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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