BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                       Bill No:  SB  
          124
          
                 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
                       Senator Roderick D. Wright, Chair
                           2013-2014 Regular Session
                                 Staff Analysis



          SB 124  Author:  Corbett
          As Amended:  April 10, 2013
          Hearing Date:  April 23, 2013
          Consultant:  Paul Donahue


                                     SUBJECT  

                Public contracts: Bid preferences - clean energy

                                  DESCRIPTION
           
          This bill provides a 5% preference to bidders installing  
          "clean energy" systems that have been manufactured or  
          assembled in California. Specifically,  this bill  :

          1)Requires the California State University (CSU) and state  
            agencies that accept bids or proposals for a contract for  
            the purchase or installation of a clean energy device,  
            technology, or system through a power purchase  
            agreement<1> or a direct purchase to provide a preference  
            of 5% to a bidder that certifies that all of the parts of  
            the clean energy device, technology, or system to be  
            installed have been manufactured or assembled in this  
            state. 

          -------------------------
          <1> A power purchase agreement is a financial arrangement  
          in which a third-party developer owns, operates, and  
          maintains a clean energy device, technology, or system, and  
          a state agency agrees to site the device, technology, or  
          system on its roof or elsewhere on its property and  
          purchases the device, technology, or system's electric  
          output, not the device, technology, or system itself, from  
          the third-party developer for a predetermined period of  
          time.





          SB 124 (Corbett) continued                                
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          2)Specifies that the preference shall be 5% of the bid  
            price of the lowest responsible bidder meeting  
            specifications, or 5% of total score of the highest  
            scored bidder when factors in addition to price are  
            considered by the awarding authority.<2>

          3)To be eligible for the preference, bidders must submit  
            information on the manufacturer or assembler of the clean  
            energy system, and the location where the system parts  
            will be manufactured or assembled.<3> 

          4)States that if more than one bid is lowest responsible or  
            highest scored, the agency shall award the contract to  
            the bidder having the highest number of full-time  
            employees assembling or manufacturing the clean energy  
            system in the state when the contract is let. 

          5)Defines "Clean energy device, technology, or system" as:  
            (a) energy efficiency devices or technologies that reduce  
            the need for new electric generation and reduce emissions  
            of toxic and criteria pollutants and greenhouse gases;  
            (b) devices or technologies used for a renewable  
            electrical generation facility;<4> (c) a combined heat  
            and power system;<5> (d) distributed generation and  
            energy storage technologies eligible under the  
            self-generation incentive program;<6> or (e) a facility  
            designed for the production of renewable fuels, the  
            efficient use of which reduces the use of fossil or  
            nuclear fuels.

          6)Contains several legislative findings and declarations,  
            which state among other things that state purchases  
            should be used to stimulate our state economy and put  
          -------------------------
          <2> The bill specifies that the 5% preference shall not be  
          awarded to a noncompliant bidder, and cannot be used to  
          satisfy any applicable minimum requirements.

          <3> The bill directs the Department of General Services  
          (DGS) to establish a process to verify that a bidder meets  
          the criteria for the 5-percent preference.
          <4> Pub. Res. Code § 25741

          <5> Pub. Util. Code § 2840.2

          <6> See Pub. Util. Code § 379.6






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            people back to work; that California is the nation's  
            largest clean economy; that more than 12,000 clean  
            technology companies call California home and are  
            creating jobs at nearly 10 times the rate of the state's  
            other industries; and that this bill create both  
            construction and permanent manufacturing jobs in  
            California.
           
                                   EXISTING LAW

           1)Establishes rules governing the awarding of contracts by  
            state agencies, including general requirements for  
            competitive bidding on contracts for construction  
            projects, goods, services, and information technology.

          2)Authorizes public agencies to enter into contracts with  
            private entities to provide electrical or thermal energy  
            or conservation services from alternate energy equipment  
            or cogeneration equipment, if the cost of the services  
            provided will be less than the anticipated cost to the  
            agency. The contracts are also exempt from competitive  
            bidding and may be awarded by the agency based on the  
            experience of the contractor and cost of the contract.  
            (Govt. Code § 4217.10 et seq.)

          3)Entitles California disabled veteran businesses and small  
            businesses certified by the Department of General  
            Services (DGS) to a 5 percent preference in bidding on  
            state contracts for goods, services, information  
            technology and for state public construction contracts. 

          4)Requires the state to award a 5 percent preference in  
            contracts for goods and services to California based  
            firms that demonstrate and certify that at least 50  
            percent of the total labor hours for manufactured goods  
            or 90 percent of the total labor hours for services will  
            be performed in qualifying areas.<7>

          5)Establishes a Self-Generation Incentive Program (SGIP) to  
            provide subsidies for customer-owned electric generation  
            facilities, with an additional 20 percent incentive for  
          -------------------------
          <7> See, e.g., Target Area Contract Preference Act, Govt.  
          Code § 4530 et seq.; Enterprise Zone Act, Govt. Code § 7070  
          et seq.; Local Agency Military Base Recovery Area Act,  
          Govt. Code § 7105 et seq. 






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            installation of eligible distributed generation  
            resources<8> from "California suppliers." 

                                    BACKGROUND
           
           1)Purpose of the bill  :  According to the author, California  
            has made a strong commitment to clean energy technology.  
            Currently, California maintains over a dozen major  
            programs to support the development of energy efficiency  
            and alternative energy in the state. Over the past 10 to  
            15 years, the state has spent approximately $15 billion  
            on such efforts. In addition, Proposition 39 of 2012,  
            which passed with a 60 percent vote, increases state  
            corporate tax revenues and requires that half of these  
            revenues for the next five years be used for energy  
            efficiency and alternative energy projects. California  
            residents are great supporters of green technology.

            According to the author, "California-made clean energy  
            technology creates important manufacturing jobs in our  
            state, leads to significant investment in our  
            communities, is made with cleaner energy than  
            foreign-made products and will demonstrate California's  
            innovative technology. The continued success of green  
            technology in California depends upon state policy and  
            federal and state incentives.

            "Unfortunately, the current system fails to fully  
            consider California's investments when spending tax  
            dollars to implement energy efficiency projects. For  
            example, California has installed photovoltaic solar  
            systems on state property, including land controlled by  
            the Department of Corrections and Rehabilitation, the  
            Department of Mental Health and several California State  
            Universities. However, Department of General Services  
            does not know if any of the solar panels on state  
            property were made in California.  

            "Several states, including Alaska, Idaho, Montana, and  
            West Virginia, have preferences for state-manufactured  
            goods. SB 124 is no different. This policy supports the  
            continued development of energy efficiency and  
            alternative energy jobs in our state and protects our  
            ------------------------
          <8> The Public Utilities Commission administers incentives  
          for solar technologies under a separate California Solar  
          Initiative program.





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            financial investment in green technology."

           2)All parts must be manufactured or assembled in  
            California  :  In order to be eligible for the 5 percent  
            preference, a bidder must certify that all of the parts  
            of the clean energy device, technology, or system to be  
            installed have been manufactured or assembled in  
            California. Many so-called clean tech companies in  
            California manufacture or fabricate alternative or  
            distributed generation systems, and related devices or  
            systems. 

            Ostensibly, these firms would be eligible for the  
            preferences outlined in this bill, but it would seem that  
            few companies could certify that they manufacture or  
            assemble every single part of an alternative energy  
            system in California. To illustrate, a small compressor  
            might have been manufactured in Ohio, and shipped as a  
            discrete unit to a California company that incorporates  
            that part into an extensive alternative energy system  
            designed to heat and cool an entire university campus.  
            Technically speaking, this firm would not qualify for the  
            preference because a component part of a system was  
            manufactured and assembled elsewhere.

            The California Public Utilities Commission's  
            Self-Generation Incentive Program (SGIP) provides  
            incentives for the installation of alternative energy  
            resources from a California supplier. 

            The SGIP program defines a "California supplier" as  
            either a business whose owners or officers are domiciled  
            in California and the permanent principal office or place  
            of business is in the state, or is a business that has,  
            during the preceding 5 years (1) owned and operated a  
            manufacturing facility in the state that manufactures  
            [the specified] resources; (2) is licensed to do business  
            in the state; and (3) employs California residents.

            In order to avoid inadvertently excluding companies from  
            the bill's preference program, despite their having  
            substantial business operations in California, the author  
            or the Committee may wish to consider clarifying the  
            preference eligibility requirements consistent with the  
            SGIP definitions described above. 






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           3)Arguments in support  :  Supporters state that California  
            should put its money where its mouth is, in that we  
            support green energy and we should reward contractors  
            that invest in producing goods and services that meet the  
            highest environmental standards.

           4)Arguments in opposition  :  Opponents state that this bill  
            would undermine growth in California green technology  
            manufacturers because growth in that sector depends on  
            their ability to export to other markets where energy  
            efficiency and renewable energy development lag behind  
            California. 

                            PRIOR/RELATED LEGISLATION
           
          SB 175 (Corbett), 2011-2012 Session. Would have established  
          a 15 percent bidding preference on state contracts for the  
          purchase or installation of a solar photovoltaic system to  
          a business certifying that all of the solar cells and solar  
          panels installed as part of the solar photovoltaic system  
          have been manufactured in California. (Held in Assembly  
          policy committee)

           SUPPORT:   

          Bloom Energy 
          California Conference Board of the Amalgamated Transit  
          Union 
          California Conference of Machinists 
          California Labor Federation, AFL-CIO
          California Teamsters Public Affairs Council 
          Capstone Turbine Corporation 
          Engineers & Scientists of California, IFPTE Local 20 
          International Longshore and Warehouse Union 
          Professional & Technical Engineers, IFPTE Local 21 
          Solaria Corporation
          Soraa 
          UNITE-HERE, AFL-CIO 
          United Food & Commercial Workers Western State Council 
          Utility Workers Union of America 

           OPPOSE:   

          California Chamber of Commerce
          California Manufacturers & Technology Association






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           FISCAL COMMITTEE:   Senate Appropriations Committee



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