BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 48 - Hill Hearing Date:
April 30, 2013 S
As Amended: April 8, 2013 FISCAL B
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DESCRIPTION
Current law permits the California Public Utilities Commission
(CPUC) to allow recovery of expenses for research and
development within rates to be charged by electrical, gas, heat,
or telephone corporations. Furthermore, guidelines are
established for evaluating research, development, and
demonstration programs proposed by electrical and gas
corporations. (Public Utilities Code 740-740.1)
This bill will require the CPUC to consolidate all applications
for research, development, or demonstration programs under a
single proceeding every two years.
This bill would also require the CPUC to administer a peer
review of utility research and development plans seeking cost
recovery of $1.5 million per year or greater if those projects
had not been selected through an open solicitation.
This bill requires reporting of results from ratepayer funded
research programs including citations of published papers,
public presentations, and patents filed to the Legislature.
This bill provides certain exemptions from the consolidated
proceeding and the peer-review requirements for specific
proceedings, the California Solar Initiative (CSI), and programs
administered by the California Energy Commission (CEC).
BACKGROUND
In order to meet the state's energy needs, the CPUC has
prioritized investment in energy efficiency and demand response
programs, followed by renewable resource generation, and lastly
conventional generation.<1> Research programs are essential to
developing new and more efficient methods of achieving these
goals.
PIER - The CEC is experienced with granting funds through an
open project solicitation process. The Public Interest Energy
Research (PIER) program is a research, development, and
demonstration program intended to advance science and technology
in the fields of energy efficiency, renewable energy, advanced
electricity technologies, energy-related environmental
protection, transmission and distribution, and transportation
technologies. The open project solicitation for this program was
established in statute PRC �25620.1. The program has invested
more than $700 million over the past decade. The PIER program
will not fund any new projects after remaining funds have been
encumbered, and contracts for the last batch of projects will be
awarded by June 2013. The CEC will continue to manage projects
through 2015.
EPIC - The Electric Program Investment Charge (EPIC) was
established in 2012<2> and is administered by four primary
entities: the CEC, PG&E, SDG&E, and SCE. The CPUC approved $162
million in funding per year for the program. The CEC administers
funding for applied research and development, technology
demonstration and deployment, and market facilitation for clean
energy technologies and approaches for the benefit of
ratepayers. Research investment plans for the EPIC program are
considered at the CPUC every three years.
The CEC is responsible for administering energy research
programs within the state, including the PIER and EPIC programs.
However, investor-owned utilities (IOUs) also conduct and
administer research of their own. These private research
programs are often included in rate cases (e.g., general rate
case, energy efficiency proceeding, demand response proceeding)
at the CPUC in order to obtain cost recovery. In several cases,
the CPUC has determined that such research programs are in the
public interest and approved ratepayer reimbursement of the
research expenses.
Lawrence Livermore National Lab - In 2012, the CPUC authorized
the IOUs (PG&E, SCE, SDG&E) to enter into a five-year research
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<1> Energy Action Plan 2008 Update, CEC and CPUC, February 2008
<2> D.12-05-037, CPUC
and development agreement with Lawrence Livermore National Lab
(LLNL).<3> The CPUC authorized ratepayer funding of the 21st
Century Energy Systems (CES-21) program at costs of $30 million
per year to be collected by the IOUs and transferred to LLNL.
The Utility Reform Network (TURN) and the Division of Ratepayer
Advocates (DRA) both opposed the decision.
The CPUC identified that LLNL has expertise in supercomputing
facilities and analysis, which will be central to conducting the
research. In response to an inquiry from DRA, the utilities
stated that even though they were aware of other supercomputing
facilities within California, they had not contacted or
evaluated those facilities to determine if they would be
appropriate or cost-effective for the CES-21 program. However,
they also stated that such an evaluation would be made for
specific proposals to be funded by CES-21 by the CES-21 Board of
Directors.<4>
The CPUC developed a set of criteria that each funded project
must adhere to, called the Cooperative Research and Development
Agreement. While the criteria do not include "peer review" of
proposals explicitly, it is required that each proposal has the
support of a majority of the Board of Directors. The Board of
Directors consists of 6 members: 3 from academia or research
institutions and 3 from the utilities.
HECA - The Hydrogen Energy California (HECA) project received
federal funding from the Department of Energy's Office of Fossil
Energy. Southern California Edison also received CPUC approval
for $30 million in ratepayer funding for studies associated with
the project. The facility will be located in Kern County and use
a gasification technology to convert coal and petroleum coke
into hydrogen and CO2 gas. The hydrogen can be used to generate
electricity, and the CO2 will be sequestered in a nearby oil
field.
COMMENTS
1. Author's Purpose . The author is concerned that there is
currently no mechanism for a proper evaluation of the
scientific and technical merits of the research that the
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<3> CPUC D12-12-031, December 20, 2012
<4>
LawrenceLivermoreNationalLaboratoryPartnership_DR_DRA_004-Q29
CPUC approves. The author argues that the CPUC does not
hold the necessary expertise to judge the scientific and
technical qualities of proposed research and as a result
has no way of knowing if a program is worthwhile.
2. Intended Entities . Some language in the bill is
ambiguous regarding the entities that are subject to the
bill. For instance, the bill states "the commission shall
consolidate all review and approval of research and
development projects . . ." This could be interpreted to
include projects administered by the CPUC itself, including
research reports and studies. The author's intent is to not
include the research administered by the CPUC directly. The
bill language should be clarified to establish that
research administered by utilities is the focus of the
bill.
The primary objective of the CPUC and the utilities is to
provide reliable and safe service, whether the commodity is
electricity, water, telecommunications service, etc. These
entities are not necessarily equipped to perform the same
kind of rigorous review of fundamental research as an
academic or research funding institution.
3. Research Delays . Under this bill, research would be
approved every two years at most frequent, and it often
takes the CPUC a year or longer to conduct a proceeding.
Currently, utilities can include research funding with
other requests related to rates. The repercussions of this
are that utilities will have to plan research programs in
two-year or longer intervals, and research ideas that are
generated between application periods will be postponed.
The trade-off that is proposed by this bill is increased
oversight and planning of research for decreased ability to
respond to new technologies and rapidly changing markets
(e.g., the widespread adoption of plug-in electric
vehicles). The intent behind the bill is to provide further
oversight of approved research, but the proposed mechanism
leads to stalled research that would hinder the utilities'
ability to respond to new technologies and opportunities.
Research or studies that are required to respond to a
unique or emergency situation (e.g., downed transmission
lines from natural disasters, SONGs outage) would be
delayed until the next available application period.
Utilities currently have the authority to establish a
Catastrophic Event Memorandum Account (Public Utilities
Code 454.9) in order to record costs of restoring services
and repairing or replacing damaged facilities. It is not
clear if costs associated with any study necessary to
restore service could be included under this account or if
they need to be included in the proposed consolidated
proceeding. The author's intent is that research could be
approved through a memorandum, if necessary to respond to
an emergency situation.
4. Exceptions . The exceptions provided in the bill are for
specific proceedings that were opened prior to January
2013. The language indicates an awkward implementation of
the author's intent. The specific exempted proceedings
provide a loophole where CPUC could reopen or keep open
those proceedings indefinitely and include future research
proposals within them instead of within the proposed
consolidated research proceeding.
The bill does not specifically address whether projects
proposed in proceedings that were opened during 2013 would
be included or excluded from the consolidated proceeding.
Without excluding those specifically, the projects in
proceedings opened this year would be denied funding. This
is the author's intent.
The bill provides an exception for funding through the
California Solar Initiative and the CEC. The CSI program
already performs an open solicitation for proposals that
then undergo a technical review before approval.<5> This
already meets the criterion provided by the author that
proposals for large programs be solicited in an open
manner. It is not clear why the program needs to be further
separated from the proposed consolidated proceeding.
5. Peer Review . The author has proposed that applications
for funding of $1.5 million per year or more should be
selected through an open solicitation by the utility or
that the CPUC administer an independent peer review of the
proposals. The threshold amount of $1.5 million is set
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<5> California Solar Initiative solicitation available at
http://calsolarresearch.ca.gov/Current-Solicitations/
arbitrarily, but is intended to highlight large programs.
The author argues that the incorporation of a peer review
process for large projects will increase the quality of the
scientific and technical results of the research, and lend
additional credibility to the research. The competitive
process incorporating peer review of proposals is the
standard among other granting institutions. Major federal
agencies that incorporate peer review for grant funding
include the Department of Agriculture, the National Science
Foundation, the National Institutes of Health, the
Environmental Protection Agency, the National Institute of
Standards and Technology, the National Oceanic and
Atmospheric Administration, and the National Aeronautics
and Space Administration.<6>
The CPUC argues that the open proceeding process is
equivalent to a peer review by inviting input from
stakeholders in the case. However, input from stakeholders
does not necessarily evaluate the scientific and technical
merits of the proposal, nor are general stakeholders
necessarily qualified to perform such an evaluation. The
open proceeding process determines whether research should
be done, and is not an evaluation of the quality of the
proposed research plan.
Perhaps most significantly, the inclusion of a peer review
approval process for projects over $1.5 million annually
will serve as a disincentive for utilities to propose large
research projects. This mechanism was included by the
author in order to highlight research proposals that
potentially lack scientific and technical merit. The bill
would not prohibit funding these projects, but it would
subject them to further review before approval.
6. Ratepayer Impact . Funding for research is already
approved in a piecemeal manner. Approving research through
one consolidated proceeding does not necessarily lead to a
change in rates.
7. Proposed Amendments . The committee may wish to consider
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<6> US General Accounting Office, "Federal Research: Peer Review
Practices at Federal Science Agencies Vary." GAO/RCED-99-99.
March, 1999.
amending the bill to alleviate unintended consequences. The
proposed amendments strike the requirement for a
consolidated proceeding and exceptions to that proceeding
in order to prevent the most grievous objection that the
bill causes inordinate delays to approval of research
funding.
In order to address the author's primary concern that
scientific and technical merits of proposals are currently
not evaluated rigorously, the amendments refocus the bill
on the peer review of funding applications. The current
wording of the bill implies some confusion by directing the
CPUC to place preference on some projects over others.
These amendments strike the previous language and replace
it with clearer language that implements the author's
intent. The amended wording requires the CPUC to administer
a peer review using independent, qualified individuals to
evaluate the merits of the research and reasonableness of
the requested funding. The amendments also allow the CPUC
to waive the peer review requirement if the proposal has
already undergone a peer review by a state or federal
entity. In this way, the bill would allow for timely
approval of funding for projects that have matching funds
from other entities such as the National Science Foundation
that already conduct peer review of applications. The
reporting requirements are revised to include a defined
date of compliance and frequency of reports. The amendments
also strike portions of this bill that were redundant and
the source of some confusion.
The proposed amendments strike portions of the bill and
replace them with the following:
(b) When reviewing any request from a public utility for
authorization of expenses for research and development
projects where the expenses are to be recovered from
ratepayers and the expenses are in excess of $1.5 million
per year, the commission shall administer a peer review
of the proposed projects before awarding ratepayer
recovery of the expenses. The peer review shall consider
all of the following:
(1) The overall scientific or technical merits of the
proposed research.
(c) The commission may waive the peer review requirement
in paragraph (b) for research and development projects
that have been selected through an open solicitation of
proposals or contingent upon a peer review by a public
state or federal entity.
Amendments also require a report to be submitted to the
Legislature covering research from the previous three years
due no later than December 31, 2014 and recurring every
three years thereafter.
POSITIONS
Sponsor:
Author
Support:
Division of Ratepayer Advocates
San Diego Gas & Electric Company, if amended
Sierra Club California
Southern California Gas Company, if amended
The Utility Reform Network
Oppose:
California Public Utilities Commission
Kyle Hiner
SB 48 Analysis
Hearing Date: April 30, 2013