BILL ANALYSIS Ó
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 870|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 870
Author: Padilla (D) and Steinberg (D)
Amended: 9/6/11
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : Energy: Clean Energy Innovation Program:
natural gas
surcharge
SOURCE : Author
DIGEST : This bill establishes the California Energy
Innovation Program for the purpose of funding
energy-related research, development, and demonstration
(RD&D), contingent on reauthorization of public goods
charge funding for RD&D.
Assembly Amendments delete the Senate version of this bill,
which requires the chair of the California Energy
Commission (CEC) to appear before the appropriate policy
committees to report on the activities of the CEC, and
insert the provisions above.
ANALYSIS :
Existing Law :
1.Requires electric utilities to collect until January 1,
CONTINUED
SB 870
Page
2
2012 a "nonbypassable" surcharge on bills based on
electricity usage to fund energy efficiency, renewable
energy, and energy RD&D (i.e., the "public goods
charge").
2.Establishes specific minimum annual collection amounts
for the three largest investor-owned utilities (Pacific
Gas and Electric, Southern California Edison and San
Diego Gas and Electric) and provides for adjustment
according to the lesser of sales growth or inflation:
$228 million for energy efficiency.
$65.5 million for renewable energy.
$62.5 million for RD&D.
1.Provides the CEC at least $62.5 million per year to
administer Public Interest Energy Research Program
(PIER). Funds are allocated by the CEC according general
statutory guidelines and more specific CEC-developed
investment plans. PIER funds support investments in RD&D
for energy technologies that provide tangible benefits to
the utility customers who fund the program. Collection
of ratepayer funds for these and other purposes, and the
CEC's authority to spend the funds it administers, is
authorized until 2012.
2.Requires gas utilities to collect a natural gas surcharge
from customers and remit the money to the Board of
Equalization (BOE). Requires natural gas surcharge funds
are used to fund low-income assistance, energy efficiency
and conservation activities, and public interest RD&D.
This bill :
1. Establishes California Energy Innovation Program (CEIP)
as a successor to the California Energy Commission's
Public Interest Energy Research Program (PIER). CEIP's
purpose is to fund RD&D projects that may lead to
technological advancement and breakthroughs to overcome
the barriers that prevent the achievement of the state's
energy policy goals.
2. Requires the CEC to convene twice-yearly meetings of a
27-plus member coordinating council consisting of:
CONTINUED
SB 870
Page
3
A. The chair of the CEC, who serves as the chair of
the council.
B. One representative each from utilities,
including Pacific Gas and Electric, Southern
California Edison, San Diego Gas and Electric,
Southern California Gas, and any participating
publicly owned utility.
C. One representative each from the Public
Utilities Commission (PUC), the Independent System
Operator, the Air Resources Board, and the PUC's
Division of Ratepayer Advocates.
D. Two representatives each from the building
industry, consumer organizations, environmental
organizations, environmental justice groups, and
research institutions, with appointment divided
between the Senate Rules Committee and the Speaker
of the Assembly.
E. Two representatives of clean energy businesses,
associations, or investors appointed by the
Governor.
F. Two representatives of labor organizations
appointed by the Governor.
G. Two at-large members appointed by the Governor.
H. A Senator appointed by the Senate Rules
Committee and an Assembly Member appointed by the
Speaker of the Assembly, who may participate on the
council to the extent participation is not
incompatible with their positions as legislators.
3. Requires the council to annually identify energy
barriers for which CEIP funding is most warranted,
identify opportunities for leveraged funding, and make
recommendations to avoid duplicative funding of
projects.
4. Requires the CEC to spend CEIP funds for projects and
CONTINUED
SB 870
Page
4
program implementation that results in a portfolio of
awards that does all of the following:
A. Is strategically focused and sufficiently narrow
to make advancement on the most significant barriers
to achieving the state's energy policy goals,
including energy storage, renewable energy and its
integration into the electrical grid, energy
efficiency, integration of electric vehicles into the
electrical grid, accurately forecasting the
availability of renewable energy for integration into
the grid, impacts of energy generation, and other
significant technological barriers identified by the
coordinating council.
B. Ensures that prior, current, and future RD&D
projects are not unnecessarily duplicated.
C. Invests in projects of California-based entities
unless there is a unique need that can be met only by
an entity based outside of California.
D. Results in a reasonably equitable distribution of
awards to various geographic regions of California.
E. Maximizes expenditure of funds for RD&D projects
and minimizes expenditure of funds for administration
and overhead costs.
5. Permits a utility to receive CEIP funds only if it
participates in the program.
6. Requires the CEC to adopt regulations, or modify
existing regulations, for the solicitation of award
applications, evaluation of applications, and award of
funds.
7. Requires the CEC, prior to awarding any CEIP funds, to
establish a process for tracking the progress and
outcomes of each funded project and terms for the state
to accrue any intellectual property interest or
royalties that may derive from CEIP funding.
8. Authorizes the CEC to solicit applications and award
CONTINUED
SB 870
Page
5
CEIP funds using a sealed competitive bid, interagency
agreement, or sole source method.
9. Requires uses of sealed competitive bid in all cases in
which project bids are specific enough to be evaluated
against solicitation criteria.
10.Prohibits the CEC from awarding funds to the University
of California (UC) through sole source or interagency
agreement for a project for which funds could be awarded
through a sealed competitive bid.
11.If an award cannot be made using competitive bid,
authorizes the CEC to award funds on a sole source basis
when the cost to the state is reasonable and the
proposal is either unsolicited, unique, or is a
continuation of an existing, multi-phased project.
12.Prohibits the CEC from making a sole source award, or a
sole source or interagency agreement with the UC, unless
the CEC notifies the Joint Legislative Budget Committee
(JLBC) and relevant policy committees at least 60 days
prior to making the award, and the JLBC either approves
or does not disapprove the award with the 60 days.
13.Provides that the provisions of the section containing
these bidding requirements are severable.
14.Requires the CEC to give priority to California-based
entities.
15.Requires the CEC to submit an annual report to the
Legislature describing projects awards and outcomes of
previously-funded projects.
16.Requires the CEC to establish procedures to protect
confidential or proprietary information in public
reports.
17.Repeals the requirement that the natural gas surcharge
collected by PUC-regulated gas utilities natural gas
public purpose programs, be remitted to the BOE, thereby
removing the availability of these monies for
redirection by the Legislature to the General Fund.
CONTINUED
SB 870
Page
6
18.Provides that existing PIER statutes apply to the
expenditure of PGC funds collected for RD&D before
January 1, 2012.
19.Provides that enactment of the bill is contingent on
enactment of AB 724 (Bradford), which reauthorizes the
PGC, including dedicating $75 million per year for eight
years for RD&D.
Background
As part of California's experiment with electric
deregulation, AB 1890 (Brulte), Chapter 854, Statutes of
1996, requires ratepayers to fund a variety of system
reliability, in-state benefit and low-income customer
programs at specified levels from 1998 through 2001. This
funding was intended to ensure that these "public goods"
programs continued (at least in the short term) in the
restructured electric industry.
Among the public goods programs established by AB 1890 was
public interest energy RD&D. Prior to awarding any of the
money collected from ratepayers, the CEC was required to
submit reports to the Legislature describing the programs
it would support and the levels of support those programs
would receive. This original CEC investment plan was
adopted in 1997 and has been extended twice since. SB 1194
(Sher), Chapter 1050, Statutes of 2000, extends the
collection of a public goods charge from ratepayers until
2012 and again required the CEC to develop investment plans
for renewable energy and public interest RD&D. This bill
creates a new RD&D program to succeed PIER, contingent on
enactment of PGC funding for this purpose, which is in AB
724 (Bradford), pending in the Senate.
Prior to enactment of AB 1002, (Wright), Chapter 932,
Statutes of 2000, gas surcharge revenues uses to fund
public purpose programs were collected and held by the gas
utilities. AB 1002, in part to ensure that customers of
non-PUC regulated gas pipeline companies paid their fair
share toward the gas public purpose programs, required all
gas surcharge monies from all companies to be remitted to
the BOE. The BOE then returns the funds to the gas
CONTINUED
SB 870
Page
7
companies to carry out the public purpose programs. The
2010-11 Budget Act includes a transfer of $155 million from
these natural gas surcharge funds to the General Fund. The
gas provisions of this bill return the handling of gas
surcharge funds by the utilities to the pre-AB 1002
process, so the funds could not be appropriated to the
General Fund. The non-PUC regulated gas companies would
still remit surcharge revenues to the BOE.
Energy research may be defunded for six months or more.
While this bill provides that PGC funds collected before
January 1, 2012 can be spent according to the existing PIER
statutes, its companion, AB 724 repeals the PIER fund and
transfers residual funds to a PIER "wrap up" account.
Funds from this account would not be available until an
appropriation is enacted by the Legislature, which may not
be until the 2012-13 Budget Act is enacted. Meanwhile, if
AB 724 is enacted as currently proposed, it would take
effect immediately as an urgency statute, defunding PIER
projects and CEC staff until a new appropriation is
enacted.
Is the composition of the coordinating council appropriate
for CEIP's purpose? The council created by this bill has
an indeterminate number of members and no provision for
appointment of the non-governmental members other than
self-selection. In addition to the 27 members designated
in the bill, the bill gives a seat to any "participating"
publicly-owned utility (POU). The bill does not define
"participate," so it's conceivable that any POU
contributing funds, seeking awards, or even just showing up
to a meeting could appoint itself to the council. There
are about 45 electric POUs in California. It's not clear
how the council would make decisions, what authority it
has, or what authority the CEC has over it, but to the
extent the council would have any influence over the CEC's
decisions regarding expenditure of CEIP funds, it seems
inappropriate that it could be dominated by self-appointed
utility representatives, including POUs that don't even
contribute funds to the program.
Why single out UC for bidding and contracting restrictions?
The author has cited high overhead and lack of
transparency in the contracting process with UC. However,
CONTINUED
SB 870
Page
8
the bill does not limit overhead for UC or anyone else.
Instead, the bill makes UC subject to specific restrictions
which may operate to favor other research institutions or
the private sector. The bill prohibits the CEC from
awarding CEIP funds to the UC through either a sole source
or interagency agreement if the funds could be awarded
through a competitive bid (including to another entity).
The bill suggests that the only way UC can get funds
through sole source or interagency agreement is if it's
impossible to award funds to UC or any other entity through
competitive bid. It's not clear that such a rigid
preference for competitive bid fits the type of research
projects CEIP will fund, or why the restrictions should
apply only to UC and not to other agencies, research
institutions, and private sector entities.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 9/8/11)
Applied Materials
California Building Industry Association
City of San Diego
Pacific Gas & Electric
San Diego Gas & Electric Company
Southern California Gas Company
Silicon Valley Leadership Group
OPPOSITION : (Verified 9/8/11)
Coalition of Energy Users
University of California (unless amended)
ARGUMENTS IN SUPPORT : PG&E supports this bill and
writes, "As you know, $155 million in gas energy efficiency
funds were authorized for transfer to the state General
Fund as part of the 2011-12 state budget. We opposed that
action and then made it a priority to protect those funds
from future raids. We are pleased to support SB 870 as
part of the PGC extension package to provide that
protection. As a result of the budget action, we notified
over 600 customers with large customized gas projects that
energy efficiency monies previously committed to them were
CONTINUED
SB 870
Page
9
no longer available. Customer such as the University of
California system, the State Department of Corrections, as
well as other customers in the education, local and county
government, health care, refinery, agriculture, retail, and
manufacturing industries were impacted. In addition to
the suspension of rebates for customized gas projects, PG&E
suspended its appliance rebate program for residential and
small business consumers. This significantly impacted
customers in the restaurant, laundry food handling, and
hospitality industries, in addition to residential
customers. Unfortunately, PG&E's middle income direct
install program was also impacted - a program which
services customers who live in low income neighborhoods but
have incomes a bit above the level required to qualify as
low income.
"We also appreciate a number of other amendments included
in the PGC extension package including assurances that only
participating utilities will be able to participate in the
research and development programs which have been
significantly reformed in this package. Finally, the
package ensures that the California Public Utilities
Commission will continue to have the flexibility to
determine the most appropriate energy efficiency programs
on the electric side while protecting those funds from
potential future raids."
ARGUMENTS IN OPPOSITION : University of California
opposes this bill and writes, "Funding from electricity
ratepayers, awarded through the Public Interest Energy
Research (PIER) program, has supported UC research,
development, and demonstration projects to advance the
science and technology needed to overcome the barriers to
achieving the state's energy policy goals. The University
has been able to leverage PIER funding to obtain additional
significant research support from a multitude of sources
and use that funding on behalf of the state's interest in
conjunction with government, industry and other partners.
Continuation of public interest energy research program
will help ensure that California continues to lead the way
in pursuing quality energy research.
"Unfortunately, SB 870 inappropriately singles out UC for
extra scrutiny in the awarding of single source contracts
CONTINUED
SB 870
Page
10
or interagency agreements for awards. UC does not object
to the competitive awarding of funds, and in fact has
called for competitive peer-review of research to be a
feature of any legislation reauthorizing PIER. We believe
that the CRT program can be strengthened by relying on the
principles of peer review that reused for other UC research
programs, as well as the special state funded research
programs in HIV/AIDS, breast cancer, and tobacco-related
disease research. Peer-reviewed programs generally yield
much better research results over time, and that are less
subject to criticism in the event of uneven distribution of
funding among like institution."
RM:do 9/9/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED