BILL ANALYSIS                                                                                                                                                                                                    Ó






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          Date of Hearing:  April 13, 2016


                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE


                                  Mike Gatto, Chair


          AB 2460  
          (Irwin) - As Amended March 17, 2016


          SUBJECT:  Solar thermal systems


          SUMMARY:  Extends and modifies an existing program that provides  
          incentives for solar water heating incentives and administered  
          by investor-owned utilities under the supervision of the  
          California Public Utilities Commission (CPUC). Specifically,  
          this bill:  


          1)Extends and modifies an existing program to promote the  
            installation of solar water systems throughout the state, set  
            the funding cap for the program between January 1, 2017, and  
            July 31, 2027, at $1 billion, reserve 50% of the total program  
            budget for the installation of solar water heating systems in  
            low-income residential housing or in buildings in  
            disadvantaged communities, and extend the operation of the  
            program through July 31, 2027. 
          2)Requires the governing body of each publicly-owned utility  
            providing gas service, until August 1, 2027, to adopt,  
            implement, and finance a solar water heating system incentive  
            program.


          EXISTING LAW establishes a program to support installation of  
          200,000 solar water heaters by 2017 funded by up to $250 million  











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          in ratepayer surcharges. (Public Utilities Code Section 2860)


          FISCAL EFFECT:  Unknown.


          COMMENTS:  


          1)Author's Statement. "The Aliso Canyon natural gas leak and the  
            San Bruno tragedy are stark reminders of the everyday dangers  
            of natural gas.  The policies that we set forth must work to  
            reduce our use and reliance on natural gas. One proven and  
            effective technology to reduce natural gas use is solar  
            heating technologies.
            "In 2007, AB 1470 [Huffman, Chapter 536, Statutes of 2007]  
            created a solar thermal rebate program.  The program was  
            designed to incentivize and create a market for rooftop solar  
            water heating projects.  The CPUC did not actually begin the  
            program until 2010. Soon after, natural gas prices plummeted  
            and the rebate designed to simulate solar water heating was  
            too low.  It was not until January 2015 that a properly  
            designed rebate was approved and until May 2015 that it was  
            implemented. This finally resulted in steady growth as the  
            program was intended.  Now the program is beginning to see  
            some success, but it is scheduled to sunset in 2017."


            "AB 2460 is designed to do several things - extend the program  
            in order to give it time to work as intended, dedicate at  
            least 50% of the program rebates to disadvantaged communities,  
            require the CPUC to review the rebate amount more frequently,  
            and increase the overall program budget."


          2)Current Program: In 2007, AB 1470 (Huffman), Chapter 536,  
            created the CSI Thermal rebate program to reduce the use of  
            natural gas in buildings through solar heating technologies.  
            Approximately 40% of the state's natural gas consumption is  











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            used for heat within buildings. Up to 80% of that energy could  
            be provided by rooftop solar heating technologies. Incentives  
            are needed to give consumers a positive economic value for  
            their investment. However, although the legislation was passed  
            in 2007, CSI Thermal rebates were not made available until  
            2010. In addition, it is unclear whether the CPUC has  
            authorized sufficient marketing and education about this  
            program.
            In 2014, the State Auditor issued a report on California  
            Alternative Energy and Energy Efficiency Initiatives<1> where  
            it stated that the California Solar Initiative Thermal Program  
            will not install enough solar water heating systems to meet  
            its goal by the time the program ends in 2017. The State  
            Auditor recommended the Legislature consider whether it wants  
            to continue authorizing the collection of ratepayers' money to  
            fund the program.


            According to the CPUC, the current annual energy savings for  
            this program are more than 4.5 million therms, almost 1  
            million kilowatt hours, and nearly 25 thousand tonnes of  
            greenhouse gas (GHG) emission reductions. The current program  
            has paid out about $45 million in incentives since 2010. The  
            majority of these funds have been used to fund commercial  
            multifamily housing and low income multifamily housing  
            projects ($35 million).


            As part of the proposed action plan developed by the CPUC, the  
            California Energy Commission (CEC), and the Los Angeles  
            Department of Water and Power (LADWP), they recommend  
            reprioritizing the existing solar thermal program to fund  
            projects installable by summer 2017. They particularly note  
            that funds from this program for low-income customers have  
            been fully utilized.




            --------------------------
          <1>  https://www.bsa.ca.gov/pdfs/reports/2014-124.pdf  











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          3)Water Heating Only? This bill specifies a program limited to  
            solar water heating. Yet solar thermal can provide other  
            services, such as space heating and cooling. These other  
            services can not only offset natural gas use but may also  
            offset electricity use.
             The author may wish to consider an amendment to revise the  
            definition of solar water heating to instead define solar  
            thermal and make conforming changes to references to solar  
            water heating to instead state solar thermal.


           4)Impact on Ratepayers:  This bill allocates up to $1 billion  
            from ratepayers to fund the incentive program through 2027. If  
            the program does not use the full amount of funds available by  
            2027, ratepayer funds would not be collected.  The current  
            program has been in rates since 2007 and has expended $45  
            million of the original $250 million allocation.
          5)Allocation of Funds: This bill apportions 50% of the budget to  
            low income solar water heating. The CPUC is free to allocate  
            the remaining 50% as it determines appropriate. Solar thermal  
            can be used to meet the needs of food, beverage, textiles,  
            paper and pulp industries. Processes like sterilizing,  
            pasteurizing, drying, hydrolyzing, distillation and  
            evaporation, and washing and cleaning do not require high  
            temperatures and could benefit from the use of solar thermal  
            technologies.


             The author may wish to consider an amendment to revise the  
            allocation of funds to set aside 10% of the funds to  
            industrial applications.


           6)Suggested Amendments:
            SECTION 1. Section 2860 of the Public Utilities Code is  
            repealed.

            SEC. 2. Section 2861 of the Public Utilities Code is amended  
            to read:











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            2861. As used in this article, the following terms have the  
            following meanings:
            (a) "Disadvantaged community" means a community identified by  
            the California Environmental Protection Agency pursuant to  
            Section 39711 of the Health and Safety Code.
             (b) "Gas customer" includes both "core" and "noncore"  
            customers, as those terms are used in Chapter 2.2 (commencing  
            with Section 328) of Part 1, that receive retail end-use gas  
            service within the service territory of a gas corporation.
             (c) "kWth" or "kilowatts thermal" means the unit of measure  
            of the equivalent thermal capacity of a solar  water heating  
              thermal  system that is calculated by multiplying the aperture  
            area of the solar collector area of the system, expressed in  
            square meters, by a conversion factor of 0.7.
             (d) "kWhth" means kilowatthours thermal as measured by the  
            number of kilowatts thermal generated, or displaced, in an  
            hour.
            (e) "Low-income residential housing" means either of the  
            following:
            (1) Residential housing financed with low-income housing tax  
            credits, tax-exempt mortgage revenue bonds, general obligation  
            bonds, or local, state, or federal loans or grants, and for  
            which the rents of the occupants who are lower income  
            households, as defined in Section 50079.5 of the Health and  
            Safety Code, do not exceed those prescribed by deed  
            restrictions or regulatory agreements pursuant to the terms of  
            the financing or financial assistance.
            (2) A residential complex in which at least 20 percent of the  
            total units are sold or rented to lower income households, as  
            defined in Section 50079.5 of the Health and Safety Code, and  
            the housing units targeted for lower income households are  
            subject to a deed restriction or affordability covenant with a  
            public entity that ensures that the units will be available at  
            an affordable housing cost meeting the requirements of Section  
            50052.5 of the Health and Safety Code, or at an affordable  
            rent meeting the requirements of Section 50053 of the Health  
            and Safety Code, for a period of not less than 30 years.
             (f) "New Solar Homes Partnership" means the 10-year program,  
            administered by the Energy Commission, encouraging solar  











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            energy systems in new home construction.
             (g) "Solar heating collector" means a device that is used to  
            collect or capture heat from the sun and that is generally,  
            but need not be, located on a roof.
             (h) "Solar  water heating   thermal  system" means a solar energy  
            device that has the primary purpose of reducing demand for  
            natural gas  or electricity  through water heating, space  
            heating  or cooling  , or other methods of capturing  heat  energy  
            from the sun to reduce natural gas  or electricity  consumption  
            in a home, business, or any building or facility receiving  
            natural gas that is subject to the surcharge established  
            pursuant to subdivision (b) of Section 2863, or exempt from  
            the surcharge pursuant to subdivision  (c)   (b)  of Section 2863,  
            and that meets or exceeds the eligibility criteria established  
            pursuant to Section 2864. "Solar  water heating  thermal  
            systems" include multifamily residential,  industrial,   
            governmental, educational, and nonprofit solar pool heating  
            systems, but do not include single-family residential solar  
            pool heating systems.

            SEC. 3. Section 2862 of the Public Utilities Code is amended  
            and renumbered to read:
            2860.  (a) Legislature finds and declares all of the  
            following:
             (1) California is heavily dependent on natural gas.
             (2) The storage and delivery of natural gas relies on aging  
            infrastructure that is prone to leaks that can damage the  
            environment and imperil public health.
             (3) Natural gas is a fossil fuel and a major source of global  
            warming pollution and the pollutants that cause air pollution,  
            including smog.
             (4) California's growing population and economy will put a  
            strain on energy supplies and threaten the ability of the  
            state to meet its global warming goals unless specific steps  
            are taken to reduce demand and generate energy cleanly and  
            efficiently.
             (5) Water heating for domestic and industrial use relies  
            almost entirely on natural gas and accounts for a significant  
            percentage of the state's natural gas consumption.











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             (6) Solar  water   thermal  heating systems represent the major  
            untapped natural gas saving potential in California.
            (7) In addition to financial and energy savings, solar  water  
            heating   thermal  systems can help protect against future gas  
            and electricity shortages and reduce our dependence on foreign  
            sources of energy.
            (8) Solar  water heating   thermal  systems can also help preserve  
            the environment and protect public health by reducing air  
            pollution, including carbon dioxide, a leading global warming  
            gas, and nitrogen oxide, a precursor to smog.
            (9) Growing demand for these technologies will create jobs in  
            California as well as promote greater energy independence,  
            protect consumers from rising energy costs, and result in  
            cleaner air.
            (10) Installing solar  water heating   thermal  systems in  
            disadvantaged communities can provide local economic benefits  
            while advancing the state's clean energy goals and policies to  
            reduce the emissions of greenhouse gases.
            (11) It is in the interest of the State of California to  
            promote solar  water heating   thermal  systems and other  
            technologies that directly reduce demand for natural gas in  
            homes and businesses.
            (b) It is the intent of the Legislature to build a mainstream  
            market for solar  water heating   thermal  systems that directly  
            reduces demand for natural gas in homes, businesses, schools,  
             industrial , and nonprofit and government buildings. 
            (c) It is the intent of the Legislature that the solar  water  
            heating   thermal  system incentives created by this article  
            should be a cost-effective investment by gas customers. Gas  
            customers will recoup the cost of their investment through  
            lower energy bills as a result of avoiding purchases of  
            natural gas.

            SEC. 4. Section 2863 of the Public Utilities Code is amended  
            to read:
            2863. (a)  By July 31, 2017, the commission shall do all of  
            the following:
            (1)  Implement changes to the program as authorized pursuant  
            to this section on December 31, 2016, applicable to the  











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            service territories of a gas corporation to promote the  
            installation of solar  water heating   thermal  systems in homes,  
            businesses, and buildings or facilities of eligible customer  
            classes receiving natural gas service throughout the state.  
            Eligible customer classes shall include single-family and  
            multifamily residential, commercial, industrial, governmental,  
            nonprofit, and primary, secondary, and postsecondary  
            educational customers. The commission shall implement program  
            changes in phases, if necessary, to enable seamless  
            continuation of the availability of rebates as of January 1,  
            2017.
            (2) The program shall be administered by gas corporations or  
            third-party administrators, as determined by the commission,  
            and subject to the supervision of the commission.
            (3) The commission shall coordinate the program with the  
            Energy Commission's programs and initiatives, including, but  
            not limited to, the New Solar Homes Partnership, to achieve  
            the goal of building zero-energy homes.
             (b) (1) The commission shall fund the program through the use  
            of a surcharge applied to gas customers based upon the amount  
            of natural gas consumed. The surcharge shall be in addition to  
            any other charges for natural gas sold or transported for  
            consumption in this state.
            (2)  Funding for the program established by this article shall  
            not, for the collective service territories of all gas  
            corporations, exceed one billion dollars ($1,000,000,000) over  
            the course of the period from January 1, 2017, to July 31,  
            2027, inclusive.
            (3) Fifty percent of the total program budget shall be  
            reserved for the installation of solar  water heating   thermal   
            systems in low-income residential housing or in buildings in  
            disadvantaged communities. The commission may revise the  
            percentage if the budget for other types of customers becomes  
            depleted.
             (4)  Ten percent of the total program budget shall be reserved  
            for the installation of solar thermal systems in industrial  
            applications. The commission may revise the percentage if the  
            budget for other types of customers becomes depleted.  
             (5)  The commission shall annually establish a surcharge rate  











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            for each class of gas customers. Any gas customer  
            participating in the California Alternate Rates for Energy  
            (CARE) or Family Electric Rate Assistance (FERA) programs  
            shall be exempt from paying any surcharge imposed to fund the  
            program designed and implemented pursuant to this article.
             (5) Any surcharge imposed to fund the program designed and  
            implemented pursuant to this article shall not be imposed upon  
            the portion of any gas customer's procurement of natural gas  
            that is used or employed for a purpose that Section 896  
            excludes from being categorized as the consumption of natural  
            gas.
             (6) The gas corporation or other person or entity providing  
            revenue cycle services, as defined in Section 328.1, shall be  
            responsible for collecting the surcharge.
            (c) Funds shall be allocated in the form of customer rebates  
            to promote utilization of solar  water heating   thermal  systems.
            (1) On and after January 1, 2017, the rebate amount shall be  
            consistent with the amount the commission established for the  
            calendar year 2016 until revised by the commission pursuant to  
            paragraph (2).
            (2) Beginning in 2017, and every two years thereafter, the  
            commission shall consider revisions to the rebate amount,  
            taking into account the cost of installing  solar water heating   
             thermal  systems and the price of natural gas to end-use  
            customers.
            (3) The commission shall ensure that a cap on the maximum  
            rebate amount does not unreasonably impair the ability of  
            industrial customers to participate in the program.
            (d) In designing and implementing the program required by this  
            article, no moneys shall be diverted from any existing  
            programs for low-income ratepayers or cost-effective energy  
            efficiency programs.

            SEC. 5. Section 2864 of the Public Utilities Code is amended  
            to read:
            2864.  (a) The commission, in consultation with the Energy  
            Commission and interested members of the public, shall  
            establish eligibility criteria for solar  water heating   thermal   
            systems receiving gas customer funded incentives pursuant to  











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            this article. The criteria should specify and include all of  
            the following:
            (1) Design, installation, and energy output or displacement  
            standards. To be eligible for rebate funding, a residential  
            solar  water heating  thermal system shall be certified by an  
            accredited listing agency in accordance with standards adopted  
            by the commission. Solar collectors used in systems for  
            multifamily residential, commercial, government, nonprofit,  
            educational, or industrial  water heating   applications  shall be  
            certified by an accredited listing agency in accordance with  
            standards adopted by the commission. Energy output of  
            collectors and systems shall be determined in accordance with  
            procedures set forth by the listing agency, and shall be based  
            on testing results from accredited testing laboratories.
            (2)  A requirement that solar  water heating   thermal  system  
            components are new and unused, and have not previously been  
            placed in service in any other location or for any other  
            application.
            (3)  A requirement that solar  water heating   thermal  collectors  
            have a warranty of not less than 10 years to protect against  
            defects and undue degradation.
            (4) A requirement that solar  water heating   thermal  systems are  
            in buildings or facilities connected to a natural gas  
            utility's distribution system within the state.
            (5)  A requirement that solar  water heating   thermal  systems  
            have meters or other kWhth measuring devices in place to  
            monitor and measure the system's performance and the quantity  
            of energy generated or displaced by the system. The cost of  
            monitoring the system shall not exceed 2 percent of the system  
            cost.
            (6)  A requirement that solar  water heating   thermal  systems  
            are installed in conformity with the manufacturer's  
            specifications and all applicable codes and standards.
            (b) Gas customer funded incentives shall not be made for a  
            solar  water heating   thermal  system that does not meet the  
            eligibility criteria.
            (c) The commission may adopt consensus solar standards  
            applicable to products or systems as developed by accredited  
            standards developers.











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            SEC. 6. Section 2865 of the Public Utilities Code is amended  
            to read:
            2865. (a) The commission shall establish conditions on gas  
            customer funded incentives pursuant to this article. The  
            conditions shall require both of the following:
            (1) Appropriate siting and high-quality installation of the  
            solar  water heating   therma  l system based on installation  
            guidelines that maximize the performance of the system and  
            prevent qualified systems from being inefficiently or  
            inappropriately installed. The conditions shall not impact  
            housing designs or densities presently authorized by a city,  
            county, or city and county. The goal of this paragraph is to  
            achieve efficient installation of solar  water heating  thermal  
            systems and promote the greatest energy production or  
            displacement per gas customer dollar.
            (2) Appropriate energy efficiency improvements in the new or  
            existing home or facility where the solar  water heating  
              thermal  system is installed.
            (b) The commission shall set rating standards for equipment,  
            components, and systems to ensure reasonable performance and  
            shall develop procedures that provide for compliance with the  
            minimum ratings.

            SEC. 7. Section 2866 of the Public Utilities Code is amended  
            to read:
            2866. (a) The commission may establish a grant program or a  
            revolving loan or loan guarantee program for low-income  
                                                                                    residential housing consistent with the requirements of  
            Chapter 5.3 (commencing with Section 25425) of Division 15 of  
            the Public Resources Code. All Notwithstanding Section 2867.4,  
            all loans outstanding as of August 1, 2018, 2027, shall  
            continue to be repaid in a manner that is consistent with the  
            terms and conditions of the program adopted and implemented by  
            the commission pursuant to this subdivision, until repaid in  
            full.
             (b) The commission may extend eligibility for funding  
            pursuant to this section to include residential housing  
            occupied by ratepayers participating in a commission approved  











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            and supervised gas corporation Low-Income Energy Efficiency  
            (LIEE) program and who either:
            (1) Occupy a single-family home.
            (2) Occupy at least 50 percent of all units in a multifamily  
            dwelling structure.
             (c) The commission shall ensure that lower income households,  
            as defined in Section 50079.5 of the Health and Safety Code,  
            and, if the commission expands the program pursuant to  
            subdivision (b), ratepayers participating in a LIEE program,  
            that receive gas service at residential housing with a solar  
            water heating system receiving incentives pursuant to  
            subdivision (a), benefit from the installation of the solar  
             water heating   thermal  systems through reduced or lowered  
            energy costs.
             (d) The commission shall do all of the following to implement  
            the requirements of this section:
            (1) Maximize incentives to properties that are committed to  
            continuously serving the needs of lower income households, as  
            defined in Section 50079.5 of the Health and Safety Code, and,  
            if the commission expands the program pursuant to subdivision  
            (c), (b), ratepayers participating in a LIEE program.
            (2) Establish conditions on the installation of solar  water  
            heating  thermal systems that ensure properties on which solar  
             water heating  thermal  systems are installed under subdivision  
            (a) remain low-income residential properties for at least 10  
            years from the time of installation, including property  
            ownership restrictions and income rental protections, and  
            appropriate enforcement of these conditions.

            SEC. 8. Section 2867 of the Public Utilities Code is amended  
            to read:
            2867. (a) Consistent with subdivision (c) of Section 2863, the  
            commission shall consider reductions over time in rebates  
            provided through the program. The rebate shall be structured  
            so as to drive down the cost of the solar  water heating   
             thermal  technologies, and be paid out on a performance-based  
            incentive basis so that incentives are earned based on the  
            actual energy savings, or on predicted energy savings as  
            established by the commission.











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            (b) The commission shall consider federal tax credits and  
            other incentives available for this technology when  
            determining the appropriate rebate amount.
            (c) The commission shall consider the impact of rebates for  
            solar  water heating   thermal  systems pursuant to this article  
            on existing incentive programs for energy efficiency  
            technology.
            (d) In coordination with the commission, the Energy Commission  
            shall consider, when appropriate, coupling rebates for solar  
             water heating   thermal  systems with complementary energy  
            efficiency technologies, including, but not limited to,  
            efficient hot water heating tanks and tankless or on demand  
            hot water systems that can be installed in addition to the  
            solar  water heating   thermal  system.

            SEC. 9. Section 2867.1 of the Public Utilities Code is  
            repealed.

            SEC. 10. Section 2867.2 of the Public Utilities Code is  
            repealed.

            SEC. 11. Section 2867.3 of the Public Utilities Code is  
            amended to read:
            2867.3.The governing body of each publicly owned utility  
            providing gas service to retail end-use gas customers shall,  
            after a public proceeding, adopt, implement, and finance a  
            solar  water heating   thermal  system incentive program that does  
            all the following:
            (a) Ensures that any solar  water heating   thermal  system  
            receiving monetary incentives complies with eligibility  
            criteria adopted by the governing body. The eligibility  
            criteria shall include those elements contained in paragraphs  
            (1) to (6), inclusive, of subdivision (a) of Section 2864.
            (b) Includes minimum ratings and standards for equipment,  
            components, and systems to ensure reasonable performance and  
            compliance with the minimum ratings and standards.
            (c) Includes an element that addresses the installation of  
            solar  water heating   thermal  systems on low-income residential  
            housing. If deemed appropriate in consultation with the  











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            California Tax Credit Allocation Committee, the governing  
            board may establish a grant program or a revolving loan or  
            loan guarantee program for low-income residential housing  
            consistent with the requirements of Chapter 5.3 (commencing  
            with Section 25425) of Division 15 of the Public Resources  
            Code.

            SEC. 12. Section 2867.4 of the Public Utilities Code is  
            repealed.

            SEC. 13. Section 2867.4 is added to the Public Utilities Code,  
            to read:
            2867.4. This article shall become inoperative on August 1,  
            2027, and, as of January 1, 2028, is repealed, unless a later  
            enacted statute, that becomes operative on or before January  
            1, 2028, deletes or extends the dates on which it becomes  
            inoperative and is repealed.



          REGISTERED SUPPORT / OPPOSITION:




          Support


          Aztec Solar


          California Solar Energy Industries Association


          Center for Sustainable Energy


          Environment California












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          Fafco


          Mercy Housing


          Solartek


          UMA Solar




          Opposition


          None on file.




          Analysis Prepared by:Sue Kateley / U. & C. / (916) 319-2083