BILL ANALYSIS                                                                                                                                                                                                              1





                SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 ALEX PADILLA, CHAIR
          

          SB 64 -  Corbett                                  Hearing Date:   
          April 16, 2013             S
          As Amended:         April 9, 2013            FISCAL       B
                                                                        
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                                      DESCRIPTION
           
           Current law  establishes the Clean Energy Job Creation Fund to  
          provide financial assistance to projects that create jobs in  
          California improving energy efficiency and expanding clean  
          energy generation.  Up to $550 million is available fiscal years  
          2013-14, 2014-15, 2015-16, 2016-17, and 2017-18 the source of  
          which is increased state corporate tax revenues.  (Proposition  
          39)

           Current law  requires the California Energy Commission (CEC) to  
          develop and administer a series of programs to provide  
          cost-effective energy efficiency and conservation contracts,  
          grants, and loans to eligible entities.  (Public Resources  
          25410-25474)

           This bill  directs the CEC develop and administer programs  
          consistent with Proposition 39 to provide financial assistance  
          to school districts, cities, and counties for low risk,  
          high-return energy efficiency or clean energy technology.

           This bill  exempts the CEC from the public notice and comment  
          provisions of the Administrative Procedures Act in adopting  
          these guidelines and instead requires the CEC to provide written  
          notice to the public of not less than 30 days, and 15 days for  
          amending the guidelines.

                                      BACKGROUND
           
          Proposition 39 - This ballot initiative was approved by voters  
          at the November, 2012 election.  Titled the California Clean  
          Energy Jobs Act of 2012, it requires most multistate businesses  
          to determine their California taxable income using a single  











          sales factor method. (Previously, state law allowed such  
          businesses to pick one of two different methods to determine the  
          amount of taxable income associated with California and taxable  
          by the state.) This change has the effect of increasing state  
          corporate tax revenue.

          For a five-year period (2013-14 through 2017-18), Proposition 39  
          requires that half of the annual revenue raised from the  
          measure, up to $550 million, be transferred to a new Clean  
          Energy Job Creation Fund to support projects intended to improve  
          energy efficiency and expand the use of alternative energy.   
          "Moneys in the fund shall be available for appropriation for the  
          purpose of funding projects that create jobs in California  
          improving energy efficiency and expanding clean energy  
          generation." Proposition 39 specifically requires that the funds  
          maximize energy and job benefits by supporting:

                 Energy efficiency retrofits and alternative energy  
               projects in public schools, colleges, universities, and  
               other public facilities;
                 Financial and technical assistance for energy retrofits;  
               and
                 Job training and workforce development programs related  
               to energy efficiency and alternative energy.

          Proposition 39 also requires that funded programs be coordinated  
          with the CEC and California Public Utilities Commission (CPUC)  
          in order to avoid duplication and leverage existing energy  
          efficiency and alternative energy efforts. In addition,  
          Proposition 39 states that the funding is to be appropriated  
          only to agencies with established expertise in managing energy  
          projects and programs.

          Governor's Proposed Budget - The Governor appropriates $450  
          million of Proposition 39 revenues in the 2013-14 fiscal year  
          for a K-14 education energy efficiency program in order to  
          satisfy the energy efficiency requirements of Proposition 39. Of  
          this amount, the Governor appropriates $400.5 million to the  
          California Department of Education (CDE) for allocation to K-12  
          school districts, charter schools and county offices of  
          education and $49.5 million to the CCC for allocation to  
          community college districts. The Governor requires CDE and CCC  
          to allocate these funds on a per student basis.











          For subsequent fiscal years in which Proposition 39 revenues  
          continue to be dedicated to clean energy programs, the  
          Governor's proposal continues energy efficiency funding for K-12  
          schools and community colleges at $500 million for four  
          additional years, from 2014-15 through 2017-18. This assumes  
          $1.0 billion in total Proposition 39 revenues, with half  
          provided for energy efficiency per the proposition during this  
          timeframe. The Governor's proposal is limited to these four  
          years, since Proposition 39 does not require energy efficiency  
          funding beyond 2017-18.

          Loading Order - The "loading order" guides the state's energy  
          policies and decisions according to the following order of  
          priority: (1) decreasing electricity demand by increasing energy  
          efficiency; (2) responding to energy demand by reducing energy  
          usage during peak hours; (3) meeting new energy generation needs  
          with renewable resources; and (4) meeting new energy generation  
          needs with clean fossil-fueled generation.  This policy has been  
          adopted by the energy agencies - the CEC and CPUC - and its  
          principles guide all energy programs.

          Existing CEC Programs - The CEC has administered several grant  
          programs to fund energy efficiency retrofits.  The "ECCA"  
          (Energy Conservation Assistance Act of 1979) program was  
          established more than 30 years ago and is one of the oldest of  
          California's many programs designed to reduce statewide energy  
          consumption through energy efficiency measures.  The program  
          makes low-interest loans to cover up to 100 percent of a project  
          with a maximum loan amount of $3 million and maximum repayment  
          term of 15 years. A loan repayment amount cannot exceed the  
          estimated energy savings from a funded project. 

          In 2009 the CEC received $314.5 million for energy efficiency  
          and renewable energy programs as a result of the American  
          Recovery and Reinvestment Act of 2009 (ARRA) and administered  
          four programs: the State Energy Program ($226 million), the  
          Energy Efficiency Conservation Block Grant Program ($49.6  
          million), Appliance Rebate Program ($35.2 million), and Energy  
          Assurance Planning ($3.6 million) with several subsets.
                                       COMMENTS
           
              1.   Author's Purpose  .  Proposition 39 provides minimal  
               guidance on how to develop and administer programs  
               consistent with the Clean Energy and Job Creation Fund.  SB  










               64 will provide the legislative guidance for implementing  
               the objectives of Proposition 39, assist in improving  
               energy efficiency, and expand clean energy generation in  
               schools and public buildings in order to help lower energy  
               utility bills, make clean energy improvements, and create  
               jobs in California. In doing so, SB 64 keeps the promise  
               made to voters in Proposition 39 that funds be available  
               toward eligible projects for K-12 school districts, cities,  
               and counties, for energy efficiency and clean energy  
               generation projects for their facilities and buildings.

              2.   Efficient Efficiency Program  .  The program design of  
               this bill aims to spread the benefits of readily available,  
               low risk, high-return efficiency technologies for eligible  
               facilities throughout the state as well as generation to  
               offset a customer's electric load. The energy efficiency  
               investments, by performing retrofits on a wide scale, can  
               show building owners, operators and occupants that energy  
               efficiency can provide not only cost savings but other  
               valuable non-energy benefits. Improved building comfort and  
               reduced maintenance costs will help convince customers to  
               accept and demand new energy efficient innovations, helping  
               to transform the market.  The efficiency measures must be  
               best practice technologies that have previously  
               demonstrated costeffective energy savings and be broadly  
               applicable to specific building markets.

               The results of an investment such as lighting are easily  
               quantified and the upgrades are tried and true measures  
               which generally dont require an investment grade audit of a  
               facility or a lengthy application and can be dispatched  
               more quickly than the work required to implement a deep  
               energy retrofit of a building. 

               The program structure of this measure will allow the CEC to  
               adopt guidelines quickly since the program is similar to  
               other programs administered by the CEC including the ECCA  
               and those developed under the ARRA.  A virtue of this bill  
               is that it does focus the funding on only one program at  
               the CEC for ease of administration.  The committee  
               monitored the ARRA programs developed by the CEC starting  
               in 2009 very closely and observed that the development of  
               so many programs in a very short time due to federal time  
               limits for expenditure of the funds overwhelmed the CEC and  










               redirected significant staff resources from nearly every  
               other program in the Agency.  

              3.   Proposition 39 Funding  . The bill allocates an  
               unspecified sum from Proposition 39 revenues for the  
               2013-14 fiscal year only.  The Governor's Proposed Budget  
               allocates all available Proposition 39 revenues for energy  
               efficiency to K-12 and the community colleges and counts  
               those revenues toward the Proposition 98 minimum funding  
               guarantee.  If the Legislature approves the Governor's  
               spending plan there would be no available funding from  
               Proposition 39 for non K-14 public facilities in the budget  
               year or for the four remaining years of dedicated funding  
               for clean energy since the Governor also proposes that the  
               funds remain within Proposition 98 for the entire five  
               years.  Consequently, this bill proposes to allocate funds  
               that may not be available.

               There could be additional funding available for clean  
               energy investments from revenue from the Air Resources  
               Board's cap and trade auctions from which is expected to  
               result in $200 million in the current year and $400 million  
               in revenue in the 2013-14 fiscal year.  Thus far the  
               Governor has proposed that all but $100 million of those  
               funds be used to offset General Fund costs of existing  
               greenhouse gas mitigation activities.  The ARB's experience  
               with cap and trade auctions is new and actual revenues are  
               unknown.  

              4.   First-Come, First Served  ?  The financial assistance  
               program in this bill does not specify the means by which  
               the CEC should prioritize awards.  As currently drafted it  
               appears that the author intends the funds to be awarded on  
               a first-come, first served basis. As the CEC experienced  
               with the ARRA program funds the demand for clean energy  
               investment assistance is much greater than the available  
               funding even with Proposition 39.  By requiring that awards  
               go to tried and true measures, the funds will be easier to  
               apply for and be more widely disbursed but the most  
               equitable and effective funding system is a tough call.

               The provisions of Proposition 39 are not informative on  
               this issue.  It requires that: "[a]ll projects shall be  
               selected based on in-state job creation and energy benefits  










               for each project type" and that all projects be  
               cost-effective.  However project selection may also include  
               non-energy benefits: "consideration of non-energy benefits,  
               such as health and safety, in addition to energy benefits."

               The LAO has recommended all funding run through the CEC  
               utilizing a competitive grant process in which all public  
               agencies could apply and receive funding based on  
               identified facility needs which would better optimize  
               benefits.  The LAO further recommends that:

                    In order to ensure that the state maximizes energy  
                    benefits, this competitive process should consider and  
                    weigh all factors that affect energy consumption. The  
                    CEC could create a tiered system that categorizes  
                    facilities based on a high-, medium-, and low-energy  
                    intensity or need. Based on that categorization,  
                    funding should be provided to facilities with the  
                    greatest relative need in coordination with other  
                    existing energy efficiency programs.

               The committee should consider what parameters it might want  
               to include for prioritizing funding awards and the benefits  
               and limitations of each direction.  Awarding funds on a  
               first-come, first-served basis tends to benefit those  
               participants who have the largest staff with the greatest  
               energy expertise and are the best grant writers.  Awards  
               are likely to be concentrated in small geographic areas and  
               do not consider where the greatest energy savings can  
               accrue on a statewide basis.  Competitive grants may  
               maximize energy savings, help the state to achieve its  
               broader GHG reduction goals, and relieve pressure on the  
               electric grid, but really only within the universe of those  
               eligible facilities for which applications are actually  
               submitted.  If the CEC were directed to award grants only  
               to facilities that can show the greatest savings, smaller  
               facilities would automatically be excluded.  Additionally,  
               competitive grants can discourage applicants from  
               participating particularly when funds are limited due to  
               the time demanded of the applicant to prepare the grant  
               application.  However because a project doesn't present the  
               state with the greatest energy savings, it doesn't mean  
               that the project doesn't provide the applicant with  
               significant energy savings.  











               Criteria could be included related to the age of facilities  
               but as buildings are remodeled they are required to conform  
               to the state's green building codes (Title 24) which ensure  
               energy efficiency.  Consequently facility age is not  
               thought to equate to the greatest energy savings.   
               Directing funds just to buildings would also exclude tried  
               and true measures such as switching out red street lights  
               for LED fixtures.  Some ARRA grants were allocated across  
               all cities and counties to ensure equal opportunities  
               across all regions of the state.  Other criteria to  
               prioritize awards include how the facility's electric  
               demand relates to the state's peak electric demand and by  
               climate zones.

               The complexities of program design to achieve the greatest  
               benefits to the state's energy goals may not be appropriate  
               for a taxpayer-funded program such as Proposition 39 but  
               are the basis of the energy efficiency programs  
               administered by the CPUC for investor-owned utilities and  
               by many publicly-owned utilities.  The author's approach in  
               this bill to make funding available for tried and true  
               energy efficiency measures appears to provide the greatest  
               number of opportunities to schools, cities and counties  
               across the state ensuring broader participation and  
               benefits for a program that was approved by voters  
               statewide.  The ease of administration will allow  
               applicants to put the funds to work more quickly thus  
               creating jobs and energy savings as intended by Proposition  
               39.   

              5.   Eligible Entities  . The financial assistance made  
               available as a result of this bill would be limited to K-12  
               schools and city and county facilities.  Eligible entities  
               under the provisions of Proposition 39 are not limited to  
               schools and municipalities but and include all "public  
               facilities" which is not defined.  Should the bill be  
               broadened to define and include all public facilities which  
               could extend financial assistance to facilities at  
               colleges, universities, state properties, and special  
               districts?

              6.   Loading Order  .  Proposition 39 and this bill specify  
               clean energy improvements to not only include energy  










               efficiency improvements but also installation of  
               self-generation such as solar but in what order?  The  
               state's loading order for energy requires that all  
               cost-effective energy efficiency be accomplished as the top  
               priority before renewable generation technologies are  
               considered and funded.  Pursuing energy efficiency before  
               the installation of generation technologies can  
               significantly reduce the size and cost of the generation  
               technology resulting in greater savings for the facility.   
               The committee should consider amendments to ensure that  
               Proposition 39 funds are also allocated consistent with the  
               loading order. 

              7.   Energy Audits  .  The LAO recommends that applicants for  
               Proposition 39 funds "first have an energy audit to  
               identify the cost-effective energy efficiency upgrades that  
               could be made."  An audit would allow an applicant to  
               determine which energy efficiency improvements would be the  
               most cost-effective for each facility.  However energy  
               audits can be expensive and cumbersome.  Audits are  
               beneficial when a building owner is contemplating a deep  
               retrofit to accomplish all or the most cost-effective  
               improvements to undertake but cost-effective energy  
               efficiency can be accomplished without an audit if managed  
               properly.  

               The program intended by this bill would not require an  
               applicant to go through the energy audit process but  
               dedicates funds to tried and true energy efficiency  
               improvements.  A feasibility study would be required and  
               has been used extensively by the CEC for other energy  
               efficiency programs.  A feasibility study typically  
               includes:

                           A description of the proposed energy  
                    efficiency projects and the buildings or facilities  
                    that will be affected by these projects;
                           A discussion of baseline energy use for the  
                    affected facilities, including annual energy-related  
                    utility bills;
                           All calculations and assumptions to support  
                    the technical feasibility and energy savings of the  
                    recommended projects;
                           A proposed budget detailing all project cost;  










                    and
                           A proposed schedule for implementation of the  
                    projects.

              1.   Retrocommissioning  .  Generally energy efficiency  
               programs focus on technologies that can be installed to  
               reduce consumption.  In new construction and for some  
               facility renovations energy management systems are  
               typically installed which allow for automated control of  
               lighting and HVAC, for example.  The utilities and energy  
               efficiency consultants report however that far too many  
               facility owners or managers understand how to implement the  
               technical features present in these advanced systems.  The  
               Los Angeles Department of Water and Power discovered this  
               challenge in schools throughout its territory and found  
               that the HVAC and lighting systems are running 24/7, year  
               round.  By training facilities to use the systems energy  
               bills could be cut in half in many schools.  This type of  
               training of faculty is not a one-time expense and is an  
               on-going need for most facilities.  Consequently training  
               programs have not generally been funded by  
               state-administered programs. 

              2.   Guidelines or Regulations  ?  In an effort to expedite  
               program development and to get the money approved by  
               Proposition 39 working for the state as soon as possible,  
               this bill allows the CEC to adopt program guidelines rather  
               than regulations.  In doing so, the CEC would be exempt in  
               its development of these guidelines from complying with the  
               public notice and comment requirements of the  
               Administrative Procedures Act (APA).  The bill requires  
               instead that CEC provide written notice to the public of  
               not less than 30 days when adopting the guidelines, and 15  
               days for amending the guidelines.  The procedures are  
               consistent with authority provided to the CEC to facilitate  
               development of ARRA-related energy efficiency programs.   
               The committee is unaware of any controversies associated  
               with the development of ARRA program guidelines through  
               this process.  However, absent the authority for  
               guidelines, if an agency believes that the public notice  
               and comment procedures under the APA take too long, they  
               can adopt emergency regulations to be effective in as  
               little as 15 to 20 days, with the emergency standard  
               typically met by specifying it in the statute.  











              3.   Related Legislation  .  The following bills have also been  
               introduced in the current legislative session establish  
               parameters for the funding of programs authorized by  
               Proposition 39.

               SB 35 (Pavley) - Requires the CSU and CCC, and requests the  
               UC, to establish a special subcommittee to develop and  
               administer a "Systemwide Energy Solutions Action Plan" that  
               provides a near-and long-term strategy for energy savings  
               projects which are defined as a measure program, activity,  
               or expenditures that results in energy savings, greenhouse  
               gas emissions reduction, and budgetary savings through  
               investments in clean energy.  Status:  Set for hearing in  
               the Senate Energy, Utilities & Communications Committee  
               April 16, 2013.

               SB 39 (De Leon) - Requires the Office of Public School  
               Construction to establish a school district assistance  
               program to distribute grants, on a competitive basis, for  
               energy efficiency upgrade projects pursuant to Proposition  
               39.  Status:  Set for hearing in the Senate Education  
               Committee April 17, 2013.

               SB 729 (Fuller) - States the intent of the Legislature to  
               enact legislation to implement the California Clean Energy  
               Jobs Act.  Status:  Senate Rules Committee.
                                                               
               AB 29 (Williams) - Allocates $152 million in five  
               consecutive fiscal years to the CEC to administer grants,  
               loans, or other financial assistance for the University of  
               California, California State University, and California  
               Community Colleges to reduce energy demand and consumption.  
                Status:  Set for hearing in Assembly Natural Resources  
               Committee April 15, 2013.

               AB 39 (Skinner) - Directs the CEC to develop and provide  
               grants, loans, or other financial assistance to K-12  
               schools and community colleges to improve energy  
               efficiency, installing clean energy technology, or make  
               energy system improvements; provide low-interest or  
               no-interest loans from a revolving loan fund to schools,  
               colleges and public buildings; and provide funds for job  
               training and workforce development.  Status:  Set for  










               hearing in Assembly Natural Resources Committee April 15,  
               2013.

               AB 114 (Salas) - Directs the Labor and Workforce  
               Development Agency to award grants to eligible entities for  
               projects to provide job training on energy efficiency and  
               clean energy projects that are located in economically  
               disadvantaged communities. Status:  Set for hearing in  
               Assembly Natural Resources Committee April 15, 2013. 

               AB 239 (Hagman) - Requires the Office of Public School  
               Construction to fund a zero-interest revolving loan program  
               and a grant program for school districts to perform energy  
               efficiency retrofit or clean energy installation projects  
               at public schools.  Status:  Set for hearing in Assembly  
               Natural Resources Committee April 15, 2013.


                                       POSITIONS
           
           Sponsor:
           
          Author

           
          Support:
           
          SunPower Corporation

           Oppose:
           
          None on file

          













































          Kellie Smith 
          SB 64 Analysis
          Hearing Date:  April 16, 2013