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 








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            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 








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            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