BILL ANALYSIS Ó
SB 765
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Date of Hearing:
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Anthony Rendon, Chair
SB
765 (Wolk) - As Amended July 7, 2015
SENATE VOTE: 23-17
SUBJECT: Energy: California Market Transformation
Administrator.
SUMMARY: 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.
Specifically, 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.
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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.
3)States that an entity eligible to be a CalMTA shall have a
mission that is fully aligned with promoting energy efficiency
and conservation, including market transformation and the
marketing, education, and outreach plans for the CalMTA's
market transformation initiatives shall be developed and
implemented as part of the Energy Upgrade California statewide
marketing, education, and outreach efforts, where practical.
4)States that the CalMTC shall work with other energy efficiency
administrators to incorporate long-term market transformation
strategies; create market conditions that will accelerate and
sustain the market adoption of emerging energy efficiency
products, services and practices in California; meet interim
and long-term targets related to the transformation of
targeted markets; and provide a cost-effective portfolio of
market transformation initiatives over the life of the
contract.
5)Sets the budget for market transformation activities -
including CalMTA's budget and the CPUC's costs to manage the
contract with CalMTA - at no more than 10% of the total budget
for energy efficiency activities overseen by the CPUC,
excluding low-income energy efficiency programs.
6)Requires CalMTA to meet interim and long-term targets set by
the CPUC, and to submit quarterly expense reports and annual
progress reports.
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7)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).
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 Section 454.55 and
454.56.)
FISCAL EFFECT:
According to the Senate Appropriations Committee:
Annual costs of up to $730,000 to the Public Utilities
Reimbursement Account for additional workload at the CPUC to
oversee and manage the activities at CalMTA.
Annual costs of approximately $150,000 from the Energy
Resources Program Account to coordinate with the CPUC on
market transformation activities.
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COMMENTS:
1)Author's Statement: "SB 765 requires the California Public
Utilities Commission to create an independent entity, to be
known as the California Market Transformation Administrator
(or CalMTA), to coordinate the state's energy efficiency
market-transformation activities.
"Studies have shown that California has not successfully
utilized energy efficiency market transformation as a tool to
realize deeper cuts in our energy demand. A reason for this
could rest with the fact that the IOUs are either too large
and, therefore, they are too slow to adapt to fast moving
innovative markets. Or they face pressure from their
shareholders to produce short-term profits, which is
incompatible with investing in long-term market
transformation. However, SB 765 does not take away
administration of energy efficiency programs from the IOUs.
It seeks to build upon and work with existing IOU energy
efficiency programs."
"This new standalone entity, the CalMTA, will be responsible
for planning, coordinating and managing the execution of
statewide energy efficiency market transformation initiatives
subject to PUC oversight. Its creation positions California
to unlock deeper, cost-effective energy savings that are
necessary to realize Governor Brown's goal to double energy
efficiency savings by 2030."
2)Ratepayer funded energy efficiency programs: The CPUC
authorizes collections of ratepayer funds at about $1 billion
per year to support programs to increase energy efficiency in
California. These programs include a portfolio of financial
incentives, loans, and rebates for installing energy efficient
appliances, lighting, windows, heating, ventilation, and air
conditioning (HVAC) systems, whole-house retrofits, marketing
and education programs, and specialized programs aimed at
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benefiting a variety of sectors.
3)What is Market Transformation? According to SB 765, 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.
A recent consultant paper published by the CPUC suggests
market transformation is intervention strategies aimed at
long-term transformation of narrowly defined technology
markets. As written, SB 765 is more expansive than the CPUC
paper's definition.
The idea of market transformation is that it will result in
structural changes in the market that leads to long-term
savings and that those savings are achieved by mobilizing the
market. The CPUC also notes that market transformation is not
policy objective because all markets are not in need of, or
susceptible to being transformed.
The CPUC notes that while market transformation could lead to
savings, it is fundamentally risky. The CPUC suggests that to
manage those risks there must be continuous evaluation to
decide whether to maintain course, alter direction, or abandon
the effort. It also requires that risks be allocated
rationally across stakeholders.
Examples of market transformation suggested in the CPUC's
paper are: changes in lighting retailer stocking practices,
an increase in the number of contractors catering to the
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multifamily sector, changes in the specification practices of
engineers, changes in the views of financial entities
regarding the viability of targeting loans for energy
efficiency measures.
The CPUC's paper also identified several successful market
transformation programs in California and one outside of
California, including:
Current program administrators worked with manufacturers
of commercial-size transformers to improve their
efficiency. Utilities worked with the manufacturers to
encourage them to be the first to claim their niche as
energy efficiency products. Copper mining interests
marketed the concept because these efficient transformers
use more copper.
Current program administrators worked to develop a
voluntary national standard to increase the energy
efficiency of computer power supplies because once it
became a standard, 60% to 80% of the market would follow.
An alliance of more than 140 Northwest utilities and
energy efficiency organizations in the Pacific Northwest
worked with window manufacturers to promote a voluntary
national standard. The program used fact sheets, press
releases, brochures, and sales team kits. According to
this organization, after 2001, the program ended because
savings continued to accumulate without further
intervention or cost.
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The author may wish to consider an amendment to narrow the
definition of market transformation, include a definition for
energy efficiency, and clarify the definition for resources
acquisition.
1)History of CPUC Market Transformation: The CPUC already funds
a number of market transformation programs within the existing
energy efficiency programs:
In 2007, the CPUC adopted the Big Bold Energy Efficiency
Strategies (BBEES), programmatic initiatives to accelerate
market transformation toward greater adoption of energy
efficiency. They are (1) all new residential construction
will be Zero Net Energy (ZNE) by 2020, (2) all new
commercial construction will be ZNE by 2030, (3) the HVAC
industry will be re-shaped to deliver maximum system
performance by 2020, and (4) all eligible low-income
customers will have an opportunity to participate in the
Energy Savings Assistance Program and will be provided all
cost effective energy efficiency measures in their homes by
2020.
In 2008, the CPUC adopted a California Energy Efficiency
Long-Term Strategic Plan to maximize achievement of cost
effective energy efficiency in California's electricity and
natural gas sectors between 2009 and 2020, and beyond.
According to the CPUC, the unifying objective of the
Strategic Plan was to compel sustained market
transformation to move California toward long-term, deeper
savings achievable only through high-impact programs.
The CPUC 2010-2012 energy efficiency portfolio included
several new "market transformation" programs: Energy
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Upgrade California, HVAC quality installation and
maintenance, Lighting Market Transformation, and Integrated
Demand-side Management, among others.
In the CPUC decision authorizing the 2013-2014 energy
efficiency programs, the CPUC directed the IOUs to
establish a new statewide lighting program and subsume the
current statewide Lighting Market Transformation program as
a subprogram within it.
The author may wish to require the CPUC consolidate all of its
marketing transformation activities into a single program so
that it is clear what is and what is not within this program,
how much ratepayer funding has already been allocated in this
area, and whether the programs are delivering results .
In addition, the author may wish to consider striking
paragraphs (C) and (D) in section 399(f)(1) of the bill.
1)Market Transformation Administrator: SB 765 allocates up to
10%, or $100 million a year for 5 years to the CalMTA, for a
total of up to $500 million. Since the CalMTA does not yet
exist, the contract would also include creating the CalMTA.
It is unclear whether a single entity responsible for market
transformation will be any more or less effective than the
CPUC's current market transformation activities. The CPUC
currently has authority to authorize contracts for consultant
services. If the CPUC believes it needs additional authority
to award contracts, it can propose a change in statute or
submit a budget change proposal through the normal
administration process.
In 2005, the CPUC considered a variety of program
administration methods for its energy efficiency programs. At
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the time, TURN and ORA together proposed an independent
administrator. The CPUC noted that:
"While the Commission can and does exercise control of
contractors by defining the terms and scope of work,
entities that sign contracts with the Commission do not by
that fact alone become subject to the Commission's
regulatory jurisdiction. In fact, according to the
presumed contract terms under the TURN/ORA Coalition
proposal, the only expedient remedy for unsatisfactory
performance is the termination of the program
administrator's contract. Any other remedy could require
us to litigate the matter in Superior Court, which is time
consuming, expensive and uncertain, and less satisfactory
than direct regulation. In either case, we would be forced
to assign an interim administrator, a scenario that could
be highly disruptive and costly."
Regarding CPUC contract management, the CPUC also said:
"Effective staff contract management requires that the contract
manager review monthly invoices to ensure that expenses are
reasonable and within the approved scope of work, prior to
authorizing payments. Requiring our Energy Division staff to
extend this type of contract management to a program
administrator (or multiple administrators) responsible for an
annual budget of over $400 million raises the same issues of
resource allocation we discussed earlier. The required level of
fiscal control and the business systems needed to support that
control are complex and expensive. As ICF Associates points
out, there are few, if any, existing non-IOU organizations with
an understanding of the energy efficiency business that have
managed anywhere near that level of funding. Even if
organizations responding to the RFP for program administrators
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demonstrated the required level of fiscal control and business
systems, we are skeptical that they could accomplish these
functions with a total staffing of 25."
And:
"In sum, even if we desired to pursue a model that
transfers funds from the IOUs to an outside entity, we
would first need to seek legislation similar to the
provisions that authorize the transfer of telecommunication
public purpose funds to treasury accounts, or PGC funds to
the CEC treasury accounts. This would delay our ability to
move forward with a permanent administrative structure for
energy efficiency until the Legislature (and Governor)
enacted a statute. Moreover, the outcome of that process
would be highly uncertain. We note that once those funds
are in the state treasury, then state contracting rules
apply."
The concerns raised by the CPUC then would apply equally to
the independent administrator proposed by this bill. In
addition, recent revelations regarding multiple sole source
contracts issued by the CPUC for legal services causes
concern, one of which was originally awarded for $49,000 and
later amended to become a $5.2 million contract.
The author may wish to consider striking the language in the
bill that would establish a Market Transformation
Administrator.
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2)CalMTA consulting and advisory provisions: The language in
Section 399.6 suggests that the CPUC is to consult with the
CalMTA on demand side management programs. It is unclear why
the CPUC should consult with an unknown organization or how
this consultation would be considered if it occurred outside
of a CPUC proceeding or how such consultation would be
included in the record of a proceeding. In addition, it is
unclear whether the CalMTA would be subject to open meeting,
transparency, public records requirements that the CPUC must
comply with. Further, it is unclear whether this organization
currently exists, and it would be important to understand who
this organization is in order to better understand whether
there are any potential conflicts of interest, particularly if
it is already under contract to perform similar services. In
addition, as noted in this analysis, the CPUC has already
established an advisory committee so it is unclear why the
CPUC would need an additional advisory committee or more than
one advisory committee.
The author may wish to consider striking section 399.6 from
the bill.
3)Proposed amendments:
399. (f)(1) (C) The existing energy efficiency portfolio
overseen by the commission focuses on energy efficiency
resource acquisition.
(D) The creation of a single entity with responsibility for
planning, coordinating, and managing the execution of
statewide energy efficiency market transformation initiatives
in concert with other state energy efficiency activities,
subject to the commission's oversight and that carries out its
duties in consultation with the Energy Commission and all
interested local publicly owned electric utilities, would
assist the state in advancing its energy efficiency and
greenhouse gas reduction goals without increasing the overall
funding for the energy efficiency portfolio overseen by the
commission.
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Insert the following in 399.5(a)
As used in this section, energy efficiency means delivering
equal or more services with less energy input from an energy
source.
399.5(a)(3) "Market transformation" means 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. targeted
intervention strategies that induce sustained adoption and
market penetration of energy efficient technologies and
practices through structural changes in the market and in
behaviors of market actors such that government intervention
is no longer necessary, with few or no monetary inducements,
(4) "Resources acquisition" means the generation of
electricity or natural gas savings that are sufficiently
reliable, predictable, and measurable to replace electricity
electric generation or natural gas supplies in the utility
energy resource planning process.
399.5 (2) "California Market Transformation Administrator" or
"CalMTA" means a private contractor selected by the commission
to coordinate the planning and execution of the state's
efforts to advance electricity and natural gas energy
efficiency through long-term market transformation strategies.
399.5 (b) (1) In carrying out its responsibilities to ensure
that prudent investments in energy efficiency are made and
produce cost-effective energy savings, reduce customer demand,
and support the state's greenhouse gas emissions reduction
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goals, the commission, on or before July 1, 2017, shall
contract with an independent entity to serve as the California
Market Transformation Administrator that will coordinate the
planning and execution of the state's efforts to advance
energy efficiency through long-term market transformation
strategies, as well as advise on and otherwise assist the
commission with the coordination of demand-side energy
management programs under the commission's jurisdiction.
(2) The initial CalMTA contract shall be for a period of not
less than five years and may be terminated if the CalMTA fails
to meet the performance benchmarks established in the
contract.
(c) (1) An entity eligible to be a CalMTA shall have a mission
that is fully aligned with promoting energy efficiency and
conservation, including market transformation.
(2) The marketing, education, and outreach plans for the
CalMTA's market transformation initiatives shall be developed
and implemented as part of the Energy Upgrade California
statewide marketing, education, and outreach efforts, where
practical.
(d) The commission shall require the CalMTA, at a minimum, to
do all of the following:
(1) Work in concert with other energy efficiency
administrators carrying out energy efficiency activities under
the commission's oversight to incorporate long-term market
transformation strategies into the state's portfolio.
The commission shall modify the existing energy efficiency
program to incorporate a portfolio of long-term market
transformation initiatives on a statewide basis, and ensure
that this portfolio will achieve the following without
increasing the overall funding for the energy efficiency
program:
(2) Create (1) Market conditions that will accelerate and
sustain the market adoption of emerging energy efficiency
products, services, and practices in California.
(3) (2) Meet interim and long-term targets adopted by the
commission related to the transformation of targeted markets,
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as well as provide a cost-effective portfolio of market
transformation initiatives over the life of the contract .
(4) Submit to the commission quarterly reports detailing
expenditures and annual reports showing expenditures and
progress towards commission-established interim and long-term
targets.
(5) (3) Contribute improved efficiencies in the delivery of
ratepayer-funded energy efficiency activities in California by
taking a statewide approach to defined markets targeted for
transformation.
(6) (4) Coordinate the planning for and execution of market
transformation initiatives, as appropriate, with utility
administered energy efficiency activities, other energy
efficiency activities under the commission's jurisdiction,
including, but not limited to, energy efficiency activities
administered by community choice aggregators pursuant to
Section 381.1, and low-income energy efficiency programs in
California, including the rate-payer funded program required
by Section 2790 and overseen by the commission, as well as the
federal Low-Income Home Energy Assistance Program administered
by the Department of Community Services and Development.
(7) Build upon the energy efficiency expertise and
capabilities developed in the state, such as by providing
flexibility for other energy efficiency administrators to
carry out some of the market transformation activities
identified by the CalMTA, so as to minimize confusion and
leverage existing relationships between utilities, community
choice aggregators, and other providers of energy efficiency
services, and their customers.
(8) (5) Encourage local publicly owned electric utilities to
voluntarily participate in the CalMTA's planning efforts and
otherwise support the market transformation initiatives
administered by the CalMTA authorized by the commission to
ensure statewide consistency and full market deployment.
(9) (6) Collaborate, as necessary, with regional and national
energy efficiency entities on market transformation efforts.
(e) (c) The commission shall protect ratepayers from
performance risks inherent in market transformation
initiatives by, at a minimum, doing all of the following:
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(1) Requiring a rigorous upfront vetting process for program
concepts , to be conducted either by the commission as part of
its oversight function or by the CalMTA. The CalMTA shall make
a convincing case to ensure that each proposed market
intervention would produce lasting energy efficiency benefits
that would more than pay for the long-term costs of the market
intervention.
(2) Balancing the level of ratepayer investment in market
transformation initiatives against resources acquisition
initiatives, such that:
(A) The budget for market transformation initiatives,
including the budget to be managed by the CalMTA and the
commission's costs associated with managing the contract with
the CalMTA, is initially set by the commission at a level not
more than 10 percent of the total budget for energy efficiency
activities overseen by the commission, excluding low-income
energy efficiency programs.
(B) The reasonableness of the initial funding level for market
transformation initiatives is evaluated by the commission over
the course of the initial contract term with the CalMTA and
adjusted as the commission deems appropriate to support the
objectives of this section.
(3) Continuously evaluating the market transformation
initiatives administered by the CalMTA and focusing on whether
the targeted markets are evolving in the manner intended, such
that the initiatives can be corrected mid-course or abandoned,
as necessary, to maximize long-term energy savings from the
CalMTA's portfolio of initiatives.
(f) (e) In implementing this section, the commission shall
consult with the Energy Commission to ensure that functions
carried out by the CalMTA are appropriately coordinated with
the energy efficiency related activities conducted or overseen
by the Energy Commission.
(g) (f) The commission shall evaluate and adopt, as necessary,
new criteria to support and accurately evaluate the benefits
of market transformation.
(h) The commission, in consultation with the Energy Commission
and the CalMTA, shall determine when and how to reflect
potentially achievable cost-effective electricity and natural
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gas savings from energy efficiency market transformation
initiatives in carrying out its obligations pursuant to
Sections 454.55 and 454.56. In setting energy efficiency
targets for electrical or gas corporations pursuant to Section
454.55 or 454.56, the commission shall consider whether energy
savings expected to be delivered through market transformation
initiatives administered by the CalMTA should be excluded from
the targets established for the electrical or gas
corporations.
Section 399.6 is added to the Public Utilities Code, to read:
399.6. (a) The commission shall consult with the CalMTA on how
best to integrate demand-side energy management programs to
support utility customers in making well-informed,
cost-effective decisions about investment in onsite energy
efficiency, demand response, and renewable distributed
generation, as well as customer-sited energy storage systems,
and to provide economic and organizational efficiencies in the
administration and delivery of ratepayer-funded demand-side
energy management programs in California.
(b) The commission shall consult with the CalMTA on how best
to design and deploy demand-side energy management programs
and encourage customer-sited energy storage systems so as to
provide the most cost-effective environmental and economic
benefits from an electric system planning and operation
perspective.
(c) The commission shall include in the contract executed with
a CalMTA pursuant to Section 399.5 the advisory functions
specified in this section related to integrating demand-side
energy management programs.
4)Related Legislation:
AB 793 (Quirk): This bill requires that weatherization
programs for low-income customers, administered by electrical
and gas corporations, include home energy management
technology and education programs on how to use advanced
meters.
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AB 1013 (Quirk): This bill would make various changes in
statutes related to the CEC building energy efficiency
standards.
AB 1094 (Williams): This bill requires the CEC, in
collaboration with the CPUC, to set greenhouse gas reduction
targets for plug-in equipment based on analysis of plug-in
equipment energy consumption.
AB 1150 (Levine): This bill expands the existing Energy
Efficiency Partnership Program between the University of
California and IOUs to include POUs that are willing to
participate in the program.
AB 1330 (Bloom): This bill establishes an annual energy
efficiency resource standard.
AB 802 (Williams): This bill requires the CPUC to authorize
electrical corporations to administer a program for improving
existing building energy efficiency.
5)Support and Opposition:
Supporters state SB 765:
Removes identified market barriers or exploiting
opportunities to accelerate the adoption and penetration of
energy-efficient technologies and actions,
Address the lack of focus from the state on recognizing
market transformations as an energy efficiency strategy,
Supports California's goal of increasing our reliance on
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energy efficiency, and create an important tool for
addressing greenhouse gas emissions in the energy sector,
and
Makes energy efficiency measures more accessible and
more affordable to low- and moderate-income families.
Opponents state SB 286:
May have unintended consequences of being disruptive,
cause market confusion and lead to short-term losses of
valuable energy efficiency gains,
Disrupts California's current efforts at market
transformation, which are proven and successful,
Creates a statewide program paid for only by IOU
customers, raising significant equity concerns,
Market transformation is inherently difficult to define,
the CPUC should have discretion over contracting (single
vs. multiple), do not require the CPUC to contract to
provide advisory services on integrating demand-side
programs, and
An independent entity does not guarantee market
transformation will happen.
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REGISTERED SUPPORT / OPPOSITION:
Support
The Utility Reform Network (sponsor)
California Environmental Justice Alliance
Center for Sustainable Energy
Environment California
Office of Ratepayer Advocates
Sierra Club California
The Greenlining Institute
Opposition
Natural Resources Defense Counsel (unless amended)
Pacific Gas and Electric Company
San Diego Gas and Electric
Southern California Edison
Southern California Gas Company
Analysis Prepared by:Sue Kateley / U. & C. / (916)
319-2083