on its property, and purchases the system's
electric output (not the system itself) from the vendor
over a period of time.
<4> "Solar panels" are defined as individual solar cells
assembled into larger groups. The solar panel is the end
product, consisting of a series of solar cells to capture
and transfer solar-generated electricity, a backing
surface, and a covering to protect the cells from weather
and other types of damage. The bill also defines "solar
cells" and a "solar photovoltaic system."
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3) Specifies that, for solicitations to be awarded to the
lowest responsible bidder , the preference is 15 percent of
the bid price of the lowest responsible bidder meeting
specifications, and for solicitations to be awarded to the
highest scored bidder based on evaluation factors in
addition to price, the preference is 15 percent of the
total score of the highest scored bidder.
4) Provides that preferences cannot be awarded to a
noncompliant bidder.
5) Requires a business to submit all required
substantiating documentation and information needed by the
state agency to determine if the business is eligible for
the preference, and requires DGS to establish a process to
verify this information.
6) Makes legislative findings and declarations regarding
California solar preferences.
COMMENTS :
1) Purpose and intent : According to the author, "California
has several companies that manufacture solar panels in the
state, employing Californians and helping our
economy...Other states and countries are using tax
incentives, low interest loans, cheap labor, and cheap
dirty energy to lure California clean tech manufacturers
away from California. Many other states have preferences
for state-manufactured goods, such as Alaska, Idaho,
Montana, and West Virginia. If California is going to
install solar panels on state property, it should attempt
to support California manufacturers."
2) Current state solar power purchase agreement projects :
In 2004, Governor Schwarzenegger issued a Green Building
Order (S-20-04), requiring state agencies to evaluate the
merits of using renewable on-site energy generation
technologies in all new buildings or large renovation
projects. DGS states that, as of 2008, approximately four
megawatts of solar power had been installed at state
facilities through a third-party solar power purchase
agreement program. In 2008 DGS announced additional
agreements to install up to 8 megawatts of solar power at
16 Cal State University locations. The state plans to
install additional solar power systems at state prisons
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mental hospitals.
3) Manufactured in California preference : In order to be
eligible for the 15 percent preference, a business must
certify that all of the solar panels installed as part of a
solar photovoltaic system have been manufactured in the
state, but for purposes of the preference, "manufacture"
also means that a business must transform raw materials
into a solar panel, including both the manufacture of the
solar cells and the final assembly of the solar panels. It
is unclear how many California businesses would be eligible
for the preference as outlined in the bill. It appears
that only 3 or 4 firms have every single aspect of their
operations in California, yet there are greater than 50
California businesses currently manufacturing solar
photovoltaic panels and systems within the state.<5>
Many solar companies in the state engage in significant
solar panel and system manufacturing activities, and have
located their principal place of business in California.
These companies assemble solar panels in the state, and
install and service solar photovoltaic systems, but they
may receive some partially manufactured solar cells or
materials from outside the state. These entities would be
ineligible for the California resident manufacturing
preference, despite their meaningful presence here.
a) SGIP definition of California supplier : The SGIP
program provides rebates for electricity distributed
generation (DG) systems,<6> and provides an additional
20 percent incentive for installation of DG resources
from a California supplier.
A "California supplier" is either a business whose
owners or officers are domiciled in California and the
permanent principal office or place of business is in
the state, or is a business that has, during the
preceding 5 years (1) owned and operated a
manufacturing facility in the state that manufactures
DG resources; (2) is licensed to do business in the
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<5> California Solar Market Industry: Sample Report, Clean
Energy Experts LLC, 2009
<6> These include microturbines, fuel cells, wind turbines,
and certain fossil fueled combustion engines with
qualifying emissions standards.
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state; and (3) employs California residents.
b) PIER definition of a California-based entity : The
Energy Commission awards PIER grants on a priority
basis to a "California based entity," which is any
business that either: (1) has its headquarters in
California and manufactures the product in California
that qualifies for the incentive or award; (2) has an
office for the transaction of business in California
and substantially manufactures the product in
California that qualifies for the incentive or award;
or (3) substantially develops within California the
research that qualifies for the incentive or award.
The Committee may wish to consider amendments expanding the
eligibility requirements in accordance with one of the
above definitions of California-based alternative energy
companies in order to avoid limiting the preference
opportunity for state solar contracting to a very small
number of companies. An alternative option could extend
preferences to a solar manufacturer that has its principal
place of business in the state, and that also assembles,
installs and maintains solar photovoltaic systems.
4) 15 percent preference : Current law sets California
bidding preferences at 5 percent of the bid price of the
lowest bidder, whereas this bill establishes a 15 percent
preference. This could result in a significant cost
increase for state solar projects. The Department of
Finance recently estimated that, if a proposed state
contract bidding preference had been raised from 5 percent
to be a 10 percent preference, the additional costs to the
state could have been up to $85 million.<7> Of course,
this cost increase would have been attributed to all small
business bid preferences, but significant cost increases in
solar contracts would seem probable with a 15 percent bid
preference, particularly if the preference were available
to only 3 or 4 entities. Moreover, the 5 percent small
business preferences in existing law appear to date to have
offered a meaningful opportunity for state-certified
businesses to contract with the state.
In 2008 the Legislature amended the SGIP program to provide
an additional incentive of 20 percent for the installation
of certain electricity generation systems. SGIP had funded
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<7> Veto message on AB 608 (De La Torre, 2007).
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approximately 1,200 projects by the end of 2007. However,
this is a subsidy program, and is available to a large
number of businesses.
In contrast, this bill would provide a 15 percent contract
bidding preference on major projects to a small universe of
designated California solar manufacturers. At least 8
megawatts of solar power are planned for 16 Cal State
University locations, and the state plans to install
additional large-scale solar power systems at state prisons
mental hospitals. Recent public agency contracts awarded
for installation and operation of solar power systems have
reached as high as $8 million. The value of a 15 percent
bidding preference in this context could exceed $1 million
above market.
In light of the foregoing, the Committee may wish to
consider amendments lowering the 15 percent bid preference
to 5 percent.
5) Supporters : The California Labor Federation notes that
investment in manufacturing is a smart way to get
California on the road to recovery and lay a foundation for
a robust economy. Manufacturing jobs have the highest
multiplier effect of any job classification in any industry
- for every manufacturing job created an additional 2.5
jobs are created in the broader economy. The state should
make every effort to make sure that the products invented
here are built here.
6) Opposition : Opponents argue that bidding preferences
ultimately limit choice and drive up prices, including the
cost of energy for consumers and for the state. Moreover,
opponents argue, protectionist legislation causes a net
loss of jobs in related industries, retaliation by our
trading partners, and violates provisions of the WTO and
bilateral free trade agreements.
7) Related legislation :
SB 497 (Rubio, 2011) . Requires state agencies to provide a
5 percent bid preference to California businesses in
contracts for the acquisition of goods. (Pending in Senate
Appropriations Committee)
SB 967 (Correa, 2010) . Would have required state agencies
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that accept bids on contracts for goods or services, or for
the distribution of funds pursuant to the federal American
Recovery and Reinvestment Act of 2009, to provide a credit
of 5 percent of the bid price or quotation to a business if
90 percent of its employees reside in the state. (Vetoed)
SB 1249 (Ducheny, 2010) . Would have authorized DGS to use
an additional criterion in the bidding and procurement
process that takes into consideration the relative economic
benefit to California in considering bids for goods and
services. (Held in Assembly)
AB 2267 (Fuentes, 2008) . Requires the California Energy
Commission to give priority to California-based entities
when making Public Interest Energy Research, Demonstration
and Development awards. Provides an additional 20 percent
incentive from the Public Utilities Commission's Self
Generation Incentive Program funds, for the installation of
eligible distributed generation resources from a California
supplier. (Chap. 537, Stats. 2008)
AB 608 (De La Torre, 2007) . Would have increased the
procurement contract bid preference from 5 percent to 10
percent for small businesses. (Vetoed)
AB 1654 (De La Torre, 2006) . Similar to SB 967 (Correa) of
2010. (Held in Assembly Appropriations Committee)
SUPPORT:
California Labor Federation
City of Fremont
NanoSolar
Sierra Club California
Solaria
Solyndra
State Building and Construction Trades Council of
California
OPPOSE:
California Chamber of Commerce
California Manufacturers and Technology Association
FISCAL COMMITTEE: Yes
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