BILL ANALYSIS                                                                                                                                                                                                    Ó



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          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:  










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          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)








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          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."








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           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  








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            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  








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            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  








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               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  








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            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.












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          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












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