BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 693 (Eggman) - Multifamily Affordable Housing Renewables Program. ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: August 18, 2015 |Policy Vote: E., U., & C. 8 - 3 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 24, 2015 |Consultant: Marie Liu | | | | ----------------------------------------------------------------- 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. AB 693 (Eggman) Page 1 of ? 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 AB 693 (Eggman) Page 2 of ? 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. AB 693 (Eggman) Page 3 of ? 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 AB 693 (Eggman) Page 4 of ? 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 AB 693 (Eggman) Page 5 of ? (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. -- END --