BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: AB 1330 Hearing Date: 7/13/2015 ----------------------------------------------------------------- |Author: |Bloom | |-----------+-----------------------------------------------------| |Version: |6/30/2015 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- SUBJECT: Energy Efficiency Resource Standard Act DIGEST: This bill establishes an annual energy efficiency resources standard to be met by electrical and gas corporations. This bill specifically requires electric utilities to achieve an annual energy savings of not less than 1.5 percent by 2020 and two percent by 2025 of retail sales and requires gas utilities to achieve energy savings of not less than three-fourths of one percent by 2020 and not less than one percent by 2025 of natural gas consumption. 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) 2)Requires the California Public Utilities Commission (CPUC) to establish policies and procedures by which an entity, including a community choice aggregator (CCA), may apply to become administrators for cost-effective energy efficiency and conservation programs pursuant to §381. (Public Utilities Code §381.1) 3)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) AB 1330 (Bloom) PageB of? 4)Requires the CPUC to establish targets for all potentially achievable cost-effective electricity and gas efficiency savings. (Public Utilities Code §§454.55 and 454.56) 5)Requires each local publicly owned electric utility, in procuring energy to serve the load of its retail end-use customers, to first acquire all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible. (Public Utilities Code §961.5) 6)Requires the CEC to, every two years, adopt an integrated energy policy report containing an overview of major energy trends and issues facing the state, including but not limited to supply, demand, pricing, reliability, efficiency, and impacts on public health and safety, the economy, resources and the environment. (Public Resources Code §25302) 7)Requires the CEC to develop a statewide estimate of all potentially achievable cost-effective electricity and natural gas savings, and establish targets for statewide annual energy efficiency savings and demand reduction for the next 10-year period. (Public Resources Code §25310) 8)Requires the CEC to continuously carry out studies, technical assessments, research projects, and data collection directed to reducing wasteful, inefficient, unnecessary, or uneconomic uses of energy, including improved appliance efficiency. (Public Resources Code §25401) 9)Requires the CEC to adopt cost-effective energy and water efficiency standards for new buildings and appliances. (Public Resources Code §25402) 10) Prohibits the sale of new appliances that do not meet the energy and water efficiency standards adopted by the CEC. (Public Resources Code §25402(c)(2)) 11) 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: AB 1330 (Bloom) PageC of? 1)Enacts the Energy Efficiency Resources Standard (EERS) Act electrical and gas corporations to meet annual goals of energy savings and requires the CPUC, in consultation with the CEC, to supervise the implementation. 2)Requires each electric utility - investor-owned utilities (IOU), publicly-owned utilities (POU), and CCA that administers energy efficiency programs - to establish an EERS that increases the amount of energy efficiency resources of the IOU, POU, and CCA so that the minimum amount of incremental energy savings achieved within its service territory in any given year amounts to not less than 1.5 percent of its total retail sales of electricity by 2020 and not less than two percent of its total annual retail sales of electricity by 2025. 3)Requires the total amount of incremental energy savings to be determined based upon the average retail sales of electricity in the immediately preceding three years, measures in gigawatt hours per year based on annual comparison of the CEC's integrated energy policy reports, excluding the measured or estimated sales of electricity associated with electric vehicle charging and net, round-trip electricity losses associated with electricity consumer-sited energy storage. 4)Requires each gas utility to establish an EERS that increases the amount of energy efficiency resources so that the minimum amount of incremental energy savings achieved within its service territory in any given year amounts to not less than .75 of one percent of its total annual system natural gas retail sales by 2020, and not less than one percent of its system annual natural gas retail sales by 2025. 5)Requires the total amount of incremental energy savings to be based on the average natural gas retail sales within its service territory in the immediately preceding three years, measured in millions of therms per year based on an annual comparison of the CEC's integrated energy policy reports, excluding the estimated sales of natural gas associated with natural gas vehicle fueling during the preceding three years. 6)Exempts smaller utilities from this act, defined as those with average annual retail sales of electricity of less or equal to 1,000 gigawatt hours or gas utilities with average annual retail sales of natural gas of less than or equal to 50 AB 1330 (Bloom) PageD of? million therms. 7)Requires the CEC, by July 31, 2017, to establish annual percentages of peak demand reductions to be achieved through event-based demand response with consideration of the role of consumer-sited storage, electric vehicle charging, and distributed generation resources, with a timetable for achieving those peak demand reductions. 8)Requires the governing board of each local publicly owned electric utility and local publicly owned gas utility, in consultation with the CEC, to be responsible for the implementation of the act by the utility. 9)Requires the governing board of a CCA that administers energy efficiency programs, in consultation with CPUC, to be responsible for implementation of the act by that entity. 10)Requires the CEC in a public stakeholder process and in consultation with CPUC to determine how the energy savings goals of the act are measured and reported. 11)Requires the CEC in a public stakeholder process and in consultation with CPUC to adopt a cost limitation, as necessary, for each IOU and CCA in order to meet the EERS. 12) Requires the CPUC to require IOUs to achieve these annual percentages and requires the governing board of each local publicly owned electric utility and CCA be responsible for achieving these annual percentages. 13) Requires the benefits, including energy savings achieved, within disadvantaged communities identified by the California Environmental Protection Agency be given the highest priority for energy efficiency activities undertaken. Recognizes that non-energy benefits of energy efficiency projects for low-income households. 14) Requires each electrical and gas utility to file with the CEC a report that analyzes the energy savings achieved within the utility's service territory during the prior year, divided by the energy retail sales in the immediately preceding year. Background Energy efficient California. Energy efficiency in buildings and AB 1330 (Bloom) PageE of? equipment is used to decrease per capita electricity consumption which reduces the state's need for new power plants and reduces the associated environmental impacts, including GHG emissions. Since the 1970's, California has led the nation in energy efficiency programs. Largely as a result of the state's nearly half a century of energy efficiency policies, per-capita energy use has remained flat, whereas most of the country has experienced a rise by 33 percent or greater. Energy use has become even more critical to power homes, schools, government and businesses. The state has adopted landmark policies to reduce emissions of greenhouse gases (GHG), namely through the Global Warming Solutions Act of 2006, with a portfolio of strategies that includes furthering energy efficiency efforts. In January 2015, Governor Brown in his State of the State Address proposed additional goals for reducing GHG emissions in 2030 and 2050 with a three-pronged strategy that includes doubling the energy efficiency of existing buildings. Energy loading order. Following the 2001 energy crisis, the Legislature codified a "loading order" of preferred energy resources, requiring the IOUs' electricity procurement plans to first meet unmet resources needs through all cost-effective, reliable, and feasible energy efficiency and demand response. The energy loading order was subsequently adopted by the state's energy agencies and guides the state's energy policies and decisions according to the following order of priority: (1) decreasing electricity demand by increasing 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. California ratepayer-funded energy efficiency. In the late 1970's and early 1980s, California was the first state in the nation to "decouple" the IOU revenues from sales, thereby removing a structural disincentive to promote demand-side management, including energy efficiency.<1> Instead, IOUs are compensated for the energy efficiency investments via a calculation, evaluation and assessment conducted by the CPUC. Ensuring strategies are cost-effective. Today, the CPUC oversees the IOU's administration of a portfolio of about $1 billion annually of ratepayer funds for programs that provide financial incentives for demand-side management, including programs to --------------------------- <1> California Public Utilities 2015-16 Budget Documents, p. 27. AB 1330 (Bloom) PageF of? assist customers with energy efficiency such as loans and rebates for installing energy efficient appliances, lighting, windows, HVAC systems, whole-house retrofits and others. Energy efficiency activities funded by ratepayers should be used to offer programs that serve as alternatives to more costly supply-side resource options, such as building new generation to satisfy demand. By keeping energy resource procurement costs as low as possible through the deployment of a cost-effective portfolio of resource programs, over time all customers will share in the resource savings from energy efficiency. This approach ensures that energy efficiency efforts will help distribute program benefits more equitably. AB 1330 requires utilities to make investments to reach the established energy efficiency goals without reference to ensuring those investments are cost-effective. This approach would be a significant departure from standing California policy. If this bill moves forward, the author should consider making cost-effectiveness a specific requirement for use of ratepayer funds. Energy savings goals. The CPUC establishes electricity and natural gas savings goals. In a September 2004 decision, the CPUC first provided numerical goals for electricity and natural gas savings by utility service territory. The CPUC-adopted energy savings goals are expressed in terms of gigawatt hours, million-therms, and peak megawatt load reductions. These goals were informed by the Energy Efficiency Potential and Goals Study, and have been subsequently updated, and shall continue to be updated periodically by the CPUC. IOUs should develop their energy efficiency program portfolios so that they will meet or exceed these savings goals. The CPUC's intent is for goals to: (1) be appropriately aggressive; (2) support long-term procurement planning; (3) encourage a focus on long-term savings; and (4) be based on the best available information. Mandating voluntary action. Opponents of this bill argue that energy efficiency programs are voluntary. However, market barriers, financial issues, and other considerations affect the willingness of ratepayers to utilize the programs. The proponents of this bill argue that utilities control the funding and, in most cases, the administration of these programs, therefore utilities should be held to a minimum level of responsibility for ensuring the programs are resulting in energy savings. AB 1330 requires each electric utility to increase the amount of energy efficiency resources in its service territory, funded by ratepayers to achieve the proposed energy savings AB 1330 (Bloom) PageG of? goals. Does California have an Energy Efficiency Resource Standard? According to the sponsors of this bill, roughly two dozen other states have adopted an EERS. Based on the reports by the American Council for an Energy-Efficient Economy and National Renewable Energy Laboratory, California is among the states that has an EERS. In the case of California, the CPUC establishes the energy savings goals for each IOU and the CEC works with the POU who report their annual energy savings goals to the CEC. The goals are assessed periodically and consider several factors. As such, existing energy savings goals can be difficult to pinpoint. AB 1330 proposes to codify energy savings goals. However, the basis for the proposed goals is unclear. As a result, it is difficult to determine whether the goals are aggressive enough, while still being achievable, to help the state reach its energy efficiency goals. In the case of the POUs, according to their own analysis, most POUs would not achieve the proposed goals. POUs also argue that their local governing boards should be able to determine their respective energy savings goals. Demand response. AB 1330 requires the CEC, by July 31, 2017, to establish annual percentages of peak demand reductions to be achieved through event-based demand response. Demand response is end-use electric customers reducing their electricity usage in a given time period, or shifting that usage to another time period. The need for demand response as flexible and available resources continues to grow as an important piece of the grid integration puzzle. However, demand response need not be limited to peak demand incidents. Ultimately, a flexible and dynamic grid will require demand response to be available even during non-peak times. In fact, the CPUC has opened a proceeding to examine integrated demand side management to more effectively coordinate certain activities, including electric vehicle charging, distributed generation, energy storage, and others. The author and committee may wish to amend the bill to better reflect the importance of demand response as a resource that supports renewable integration, greenhouse gas reduction and grid reliability. Prior/Related Legislation AB 758 (Skinner, Chapter 470, Statutes of 2009) required the CEC AB 1330 (Bloom) PageH of? to develop and implement a comprehensive program to achieve greater energy savings in existing residential and nonresidential building stock, including energy assessments, cost-effective energy efficiency improvements, financing options, public outreach, and education efforts. SB 1414 (Wolk, Chapter 627, Statutes of 2014) required utilities and regulators to include demand response in resource adequacy plans. AB 802 (Williams, 2015) allows electrical and gas corporations to provide incentives for any improvements and count all savings that show up at the meter as decreased use, including savings achieved by process changes and maintenance. The bill is currently under consideration by this committee. AB 1094 (Williams, 2015) requires the CEC, in consultation with the CPUC, to conduct an analysis of energy consumption by plug-in equipment and develop an implementation plan to achieve specified energy efficiency targets. The bill was held in the Assembly Committee on Appropriation. SB 350 (De León, 2015) includes provisions to increase energy efficiency in buildings to meet 2030 and 2050 GHG reductions goals. The bill is scheduled to be heard July 13th in the Assembly Committee on Natural Resources. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes ASSEMBLY VOTES: Assembly Floor (46-29) Assembly Appropriations Committee (12-5) Assembly Utilities and Commerce Committee (9-5) SUPPORT: California Energy Efficiency Industry Council (source) California Energy Storage Alliance Energy Solutions EnerNOC, Inc. Environmental Defense Fund AB 1330 (Bloom) PageI of? Proteus, Inc., if amended Small Business California TELACU, if amended The Utility Reform Network, if amended OPPOSITION: California Municipal Utilities Association City of Burbank Water and Power City of Pasadena Water and Power City of Riverside Public Utilities Department Imperial Irrigation District Northern California Power Agency Pacific Gas and Electric Company, unless amended Sacramento Municipal Utility District San Diego Gas and Electric, unless amended Sempra Energy Utilities, unless amended Southern California Gas, unless amended Southern California Edison, unless amended Southern California Public Power Authority ARGUMENTS IN SUPPORT: The California Energy Efficiency Industry Council, the source of this bill, states: "while California's 'loading order' requires energy efficiency to be 'procured' prior to other resources, the state has no target for savings achievement which results in less accountability for the ratepayer funds allocated for the program and undermines the value of energy efficiency in determining expected load when procurement is planned. An EERS will bring greater certainty to planners regarding the minimum level of efficiency to expect every year." The author further states: "establishing an EERS will be a critical component in meeting Californian's energy needs while at the same time meeting the Governor's goals of increasing building efficiency by 50 percent, increasing our renewable portfolio to 50 percent by 2030, and reducing our GHG emissions by 80 percent by 2050." ARGUMENTS IN OPPOSITION: Opponents to this bill argue that the goals proposed are arbitrary and don't take into account current resources, the local economy, demographics, and market potential of energy efficiency program savings. Furthermore, opponents state that this bill does not recognize that energy efficiency programs are voluntary to customers, and utilities can not force AB 1330 (Bloom) PageJ of? customers to take advantage of programs. Moreover, customer participation can be significantly impacted by personal macroeconomic circumstances beyond the utility's control. -- END --