BILL ANALYSIS                                                                                                                                                                                                    ”          1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          AB 719 -  HernŠndez                               Hearing Date:   
          June 18, 2013              A
          As Amended:         April 16, 2013           FISCAL       B
                                                                        
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                                      DESCRIPTION
           
           Current law  requires California's electric utilities to first  
          meet their energy needs through cost effective energy efficiency  
          measures. (Public Utilities Section 454.5)

           Current decisions  of the California Public Utilities Commission  
          (CPUC) require investor-owned utilities (IOUs) to administer  
          energy efficiency programs in multi-year portfolios designed to  
          meet pre-established energy savings goals which are funded by  
          ratepayer charges, currently at about $1 billion per year.

           Current decisions  of the CPUC approve energy efficiency  
          portfolio programs that include, among many others, on-bill  
          repayment (OBR) and on-bill financing (OBF) so customers can pay  
          off a loan for an energy efficiency project through monthly bill  
          payments, and incentives for owners of streetlights to upgrade  
          to more efficient streetlights.

           This bill  states the intent of the Legislature that  
          utility-owned street light poles, whose electricity use is paid  
          by local governments, be converted to use cost-effective  
          technology that reduces electricity consumption so the agency  
          may achieve lower utility bills.

           This bill  requires the CPUC, on or before March 1, 2014, to  
          order IOUs to submit a tariff that a local government may use to  
          fund energy efficiency improvements in street light poles owned  
          by the utility in order to reduce energy bills, but with no cost  
          shifts to nonparticipating ratepayers.

           This bill  provides that a local government financing an  











          improvement through such a tariff shall be eligible to use any  
          energy efficiency rebate or incentive available for that  
          improvement.

                                      BACKGROUND

           Energy Efficiency Focus on Financing - Energy efficiency is  
          California's top strategy for reducing energy use and meeting  
          the state's energy needs. California's utilities are required to  
          first meet their energy needs through cost-effective energy  
          efficiency measures before renewable and conventional  
          generation. The state's IOUs and, to a lesser extent, the local  
          publicly owned utilities (POUs), administer hundreds of energy  
          efficiency programs that provide financial incentives and  
          rebates for installing energy efficient appliances, lighting,  
          windows, HVAC systems and other technologies or measures.  A  
          major focus is providing financing mechanisms that will entice  
          consumers to invest in measures that will provide energy savings  
          over time.  In the CPUC's November 2012 decision approving $1.9  
          billion in ratepayer funds for IOU energy efficiency programs  
          for 2013-2014, the CPUC approved $220 million for financing.   
          These include OBF and OBR, where a utility or private lender,  
          respectively, fronts the cost of an efficiency measure and the  
          customer pays off the loan with monthly payments added to the  
          charge for service on the utility bill.

          Street Lights - Each local agency pays the energy bill for the  
          street lights in its jurisdiction, although many agencies do not  
          own the street light poles and fixtures.  According to the CPUC,  
          local governments and IOUs own the following number of street  
          light poles:

                     ------------------------------------------ 
                    |Utility         | IOU owned |    Local    |
                    |                |           | Government  |
                    |                |           |    Owned    |
                    |----------------+-----------+-------------|
                    |PG&E            |  175,585  |   554,000   |
                    |----------------+-----------+-------------|
                    |SCE             |  653,209  |   115,460   |
                    |----------------+-----------+-------------|
                    |SDG&E           |  27,981   |119,469      |
                     ------------------------------------------ 











          Local agencies that own the poles can convert those to more  
          efficient street lights, thereby reducing their energy use and  
          monthly bills.  Many California cities received loans and grants  
          to fund energy efficient streetlight replacements through the  
          American Recovery and Reinvestment Act of 2009 (AARA).  The IOU  
          energy efficiency portfolios include rebates and incentives to  
          street light owners to upgrade to more efficient lights.  Of the  
          local government-owned poles, roughly 20% in Pacific Gas and  
          Electric (PG&E) area have been converted, about 1% in Southern  
          California Edison's (SCE's) area have been converted, and about  
          40% of San Diego Gas & Electric (SDG&E) area poles have been  
          converted.

          Utilities may have little incentive to make energy efficiency  
          retrofits to street lights when they do not own the poles.  When  
          they do make such improvements, utilities can recover those  
          costs through rates paid by all ratepayers.  Very few  
          utility-owned poles (less than 40 total) have been converted to  
          more efficient lighting.

                                      COMMENTS
           
              1.   Author's Purpose  .  According to the author, "the purpose  
               of this bill is to encourage local agencies to install  
               high-efficiency light bulbs in street light fixtures. Our  
               street lights are neglected public facilities that are  
               operating on outdated energy technology with cities footing  
               the higher energy costs associated with this old  
               technology. Corporate utilities that stand by without  
               making energy efficiency retrofits profit from the status  
               quo when more energy is consumed by their customers, at the  
               expense of the taxpayers and the environment. In my  
               district, of the 653,209 street lights that the servicing  
               utility company owns, only 16 of those have been replaced  
               with energy efficiency lighting. This bill provides a way  
               for cities and counties to achieve reduced energy use and  
               lower energy bills."

              2.   Filling a Gap in Energy Efficiency Programs  .  A major  
               focus of California's energy efficiency programs is to  
               provide consumers with inexpensive and convenient ways to  
               finance new appliances, building retrofits, and other  
               technologies that will reduce energy use and lower monthly  
               bills.  Customers generally have an incentive to make  










               improvements that reduce their energy bills, but with local  
               agencies that pay for energy used by inefficient older  
               street lights, converting to efficient street lights is not  
               an option if they do not own the light poles.  This bill  
               fills a gap in current energy efficiency programs where  
               local agencies pay for street lighting from poles owned by  
               the utility.

              3.   Ensuring Transparency of Financing Charge  .  According to  
               information from the CPUC and Pacific Gas and Electric, a  
               tariff that meets the requirements of this bill could  
               include a higher rate for service for a period of time  
               (probably two to three years) until the utility recovers  
               the cost of the street light improvement.  After that time,  
               the agency would revert to the regular rate for service,  
               which presumably would result in a lower total bill because  
               of the more efficient light.  This approach is similar to  
               OBR and OBF in that it allows a customer to pay for an  
               energy efficiency improvement through an additional payment  
               in the monthly bill.  However, OBR and OBF programs require  
               that the loan or financing payment be listed as a separate  
               line item on a customer bill rather than built into the  
               cost of service.  This allows the customer to determine the  
               cost-effectiveness of the improvement by comparing the cost  
               of financing the improvement with the savings from the  
               increased efficiency measure.  In addition, separating out  
               the cost of the improvement is essential if an agency uses  
               an energy efficiency rebate or incentive to pay the cost of  
               the improvement, which this bill allows.  In order to  
               ensure transparency and enable local agency customers to  
               apply incentives and evaluate cost-effectiveness of street  
               light improvements, the author and committee may wish to  
               consider amending the bill to require that any charge for  
               financing street light improvements be identified  
               separately rather than included within the charge for  
               service.

              4.   Bills May Temporarily Increase  .  This bill refers to  
               energy efficiency improvements for street light poles "to  
               ensure reduced energy consumption and lower electricity  
               bills." The bill requires a tariff that allows payment of  
               the improvement over time.  As noted above, more efficient  
               lights will reduce energy consumption, but a lower  
               electricity bill likely will not result for the period of  










               time that the customer's bill includes the repayment of the  
               upgrade cost.  Thus, the author and committee may wish to  
               consider amending the bill to strike the references to  
               "lower electricity bills."  

              5.   Timing of CPUC Action  .  This bill requires the CPUC, on  
               or before March 1, 2014, to order IOUs to submit a tariff  
               that offers the light pole financing option to local  
               agencies.  The CPUC states that it needs 18 months "to  
               ensure that a well-designed tariff is made available to  
               local governments."  In October 2012, PG&E submitted a  
               tariff proposal in its pending rate case that would likely  
               meet the requirements of this bill. Perhaps the CPUC's and  
               stakeholders' review of that tariff, which is ongoing now,  
               will enable the CPUC to meet the deadline in this bill.  

              6.   Technical Amendments  .

               On page 2, lines 3 to 13 - move intent language to an  
               uncodified section of the bill.

               On page 3, line 23 - change "conversion" to "improvement"  
               for internal consistency.

              7.   Ratepayer Impact  . This bill requires that tariffs  
               benefit local agency energy customers without shifting  
               costs to nonparticipating ratepayers.  

              8.   Double Referral  . Should this bill be approved by the  
               committee, it will be re-referred to the Senate Committee  
               on Rules for its consideration. 

                                    ASSEMBLY VOTES
           
          Assembly Floor                     (53-18)
          Assembly Appropriations Committee  (12-5)
          Assembly Utilities and Commerce Committee                       
          (10-3)

                                       POSITIONS
           
           Sponsor:
           
          Author











           Support:
           
          California Public Utilities Commission, if amended
          Pacific Gas and Electric Company
          Sierra Club California

           Oppose:
           
          None on file.
















          
          Jacqueline Kinney 
          AB 719 Analysis
          Hearing Date:  June 18, 2013