BILL ANALYSIS Ó SB 585 Page 1 Date of Hearing: July 13, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 585 (Kehoe) - As Amended: July 5, 2011 Policy Committee: UtilitiesVote:11-2 Urgency: Yes State Mandated Local Program: No Reimbursable: SUMMARY This bill increases ratepayer funding for the California Solar Initiative (CSI). Specifically, this bill: 1)Increases collections from investor-owned utility (IOU) customers by up to $200 million in order to increase the funding limit for the CSI by a like amount. 2)Directs the Public Utilities Commission (PUC) to first allocate interest accumulated from collections from IOU customers for the CSI program in order to fund specified shortfalls in the nonresidential portion of the program, and to address the remainder of the shortfall using funds collected per (1). 3)Establishes a discount rate of 4% for CSI projects receiving performance-based incentives. 4)Requires the PUC, within 90 days of enactment, to impose cost caps on residential and non-residential projects under the CSI, using national and state installed costs. FISCAL EFFECT 1)Up to $200 million in total collections from IOU ratepayers over several years, with about $2.4 million of this amount to be paid by state agencies (General Fund, various special funds, and federal funds), which represent about 1.2% of total electricity use in the IOU territories. To the extent state agencies are able to participate in the program due to availability of this additional funding, they will benefit SB 585 Page 2 from the incentive payments provided under the program and the resulting long-term energy cost savings. 2)Administrative costs to the PUC will be minor and absorbable. COMMENTS 1)Purpose . According to the author, this bill is needed to ensure funding is available to complete the non-residential (commercial/industrial and governmental/non) portion of the CSI program. Two IOUs (PG&E and San Diego Gas and Electric) have already exhausted their available funds for this portion and are putting all new project applications on waiting lists, which according to the PUC, currently total about $60 million and 69 megawatts of solar energy capacity. According to the PUC, reasons for the funding shortfall, currently estimated to be between $178 million and $200 million, are: (a) many installed solar energy systems have outperformed original estimates; (b) an overestimation of the discount rate calculation for performance based incentives (PBI) payments, which results in higher actual cash payments than originally calculated; and (c) the inability to use accrued interest on program funds collected. The program has 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 law caps CSI expenditures of IOU collections at $2.167 billion, so the PUC cannot use the interest accrued or authorize additional collections from IOU ratepayers without legislative action. The bill contains an urgency clause, and the PUC indicates that, upon its enactment it would immediately amend the CSI budget and effectively open up the wait lists mentioned above for funding. 2)CSI Rebates . The program provides rebates in two forms: (a) an up-front one-time estimated performance payment or (b) a PBI, which pays an incentive for every kilowatt-hour produced over a five-year period. In order to address the time value of money, the PUC authorized a discount rate payment of 8% for PBI incentives. The CSI is arranged in 10 steps with higher value incentives in the earlier steps, gradually lowering over SB 585 Page 3 the 10-year timeframe of the program. 3)Opposition . The Utility Reform Network (TURN) contends that, since the funding shortfall is in the non-residential portion of the CSI, the additional collections authorized in the bill should be borne solely by non-residential utility customers. The approach would be inconsistent with the how collections were apportioned in the base CSI program, however. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081