BILL ANALYSIS Ó
SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
Senator Ben Hueso, Chair
2015 - 2016 Regular
Bill No: SB 765 Hearing Date: 4/21/2015
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|Author: |Wolk |
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|Version: |4/6/2015 As Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Jay Dickenson |
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SUBJECT: Net energy metering: eligible customer generators
DIGEST: This bill requires the California Public Utilities
Commission (CPUC) to contract with an independent entity, to be
known as the California Market Transformation Administrator
(CalMTA), to coordinate the state's energy efficiency
market-transformation activities.
ANALYSIS:
Existing law 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 electrical and gas
corporations. (Public Utilities Code §§ 454.55 and 454.56.)
This bill:
1. Defines "market transformation" as a strategic process
to intervene in a market to create lasting change in market
behavior by removing identified barriers or exploiting
opportunities to accelerate the adoption of all
cost-effective energy efficiency as a matter of standard
practice.
2. Requires the CPUC, by July 1, 2017, to contract with an
independent entity to serve as the CalMTA, pursuant to a
contract of at least five years, to coordinate planning and
execution of the state's energy efficiency efforts through
long-term market transformation strategies.
SB 765 (Wolk) PageB of?
3. Sets the budget for market transformation activities -
including CalMTA's budget and the CPUC's costs to manage
the contract with CalMTA - at between 5 percent and 10
percent of the total budget for energy efficiency
activities overseen by the CPUC, excluding low-income
energy efficiency programs.
4. Requires CalMTA to meet interim and long-term targets
set by the CPUC and to submit quarterly expense reports and
annual progress reports.
5. Directs CalMTA to work with the California Energy
Commission (CEC) to encourage local publicly-owned electric
utilities (POUs) to participate in the CalMTA's planning
efforts and provide funding and support for CalMTA's market
transformation initiatives.
6. Requires the CPUC to consider whether energy savings
expected to be delivered through CalMTA market
transformation initiatives should be excluded from the
targets established by the CPUC for investor-owned
utilities (IOUs).
Background
Energy Efficiency Sits Atop California Energy Policy . The
"loading order" guides the state's energy policies and decisions
according to the following 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. This policy has been adopted by the energy agencies
- CEC and CPUC - and its principles guide all energy programs.
California's IOUs 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 specialized programs aimed at a
variety of sectors.
Market-Transformation vs. Resource Acquisition . This bill
follows a white paper by consultants to the Energy Division of
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the CPUC on energy efficiency market transformation.<1> That
work notes that CPUC energy efficiency programs oftentimes have
as an end goal "market transformation," meaning long-lasting,
sustainable changes in the structure or functioning of a market
achieved by reducing barriers to the adoption of energy
efficiency measures to the point where continuation of the same
publicly-funded intervention is no longer appropriate in that
specific market. The paper notes that energy efficiency
programs often pursue the end goal of market transformation
through the use of resource acquisition, such as the offering of
rebates.
However, the paper contends that resource acquisition and market
transformation are oftentimes incompatible. This is because
resource acquisition programs tend to focus on relatively
certain near-term savings, whereas market transformation is
risky and slow to be realized. Bureaucratic and market
incentives therefore too often focus on resource acquisition to
the detriment of market transformation.
The paper recasts market transformation from an end goal to a
tool or strategy, rather than simply an end goal. The paper
contends that only certain markets are susceptible to market
transformation. The paper then recommends a complimentary
energy efficiency portfolio consisting of (1) resources
acquisition programs and (2) market transformation programs
targeted to those markets most susceptible to it. The paper
provides a chart to illustrate the distinction it makes between
market transformation and resource acquisition:
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| | Resource Acquisition | Market Transformation |
|--------------+-----------------------+------------------------|
| Scale|Program |Entire defined market |
|--------------+-----------------------+------------------------|
| Target|Participants |All consumers |
|--------------+-----------------------+------------------------|
| Goal|Near-term savings |Structural changes in |
| | |the market leading to |
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<1> Building a Policy Framework to Support Energy Efficiency
Market Transformation in California, Ralph Prahl and Ken
Keating, December 2014.
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| | |long term savings |
|--------------+-----------------------+------------------------|
| Approach|Save energy through |Save energy through |
| |customer participation |mobilizing the market |
|--------------+-----------------------+------------------------|
| Scope of |Usually from a single |Results from effects of |
| Effort|program |multiple programs or |
| | |interventions |
|--------------+-----------------------+------------------------|
| Amount of |PAs can control the |Markets are very |
| Program |pace, scale, |dynamic, and the PAs |
|Administrator'|geographic location, |are only one set of |
| s control|and can identify |actors. If, how, |
| |participants in |where, and when the |
| |general |impacts occur are |
| | |usually beyond the |
| | |control of the program |
| | |administrators. |
|--------------+-----------------------+------------------------|
| What is |Energy use and |Interim and long term |
| tracked, |savings, participants, |indicators of market |
|measured, and |and free-ridership |penetration and |
| evaluated | |structural changes, |
| | |attribution to the |
| | |program, and cumulative |
| | |energy impacts. |
|--------------+-----------------------+------------------------|
|Timeframe for |Usually based on 1st |Is usually planned over |
|cost-effective|year or cycle savings |a 5 -10 year timeframe |
| ness| | |
|--------------+-----------------------+------------------------|
| | | |
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The paper further contends that the IOUs, which administer most
of the $1billion in CPUC-approved energy efficiency programs,
are predisposed to focus on resource acquisition, often at the
expense of market transformation. This is because, according to
the paper:
The IOUs are customer-service organizations. Delivering
energy efficiency services to electricity or natural gas
customers comes somewhat naturally to the IOUs.
Fleet-footed entrepreneurial market engagement does not.
The IOUs face pressure from shareholders to produce
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profits in the short term, which is often incompatible with
long-term market transformation.
As regulated entities, the IOUs are risk averse, which
makes them unsuited to inherently risky and fast-moving
innovative markets.
For these reasons, the paper recommends the CPUC follow the lead
of the "most successful" market-transformation initiative
elsewhere in the country<2> and select an independent, non-IOU
entity to manage the market-transformation projects in the
energy efficiency portfolio.
The paper acknowledges that market transformation programs are
risky. The authors list a number of measures to minimize and
manage that risk, among them:
Limiting the investment in market-transformation
programs to roughly 10 percent of the overall energy
efficiency portfolio.
Vetting rigorously, upfront, program concepts.
Evaluating market-transformation initiatives
continuously.
Collaborating with other jurisdictions and entities to
spread risk.
Allocating risk across stakeholders, rather than forcing
the IOUs to shoulder all the risk.
The concept behind SB 765, and most of its particulars, flows
directly from the white paper.
Limits on Uses of Ratepayer Monies . The bill declares that
creation of an entity, such as CalMTA, to conduct statewide
energy efficiency market transformation initiatives would assist
the state in advancing its energy efficiency and greenhouse gas
reduction goals. The bill directs the CPUC to set the initial
budget for the market transformation programs at a level between
5 percent and 10 percent of the total budget for energy
efficiency activities overseen by the CPUC, excluding low-income
energy efficiency programs.
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<2> The authors note as particularly successful
market-transformation initiatives the Northwest Energy
Efficiency Alliance (NEEA); the Northeast Energy Efficiency
Partnership (NEEP); the New York State Energy Research and
Development Authority (NYSERDA); and Efficiency Vermont (EVT).
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The monies the CPUC authorizes the IOUs to collect from
ratepayers are to pay for provision of service. While the CPUC
has very broad discretion over allowable uses of such monies,
those funds are not the proceeds of taxes and may not be used to
provide general benefits to the people of California. Rather,
the monies paid by the ratepayers of an IOU must be used to
directly benefit those same ratepayers.
The CPUC requires the implementation of a number of programs
funded by ratepayers that provide general benefits, in addition
to particular benefits enjoyed by the ratepayers. Such programs
include Energy Upgrade California - in part, a marketing
campaign promoting energy efficiency statewide - and the
Electric Program Investment Charge (EPIC) - a program that funds
clean energy research, demonstration and deployment projects.
This analysis assumes the CPUC will implement CalMTA program in
a way consistent with legal requirements regarding ratepayer
funds.
The CPUC Could Address Market Transformation on Its Own . The
CPUC oversees an energy efficiency portfolio of approximately $1
billion annually. As part of that oversight, the CPUC makes
numerous requirements of the IOUs, including specifying how they
will manage their energy efficiency program monies. The CPUC
has very broad discretion under its general authority to
regulate the rates paid by the customers of the IOUs.
Presumably, the CPUC could create the CalMTA, or a similar
entity, to administer an energy efficiency market transformation
program. The author's office agrees; however, the author notes
that the CPUC is not formally considering the creation of such a
program, despite the CPUC-developed white paper that is the
basis of this bill. If the Legislature wants the CPUC to
institute a third-party administered energy efficiency market
transformation program, it might need to require the CPUC to do
so.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: Yes
SUPPORT:
Center for Sustainable Energy
Office of Ratepayer Advocates
Sierra Club California
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The Greenlining Institute
The Utility Reform Network (Sponsor)
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: Market transformation and resource
acquisition are two separate energy efficiency tools with
differing applicability. The energy efficiency programs
overseen by the CPUC should be administered accordingly.
Further, the most-successful models of energy efficiency
programs that distinguish between market transformation and
resource acquisition rely on third-party market transformation
administrators. The CPUC should follow this successful model.
ARGUMENTS IN OPPOSITION: The IOUs argue that establishing a
third party to implement energy efficiency market transformation
adds unneeded bureaucratic costs that take funding from other
energy efficiency programs and, in its establishment, distracts
from those programs; and ignores the momentum and market
knowledge of the IOUs. The IOUs contend that they are best
positioned to implement a program focused on market
transformation, should the CPUC wish to require an energy
efficiency program distinct from resource acquisition programs.
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