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 PageB 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 SB 124 (Corbett) continued PageC 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. SB 124 (Corbett) continued PageD 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. SB 124 (Corbett) continued PageE 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. SB 124 (Corbett) continued PageF 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 SB 124 (Corbett) continued PageG FISCAL COMMITTEE: Senate Appropriations Committee **********