BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: AB 802 Hearing Date: 7/13/2015
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|Author: |Williams |
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|Version: |6/22/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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SUBJECT: Public utilities: energy efficiency savings
DIGEST: This bill allows an electrical corporation or gas
corporation to recover in rates the cost of programs to bring a
building up to legal code and to count all energy savings
achieved toward the corporation's energy efficiency targets.
ANALYSIS:
Existing law:
1)Establishes a charge on electricity and natural gas
consumption to fund cost-effective energy efficiency and
conservation activities. (Public Utilities Code §§381 and
890)
1)Requires electric corporation procurement plans to first meet
unmet resource needs through all available energy efficiency,
and demand reduction resources that are cost effective,
reliable, and feasible. (Public Utilities Code §§454.5
(b)(9)(C))
2)Requires the California Public Utilities Commission (CPUC) to
identify all potentially achievable cost-effective electricity
and natural gas efficiency savings and to establish energy
efficiency procurement targets and ratepayer-funded programs
for electrical and gas corporations. Requires a gas
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corporation to first meet its unmet resource needs through all
available natural gas efficiency and demand reduction
resources that are cost effective, reliable, and feasible.
(Public Utilities Code §§454.55 and 454.56.)
2)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 §25310)
3)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 §25943)
This bill:
1)Requires the CPUC, by July 1, 2016, to authorize electrical
corporations or gas corporations to recover from ratepayers
the cost of energy efficiency programs based on all estimated
energy savings, including energy savings from bringing
existing buildings into compliance with mandatory energy
efficiency codes for existing buildings issued by the CEC.
2)States that the CPUC may adjust the energy efficiency
procurement targets to reflect energy efficiency savings
achieved in meeting or exceeding mandatory energy efficiency
codes for existing buildings.
3)Requires the CPUC to prioritize energy efficiency activities
consistent with existing statute governing electrical
corporations' and gas corporations' energy efficiency
activities.
4)States that the requirements of this bill do not require the
CPUC to increase funding for the electrical or gas
corporations' energy efficiency programs.
Background
Energy efficiency atop the load. The "loading order" guides the
state's energy policies and decisions according to the following
order of priority: (1) decreasing energy demand by increasing
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energy efficiency; (2) responding to energy demand by reducing
energy usage during peak hours; (3) meeting new energy
generation needs with renewable resources; and (4) meeting new
energy generation needs with clean fossil-fueled generation.
This policy has been adopted by the energy agencies - the CEC
and CPUC - and its principles guide all energy programs.
Consistent with the loading order, statute requires both
electric and gas investor-owned utilities (IOUs) to meet unmet
resource needs with all available energy efficiency and demand
reduction that is cost-effective, reliable and feasible. The
CPUC uses these criteria to establish energy efficiency targets
for the IOUs. To achieve these targets, the IOUs (and, in some
cases, community choice aggregators) administer energy
efficiency programs with ratepayer funds approved by the CPUC.
Currently funded at about $1 billion per year, the programs
include a portfolio of financial incentives, loans, and rebates
for installing energy efficient appliances, lighting, windows,
HVAC systems, whole-house retrofits, and sector-specific
efforts.
Setting the bar high. According to existing CPUC rules, each
IOU claims credit for energy savings from the portfolio of
energy efficiency measures in its energy efficiency program.
The CPUC evaluates the claimed energy savings and, after
adjustment, authorizes financial rewards for the IOU.
The CPUC measures claimed savings against a baseline, which the
CPUC generally defines as being comprised of three factors: (1)
"naturally occurring savings," (2) standard industry practice
and (3) the CEC's Title 24 energy efficiency standards for
existing buildings. The CPUC sets the baseline at this level to
avoid "free ridership," that is, credit for energy savings that
would have occurred absent the IOUs' energy efficiency programs.
Currently, the CPUC assumes that measures to bring an existing
building into compliance with CEC's energy efficiency standard
would have occurred absent the IOUs' energy efficiency programs.
(See figure below.)
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Recently, some parties have complained that the CPUC-established
baseline of energy efficiency measures prevents realization of
additional, cost-effective energy savings. This is because the
baseline prevents the IOUs from receiving ratepayer monies for
encouraging energy-saving building measures that fall below
CEC's energy efficiency building standards. In fact, Pacific
Gas and Electric (PG&E), this bill's sponsor, reports the
results of two studies - both commissioned by PG&E and, as yet,
not reviewed by an independent third party - that show that most
potential cost-effective energy efficiency savings are
represented by projects that are below the CEC's building code
standards. PG&E, and others, contend that the state will not be
able to attain the ambitious energy efficiency goals currently
contemplated by the Legislature unless the CPUC credits the IOUs
with the energy savings that result from below-code projects.
Proponents additionally contend that the most cost-effective
energy efficiency projects are those below the energy efficiency
building standards.
Going lower; getting higher. According to the author and
sponsor, this bill is to enable greater amounts of energy
savings than would occur absent this bill to help achieve the
energy efficiency goals outlined in the governor's state-of-the
state speech. Indeed, the sponsor anticipates the CPUC will
significantly increase energy efficiency targets in light of the
programmatic changes required by this bill.
Allowing IOUs credit for below-code energy efficiency building
upgrades may indeed lead to additional energy savings, and a
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more cost-effective energy efficiency portfolio. However, it is
conceivable that the state may realize fewer energy savings than
it otherwise would, depending upon many factors, including
consequences unanticipated by either the author or bill
proponents. For example, energy efficiency program money may go
towards a significant number of below-code projects that would
have happened without IOU incentive. Absent additional funding,
such free-rider projects could displace above-code projects that
would have provided truly additional energy savings.
In recognition of both the potential for additional energy
savings and for unanticipated consequences, the CPUC has ordered
the IOUs to implement pilot projects in which the IOUs may
receive rate recovery and credit for energy savings resulting
from below-code energy efficiency building upgrades. The IOUs
anticipate implementing measures pursuant to the pilot projects
over the next two years; analysis of results will not be
complete until 2018.
In addition to the pilot projects, the CPUC is conducting a
proceeding on energy efficiency. The hearing entails
consideration of CPUC's setting of the energy use baseline
against which the energy savings of the IOUs' energy efficiency
programs are measured. Inherent to that consideration is
evaluation of the specific proposal advanced by this bill,
namely, allowing the IOUs to receive credit for energy savings
resulting from below-code energy efficiency building upgrades.
Further, as mentioned above, neither the CPUC nor any other
independent third-party has reviewed the PG&E-commissioned
studies that PG&E points to as validation of the approach
advocated by this bill. It seems wise to allow modification of
the IOUs energy efficiency programs to be informed by such a
review and assessment. The CPUC energy efficiency hearing seems
the appropriate venue for such review and assessment to occur.
In any case, this analysis, in keeping with the intent of the
author, assumes the CPUC, in making the program changes required
by this bill and future decisions on rate recovery, will not
hinder the achievement of energy efficiency measures that are
cost effective, reliable, and feasible, in keeping with current
law.
Claiming versus counting. This bill requires the CPUC to
authorize an IOU to count all energy savings achieved toward
overall energy efficiency goals or targets established by the
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commission. This requirement departs from existing practice, by
which an IOU claims energy savings from energy efficiency
measures and the CPUC assesses and adjusts those claims. This
bill requires CPUC to adjust the baseline against which it
measures energy savings. However, it is not clear why the CPUC
also must adjust the processes by which it validates energy
savings claims.
Prior/Related Legislation
AB 1330 (Bloom, 2015) establishes an energy efficiency resources
standard. The bill is currently under consideration by this
committee.
AB 1094 (Williams, 2015) authorizes the CEC to analyze energy
consumption of plug-in equipment and set energy efficiency
targets and require the CPUC to work with the CEC to address
electricity consumption by plug-in equipment. The bill was held
in the Assembly Committee on Appropriations.
SB 350 (De León, 2015) enacts the Clean Energy and Pollution
Reduction Act of 2015. The bill is scheduled to be heard July
13th in the Assembly Committee on Natural Resources.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
ASSEMBLY VOTES:
Assembly Floor (74-0)
Assembly Appropriations Committee (17-0)
Assembly Utilities and Commerce Committee (15-0)
SUPPORT:
Pacific Gas and Electric Company (source)
Bay Area Regional Energy Network
California Building Industry Association
California Business Properties Association
California State Association of Electrical Workers
California State Pipeline Trades Council
Coalition of California Utility Employees
Environmental Defense Fund
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Local Government Sustainable Energy Coalition
Marin Clean Energy
National Association of Energy Service Companies
Natural Resources Defense Council
San Diego Gas & Electric Company
Sempra Energy utilities
Sierra Club California
Southern California Edison
Southern California Gas Company
The Energy Coalition
Union of Concerned Scientists
Western States Council of Sheet Metal Workers
OPPOSITION:
California Energy Efficiency Industry Council, unless amended
Office of Ratepayer Advocates
ARGUMENTS IN SUPPORT: According to the proponents, existing
policy leads to a large pool of stranded energy efficiency
savings potential - the actual energy savings from the
building's existing equipment to the Title 24 code baseline -
and significant energy waste. This policy hinders the state
from achieving the governor's 2030 climate commitment to double
energy savings in existing buildings.
ARGUMENTS IN OPPOSITION: According to the opponents, the
assumption that new buildings and equipment meet code is
generally a good one. Were the CPUC to count energy efficiency
savings based on existing conditions, as suggested by this bill,
much of that energy efficiency will not be incremental to what
would have occurred otherwise. As a result, ratepayers will
likely pay more while achieving only minimal energy efficiency
savings.
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