BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 723 HEARING: 6/29/11
AUTHOR: Bradford FISCAL: Yes
VERSION: 6/20/11 TAX LEVY: No
CONSULTANT: Grinnell
PUBLIC BENEFITS CHARGE
Extends the public benefits charge until 2020; revises
energy efficiency programs.
Background and Existing Law
In 1996, the Legislature dismantled the traditional model
for providing electricity by requiring previously
vertically integrated utility monopolies to sell their
electricity generation, turn over control of its
distribution systems to an independent operator and board,
and allow wholesale and retail competition under specified
rules and timelines (AB 1890, Brulte). At the time,
Legislators were concerned that the state's three investor
owned utilities (IOUs), Pacific Gas & Electric, Southern
California Edison, and San Diego Gas& Electric, would not
invest in public interest research, because research
generally adds costs that reduces profit, and if they did,
the utilities would treat any research breakthroughs as
proprietary. Additionally, the Legislature wanted to
promote energy efficiency and renewable energy resources as
substitutes to fossil fuel-generated electricity.
AB 1890 first established a public goods charge from
January 1, 1998 until December 31, 2001. All ratepayers
within an IOU's service territory pay the public goods
charge based on the amount of energy they consume. The
bill directed the California Energy Commission (CEC) to
allocate revenues from the public goods charge for:
Cost-effective energy efficiency and conservation
activities
Public interest research (PIER) and development not
adequately provided by competitive and regulated
markets
In-state operation of development of existing and
new renewable energy resources.
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Benefits for low-income consumers, although this
program was not subject to the sunset.
In 1997, the Legislature created the Renewable Resources
Trust Fund (RRTF), where the utilities deposited that share
of the public goods charge revenues for renewable resources
(SB 90, Sher). Initially intended to last for only five
years, SB 90 codified a CEC report divided up AB 1890's
$540 million in the following ways:
$54 million for the Emerging Renewables Program,
which provided rebates to consumers who install
renewable resources at home or at their business.
$162 million for the New Renewable Resources
Account, which allocated production incentives for new
renewable energy systems placed in service between
1996 and 2002.
$81 million for consumer side, initially including
credits to renewable energy generators to allocate to
its customers, although the Legislature ended that
allocation (SB 1250, Perata, 2006). Today, this
account principally pays to educate consumers about
renewable energy, and now uses $1 million per year.
SB 90 also directed the allocation of $243 million of the
public goods charge revenues to pay for energy from
existing renewable resources. The bill grouped renewable
sources into three tiers based on the difference between
the current market price for that source of electricity,
and the target price CEC thought would make that resource
competitive. SB 90 wasn't specific about allocating the
public interest research funds, instead directing CEC to
convene a panel of experts to recommend public interest
research allocations.
In 2000, the Legislature extended the public benefits
charge until 2012 (AB 995, Wright and SB 1194, Sher). The
bills set funding amounts for the utilities to collect by
applying the public benefits charge from 2002 to 2012, but
only authorized the CEC and CPUC to spend funds until 2007.
The measures directed CEC to develop investment plans for
renewable energy and public interest research funding,
which the Legislature had to ratify before CEC allocated
funds. The bills also transferred the authority to
allocate energy efficiency funds to the California Public
Utilities Commission (CPUC), which added the proceeds onto
funds it already directs IOUs to spend on energy efficiency
AB 723 -- 6/20/11 -- Page 3
under its own authority. In 2002, the Legislature blessed
CEC and CPUC fund allocations that changed the formulas
listed above (SB 1038, Sher). That year, the Legislature
also enacted the renewable portfolio standard (RPS) that
year, which requires IOUs to purchase a specified
percentage of electricity from renewable sources by a
certain year (SB 1078, Sher). The Legislature just
increased the percentage to 33% by 2020 (SBx1 2, Simitian).
In 2005, the Legislature authorized spending public goods
charge revenues from 2007 to 2012, but reallocated the
funds, substituting its priorities for the CEC's (SB 1250,
Perata). The measure also expanded the goals of the PIER
program. As amended by SB 1250 and SB 76 (Committee on
Budget, 2005), PIER's research priorities now include:
Advanced electricity generation
Climate change and environment
Energy efficiency and demand response strategies
Renewable energy
Transmission and distribution of power
Transportation-related research
In 2007, the Legislature changed the funding percentages
from the RRTF to send 20% to the Existing Renewable
Facilities Program, 79% to the Emerging Renewables Program,
and 1% to the Consumer Education Program (SB 1036, Perata).
From 1998 to 2006, the Emerging Renewables program
provided rebates for persons and businesses to install
solar thermal and photovoltaic systems; however, in 2007,
CEC reallocated funds to its New Solar Homes Partnership
which complements the California Public Utilities
Commission's California Solar Initiative, which pays
rebates for consumers installing solar energy systems. The
Emerging Renewables Program now funds small scale wind
programs. The Existing Renewables Program still subsidizes
solar thermal and biomass plants. SB 1036 also ended the
New Renewable Resources Account, instead granting authority
for the CPUC to subsidize above market renewable energy
production out of rates.
Currently the public goods charge raises $62.5 million for
PIER, $65.5 million for renewable energy programs, and $228
million for energy efficiency, adjusted annually at a rate
equal to the lesser of the annual growth in electric
commodity sales or inflation.
AB 723 -- 6/20/11 -- Page 4
Proposed Law
Assembly Bill 723 extends the Public Goods Charge until
January 1, 2020, leaving in place existing allocations.
AB 723 reprograms the energy efficiency program currently
implemented by the CPUC. AB 723 states that CPUC shall
implement the following elements and principles:
The state's investments in cost-effective energy
efficiency improvements protect ratepayers and promote
reliable electric service.
Moneys collected prioritize energy efficiency
programs for low and moderate income customers,
customers with higher energy usage, and customers in
more extreme heating and cooling climates.
Ensure that opportunities are made available to all
ratepayer classes paying the charge.
Establish measurement verification and evaluation
criteria.
If the commission establishes a risk-reward
inventive mechanism, align electrical corporation
incentives for administering energy efficiency
activities with actual utility accomplishments.
The state's investments in cost-effective energy
efficiency improvements achieve accountability and
transparency by:
o Making data publicly available that shows
the total installed cost of energy efficiency
measures, the amount of expected energy savings,
the total amount of incentives provided and their
location, the type of measures in each IOU
service territory, the processing time for
providing incentives, and any type or cause of
failure of energy efficiency measures.
o Verify energy demand reductions by region
and assess progress toward energy efficiency
goals, ensure that consumer information is made
publicly available to assist customers in finding
reliable contractors and energy efficiency
measures, to understand the cost and benefit of
energy efficiency measures, to understand their
energy bills, and to understand the costs and
benefits of various means of financing energy
efficiency measures.
o Make all contract bidding opportunities
AB 723 -- 6/20/11 -- Page 5
publicly available, including contracts
administered by electrical corporations or
third-party administrators, and ensure that small
businesses and minority, women, and disabled
veteran-owned businesses are considered during
the contract bidding process.
o Ensure all products of all consultant
contracts are made available in a timely manner
on the commission's website.
The cost-effectiveness of investments in energy
efficiency are evaluated consistent with the
commission's flexibility when evaluating the
cost-effectiveness of measures installed in low-income
households, allow projects to reasonably exceed cost
limitations for measures installed in low-income
neighborhoods, ensure that all energy efficiency
programs are designed to account for benefits and
costs of the program.
That all of the following program design elements
are incorporated into the state's investments in
cost-effective energy efficiency improvements:
o Ensure that program funds are only used
to support deployment of energy efficiency
measures, training on California health and
safety codes and regulations to ensure quality of
installation, measurement, and evaluation,
cost-effectiveness analyses, and program
administration.
o Require all energy efficiency measures
allowed to participate maximize electricity
demand reduction.
o Ensure that combined total expenditures
for measurement and evaluation,
cost-effectiveness, and program administration
don't exceed 10% of total funding.
o Ensure that third-party entities,
including regional government energy management
centers, directly administer a reasonable portion
of the program.
o Include comprehensiveness approaches to
maximize energy efficiency, avoid lost
opportunities, and overcome implementation
barriers.
o Utilize rebates, loans, interest rate
reductions, or a combination thereof, for the
installation of energy efficiency measures.
AB 723 -- 6/20/11 -- Page 6
o Incorporate integrated demand side
management principles to the maximum extent
practicable.
o Establish dollar-per-kilowatt limits for
individual projects and establish maximum energy
efficiency project incentives to ensure that
incentives do not exceed more than 30 percent of
the installed cost of a specific energy
efficiency project, with the commission retaining
the authority to periodically reduce the total
incentives available in response to reduced
installation costs or market response that
indicates that the then existing amount of
available incentives are no longer needed to
encourage use of energy efficiency measures.
o Ensure that projects that receive
incentives funded pursuant to this article are
not also receiving incentives through other
ratepayer funded programs.
o Evaluate whether to administer programs
to raise public awareness, generally, or programs
targeted to particular customer groups, to
encourage implementation of energy efficiency
measures, including behavior changes that reduce
energy consumption, provided that the commission
ensure that any funds expended for those programs
do not significantly reduce the funding available
for encouraging the adoption of energy efficiency
measures or behavioral changes that reduce energy
consumption.
o Ensure that moneys collected by an
electrical corporation are not expended to
provide incentives to customers outside of the
service territory of the electrical corporation.
That the state's investments in cost-effective
energy efficiency improvements coordinate with the
state's research, development, and demonstration
programs and building code energy efficiency programs
by doing both of the following:
o Ensure that moneys collected through the
nonbypassable system benefits charge to fund
energy efficiency not be used to fund research,
development, and demonstration or to develop or
create amendments to the state building codes.
o Coordinate with the Public Interest
Research, Development, and Demonstration Program
AB 723 -- 6/20/11 -- Page 7
identify specific areas of research or to
identify work needed to amend building codes that
can be addressed through the Public Interest
Research, Development, and Demonstration Program.
That program results be reported annually to the
Legislature and posted on the commission's Internet
Web site for each program administered by an
electrical corporation, third-party administrator, or
local government, to include verifiable energy use
reductions achieved through the program, the number of
measures implemented, the demographics where the
measures were implemented, and the demographics of any
jobs created.
The report submitted to the Legislature pursuant to
this paragraph shall be submitted in compliance with
Section 9795 of the Government Code.
State Revenue Impact
By extending the charge in its existing amounts, the state
will receive $62.5 million for PIER, $65.5 million for
renewable energy programs, and $228 million for energy
efficiency.
Comments
1. Purpose of the bill . According to the Author, "AB 723
will bring additional accountability and oversight to the
Public Goods Charge program for energy efficiency.
Whenever ratepayer funds are used for a public purpose it
is imperative that the ratepayer gets what he or she pays
for: reduced energy costs, real local job creation, and big
savings on the cost of building new generation and
transmission facilities."
2. A Tax without a cause ? AB 723 extends the public
benefits charge for eight additional years, extracting
$2.84 billion from California's economy through surcharges
on all IOU ratepayers for the next eight years for programs
of questionably effectiveness. The Legislative Analysts'
Office (LAO) doubts the return on investment the state has
received from the PIER program, and suggests several
reforms (See Comment 4). The $228 million in energy
AB 723 -- 6/20/11 -- Page 8
efficiency funding comes on top of $750 million the CPUC
already takes from ratepayers and gives to utilities to
fund these programs. The renewable energy industry has
changed dramatically since the Legislature enacted public
goods charge's enactment; large, diversified renewable
energy companies are now some of the darlings of Wall
Street, availing themselves of generous federal tax
credits, investing billions worldwide, and no longer need
subsidies from general ratepayers, as well as the
questionable policy rationale for ratepayers subsidizing
other energy sources that can't sell electricity at
competitive prices. Additionally, state law already
requires IOUs to buy renewable products, giving renewable
generators the best business incentive possible - the
guarantee that a buyer will pay you for your product.
Given the state's economic malaise, why isn't this money
best left with ratepayers? The Committee may wish to
consider whether the programs funded are worth the high
price, or whether a smaller charge is needed for a better
focused program.
3. Say what ? On June 2, 2011, the Author amended AB 723
to provide direction to the CPUC on how to implement the
energy efficiency programs paid for by the public good
charge's extension. The Committee may wish to consider
deleting, amending or clarifying the bill's standards to
address the following problems. A few examples:
Vagueness. The bill provides no definitions of
its terms, where many are needed. For example, where
are "extreme cooling and heating climates?" What's
"high energy usage?" How should the CPUC "protect
ratepayers and provide reliable electric service?"
Who are the "third party entities" that should
directly administer an undefined "reasonable portion"
of the program?
Duplication. How do the energy efficiency programs
proscribed by the bill complement or frustrate CPUC's
existing programs? What does the state and its
ratepayers get on the margin with the additional
standards in the bill that it's not getting now?
Questionable policy. Why should the law explicitly
allow for cost overruns in low-income areas? Why
should 10% of funds be reserved for program
administration and performance measurement?
Enforceability. How can the Legislature ensure
that utilities and third parties "consider"
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contracting opportunities for small businesses and
minority, women, and disabled veteran-owned
businesses?
4. Assessing returns . The Senate Energy, Utilities, and
Communications Committee held five informational hearings
in the last three months to review the programs funded by
the public goods charge, including the PIER program, energy
efficiency, and the RRTF. The Committee's findings,
documentation and hearing presentations can be found at its
website: http://seuc.senate.ca.gov/informationalhearings
As part of the Committee's review, it asked LAO to review
the PIER program. In its January, 2011, response to
Senator Padilla's request to evaluate the program, LAO
stated:
First, in evaluating the current program, we find
that the CEC has not demonstrated that there has been
a substantial payoff to date from the state's
investment of more than $700 million in ratepayer
funds. We find that the CEC has generally funded
projects in line with the broad categories of eligible
investments that are set out in statute (such as
promoting "energy efficiency" and "demand response"
strategies). However, state law establishes several
goals for the PIER program, including the creation of
tangible ratepayer benefits. While some particular
PIER-sponsored research projects have served these
goals, CEC has not demonstrated that the majority of
the projects allocated PIER funding by CEC has
produced similar benefits.
Second, we find that the legislative and regulatory
enactment of several new ambitious energy policy
objectives has created an energy landscape that
differs greatly from the one that existed in 1996,
when the PIER program was created. In order to help
address technological barriers which may prevent
attainment of these state goals, we find that there is
a role for the state to continue to support public
interest energy research beyond the 2012 sunset date.
Third, if the Legislature decides that there should
be a continuing state role in this area of research,
we find that improvements could be made to the
AB 723 -- 6/20/11 -- Page 10
implementation of this role, including by tightening
funding eligibility parameters and changing the
process by which research funding is allocated.
5. Tax Increase . AB 723 is an increase in the proceeds of
state taxes for the purposes of Section Three of Article
XIIIA of the California Constitution, and must be enacted
by 2/3 vote of each house of the Legislature.
6. Related Bills : The Legislature is also considering two
other bills that address the public goods charge in
different ways:
AB 1303 (Williams), currently in the Senate Energy,
Utilities, and Communications Committee, extends the
sunset date for CEC to fund the PIER program.
SB 35 (Padilla) - currently in the Assembly
Utilities and Commerce Committee, repeals the current
public goods charge, the RRTF, and the CEC's authority
to fund renewable energy projects, instead replacing
the programs with the "California Energy Research and
Technology Program Act of 2011".
7. Double-referred . AB 723 is also referred to the Senate
Energy, Utilities, and Communications Committee.
Assembly Actions
Assembly Utilities and Commerce10-0
Assembly Natural Resources 6-2
Assembly Appropriations 12-5
Assembly Floor 58-14
Support and Opposition (6/23/11)
Support : South Bay Cities Council of Governments, City of
Chula Vista, California Association of Sanitation Agencies,
Association of Bay Area Governments; California Biomass
Energy Alliance; California Energy Efficiency Industry
Council; California State Pipe Trades Council; Coalition of
California Utility Employees; International Brotherhood of
Electrical Workers; Western States Council of Sheet Metal
Workers, International Union of Elevator Constructors;
Utility Workers Union of America; Los Angeles County Board
of Supervisors; Santa Clara County Board of Supervisors;
AB 723 -- 6/20/11 -- Page 11
Environmental Defense Fund; The Nature Conservancy; Union
of Concerned Scientists; Clean Power Campaign; NRDC.
Opposition : California Manufacturers and Technology
Association; Howard Jarvis Taxpayers Association.