BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 806 - Wiggins Hearing Date:
April 21, 2009 S
As Amended: April 13, 2009 FISCAL B
8
0
6
DESCRIPTION
Current law establishes minimum expenditures by investor-owned
utilities (IOUs) for cost-effective energy efficiency.
This bill requires the California Public Utilities Commission
(CPUC) to limit the IOU administrative costs for energy
efficiency programs to 5%.
This bill requires the CPUC, in awarding incentive payments to
the IOUs for the performance of their energy efficiency
programs, to ensure that:
No incentive payment is awarded unless an independent
audit verifies the energy savings;
Incentive payments are awarded only upon actual
achievement of the specified goals;
Incentive payments are awarded only for long-term
cumulative energy efficiency goals; and
Any incentive overpayments are returned to customers.
BACKGROUND
Energy efficiency is a critical measure for meeting our energy
demand, reducing greenhouse gas emissions, and controlling
energy bills. California policy has long supported energy
efficiency programs, and the CPUC is in the process of
establishing the most ambitious energy efficiency goals ever for
the IOUs.
The CPUC has determined that providing IOUs with financial
incentives will provide the best chance of meeting their energy
efficiency goals. These incentives typically have carrots and
sticks: additional profits if goals are exceeded, penalties if
goals are not met.
This bill results from concerns that the CPUC's energy
efficiency programs are being poorly administered. In
particular, the CPUC's most recent energy efficiency incentive
payment decision awarded $82 million to the IOUs in
non-refundable bonuses without verifying that the energy
efficiency savings were achieved and therefore the incentive
payments were earned. A subsequent third-party analysis found
that the IOUs did not earn the $82 million and perhaps should
have been penalized. However, since the CPUC made the award
non-refundable the IOUs were able to keep the bonus.
Criticism of the CPUC's energy efficiency incentive mechanism
has led to a reexamination of the mechanism. This couldn't be
more timely as the CPUC will soon launch a $3.7 billion energy
efficiency program for the IOUs for 2009-2011.
Responding to a legislative request, the CPUC has provided
information on the IOUs overhead costs for administering the
energy efficiency programs from 2006-2008. Those costs range
from a low of 8.8% to as much as 15.1%. Between the four
largest IOUs the total administrative costs for the energy
efficiency programs was $238 million.
COMMENTS
1. Only 5% - This bill limits overhead, or administrative
costs, to 5% of the funds expended. "Administrative costs"
are defined as personnel and overhead costs associated with
the implementation of each measure, but does not include
the costs associated with market and program evaluation.
Under this definition the IOUs would need to reduce their
current levels of overhead. However, with the CPUC
considering approval of a $3.7 billion program, a 5%
overhead cap leaves the utilities with $185 million. The
CPUC is currently evaluating its policy on administrative
costs.
The Legislature has agreed with a 5% overhead cap before.
Last year AB 2176 (Caballero) was signed into law. That
bill limited the California Energy Commission's overhead
expenses for administering certain federal funding to 5%.
2. Show Me the Money - The restrictions that this bill
places on incentive payments in many ways reflect what had
been CPUC policy prior to their latest decision.
The bill provides that incentive payments must be based on
actual achievement and not as a means of providing earnings
to the utility. However, if the utility earns an incentive
payment it will result in earnings. The author and
committee may wish to consider fixing this conflict by
deleting the phrase beginning on page 3, line 28 "not as a
means of ?"
The bill provides that incentive payments can only be
awarded based on "long-term cumulative energy efficiency
goals." Provided that they are both cost effective, it is
not clear why long-term savings are superior to short-term
savings, given that all savings reduce customer bills and
greenhouse gas emissions. A bias towards long-term savings
may cause the utilities to miss more cost-effective
short-term savings. The author and committee may wish to
consider deleting this subdivision, beginning on page 3,
line 33.
The bill requires that any overpayment of incentives be
returned to customers. There were overpayments in the
CPUC's 2006-08 energy efficiency incentive awards, based on
the staff analysis. Because the award was non-refundable
those awards could not be returned to ratepayers. But
under this bill incentive payments can only be made based
upon actual energy savings and after an independent audit.
Given this a requirement to return overpayments to
customers is unnecessary. The author and committee may
wish to consider deleting this provision, beginning on page
3, line 38.
POSITIONS
Sponsor:
The Utility Reform Network
Support:
Division of Ratepayer Advocates
Oppose:
None on file
Randy Chinn
SB 806 Analysis
Hearing Date: April 21, 2009