BILL ANALYSIS Ó AB 802 Page 1 Date of Hearing: April 27, 2015 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Anthony Rendon, Chair AB 802 (Williams) - As Amended April 20, 2015 SUBJECT: Public utilities: energy efficiency savings SUMMARY: This bill requires the California Public Utilities Commission (CPUC) to modify its cost effectiveness evaluation for energy efficiency savings. Specifically, this bill: a)Declares the intent of the Legislature to enact legislation requiring that all applicable state and federal contractor qualifications, licensing, certifications, and wages appropriate for the work to be performed are followed for any energy efficiency retrofit and installation project funded by ratepayers. b)Requires the CPUC to consider total energy savings to be the difference between the energy usage after the installation of the energy efficiency measure funded by ratepayer-funded incentives or rebates and the energy usage without that energy efficiency measure. EXISTING LAW: AB 802 Page 2 1)Establishes a charge on electricity and natural gas consumption to fund cost-effective energy efficiency and conservation activities. (Public Utilities Code Sections 381 and 890) 3)Requires electric corporation procurement plans to first meet its unmet resource needs through all available energy efficiency, and demand reduction resources that are cost effective, reliable, and feasible. (Public Utilities Code Sections 454.5 (b)(9)(C)) 4)Requires the CPUC to establish targets for all potentially achievable cost-effective electricity and gas efficiency savings. (Public Utilities Code Sections 454.55 and 454.56) 5)Requires the California Energy Commission (CEC) to develop a statewide estimate of all potentially achievable cost-effective electricity and natural gas savings, establish targets for statewide annual energy efficiency savings, and demand reduction for the next 10-year period. (Public Resources Code Section 25310) 6)Requires the CEC to adopt cost-effective energy and water efficiency standards for new buildings and appliances. (Public Resources Code Section 25402) 7)Prohibits the sale of new appliances that do not meet the energy and water efficiency standards adopted by the CEC. (Public Resources Code Section 25402(c)(2)) 8)Requires the CEC to develop and implement a comprehensive program to achieve greater energy savings in California's existing residential and nonresidential building stock. (Public Resources Code Section 25943) AB 802 Page 3 FISCAL EFFECT: Unknown. COMMENTS: 1)Author's Statement. "Current policy leads to a large pool of stranded energy efficiency savings potential because program administrators can only target energy savings attributable to the installation of equipment above current code levels. Under this policy, bringing older buildings up to and eventually beyond current code levels is difficult." "Existing data demonstrates that to-code savings are significantly larger than the above-code savings. Further, for customers with inefficient equipment, poorly tuned buildings, or behaviorally driven over-consumption, the incentive amount investor owned utilities (IOUs) can offer isn't enough to motivate the upgrades and changes in practice required, as the portion of the costs for which no incentive is available may be substantial. This results in deferred projects and stranded savings potential." "AB 802 will allow IOUs to provide incentives for improvements from existing conditions and count all savings that show up at the meter as decreased use, including savings achieved by process changes and maintenance. Authorizing this flexibility means California can take a significant step toward 2030 climate goals." AB 802 Page 4 2)Governor's 2015 Inaugural Address calls for Energy Efficiency. In the Governor's Inaugural Address on January 5, 2015, he stated in his comments on reducing carbon pollutions and limiting greenhouse gas emissions: "In fact, we are well on our way to meeting our AB 32 goal of reducing carbon pollution and limiting the emissions of heat-trapping gases to 431 million tons by 2020. But now, it is time to establish our next set of objectives for 2030 and beyond. Toward that end, I propose three ambitious goals to be accomplished within the next 15 years: Increase from one-third to 50 percent our electricity derived from renewable sources; Reduce today's petroleum use in cars and trucks by up to 50 percent; Double the efficiency of existing buildings and make heating fuels cleaner." 1)New Approach to Energy Efficiency Programs. The goal of the AB 802 Page 5 current ratepayer funded program is framed around an attempt by the CPUC to preserve the use of ratepayer funding for those energy efficiency improvements would be above and beyond that which is naturally going to occur when consumers replace appliances or make building improvements (from CPUC Decision D.14-10-046): Goal of ratepayer funded programs is to generate savings above and beyond those that would happen organically, i.e., incremental savings, and lead customers to save energy in ways that they would not have absent the incentive Using a code baseline is one way to ensure that programs do not pay for, and PAs are not devoting resources to savings that would have occurred anyway, even without a program Customers are generally legally obliged to meet code requirements when replacing a burned-out piece of equipment, when engaging in a normal retrofit, and in new construction Use of code baseline harmonizes with the CEC and CAISO energy demand forecast This same CPUC decision (D.14-10-046) directs the IOUs to implement a "to-code" pilot program to better understand the extent to which there is below-code equipment that is not getting replaced quickly enough through natural turnover or existing programs. The pilot will assess whether ratepayer-funded programs can be developed to target this equipment when customer incentives are made available based on to-code, in addition to above code, savings, and PAs receive savings credit. 1)Studies show "stranded" energy efficiency opportunities . Two recently completed studies in the PG&E service area found that AB 802 Page 6 the savings potential for bringing a building to current code standards are higher than the potential savings from above-code only programs. One study found that as much as 75% of potential savings were stranded under current policies. The second study found similar results: 71% of the total potential electric savings, equating to 781 gigawatt hours (GWh), were below-code, while the remainder was above-code. Under the current code baseline rules, in most cases, investor owned utilities (IOUs) can only offer an incentive for the portion of savings that occurs from code to super-efficient. This dynamic leads to perverse incentives in which the least efficient schools may become stranded opportunities. Pacific Gas & Electric (PG&E) found that this is particularly challenging for schools receiving funding under Proposition 39, which also adopts the above-code approach to funding energy efficiency improvements at schools: PG&E found through a survey of existing site conditions at 19 schools conducted in 2006 in PG&E's service territory that: Two of the nineteen schools are more efficient than code, while the remainder range from slightly less efficient to significantly less efficient. The least efficient schools are poor candidates for investor owned utility programs because the majority of the AB 802 Page 7 savings potential cannot be counted or incented, leaving these schools with a significant investment of their own before they could benefit from incentive assistance. 1)Rate increase? The CPUC establishes the budgets for the ratepayer funded incentive programs. The bill does not require nor does it suggest an increase in those budgets, thus a rate increase is unlikely if AB 802 becomes law. The CPUC could incorporate the provisions of AB 802 into the existing program portfolio and make decisions on reducing or de-funding less productive programs. 2)Bonus Shareholder Incentive? Beginning in 2007 the CPUC authorized a "risk reward incentive mechanism," which rewards or penalizes utilities based on evaluated energy savings for their performance administering energy efficiency programs. Because AB 802 has the potential to produce significant savings it could lead to a bonus in the incentive mechanism as a result of the IOUs achieving greater levels of energy efficiency. AB 802 does not require the CPUC to specify a certain level of shareholder incentive for this program and does not prescribe that the CPUC provide the same incentive as if currently allowed. In fact, if the program authorized by AB 802 is able to yield savings at a lower cost, it is logical the CPUC could reduce the level of shareholder incentive that it awards to the IOUs. 3)Legislative intent . AB 802 provides Legislative intent that ratepayer funded energy efficiency projects are subject to all applicable state and federal contractor qualifications, licensing, certifications, and wages appropriate for the work to be performed. This provision clarifies that the CPUC shall ensure that the ratepayer funded programs that it authorizes AB 802 Page 8 shall follow these state rules however it is not clear who would enforce the provisions of this section of the bill. 4)Support and opposition. PG&E supports AB 802 but is concerned that the intent language with respect to compliance with state laws could put PG&E in a position of enforcing contractor qualifications, licensing, certification and wages and that this could increase program cost and reduce funding available for energy efficiency. 5)Related Legislation AB 1330 (Bloom, 2015) establishes an energy efficiency resources standard. Currently in Appropriations Committee. AB 1094 (Williams) authorizes the California Energy Commission to analyze energy consumption of plug in equipment and set energy efficiency targets and require the CPUC to work with the Energy Commission to address electricity consumption by plug in equipment. Currently in Natural Resources Committee. AB 802 Page 9 REGISTERED SUPPORT / OPPOSITION: Support California State Association of electrical Workers California State Pipe Trades Council Western States Council of Sheet Metal Works Coalition of California Utility Employees PG&E (if amended) Opposition None on file Analysis Prepared by:Sue Kateley / U. & C. / (916) 319-2083 AB 802 Page 10