BILL ANALYSIS �
AB 723
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Date of Hearing: April 11, 2011
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 723 (Bradford) - As Introduced: February 17, 2011
SUBJECT : Energy: public goods charge.
SUMMARY : Extends the sunset date on the public goods charge
(PGC) from 2012 to 2016. The electricity PGC is a nonbypassable
surcharge imposed on all retail sales to fund public goods
research, development and demonstration, and energy efficiency
activities.
EXISTING LAW :
1)States the California Public Utilities Commission (PUC) has
regulatory authority over public
utilities, including electrical corporations.
2)Requires that specified moneys collected between January 1,
2007, and January 1,
2012, from the electrical corporations for public interest
research, development, and demonstration, and deposited in the
Public Interest Research, Development, and Demonstration Fund
be used for the purposes of the Public Interest Research,
Development and Demonstration Program.
3)Requires the PUC to order the three largest electrical
corporations in the state to identify and
charge a separate electrical rate component to fund energy
efficiency, renewable energy, and research, development and
demonstration programs.
4)Requires that 20% of the funds collected pursuant to the
renewable energy PGC be used for programs that are designed to
achieve fully competitive and self-sustaining, existing
in-state renewable electricity generation facilities, and to
secure for the state the environmental, economic, and
reliability benefits that continued operation of those
facilities will provide during the 2007-2011 business cycle.
FISCAL EFFECT : Unknown.
1) Background : Historically, the three primary investor-owned
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utilities (IOUs) were completely regulated vertical monopolies;
on the wholesale and retail level. The utilities had an
obligation to serve every customer who requested service. In
return, the CPUC allowed the utilities to charge full recovery
for all costs plus a reasonable rate of return for all costs
incurred to fulfill their obligation. Because the IOUs had no
competition, the PUC authorized the utilities to invest in
research, development and demonstration and recover those costs
in rates also.
AB 1890 (Brulte), Chaptered 854, Statutes of 1996, deregulated
the electricity industry. When AB 1890 was being debated to
deregulate the California electricity industry, there was
concern that under a perfectly competitive market structure, the
utilities would not have incentive to invest in research, unless
the research resulted in technological breakthroughs. If the
research resulted in success, there was concern that the
utility-funded research may remain proprietary, provide the
utility a competitive advantage, and would not benefit all
California ratepayers. On the other hand, if a utility needed
to compete for customers it might choose to keep its costs as
low as possible and not take the risk of investing in research.
To ensure research continued to be funded to the benefit of the
"public interest," AB 1890 required ratepayers to fund a variety
of system reliability, in-state benefit, and low-income customer
programs at specified levels from 1998 through 2001. This
funding was intended to ensure that these "public goods"
programs continued in the restructured electric industry.
SB 90 (Sher), Chaptered 905, Statutes of 1997, created the
Renewable Resources Trust Fund (RRTF) and directed the PUC to
order the IOUs to collect specified amounts to fund each account
in the RRTF through 2002. For the Public Interest Energy
Research program, SB 90 required the CEC to designate an
independent panel of experts to prepare a report on its
programmatic recommendations. For in-state Renewable RD&D, SB
90 required the California Energy Commission (CEC) to report to
the Legislature a description of the allocation of funds, and
the need for the reallocation of money.
SB 1194 (Sher), Chaptered 1050, Statutes of 2000, extended the
collection of a PGC from ratepayers until 2012; however, it
precluded moneys from being expended between January 1, 2007,
and January 1, 2012, without further legislative action. For
the Renewable RD&D and PIER programs, the CEC was directed to
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provide an investment plan to the Legislature that addressed the
application of moneys to be collected between January 1, 2007,
and January 1, 2012. The Renewable RD&D and PIER program
reports were provided to the Legislature and subsequently, SB
1250 (Perata) Chaptered 512, Statutes of 2006, extended the
continuation of funding but amended both of the programs focus.
The electricity PGC funds three primary programs: 1) Public
Interest Energy Research (PIER)--$62.5 million annually,
administered by CEC; 2) Renewable Energy Program --$65.5 million
annually, administered by CEC; and 3) Energy Efficiency--$228
million annually, retained by IOUs with PUC oversight. The
statute allows for these amounts to be adjusted annually at a
rate equal to the lesser of the annual growth in electric
commodity sales or inflation.
2) PIER : Utilities collect at least $62.5 million per year for
the CEC to administer the PIER program. SB 1250 requires PIER
to focus on: 1) advanced electricity generation including
systems that generate a dual use from electricity; 2) climate
change and the environment; 3) energy efficiency and
demand-response strategies that serve to reduce customer demand,
4) renewable energy; and 5) transmission and distribution of
power. An additional focus includes transportation-related
research.
Current law permits the CEC special exemptions from state
contracting guidelines for the PIER program and only requires
the CEC to provide the Joint Legislative Budget Committee a
60-day notice of its intent to take a proposed action. The CEC
claims that the PIER is unique and standard state processes and
contracting rules are not appropriate. This bill would retain
this liberty for the electric utility PIER portion. According
to the CEC, when the PIER program was created, the CEC worked
with the Department of General Services, the state's primary
contracting and procurement agency, to work out an agreement and
impose parameters that would facilitate and encourage innovative
and promising PIER proposals, while ensuring state contracting
guidelines and accountability measures were maintained.
The CEC projects the IOUs to collect $69.7 million in 2010-11.
The funds are annually appropriated, which means the Legislature
reviews the department's spending priorities every year during
budget hearings. To date, PIER has funded nearly $700 million
for projects that range from building and industrial
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efficiencies, to environmentally preferred advanced generation.
The PIER investment plan is required to include criteria that
will be used to determine whether a project provides public
benefits to California that are not adequately provided by
competitive and regulated markets. The original PIER investment
plan identified policy goals; however, it did not include useful
criteria to determine public benefits derived by previous
expenditures of PIER funds.
Section 25620.9 of the Public Resources Code directed the CEC to
designate a panel of independent experts with special expertise
in PIER projects to conduct a comprehensive one-time evaluation
of the program. The evaluation was supposed to include a review
of the public value, and both monetary and nonmonetary benefits
aimed at assisting the Legislature in determining how to
proceed. According to the PIER Independent Review Panel Final
Report dated June 2005, "? there is no clearly articulated,
integrated, agreed upon PIER Strategic Plan that states overall
goals, sets specific objectives, establishes priorities, and
describes a path forward for meeting California's future energy
needs."
To try to find consensus for a PIER Strategic Plan, in 2007, the
CEC formed the PIER Advisory Board (Board) to provide strategic
guidance. The Board consists of representatives from the PUC,
consumer organizations, environmental organizations, the IOUs,
and six member of the Legislature or their representatives. The
Advisory Board met in 2008 and 2010, and in 2011. The CEC
presented its past expenditures and benefits and elicited advice
and guidance from the Board on future expenditures. The advice
was provided and it is unclear whether the CEC was able to
elicit useful guidance from the Board.
3)PIER benefits : According to the CEC, the PIER program has a
successful track record of\
delivering benefits to California's electricity ratepayers. New
products have been developed and commercialized. Businesses and
consumers can now benefit from wireless lighting controls for
cost-effective building retrofits; improved water heaters;
wireless heating, ventilation and air-conditioning thermostats;
improved quality light emitting diodes (LED) fixtures;
specialized controls for energy intensive data centers; and
radiant cooling designed for hot and dry climates.
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Further, the CEC states that five PIER funded research programs
has been incorporated in recent building and appliance
efficiency standards. It is estimated that these five measures
will save $1 billion a year when fully implemented. The bulk of
these savings result from television standards and standards for
external power supplies - powering devices like cell phones.
The CEC states that PIER helps to transition away from fossil
fuels towards renewable sources. For example, a dozen
communities from Humboldt County to San Diego are showcasing
renewable demonstrations. The projects integrate up to 100
percent indigenous renewable resources, along with storage,
electric vehicles and demand response. Each project is testing
various technologies and integration strategies to meet unique
customer needs, at the lowest cost, without compromised
reliability. These solutions allow more renewables that are
closer to population centers, alleviating new transmission.
4)PIER evaluation : In August 2010, Senator Alex Padilla wrote a
letter to the Legislative
Analyst Office (LAO) to request that it conduct an independent
evaluation of the PIER program to determine if it is operating
successfully, if the program should be reauthorized and, if so,
if modifications are warranted. Pursuant to this request, in
January 2011, the LAO evaluated whether there should be a
continued state role for PIER, questioned whether the focus is
still appropriate, and if appropriate, questioned whether the
current process for allocating funds via the CEC is the optimal
to achieve tangible ratepayer benefits. The LAO concluded that
the CEC has not demonstrated that there had been a substantial
payoff from the state's investment. The LOA supported its
findings by noting that due to the various energy-related
mandates and fiscal penalties if mandates are not met, the IOUs
now have a much greater incentive to invest in research. The
LAO recommended that any legislation to reauthorize a
state-supported research program sunset the program after a
determined period of time, perhaps five years, and provide for a
periodic evaluation of the results of the research program.
The LAO recommended the Legislature consider how much
flexibility and control to give to the IOUs to make research
investment decisions and at what level of governmental
involvement in the process is deemed appropriate. Three options
were presented: 1) continue the PIER program under the CEC with
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a tighter focus; 2) allow IOU rate recovery of public interest
research; and, 3) create a public-private partnership for
electricity research.
5) Renewable RD&D : The legislative goals of Renewable RD&D
program have been to increase the amount of electricity
generated from eligible renewable energy resources per year. In
addition, current statute requires the Renewable RD&D program to
optimize public investment and ensure that the most
cost-effective and efficient investments in renewable resources
are strongly pursued.
6)RRTF : Under current law, the RRTF program is divided into
three purposes with 20% of
funds allocated to the Existing Renewables program; 79% to the
Emerging Renewables Program; and 1% to Consumer Education. The
CEC also funds administrative overhead associated with its costs
related to the Renewables Portfolio Standard Program.
a. Existing Renewables Facilities Program : The
legislative goals for this program are to
achieve fully competitive and self-sustaining existing
in-state renewable electricity generation facilities and
to secure for the state, the environmental, economic, and
reliability benefits that continued operation of those
facilities will provide. The statute mandates that 20%
of the funds be allocated to this program or $13.1
million annually. This program provides production-based
incentives to biomass, solar thermal, and wind facilities
that began commercial operation on or before September
26, 1996. The incentive rate is paid on a cent-per-kWh
basis and is calculated as the difference between the
facility's contract price and its market price, up to a
predetermined cap.
This resulted in over 600 MW of biomass facilities
(primarily in PG&E territory) and 400 MW of solar thermal
(in Edison territory) receiving $16.5 million in fiscal
year 2009-10 for 35 plants which supplemented contracts
that the generators have with the IOUs.
b. Emerging Renewables Program : The legislative goals
of this program are to foster the
development of emerging renewable technologies and to use
funds for a "multi-year, consumer-based program to foster
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the development of emerging renewable technologies in
distributed applications" using "monetary rebates,
buydowns, or equivalent incentives" to offset the costs
of installing renewable generation on the customer's side
of the meter. According to statute, 79% of funds are
allocated to this program which would be approximately
$51 million annually. The Legislature later directed the
CEC to also fund the New Solar Homes Partnership (NSHP)
from this program.
Although statutory authority for technology support
appears broad, the statute does specifically call out
small-scale wind and fuel cells. However, the CEC has
only been funding wind systems due to lack of demand for
small-scale fuel cells. In the 2009-10 fiscal year, the
CEC paid $1.6 million for 87 projects totaling 1,534
kilowatts, most of which were wind. As of June 30, 2010,
there were reservations for 1,344 kilowatts of projects
encumbering $3.1 million.
On March 4, 2011 the CEC suspended the program when it
discovered that the incentive payments were covering
almost all and possibly more than the total costs of the
projects using some technologies. During the suspension,
the CEC will review its current Emerging Program
Guidelines and adopt necessary guideline changes to
address deficiencies with the program requirements. The
suspension will remain in effect until further notice.
The CEC anticipates that it will take 60 to 120 days to
review the program guidelines and adopt necessary
changes.
c. New Solar Homes Partnership : The New Solar Homes
Partnership (NSHP) is part of
the comprehensive statewide solar program - the
California Solar Initiative (CSI) which has three goals:
1) to install 3,000 megawatts of distributed solar
electric capacity in California by the end of 2016; 2) to
establish a self-sufficient solar industry in which solar
energy systems are a viable mainstream option in 10
years, and 3) to place solar energy systems on 50 percent
of new homes in 13 years. The NSHP seeks to achieve 400
MW of installed solar electric capacity in California by
the end of 2016.
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As of July 2010, a total of 27 MW of solar had been
installed on new home which equates to 6.7 percent of
goal. For the 2009-10 fiscal year, $12.7 million in
rebates were paid for 6,396 PV systems totaling 15,374
kilowatts.
The CEC and PUC are each responsible for separate
elements of the CSI. The CEC administers the NSHP and
the PUC administers the program for existing residential,
governmental and commercial installations. Both agencies
rely on the state's IOUs to collect funds and oversee the
program for their respective service areas.
In 2007, the Legislature ordered the CEC to use the RRTF
to fund this program. The funds are collected by the
IOUs, transferred to the CEC, and then disbursed back to
the IOUs and consumers for incentive payments. Funds for
the PUC administered components are collected by the IOUs
and remain with the IOUs until the incentive payments are
made to consumers.
The NSHP program provides two incentives structures, one
for conventional or market-rate housing and another for
qualified affordable housing projects.
d. Consumer Education : The legislative intent for this
program is to promote renewable energy and provide
information on renewable energy technologies, including
emerging renewable technologies, and to help develop a
consumer market for renewable energy and for small-scale
emerging renewable energy technologies. According to the
CEC, since 1999 the Consumer Education Program has spent
or encumbered approximately $18.6 million to support 3
public awareness campaigns funded through contracts; 21
grant projects awarded for renewable energy information
and outreach activities; the development of an electronic
tracking system, the Western Renewable Energy Generation
Information System (WREGIS), to address long-term
Renewable Portfolio Standard tracking needs; and other
consumer education activities promoting renewable energy.
7)Energy Efficiency Program (EE) : This program is authorized by
the PUC and administered
by the IOUs. Every year, the PUC approves each utility's plan
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for efficiency programs, which the utility then carries out
within its service territory. The EE program objectives are to:
1) leverage private investments in EE with ratepayer funds to
encourage a market for EE goods and services; 2) provide
customers with financial incentives and rebates to adopt EE
technologies; 3) provide information on the costs and benefits
of EE measures; 4) reduce market barriers to investments in EE
products and services, and 5) support the creation of a
sustainable and competitive EE market.
In September 2008, the PUC adopted its Long-Term Energy
Efficiency Strategic Plan, which authorizes the utilities to
collect $3.1 billion from ratepayers (which include the $228
million) over a three-year period to fund a number of energy
efficiency measures. Key to the Plans success is four specific
programmatic goals which are widely viewed as ambitious,
highimpact efforts. These goals, the "Big, Bold Energy
Efficiency Strategies", were selected not only for their
potential impact, but also for their easy comprehension and
their ability to galvanize market players. The Big, Bold Energy
Efficiency Strategies are: 1) all new residential construction
in California will be zero net energy by 2020, 2) all new
commercial construction in California will be zero net energy by
2030, 3) heating, ventilation, and air conditioning will be
transformed to ensure that its energy performance is optimal for
California's climate, and 4) all eligible low-income customers
will be given the opportunity to participate in the low income
energy efficiency program by 2020.
Several of the energy efficiency measures include goals to
achieve 20 percent savings for up to 130,000 homes; provides
$175 million for zero-net energy homes and commercial buildings;
gradually reduces subsidies for basic compact fluorescent lamps
and shifts emphasis toward advanced lighting programs; requires
benchmarking of all commercial buildings receiving EE funds; and
provides over $260 million in funding for 64 cities, counties,
and regional agencies for local efforts that target public
sector building retrofits and leading cutting edge EE
opportunities.
8)Related legislation : This bill is substantially similar to AB
1303 (Williams) which aims to
extend the sunset date for the PIER program and funding for the
programs funded by the RRTF from 2012 to 2020.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Biomass Energy Alliance (CBEA) (with amendments)
California State Pipe Trades Council
Coalition of California Utility Employees
International Brotherhood of Electrical Workers
International Union of Elevator Constructors
Utility Workers Union of America
Western States Council of Sheet Metal Workers
Opposition
None on file.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083