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 ----------------------------------------------------------------- |Author: |Williams | |-----------+-----------------------------------------------------| |Version: |6/22/2015 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Jay Dickenson | | | | ----------------------------------------------------------------- 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 AB 802 (Williams) Page 2 of ? 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 AB 802 (Williams) Page 3 of ? 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.) AB 802 (Williams) Page 4 of ? 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 AB 802 (Williams) Page 5 of ? 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 AB 802 (Williams) Page 6 of ? 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 AB 802 (Williams) Page 7 of ? 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. -- END --