BILL ANALYSIS Ó AB 865 Page 1 Date of Hearing: April 13, 2015 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Anthony Rendon, Chair AB 865 (Alejo) - As Introduced February 26, 2015 SUBJECT: State Energy Resources Conservation and Development Commission: grants and loans: diversity SUMMARY: Establishes the EmPower California Act; requires the California Energy Commission (CEC) to develop business diversity requirements as a condition for receipt of loans and grants, and requires the CEC to develop and implement various programs aimed at increasing the inclusion of women, minority, disabled veteran, and LGBT business enterprises in the CEC's procurement process. Specifically, this bill: a)Requires that the CEC require each recipient of a grant or loan administered by the commission do both of the following as a condition for the receipt of that grant or loan: i. Annually submit a detailed and verifiable plan for increasing engagement with women, minority, disabled veteran, and LGBT business enterprises in categories including renewable energy, advanced technologies and demonstration projects. ii. Provide an annual report to the commission on the progress of implementing the aforementioned plan. b)Requires the CEC to establish guidelines for all grant or loan AB 865 Page 2 recipients to utilize in the process of developing and implementing diversity outreach and procurement programs. c)Requires the CEC to develop, and require every grant or loan recipient to implement, an outreach program to inform and recruit diverse business enterprises (DBE). d)Requires the CEC to establish a Diversity Task Force that will consider and make recommendations about diversity in the energy industry. EXISTING LAW: 1.Requires the CEC to administer various grant and loan programs. (Public Resources Code, Section 25412.5) 2.Directs the CEC to oversee much of California's investments in clean energy research, clean transportation and energy efficiency. (Public Resources Code, Sections 25007, 25008, 25400) 3.Declares that it is the policy of California to aid in the interests of women, minority, disabled veteran, and LGBT businesses enterprises, and encourages greater economic opportunity for these groups and promotes competition among utilities to procure contracts with diverse businesses. (Section 8281 of the Public Utilities Code) FISCAL EFFECT: Unknown. AB 865 Page 3 COMMENTS: 1)Author's Statement: AB 865 will ensure that California's clean energy future is inclusive of diverse communities. This bill will help working families and working-class communities make economic and environmental gains with its investments. The CEC currently directs much of California's investments in clean energy research, clean transportation, and energy efficiency. This bill helps ensure California's climate change policies and investments have maximum co-benefits to reduce pollution and poverty. 2)Following in the steps of the CPUC: Beginning in 1986, the Legislature enacted a series of statutes, resulting in the CPUC adopting General Order (GO) 156. GO 156 established the Supplier Diversity program, symbolizing an evolving state effort to increase utility contracting with women and minority-owned businesses. Disabled veterans were added in 1990, and LGBT enterprises were added to the program in 2012. This timeline reflects a policy pattern of extending benefits of the Supplier Diversity program to distinct groups with a history of limited participation in utility contracting. Under GO 156, each electrical, gas, water, and telephone corporation with gross annual revenues exceeding $25 million, and their CPUC-regulated subsidiaries and affiliates, are required to participate in the Supplier Diversity program. Under this program, utilities regulated by the CPUC are required to annually submit a detailed and verifiable plan, with goals and timetables, for increasing supplier diversity in all procurement categories. A separate annual report on progress made in meeting those goals is also required. AB 865 follows the precedent set by GO 156, and emulates the CPUC's undertaking of a Supplier Diversity program. AB 865 Page 4 3)Incremental success of the CPUC: In March 2014, the CPUC reported that companies participating in its Supplier Diversity program achieved a new record in 2013, procuring approximately $8.5 billion in goods and services from diverse suppliers, an increase of about $500 million over 2012 procurement. According to the CPUC, more than 30 companies continue to participate in the program. This number includes some of the most dominant utilities in California, like Pacific Gas and Electric, Southern California Edison and AT&T, among others. Though there are still questions about the long-term effectiveness of this program, the CPUC's Supplier Diversity program represents an incremental success. Given this attainment of the CPUC's Supplier Diversity Program, it is financially and morally logical for the CEC and other regulatory bodies address issues of diversity, and to follow the CPUC's example. 4)Continuing an important dialogue: There is a startlingly disproportionate representation of minority groups in California's business climate. For example, according to the National Gay & Lesbian Chamber of Commerce (NGLCC), there is an estimated 1.4 million LGBT-owned businesses in the United States, and only 10% of these businesses contract with state or local governments, although a vast majority of LGBT-owned businesses have shown interest in these contracts. There is additionally a significant lack of data on workforce diversity in renewable energy and energy efficiency business in AB 865 Page 5 California. AB 865 actively addresses this lack of data and the disproportionate representation by continuing the dialogue on the issue, specifically in terms of government contracts with these groups. This bill builds on the pattern of social and financial investment in California's historically underrepresented groups. 5)Auditor Report: A recent State Auditor's report, titled Disabled Veteran Business Enterprise Program, released in February 2014, analyzes the current way the state contracts with Disabled Veteran businesses, a subcategory of what AB 865 requires. The Disabled Veteran Business Enterprise (DVBE) program, administered by the Department of General Services, directs state governmental entities to procure goods and services from DVBE firms. The legislative intent of the DVBE program is to target DVBE firms and have them benefit financially from doing business with the State. However, based on data compiled in the State Auditor's report, only a relatively small subset of DVBE firms benefit from the program and State contracting. For example, during the fiscal year 2012 to 2013, 83 percent of the DVBE contracting went to only 30 firms. A significant cause of this problem, among others, can be attributed to weak reporting requirements. AB 865 addresses the discrepancies in the reporting process and is in line with the Auditor's recommendations. 6)CEC Resolution : On April 8, 2015, the CEC adopted a resolution to implement a policy to reflect the Energy Commission's commitment to making sure the widest possible range of Californians participate in existing and future programs. The resolution specifically aims to maximize opportunities for small businesses, women, disabled veteran, minority and LGBT-owned businesses, as well as economically disadvantaged and underserved communities, to participate in and benefit from CEC programs. Regardless of how the CEC implements this policy, it is clear that the lack of diversity within the energy/utilities domain is a pervasive problem that AB 865 Page 6 needs to be addressed, in terms of the policy, culture, and practices of the CEC. AB 865 further prompts this conversation. 7)Suggested amendments to decrease costs: The author may wish to consider making amendments to clarify a reasonable threshold for businesses that are required to abide by AB 865. A minimum revenue business threshold of $25,000,000, as at the CPUC would be a good starting point, but amendments should give the CEC authority to adjust and reduce the annual revenue requirement when deemed necessary. Additionally, the author may wish to soften the role of the Diversity Task Force in the bill, and require the CEC to consider establishing the Task Force further down the road, after receiving the data and reports required by the bill. When and if the CEC develops this Task Force, the CEC should consider how it can address and promote local and targeted hire. The author may also wish to consider encouraging partnership with the CPUC to aid in this bill's implementation, to share resources, reduce costs, and encourage a more coordinated effort between the two agencies. In contrast to the CPUC's phased approach and timeline, this bill requires the CEC to implement all aspects of the bill at once. This can be attributed to today's heightened awareness of minority issues, and the sense of urgency needed to address them. At a later date, the author may wish to incorporate a more tiered timeline for AB 865's requirements. Though the costs of the bill are currently unknown, a tiered timeline would potentially reduce costs and allow the CEC to tackle its approach to diversity in a more thoughtful and deliberate manner. AB 865 Page 7 Specific amendments are: 25230 (b) The commission shall require that each recipient of a grant or loan administered by the commission , with gross annual revenues exceeding twenty-five million dollars ($25,000,000) or a different threshold deemed appropriate by the CEC, do both of the following as a condition for the receipt of that grant or loan: (1) Annually submit a detailed and verifiable plan for increasing procurement from women, minority, disabled veteran, and LGBT business enterprises in all categories, including, but not limited to, renewable energy, advanced technologies, and demonstration projects. These annual plans shall include short- and long-term goals and timetables, but not quotas, and shall include methods for encouraging both prime contractors and grantees to engage women, minority, disabled veteran and LGBT business enterprises in subcontracts in all categories that provide subcontracting opportunities, including, but not limited to, renewable energy, advanced technologies, and demonstration projects. (e) After receipt of the detailed plans and annual reports, The commission shallestablishconsider establishing a Diversity Task Force to consider and make recommendations about diversity in the energy industry, including diversity of corporate governing boards and procurement from diverse businesses. When, and if, the commission develops this Task Force, the commission shall consider how it can address and promote local and targeted hire.The Diversity Task Force shall do all the following: (1) Identify and promote energy companies that are actively engaged in diversity issues. AB 865 Page 8 (2) Explore the status of diverse representation on energy company governing boards. (3) Identify actions that the commission can take to encourage insurance companies to increase procurement with diverse suppliers. (4) Provide recommendations regarding current legislation and suggest changes to existing law.8)Related Legislation a) AB 2593 (Bradford) 2014: Vetoed by Governor Brown: Required a business enterprise with gross annual revenues exceeding $25,000,000 participating in a program administered by the Air Resources Board to increase procurement from women, minority, and disabled veteran business enterprises. b) AB 1678 (Gordon) 2014: Chapter 633: Extended provisions of the CPUC utilities' Supplier Diversity Program to Lesbian, Gay, Bisexual and/or Transgender (LGBT) business enterprises. c) AB 2758 (Bradford) 2010: Chapter 475: Required cable corporations, with gross annual revenues exceeding $25 million, to annually submit a detailed and verifiable plan for increasing procurement from diverse businesses. It specifies that renewable energy, wireless telecommunications, broadband, smart grid and rail projects should be projects of focus for utility procurement with diverse businesses. d) AB 3678 (Moore) 1986: Chapter 1259: Codified the AB 865 Page 9 broader parameters of GO 156, and requires each electrical, gas, and telephone corporations, with gross annual revenues exceeding $25 million, to annually submit a detailed and verifiable plan for increasing diverse business procurement in all categories that includes short- and long-term goals and timetables, and furnish an annual report. 1)Double referral. This bill is double referred to the Committee on Jobs, Economic Development and the Economy. REGISTERED SUPPORT / OPPOSITION: Support None on file Opposition None on file AB 865 Page 10 Analysis Prepared by:Allegra Roth / U. & C. / (916) 319-2083