BILL ANALYSIS Ó
SB 48
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Date of Hearing: June 23, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 48 (Hill) - As Amended: June 18, 2014
SENATE VOTE : (vote not relevant)
SUBJECT : Public utilities: research and development projects.
SUMMARY : This bill would require the California Public
Utilities Commission (PUC) to conduct an independent expert
review, as specified, to inform findings supporting any
inclusion of research and development expenses in electricity
rates by PUC-regulated utilities. Specifically, this bill :
1)Defines independent expert review as one that examines the
effectiveness with which the proposed research and development
application meets existing statutory guidelines to the
commission on research and development projects.
2)Requires persons conducting the independent expert review to
be:
a. Independent of the applicant;
b. Independent of the persons conducting the proposed
project or program;
c. Knowledgeable on scientific and technical aspects of
the application; and
d. Free of financial or other interests that could
impair objectiveness or create an unfair competitive
advantage.
3)Provides that establishment of an advisory committee is not an
unlawful delegation of PUC authority.
4)Requires the PUC, on or before February 1, 2016 and
triennially thereafter, to submit a report of research and
development projects funded by ratepayers during the previous
three years to relevant policy and fiscal committees of the
Legislature, and requires the report to include for each
project a list of published papers, presentations, and
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patents.
5)Makes various findings and declarations related to independent
expert review.
EXISTING LAW
a)Establishes that public utilities are subject to control by
the Legislature. (California Constitution, Article XII,
Section 3)
b)Authorizes the PUC to fix rates, establish rules, examine
records, issue subpoenas, administer oaths, take testimony,
punish for contempt, and prescribe a uniform system of
accounts for all public utilities subject to its jurisdiction.
(California Constitution, Article XII, Section 6)
c)Authorizes the PUC to adopt rules for public utilities
regarding a showing of information to be made in support of
proposed rate changes and allowing opportunities to protest
those rate changes. (Public Utilities Code 454(c))
d)Authorizes the PUC to allow an electrical corporation, gas
corporation, heat corporation, or telephone corporation to
include expenses for research and development in rates.
(Public Utilities Code 740)
e)Requires the PUC to consider specified guidelines in
evaluating the research, development, and demonstration
programs proposed by electrical and gas corporations. (Public
Utilities Code 740.1)
FISCAL EFFECT : Unknown.
COMMENTS :
1)Author's statement: According to the author, SB 48 "ensure[s]
that ratepayer-funded energy research is coordinated so that
the CPUC and the public can better see whether the research
activities are serving the interest of ratepayers. SB 48 is
needed [because] very little of the nearly $400 million?in
research and development that the CPUC has approved in the
last six years has been vetted by independent experts
qualified to perform the task. Given the constriction of
research funds at the federal level and pressure for the state
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fill the gap, we cannot allow customer money to be allocated
by policy wonks and with no input from those with actual
research expertise. The additional oversight is consistent
with, though no by no means as rigorous as, the Department of
Energy's requirements for such proposals."
2)Independent expert review. The goal of independent review
(sometimes termed "peer review") is to obtain an independent,
third-party review of a scientific/technical work product from
experts who have not substantially contributed to its
development.<1> This review is intended to uncover problems or
unresolved issues in a preliminary (or draft) work product,
and facilitates revision of the draft product into a final
product that reflects sound technical information and
analyses. This review typically enhances a
scientific/technical work product so the decision or position
taken on the work product has a sound, credible basis. The
National Research Council states:
"When peer [independent] review results are used to
improve the quality of a decision process (e.g.
selection of proposals, prioritization of projects for
funding), it also enhances the credibility of the
decisions. Use of peer [independent] review therefore
provides observers some confidence that decisions are
made with the best available scientific and technical
information." <2>
An independent expert review process is used by many granting
institutions, including but not limited to federal agencies
such as the Department of Agriculture, National Science
Foundation, National Institutes of Health, Environmental
Protection Agency, National Institute of Standards and
Technology, National Oceanic and Atmospheric Administration,
and National Aeronautics and Space Administration.<3> As an
example, the U.S. Department of Energy awarded an Energy Hub
grant of $120 million over five years to Argonne National
Laboratory for energy storage research, and did so "through an
open national competition with a rigorous merit review process
that relied on outside expert reviewers." The California
Energy Commission (CEC) conducts a peer review of applications
--------------------------
<1> http://www.epa.gov/peerreview/pdfs/prhandbk.pdf
<2> NRC, Peer Review in the Department of Energy-Office of
Science and Technology, 1997.
<3> http://science.energy.gov/~/media/bes/pdf/rc99099.pdf
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for Public Interest Energy Research (PIER) funding, and the
California Institute for Regenerative Medicine requires peer
review of all grant applications.
Although peer input, public comment, and stakeholder input add
value to the work product, they do not substitute for
independent expert review.<4> Peer input refers to the
contributions made by an open exchange of data, insights, and
ideas during development of a work product. However, when one
has a material stake in the project or participated
substantially in the development (such as a workgroup member),
reviews by those individuals may not qualify as unbiased,
independent review. One cannot argue that an independent
expert review is not necessary if a major work product has
received "enough" peer input. Public comment similarly does
not always result in the in-depth analyses expected of an
independent review process. Finally, stakeholder involvement
also does not substitute for independent expert review, as it
typically involves external interest groups with a stake in
the work product outcome or regulatory position.
3)PUC and CEC energy-related research programs and funds. To
meet the state's energy needs, the PUC and CEC have proposed a
focus on research, development, and demonstrations related to
bioenergy, energy efficiency, renewable energy, transportation
fuels and vehicles, and carbon capture and storage.<5>
However, independent review is not always utilized. Following
are examples of energy-related research programs involving the
PUC and/or CEC:
a) The Public Interest Energy Research (PIER) program. PIER
is a research, development, and demonstration program
intended to advance the fields of energy efficiency,
renewable energy, advanced electricity technologies,
energy-related environmental protection, transmission and
distribution, and transportation technologies. The CEC
administers PIER, granting funds through an open project
solicitation process. The program invested more than $700
--------------------------
<4> http://www.epa.gov/peerreview/pdfs/prhandbk.pdf
<5>
http://www.energy.ca.gov/2008publications/CEC-100-2008-001/CEC-10
0-2008-001.PDF
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million over the past decade.<6> As of June 2013, PIER is
not funding new projects (funding has been depleted), but
the CEC will manage projects through 2015.
b) The Electric Program Investment Charge (EPIC).
Established in 2012 by the PUC, EPIC provides public
interest investments in applied research and development,
technology demonstration and deployment, market support,
and market facilitation, of clean energy technologies and
approaches for the benefit of electricity ratepayers of the
three major investor-owned utilities (IOUs) PG&E, SDG&E,
and SCE.<7> EPIC is administered by the CEC and the IOUs.
Funds are administered under the oversight and control of
the PUC, with $162 million in annual funding approved from
2013 to 2020. The funds are administered 80% by the CEC and
20% by the IOUs, with the IOU role limited to technology
demonstration and deployment. A public proceeding is
conducted every three years to consider investment plans.
Independent of these programs, PUC-regulated IOUs conduct and
administer research. These research programs are often
included in PUC rate cases to recover costs through rates. The
PUC may allow IOUs to use ratepayer funds if it determines
investments made with those funds will be in the public
interest and are just and reasonable. In the past six years,
the PUC has approved about $400 million in ratepayer funds for
research and development. The majority of these funds have
been approved without review by experts in the field of
research being funded, because the PUC does not have such a
process in place. Some funds have been awarded to sole-source
projects.
1)Lawrence Livermore National Lab (LLNL) funding issue. One
example of funded research that may have benefited from
independent review involves the PUC, the IOUs, and LLNL. In
2012, the PUC authorized the electric IOUs to enter into a
five-year energy research and development agreement with LLNL.
The PUC authorized ratepayer funding of $30 million per year
from the 21st Century Energy Systems (CES-21) program,
collected by the IOUs and transferred to LLNL.
The Utility Reform Network (TURN) and the PUC Office of
Ratepayer Advocates (ORA) both opposed the decision. TURN
--------------------------
<6>
http://www.energy.ca.gov/2014publications/CEC-500-2014-035/CEC-50
0-2014-035-CMF.pdf
<7> http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/167664.pdf
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objected to the grant being made without competitive
solicitation, as the PUC identified LLNL as having expertise
in supercomputing facilities and analysis, which were central
to the research, without examining other options. In response
to ORA, the IOUs also 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.
In this case, an independent third-party review of the
application may have revealed issues with the proposed
research, increased the quality of research performed, and
provided additional credibility to the research and funding
process.
2)Concerns with the proposed independent review. Currently, the
bill is faced with several issues of concern to the committee
staff:
a) Scope of research and development. It is unclear what
"research and development" means, and which projects will
be subject to an independent review. For example, would
pilot projects, pending projects, and applications to renew
existing projects all require review? These types of
research and development are not currently specifically
excluded. It is also unclear whether demonstration programs
will be subject to independent review. The PUC considers
certain guidelines when evaluating research, development,
and demonstration programs, but the proposed section of
this bill on independent review refers to "research and
development projects or programs" and does not explicitly
exclude demonstration programs.
b) Funding cap. According to current bill language, every
project funded by ratepayers will be subject to independent
review, as the bill currently does not contain a cost cap
in regards to the review. For example, would the
Legislature consider independent review of a $1000
ratepayer funded project to be efficient and
cost-effective?
c) Timeline. Independent review is most useful when
conducted in a timely manner. However, a timeline or
parameters for review has not been established in the bill.
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Considering these topics of concern, the author may wish to
consider an amendment striking all language related to
independent review, leaving intact Section 3 of the bill
that requires the PUC to submit a report of research and
development projects funded by ratepayers to relevant
policy and fiscal committees of the Legislature .
The author may also wish to consider an amendment to the
reporting requirement that requires the PUC to indicate
which projects were subject to independent expert review,
and report on the steps the PUC has taken to incorporate
independent expert review into funding research,
development, and demonstration programs.
The author may further wish to consider an amendment that
removes the reporting requirement for citations of all
published papers, all oral and poster presentations given
at public meetings, and all patents awarded for the funded
projects.
1)Findings and declarations. Currently the findings and
declarations do not address the use of independent expert
review by the PUC and/or CEC. Therefore, the author may wish
to consider an amendment to the findings and declarations
stating that the Legislature encourages the PUC and CEC to use
independent expert review when funding research, development,
and demonstration proposals to ensure ratepayers are protected
from projects that are duplicative, unnecessary, or not
supported by a compelling need.
2)Support and opposition. There is no support on file. In
opposition unless amended, PG&E states the current form of
this bill would hurt current programs, stifle future
innovation, and hurt the ability to meet energy goals. PG&E
would support amendments that: recognize existing programs
have rigorous governance procedures, clarify that the rules
apply to early stage R&D and not applied R&D or demonstration
programs; require expert review to be expedient; require
independent review only apply to new programs that exceed $10
million in proposed costs.
REGISTERED SUPPORT / OPPOSITION :
Support
SB 48
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None on file.
Opposition
Pacific Gas and Electric Company (PG&E) (unless amended)
Analysis Prepared by : Brandon Gaytan / U. & C. / (916)
319-2083