BILL ANALYSIS Ó SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS Senator Ben Hueso, Chair 2015 - 2016 Regular Bill No: AB 1330 Hearing Date: 6/27/2016 ----------------------------------------------------------------- |Author: |Bloom | |-----------+-----------------------------------------------------| |Version: |6/15/2016 As Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Nidia Bautista | | | | ----------------------------------------------------------------- SUBJECT: Energy efficiency DIGEST: This bill would require the California Public Utilities Commission (CPUC) to ensure that there are sufficient monies available for electrical and gas corporations to meet those efficiency targets, and, if the CPUC finds that additional monies are necessary to meet those targets, to increase available moneys up to 20 percent per year until the moneys available for energy efficiency savings and demand reduction doubles from the amount authorized on January 1, 2016. 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 electrical 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 CPUC to authorize electrical or gas corporations to provide financial incentives, rebates, technical assistance, and support to their customers to increase the AB 1330 (Bloom) Page 2 of ? energy efficiency of existing building, including measures to bring the buildings to conformity with, or exceed, the requirements of Title 24 building codes. Authorizes electrical and gas corporations to count the energy savings achieved through bringing buildings to code towards overall energy efficiency goals or targets established by the CPUC, unless otherwise determined. (Public Utilities Code §381.2 (b)) 2)Requires the 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 investor-owned utilities (IOUs). Requires a gas 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.) 3)Requires the California Energy Commission (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) 4)Requires the CEC, in collaboration with the CPUC and local publicly owned electric utilities, to, on or before November 17, 2017, establish annual targets for statewide energy efficiency savings and demand reduction that will achieve a cumulative doubling of statewide energy efficiency savings and electricity and natural gas final end uses of retail customers by January 1, 2030. (Public Resources Code §25302.2) This bill: 1)Requires the CPUC to ensure that there are sufficient monies available to electrical and gas corporations to meet the efficiency targets established for an electrical and gas corporations. 2)Requires the CPUC, if it finds that additional monies are necessary, to increase available monies up to 20 percent per year until the monies available for energy efficiency savings and demand reduction doubles from the amount authorized on AB 1330 (Bloom) Page 3 of ? January 1, 2016. Background Energy loading order. The "loading order" guides the state's energy policies and decisions according to the following order of priority: (1) decreasing energy 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. This policy has been adopted by the energy agencies - the CEC and CPUC - and its principles guide all energy programs. Energy efficiency funded programs. Consistent with the loading order, statute requires both electrical and gas 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. Doubling energy efficiency savings. The passage of SB 350 (De León, Chapter 547, Statutes of 2015), enacts the Clean Energy and Pollution Reduction Act of 2015, which establishes targets to increase retail sales of renewable electricity to 50 percent by 2030 and double energy efficiency savings in electricity and natural gas uses by 2030. Under the statute, the CEC, in consultation with the CPUC and local publicly owned utilities, must establish annual targets for statewide energy efficiency savings and demand reduction through a public process that will achieve a cumulative doubling of statewide energy efficiency savings in electricity and natural gas final end uses of retail customers by January 1, 2030. In furtherance of that effort, the targets must be established by November 1, 2017. As of the date of this analysis, the CEC has begun to initiate the public process to establish the targets, but the final outcome is not expected for several months - and possibly a year. AB 1330 (Bloom) Page 4 of ? Expanded opportunities for energy efficiency. The passage of AB 802 (Williams, Chapter 590, Statutes of 2015), has further expanded the opportunity for energy efficiency IOU-funded projects. Specifically, this bill requires the CPUC, by September 1, 2016, to authorize an IOU to provide incentives for 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, and authorizes an IOU to recover the costs in rates. The statute provides that the energy efficiency measures described above may include savings and reductions from measures to conform a building with existing energy efficiency regulation, as well as certain operational, behavioral, and retro commissioning activities. As a result, for the first-time, IOU may get credit towards achieving their energy efficiency targets by funding measures to bring existing buildings to the building code. Prior to the recent change in statute, IOUs would only receive credit for funding energy efficiency measures that would bring buildings above the building code. As a result, IOU funds would be limited to projects where building owners of existing buildings could afford the measures to get the building up to code, but augment with IOU funding for anything above code. The change in policy in AB 802 is providing expanded opportunities for energy efficiency measures, including in what many argued would be the most cost-effective measures. Cost-effectiveness. Over the past 10-plus years, the CPUC have increased energy efficiency budgets. This ramp-up in spending comports with Public Utilities Code §381's mandate that we "allocate funds spent to programs that enhance system reliability and provide in-state benefits including: (1) cost-effective energy efficiency and conservation activities." Section 381 expressly limits the CPUC to allocating funds to "cost-effective" activities. The CPUC has applied this approach across an IOU's portfolio of programs, rather than all individual programs, must be cost-effective. In practice this means that many programs within portfolios are not cost effective, including "non-resource" programs (e.g., workforce education and training) are not cost-effective. They are nonetheless funded so long as the overall portfolio is cost-effective. Current process. Currently the CPUC's process approves a 10 year authorization of funding for IOU energy efficiency and AB 1330 (Bloom) Page 5 of ? demand reduction investments, known as a rolling portfolio. Rolling portfolios represent a 10 year authorization for activities, with annual reviews of progress and effectiveness and annual updates/true ups needed for specific aspects of the portfolio (savings estimates, goals, evaluation results) through a formal filing with the CPUC via a public and stakeholder process. The rolling portfolio mechanism was adopted to smooth out the start stop nature of a three year authorization, revision, re-adoption by the CPUC. The CPUC is currently in its first year of implementing rolling portfolios and still learning about how to improve the effort. Is a bill necessary? This bill would require the CPUC to authorize more ratepayer funds for energy efficiency and demand reduction activities should the CPUC find that an IOU does not have sufficient funding to attain CPUC- mandated goals. This bill would authorize the CPUC to increase the amount of ratepayer funds used for energy efficiency by twenty percent each year, until the amount doubles what was authorized as of January 1, 2016 - roughly $980, 000,000. As a result, the CPUC could potentially increase the amount invested in these programs to nearly two billion dollars within five years. However, the CPUC already has authority to increase the amount funded for energy efficiency. Additionally, as mentioned above, many of the recent changes from SB 350 and AB 802 are in the initial stages of being implemented. It's unclear why a bill would be needed at this time. Furthermore, the process to establish the goals to double energy efficiency savings by 2030 has only recently been initiated and the results will not be finalized until 2017. This bill also only addresses the IOU energy efficiency measures, but says nothing about publicly-owned utilities who must also contribute to the state's overall energy efficiency savings. Cap on investments or an inducement to spend more? The sponsors of this bill suggest this bill is a cap on CPUC authority to invest in energy efficiency. It is true that this bill does cap the amount the CPUC can authorize in energy efficiency and demand reduction programs - by no more than an additional 20 percent annually up to reaching double what was authorized as of January 1, 2016. However, considering that doubling the amount currently invested would result in nearly $2 billion of ratepayer funded programs, the intention of this bill is likely not to cap, but to increase the amount invested. AB 1330 (Bloom) Page 6 of ? Prior/Related Legislation AB 802 (Williams, Chapter 590, Statutes of 2015) required the CPUC to authorize electrical corporations or gas corporations to provide incentives and assistance for measures to conform a building to CEC's energy efficiency standards for existing buildings and to allow IOUs to recover in rates the reasonable costs of those incentives and assistance. SB 350 (De León, Chapter 547, Statutes of 2015) enacted the Clean Energy and Pollution Reduction Act of 2015, which establishes targets to increase retail sales of renewable electricity to 50 percent by 2030 and double energy efficiency savings in electricity and natural gas uses by 2030. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No SUPPORT: California Energy Efficiency Industry Council (Source) Advanced Energy Economy California Building Industry Association California Business Properties Association Mission:data Coalition OPPOSITION: None received ARGUMENTS IN SUPPORT: According to the author: The CPUC to increase funding which could have the impact of increasing rates. However, the CPUC would continue to be constrained by the rigorous cost-effectiveness requirement which currently governs expenditures on energy efficiency. The author would submit that while California has the highest rates in the nation, it does not have the highest bills - in part because rates are invested in energy efficiency which has the impact of lowering consumer bills because it reduces the need to purchase power. AB 1330 (Bloom) Page 7 of ? -- END --