BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 693 (Eggman) - Multifamily Affordable Housing Renewables  
          Program.
          
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          |Version: August 18, 2015        |Policy Vote: E., U., & C. 8 - 3 |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: August 24, 2015   |Consultant: Marie Liu           |
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          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  This bill would create a program to provide monetary  
          assistance of qualifying renewable energy systems that are  
          installed on qualified multifamily affordable housing  
          properties.


          Fiscal  
          Impact:  
           Ongoing costs of $558,000 from the Public Utilities  
            Reimbursement Account (special fund) for California Public  
            Utilities commission (CPUC) to oversee the contract to  
            administer the program and to annually assess the success of  
            the program. 


           Cost pressures of up to $100 million annually (General Fund)  
            to fund the program after 2020 if no additional Cap-and-trade  
            allocations are given to the electric utilities.







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           Unknown lost revenues to the state, as an electric ratepayer  
            (General Fund and various special funds), for reduced credits  
            from the sale of Cap-and-trade auction revenues allocated to  
            electrical corporations.




          Background:  The California Global Warming Solutions Act of 2006 (referred  
          to as AB 32, HSC §38500 et seq.) requires the California Air  
          Resources Board (ARB) to determine the 1990 statewide greenhouse  
          gas (GHG) emissions level, to approve a statewide GHG emissions  
          limit equivalent to that level that will be achieved by 2020,  
          and to adopt GHG emissions reductions measures by regulation.  
          ARB is authorized to include the use of market-based mechanisms  
          to comply with the regulations. Under this authority, the ARB  
          initiated the cap-and-trade program. All monies, except for  
          fines and penalties, collected pursuant to the cap-and-trade  
          program deposited in the Greenhouse Gas Reduction Fund (GGRF)  
          (Government Code §16428.8). 
          Existing law requires that the GGRF only be used to facilitate  
          the achievement of reductions of GHG emissions consistent with  
          AB 32 (HSC §39710 et seq.). To this end, the Department of  
          Finance, in consultation with the ARB and any other relevant  
          state agencies, is required to develop, as specified, a  
          three-year investment plan for the moneys deposited in the GGRF.  
          The investment plan must allocate a minimum of 25% of the funds  
          to projects that benefit disadvantaged communities and to  
          allocate 10% of the funds to projects located within  
          disadvantaged communities. Additionally, the ARB, in  
          consultation with CalEPA, is required to develop funding  
          guidelines for administering agencies receiving allocations of  
          GGRF funds that include a component for how agencies should  
          maximize benefits to disadvantaged communities.


          Under the Cap-and-trade regulations, ARB allocates GHG emission  
          allowances to capped sectors, including electric IOUs. These  
          allowances are given to IOUs to reduce the impact of the  
          cap-and-trade regulations on ratepayers. ARB requires that the  
          IOUs sell these allowances at the quarterly auctions and that  
          the proceeds be used for the ratepayer benefit, subject to  








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          oversight by the California Public Utilities Commission (CPUC).   
          Specifically, existing law (§748.5(c)) allows the CPUC to  
          allocate up to 15 percent of the proceeds to fund clean energy  
          and energy efficiency projects that are administered by the IOU.  
          Any remaining proceeds must be credited directly to residential,  
          small business, and emission-intensive trade-exposed retail IOU  
          customers.


          Proposed Law:  
           This bill would require the CEC to annually allocate $100  
          million or 10% of available funds from the sale of GHG  
          allowances on behalf of ratepayers, which is less, for the  
          Multifamily Affordable Housing Renewable Programs for 10 years  
          from FY 2016-17 through FY 2025-2026. The program would provide  
          monetary incentives for qualifying renewable energy systems that  
          are installed on qualified multifamily affordable housing  
          properties through December 31, 2030.

          The CEC guidelines would be required to:
                 Establish conditions for photovoltaic (PV) systems that  
               would receive funding under the program to ensure  
               appropriate siting and installation that promotes the  
               greatest energy production for the funds expended,  
               including through performance-based incentives if  
               appropriate.
                 Ensure that the renewable energy system be primarily  
               used to offset the electricity usage by low-income tenants.
                 Prohibit any additional costs for the renewable energy  
               system from being passed on to low-income tenants for  
               systems that are owned by third-parties.
                 Take into account federal investment tax credits and  
               contributions when determine incentive levels
                 Prohibit incentives that exceed total system  
               installation costs
                 Establish local hiring requirements to provide economic  
               development benefits to disadvantaged communities
                 Ensure that participating customers receive off-sets on  
               their electricity bills through virtual net metering  
               tariffs (VNM)

          This bill would require the program to be administered by the a  
          third-party, selected by the CEC through a competitive bidding  
          process.








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          If funds that are allocated over the first three years remain  
          uncommitted after three years, those funds would be required to  
          be credited to ratepayers.  

          The CEC would be required to evaluate program performance every  
          three years and make adjustment to the programs as needed. The  
          CEC would be required to report to the Legislature on the  
          progress of the program every two years.

          This bill would also allow the CEC to approve a third-party  
          administrator to administer revenues from the sale of GHG  
          allowances received by an utility that are allocated for clean  
          energy and energy efficiency projects. 


          Staff  
          Comments:  To oversee the administration of this grant program,  
          the CPUC estimates needing two and a half positions at an annual  
          cost of $308,000. Additionally, to produce the annual report to  
          the Legislature assessing the success of the program, the CPUC  
          anticipates needing a contract with an annual cost of $250,000.
           
          This bill would require the CPUC to contract with a third-party  
          administrator to implement this program because the author and  
          sponsors believe that a third-party administrator can be more  
          cost-efficient and effective. The bill would limit the  
          administrative costs of the third-party administrator to 10% of  
          the program funds. The CPUC notes that the Single-Family  
          Affordable Solar Housing Program is run by a third-party  
          administrator that it considers to be effective and efficient  
          but has an administrative budget of 15%. These costs would come  
          from the funds allocated to the program.

          Staff notes that this grant program is to be funded by revenues  
          from Cap-and-Trade revenue sales. However, the CPUC notes that  
          the ARB's Cap-and-Trade regulation only specifies that electric  
          utilities will receive allowances through 2020. It is unclear  
          how this program should be funded past this date unless it  
          receives monies from the General Fund.

          Additionally, this bill restricts the grant program from  
          receiving 10% of available funds from revenues described in  
          §748.5(c), which is 15% of allocation revenues. It is unclear  








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          whether this program is limited to 10% of all allocation  
          revenues or 10% of the 15% of the revenues allocated for clean  
          energy and energy efficiency projects.  Staff recommends  that  
          this allocation be clarified. Staff further notes that this  
          program will result in reduced credits to electricity consumers  
          as a result of the sale of Cap-and-trade allocations, including  
          the state.

          The grant program under this bill would offer incentives to  
          qualifying renewable energy systems that would include a  
          facility that generates electricity using biomass, solar  
          thermal, photovoltaic (PV), wind, geothermal, fuel cells using  
          renewable fuels, small hydroelectric generation, digester gas,  
          municipal solid waste conversion, landfill gas, ocean wave,  
          ocean thermal, or tidal currents. However, incentives are most  
          likely to go to PV solar systems. Should the other types of  
          renewable energy systems apply to the program, there could be a  
          significant increase in administrative costs and the incentive  
          levels could vary between the technologies. 

          Assuming that this grant program will essentially be a PV  
          assistance program, staff notes that there are other existing  
          programs, in particular the Multifamily Affordable Solar Housing  
          Program (MASH) (PUC §2852) which establishes monetary incentives  
          for the installation of solar energy systems on low-income  
          residential housing and is administered by the California Public  
          Utilities Commission. In fact, this program references the  
          definitions of the MASH program in order to define "qualified  
          multifamily affordable housing property" under this new program.  
          On July 31, 2015, the CPUC approved the handbook for the  
          reauthorized MASH program. MASH requires that the tenant must  
          receive at least 50% of the economic benefit of the allocated of  
          the solar energy system on a monthly system through VNM for the  
          life of the system up to 20 years. This bill similarly requires  
          that the tenants receive offsets on their utility bills through  
          VNM tariffs. The MASH program is currently oversubscribed and is  
          currently reviewing applications on the program waitlist.

          Aside from the eligibility of other renewable energy systems  
          other than PV, the principal difference between this program and  
          MASH is the administering agency (third party hired by the CPUC  
          and the investor-owned utilities, respectively), funding source  
          (Cap-and-trade allocation sales and ratepayer funds,  
          respectively) and whether master-metered properties are eligible  








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          (no and yes, respectively).  Staff notes  that administering  
          multiple programs for substantially similar project types  
          typically results in higher administrative costs than a single  
          program.

          The bill makes references to eligible customers who are  
          participating in the program. However, it would be the housing  
          property owner(s) who would be the participants to the programs,  
          with the tenant customers being beneficiaries of the program.  
           Staff recommends  that the use of these terms be clarified.

          This bill currently specifies that if funds remain uncommitted  
          after three years, the funds are to be credited to ratepayers.  
          However, the bill currently only applies this restriction to  
          funds allocated over the first three years. Presumably this  
          restriction should also apply to funds that are allocated in  
          year four (or beyond) that remain uncommitted after three years.  
          The language is also unclear whether which funds are to be  
          credited to the ratepayers - all uncommitted funds or just the  
          funds that have been uncommitted for more than three years.  
           Staff recommends  that this restriction be clarified. 

          This bill constitutes a state mandate as it creates a new crime  
          because all violations of the PUC code are crimes. However,  
          under the California Constitution, costs associated with this  
          mandate are not reimbursable. 




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