BILL ANALYSIS Ó
SB 585
Page 1
Date of Hearing: June 27, 2011
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 585 (Kehoe) - As Amended: May 31, 2011
SENATE VOTE : 28-11
SUBJECT : Electricity: California Solar Initiative
SUMMARY : This bill will allow the California Public Utilities
Commission (PUC) to authorize investor owned utilities (IOU) to
continue to collect funds from ratepayers so that a funding
shortfall within the California Solar Initiative (CSI) can be
addressed. Specifically, this bill :
1)Directs the PUC to first allocate accrued interest to the CSI
program budget deficit.
2)Authorizes the PUC to fund the remainder of the CSI program
budget deficit from IOU ratepayers.
3)Specifies the maximum discount rate the PUC is authorized to
allow for performance-based rebates.
4)This bill is an urgency measure.
EXISTING LAW
In 2006 the Legislature approved SB 1 (Murray, Chapter 182,
Statutes of 2006) to develop 3,000 Megawatts (MW) of renewable
generation on the customer-side of the meter. SB 1 established
several goals to be achieved over a 10-year period:
The CSI is funded by the IOU ratepayers. The PUC is currently
authorized by statute to expend no more than $2,166,800,000.
The Commission's goal is to provide incentives for up to 1,750
MW for qualified solar equipment as well as fund a program for
low-income households to receive qualified solar equipment.
Of these funds, the Legislature authorized the PUC to use
$100.8 million to fund solar water heating programs for
electric ratepayers.
400 MW administered by the California Energy Commission (CEC)
to provide incentives for new homes with qualified solar
equipment ($400,000,000, also ratepayer funded)
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660 MW administered by various Publicly Owned Utilities (POUs)
($784,000,000, funded by POU ratepayers).
Establish a sustaining solar industry.
The solar initiative should be a cost-effective investment by
ratepayers in peak electricity generation capacity where
ratepayers recoup the cost of their investment through lower
rates as a result of avoiding purchases of electricity at peak
rates, with additional system reliability and pollution
reduction benefits.
Requires that solar energy systems receiving monetary
incentives are intended primarily to offset part or all of the
consumer's own electrical requirements and that solar energy
systems may not be larger than 1 MW.
FISCAL EFFECT : Unknown
COMMENTS :
According to the author, this bill is needed to ensure funding
is available to complete the incentive steps of the
non-residential CSI program. Two IOUs have run out of funding
to provide CSI rebates (San Diego Gas and Electric and Southern
California Edison) and the third of the three IOUs (Southern
California Edison) is projected to run out of funding. Due to
this budget shortfall, the PUC's CSI goals cannot be met unless
action is taken to allow the PUC to use accrued interest and
collect additional ratepayer funds.
The program has also accumulated approximately $40 million in
interest from reservation deposits (these deposits are required
for larger projects) and interest on ratepayer funds collected
for the program. Current statute does not allow the PUC to
expend beyond a specific dollar amount ($2,155,800,000) so the
PUC cannot use the interest accrued or authorize additional
collections from ratepayers without Legislative action.
According to the PUC, the budget shortfall occurred because:
"There is uncertainty related to how much electricity
individual PBI systems will actually produce and earn in
incentive payments over the five year PBI payment period."
(PUC July 2010 ruling suspending the CSI program)
Greater than anticipated impact of performance based
incentive (PBI) payments on the program budget. "In
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particular, in establishing PBI payments, the Commission
sought to ensure equivalency between the Expected
Performance Based Buydown (EPBB) incentives and those paid
out on a per kWh basis over five years via PBI. To do so,
the Commission assumed an 8% discount rate. Under the
incentives as adopted, on a nominal basis, a system
receiving PBI payments has a budgetary impact that is
approximately 22% higher than the corresponding EPBB
incentive." (Excerpts from Decision 10-09-046 September 23,
2010)
"The original budget in D.06-12-033 estimated the
incentives dispersed per step using only EPBB incentive
costs." (Excerpts from Decision 10-09-046 September 23,
2010)
According to the most recent data available (June 15, 2011), the
PUC's CSI program has an estimated shortfall of less than $180
million.
The program provides rebates in two forms: either an 'up-front'
one-time estimated performance payment or a PBI which pays an
incentive for every kilowatt-hour produced over a 5-year period.
In order to address the time value of money, the PUC
authorized a discount rate payment of 8% for PBI incentives.
The incentives are estimated using a calculator developed by the
PUC. This calculator was used by the PUC to develop the budgets
for the program.
The CSI program is arranged in 10 'steps' with higher value
incentives in the earlier steps, gradually lowering over the
10-year program period. For example, Step 2 commercial and
government/non-profit projects completed in 2007 are currently
receiving $0.39 and $0.50 per kilowatt-hour plus the 8% discount
rate adjustment over a 5 year period. The final steps (8 and 9)
will receive $0.03 and $0.10 per kilowatt-hour plus a discount
rate adjustment over a 5 year period. The higher incentives in
Steps 2 through 5 (higher than $0.15 and $0.26 per
kilowatt-hour, not including the 8% discount rate, paid over 5
years) represents 650 MWs of the program allocation and nearly
450 of the total installed MWs. Due to drop outs of reserved
projects (withdrawn and cancelled projects) not all of the MWs
in any single step are allocated in a particular step because
once a particular step has received projects equal to the
particular steps' MW allocation, the incentive level drops to
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the next lower step. The amount of funds allocated is
distributed between PBI and up-front estimated rebates,
residential, commercial and government/non-profit building
types. Data on the total MWs provided via upfront incentives
versus PBI incentives was not readily available.
Where is the accounting of the expenditures? It has been almost
a year since the budget shortfall was publicly revealed and the
basic accounting of where the money was spent (and still being
spent) is largely unavailable. The PUC has made a substantial
effort to provide transparency in the CSI program. The CSI data
provides opportunities to look closely at market activity and
industry trends. However, until the budget shortfall occurred,
little data was made available on the program expenditures. For
example, the PUC provides a budget summary on its CSI statistics
web page yet this data does not break down funding allocation on
a step by step basis and up-front incentive vs. PBI. The data
formatting of the budget does not provide sufficient detail to
determine where the over-expenditures are occurring or if they
are still occurring. This is important because projects
receiving PBI incentives and constructed in 2007 will continue
to receive payments until sometime through 2011 or 2012. The
older projects, receiving the highest rebates, are still
receiving payments. Newer PBI projects which have as long as 3
years to complete could receive PBI payments until the year
2021. Given that there is another 10 years of program
administration ahead of us, getting the accounting system
corrected seems critical to providing an accurate estimate of
how much additional funds are needed to cover the program
shortfall. The PUC is currently relying on a Performance
Adjustment for PBI systems (6% for PG&E and SCE, and 8% for
CCSE), to account for higher than expected performance.
Are 'over-performing' systems contributing to the budget
problem ? According to the PUC, they did not anticipate the
efficiency of tracking systems, which resulted in higher system
performance and thus higher PBI incentive payments. As a
result, they have been and continue to provide incentives for
these systems at levels higher than originally budgeted.
However, it is not clear how a project can be 'over-performing'
if the project is sized to offset only the site's annual
electricity needs and if the CSI program limits incentives to no
greater than 1 MW:
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"The maximum incentive provided for a Host Customer Site
under the CSI Program is 1,000 kW (1 MW) CEC-AC; however, a
Host Customer Site may elect to install up to 5 MW of
generation. If an Applicant has already received funding
for 1 MW from another solar incentive program (such as the
SGIP or ERP), they may apply for up to another 1 MW of new
generation under the CSI Program on the same Project Site
as long as they can demonstrate that the electricity
produced by the combined system sizes does not exceed the
actual energy consumed during the previous 12 months at the
Site." (PUC CSI Handbook)
It is not clear if the PUC has paid incentives in excess of its
1 MW limit because the PUC has not yet made data on payments
available.
With the generous performance incentives in the early steps of
the program, where there projects sized in excess of on-site
energy use? In addition, the PUC does not yet provide data on
whether any of the PBI projects are over-sized relative to
on-site electricity needs. Net metering statute requires that
the system be designed to offset part or all of the site's
electricity usage. It is not clear if the PUC has investigated
whether any of these systems are consistently generating more
electricity than allowed by the net metering statute or, if they
were, what the PUC would do to enforce the statute and the CSI
rules.
Are any of the PBI payments indicating performance that is
outside the bounds of reality? The PUC allows qualified
companies do their own performance monitoring and reporting of
their project performance data. In the case of the Spanish
Government solar incentive program, one news story reports that
performance incentives were paid for solar generation between
the hours of midnight and 7am (approximately 4,500 MW-hours).
It isn't possible to determine if any of there is any anomalies
in the data reported for PBI payments because performance and
payment data isn't available. It is not clear if the PUC has
investigated whether any of systems are generating at hours that
are outside the bounds of reality or generating more electricity
than physically possible, or, if they were, what the PUC would
do if they found anomalies.
Are solar project cost reductions being passed along to the
customer? The solar industry frequently reports that it is
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getting closer to 'grid parity" (compete on cost-per-kilowatt
basis with the local utility rates) in order to show that it is
growing in a manner that is driving down installed costs. Over
the last two years the PUC has presented data showing the
highest and lowest cost solar installations in the program. The
most recent PUC presentation shows that the installed cost of
solar electric (photovoltaic, PV) projects range between $6 and
$18 per watt. During this same period, the wholesale cost of
solar modules (the major cost component of a sola project) has
dropped dramatically and quarterly reports from publicly-traded
solar manufacturers indicate a wholesale price well below $2 per
watt. With the U.S. Department of Energy's SunShot initiative
as well as data available in publicly-traded solar manufacturer
financial reports, costs as low as $1 per watt and lower
(depending on the type of module) may be realized within the
next year.
According to the National Solar Energy Industry's Association,
in 2010 the "national weighted-average system prices fell by
20.5% over the course of 2010, from $6.45/W to $5.13/W.
Residential systems were installed in certain locations
(particularly Colorado and Arizona) at prices below$5.00/W, but
other locations saw residential system prices over $8.00/W.
Non-residential installations ranged from $4.11/W to $7.31/W."
Costs of major solar components continue to drop.
In addition, solar customers now take leasing or power purchase
arrangements (PPA) in order to lower their up-front cost of
acquiring a PV system to reduce their electricity bill. In
these arrangements, the financing entity charges a fee to a
site-owner to use of the system over a period of time. The fee
can take the form of an up-front cash payment, a monthly payment
with a balance due, a monthly payment based on the output of the
solar facility. The financing entity arranges to install a PV
system on the site-owner's premises. The provider of the lease
or PPA will take the CSI rebate, the federal tax credit (30% of
the total installed cost and also available as cash in lieu of a
tax credit), federal depreciation (currently 100% first year
depreciation), and the value of any Renewable Energy
Certificates or other environmental attributes. Some of these
arrangements rely on 'monetizing net metering,' which allows the
financing entity to charge for the solar generation (at some
negotiated rate plus an escalation rate). The Legislature did
not contemplate 'monetizing net metering' when it enacted SB 1
or net metering statutes. These financing arrangements vary by
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company and there are no standard terms and conditions. In
addition, many of these companies form Limited Liability
Corporations to own the systems (some in California, some not in
California), which reduces obligations to pay income tax if
properly structured. If the sum total of incentives (state and
federal) and environmental compliance payments (RECs, for
example) for PPA or lease projects is offsets more than half of
the installed cost, do third-party financed projects really need
CSI incentives?
The PUC has established a cost-cap for eligible projects, set
currently at $14.70 per watt, regardless of whether the system
is a commercial or a residential system. It is also not clear
from the PUC's rules whether the cost cap is applied before or
after federal tax benefits are applied (which could potentially
increase the allowed cost to be 30% higher than the cost cap).
What about the other SB 1 goals for the CSI? SB 1 called for
establishing a sustaining solar industry and a cost-effective
investment by ratepayers in peak electricity generation capacity
where ratepayers recoup the cost of their investment through
lower rates as a result of avoiding purchases of electricity at
peak rates. Will the funding augmentation provided by this
bill, if enacted, help achieve all of the goals of the program,
or only the PUC's MW goals?
Given that the 10-year program envisioned in SB 1 has moved more
rapidly than anticipated, it seems that the PUC should also move
quickly to ensure that all of the goals of the program are met,
not just the MW goals, particularly the steps necessary to
ensure that there is a sustaining solar industry at the
conclusion of the program and to ensure that ratepayers recoup
their investment through lower rates. Provisions to ensure that
small businesses in California can effectively participate in
the remainder of the CSI program should be added to the program
so that local jobs and economic activity can help meet the goals
of the program.
The Committee may wish to consider the following amendments:
1)Limit the collection of supplemental funds to no greater than
$178 million, reduced by any accrued interest.
2)Require the PUC to establish separate project cost caps for
residential, commercial, and non-profit/government projects
based on current data on installed costs, both nationally and
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in California, to ensure that lower equipment costs are passed
along to the customer.
RELATED LEGISLATION
AB 1x 15 revises the California Property Tax exclusion for
owners of solar projects to 'sale lease back arrangements.'
REGISTERED SUPPORT / OPPOSITION :
Support
American Solar Electric
Applied Materials
Borrego Solar
BP Solar
CA Association of School Business Officials (CASBO)
California Public Utilities Commission (CPUC)
Community Energy
Conergy
Corcoran Unified School District
Environment California
First Solar
Kings Canyon Unified School District
Kyocera
Mainstream Energy
Mitsubishi Electric
Oerlikon Solar
San Diego Gas & Electric Company (SDG&E) (if amended)
Sanyo
Schott Solar
Sharp Solar
Solar Alliance
Solar Power Partners
Solaria
SolarWorld
Solyndra
SPG Solar
SunEdison
SunPower
SunRun
Suntech
Tioga Energy
Trinity Solar
UniRac
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United Solar Ovonic
Opposition
None on file.
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083