BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 723 - Bradford Hearing Date:
July 3, 2012 A
As Amended: June 27, 2012 FISCAL/Urgency
B
7
2
3
DESCRIPTION
Prior law which sunset January 1, 2012, requires each
investor-owned utilities (IOU) to collect a ratepayer surcharge,
commonly known as the public goods charge (PGC) of $228 million
per year for energy efficiency, $65.5 million for renewable
energy, and $62.5 million for public interest energy research,
development and demonstration.
Current law requires the California Energy Commission (CEC) to
develop, implement, and administer a program to fund public
interest energy research, development and demonstration
activities that, as determined by the CEC, are not adequately
provided for by competitive and regulated markets known as the
Public Interest Energy Research program (PIER). Funding for
this program was derived from the PGC.
Decisions of the California Public Utilities Commission (CPUC)
established the Electric Program Investment Charge (EPIC) to
continue funding for the expiring PGC. EPIC funds, $162 million
annually from 2013-2020, will be administered 80 percent by the
CEC for research, development, and demonstration, and market
facilitation, and 20 percent by the IOUs in the area of
technology demonstration and deployment. All funds will be
administered under CPUC oversight, with a proceeding at least
every three years to consider more detailed investment plans
presented by the administrators.
This bill extends the authorization for the collection of the
public goods charge through January 1, 2020.
BACKGROUND
History of the Public Goods Charge - 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 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 paid the PGC based on the amount of energy
they consumed. The bill directed the CEC to allocate revenues
from the PGC 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.
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 PGC
revenues for renewable resources (SB 90, Sher). Initially
intended to last for only five years, SB 90 codified a CEC
report that 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; and
$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 CPUC, which added the proceeds onto funds it already directs
IOUs to spend on energy efficiency 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), 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; and
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 the Legislature redirected those funds
to the new Solar Homes Partnership to be administered by the CEC
as a result of the California Solar Initiative which pays
rebates for consumers installing solar energy systems. The
Emerging Renewables Program funded small scale fuel cell and
wind programs. The Existing Renewables Program subsidized large
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 costs through
rates. �Summary courtesy of Government & Finance Committee]
Electric Program Investment Charge - In December 2011, funding
for the state's PGC on electric ratepayers expired. Efforts to
continue the surcharge, which requires a two-thirds vote of the
Legislature, failed. The PGC funded research and development,
energy efficiency, and renewable energy programs. The benefits
of these programs were then distributed generally, thus the
surcharge was considered a tax for voting purposes.
In September 2011, the Governor sent a letter to the CPUC
requesting that it take action to ensure that programs funded
like those funded under the PGC would be continued, but with
respect to modifications legislators discussed during the PGC
extension deliberations. The CPUC initiated a rulemaking to
consider continuing the programs of the PGC with a sole focus on
the IOUs. Its first decision in December of 2011 directed the
IOUs to continue to collect what had formerly been known as the
PGC and which would in 2012 become the Electric Program
Investment Charge or EPIC.
The CPUC issued a second decision in May which considered the
use of the EPIC funds and called for the CEC to administer 80%
of the funds and 20% by the IOUs. The use of funds was directed
to the following categories and purposes:
Applied Research - activities supporting pre-commercial
technologies and approaches that are designed to solve
specific problems in the electricity sector;
Technology Demonstration and Deployment - installation
and operation of pre-commercial technologies or strategies
at a scale sufficiently large and in conditions
sufficiently reflective of anticipated actual operating
environments to enable appraisal of the operational and
performance characteristics and the financial risks. 20%
is specifically set aside in the first three-year cycle for
bioenergy projects or activities; and
Market Facilitation - a range of activities including
program tracking, market research, education and outreach,
regulatory assistance and streamlining and workforce
development to support clean energy technology and strategy
deployment.
The commission considered another funding category - market
support - for programs that seek to enhance the competitive
position of certain preferred, commercially-proven technologies
and approaches relative to incumbent technologies and
approaches. These programs are essentially rebate programs such
as the Emerging Renewables Program and New Solar Homes
Partnership. The commission rejected funding for market support
"finding that they are either too technology-specific and/or not
sufficiently well developed to be a program that we could easily
adopt immediately."
The IOUs were directed to allocate to the CEC its administrative
funds on a quarterly basis to "minimize the opportunities for
the Legislature to utilize EPIC funding for other purposes" and
to allocate other program funds to the CEC when those funds are
encumbered. The CEC and IOUs are required to file triennial
investment plans with the CPUC. The decision specifically
rejects the need for a formal advisory committee structure for
EPIC "because it risks inappropriate delegation of authority
that rests with the commission itself." Although the utilities
argued for more oversight of the CEC - that was rejected. There
are no advisory boards or public processes required of the CEC
which is given a great deal more discretion over the EPIC funds
than existed for the PGC funds.
The CEC will receive 80% of the funds and the remaining 20% will
remain with the three IOUs. There is a specific set-aside of
20% of the technology demonstration and deployment funds for
2012-2014 being administered by both the CEC and the IOUs
dedicated to bioenergy projects or activities. Each entity has
been directed to balance needs and priorities and report back to
the CPUC in the fall with three-year investment plan to be
reviewed and approved by the commission.
The final allocation of EPIC dollars by the CPUC is reflected
below:
Annual EPIC Funding Collections and Allocation
Beginning January 1, 2013 (in $ Millions)
-----------------------------------------------------------------
| Funding Element | CEC |Utilitie| CPUC | Total |
| | | s | | |
|----------------------------+--------+--------+--------+---------|
|Applied Research | $55.0| --| --| $55.0|
|----------------------------+--------+--------+--------+---------|
|Technology Demonstration | $45.0| $30.0| --| $75.0|
|and Deployment | | | | |
|----------------------------+--------+--------+--------+---------|
|Market Facilitation | $15.0| --| --| $15.0|
|----------------------------+--------+--------+--------+---------|
|Program Administration | $12.8| $3.3| --| $16.2|
|----------------------------+--------+--------+--------+---------|
|Program Oversight | --| --| $0.8| - $0.8|
|----------------------------+--------+--------+--------+---------|
|Total | $127.8| $33.3| $0.8|$162.0 |
-----------------------------------------------------------------
Constitutionality of EPIC - The constitutionality of the EPIC
has been called into question. The CPUC does have ratemaking
authority but the rates charged must have a direct benefit to
ratepayers. The EPIC charge does not stay in the IOU territory
for the benefit of its ratepayers and when the funds are
transferred to another state agency, in this case the CEC, the
EPIC rates become a tax. This is consistent with the
designation of the PGC bills as taxes requiring a two-thirds
vote of the Legislature. According to the Senate Budget
Committee the "LAO, and others, have raised concerns about the
nature of this program, including the potential violation of
Proposition 26, the circumvention of the Legislature in the
development of the program, the lack of legislative oversight
over the program in general, and finally a lack of understanding
of the consequences to ratepayers for the multiple energy
efficiency related programs currently being developed and
implemented by the state."
2012 Budget Act & Resources Trailer Bill - The CEC has funds
remaining from the PGC in its research program which it will
continue to spend until the funds have been exhausted. There
are also funds remaining in the RRTF which is also still owed
loan repayments from the General Fund. The resources trailer
bill to the Budget Act of 2012 (SB 1018) provides for the
elimination of defunct statutes for the RRTF and specifies how
remaining funds are to be used including the funding of
contracts and awards approved by the CEC prior to the adoption
of the Budget.
The trailer bill also allows for the creation of an EPIC fund
for the sole purpose of creating an investment plan for proceeds
of the EPIC proceeding at the CPUC.
COMMENTS
1. Author's Purpose . AB 723 will ensure that electric
ratepayer funds for energy efficiency, research development
and demonstration, and renewable energy programs are
expended consistent with and pursuant to legislative
direction. The CPUC established a new program, similar in
scope and funding to the PGC. Without this legislation,
oversight on energy efficiency, research development and
demonstration, and renewable energy programs funded for
programs will not exist.
2. Fund Allocation Unclear ? This bill extends the public
goods charge in effect through 2011 and directs all funding
to programs as they existed for several years. But last
year the respective energy committees of each house
dedicated a great deal of attention to the review of
existing PGC programs for energy efficiency, renewables and
research. Since that time, the CPUC also reviewed those
PGC projects through its EPIC proceeding. This bill in its
current form does not reflect the work of the legislative
policy committees or the CPUC on PGC reform.
3. Renewable Resources Trust Fund . The resources trailer
bill to the Budget Act of 2012 (SB 1018) repealed most of
the program authority for the RRTF so the continued
collection of funds authorized by this bill would have an
account into which the funds could be deposited but would
not have program authority for expenditure except for the
administrative expenses of the CEC associated with
administering the RPS program. A similar bill proposed by
the author last year (AB 724, 2011) created the Clean
Energy Investment Team and an advisory committee to support
achievement of the state's renewable energy goals and to
seek creative solutions to barriers and the development and
deployment of technologies to achieve those goals. A
continuous appropriation of $75 million in PGC funds was
proposed for the CEC which would also be required to
convene an advisory committee and develop a multi-year
investment plan. Since that time the CPUC has further
refined that program through its EPIC proceeding and called
for what were previously RRTF funds to be used for
technology demonstration and deployment and market
facilitation.
The committee may wish to consider amendments that blend
the work done last year to reform the RRTF with the work of
the EPIC by allocating these funds to technology
demonstration and market facilitation and also require the
CEC to use the investment plan and public process structure
called for in last year's AB 724 (Bradford) to develop more
specific program components.
4. Public Interest Energy Research . The PIER program was
the subject of at least three informational hearings of
this committee in 2010 and 2011 and resulted in two bills
(SB 35 and SB 870, Padilla, 2011) to continue public
investment in energy research. Proposed program changes
included a new governance structure and strategic focus
aimed at efficiently aligning resources to accelerate
technological breakthroughs to overcome the most
significant challenges to achieving the state's statutory
energy goals. In its final form, SB 870 recast the PIER
program as the California Energy Innovation Program and
establishes a framework for energy research that responds
to recommendations from independent reviews of PIER.
However, this bill continues to fund the PIER program with
no reforms. The committee may wish to consider amending
this bill to make its operation contingent on SB 870
(Padilla) which is on the Senate Inactive File. Senator
Padilla would need to take a corresponding action on his
bill which does have contingent operation provisions but to
AB 724.
5. Energy Efficiency . Last December the CPUC ordered the
IOUs to continue to collect the energy efficiency funds
included in this bill through 2012. Unlike the PGC
programs administered by the CEC which are funded by EPIC,
it is not clear that the CPUC needed legislative authority
to extend that funding. Collecting funds to pay for the
IOU energy efficiency programs through the PGC or through
rates would make no difference to ratepayers and the CPUC
has the authority to continue to fund all cost-effective
energy efficiency.
Last year's AB 724 did have some program reforms for energy
efficiency some of which were adopted by the CPUC. Its May
decision to provide guidance to the IOUs on 2013-2014
energy efficiency programs included the expansion of
financing options for ratepayers to achieve deep energy
efficiency retrofits and expanding the role of local
governments and third parties in administering energy
efficiency programs. It's not clear that any program
direction is needed in this bill at this time and the
simple extension of funds will work on its own.
6. RRTF Balance . The resources trailer bill (SB 1018) to
2012 Budget Act repealed most program authority for the
prior RRTF. However, there are remaining funds in the
account and loan paybacks due particularly from the General
Fund. The trailer bill authorized limited use of the
remaining balances to fund contracts and awards already
approved and the overhead expenses of the CEC associated
with administering the RPS. In prior years the legislature
authorized the use of RRTF funds, subject to appropriation,
for three other programs: New Solar Homes Partnership,
Clean Technology and Renewable Energy Job Training, Career
Technical Education, and Dropout Prevention Program (SB x1
1, Steinberg, 2011) and renewable energy development grants
(AB x1 13, V.M. Perez, 2011). The committee may wish to
consider amendments to provide this additional authority to
the CEC to use remaining RRTF funds for these purposes.
7. Double Charge ? Should this bill take effect, it could
be interpreted as duplicating the charges authorized by the
CPUC in their EPIC decisions. To ensure that the author's
intent is carried out and that the charges extended by this
bill sanction the EPIC charges, the committee may wish to
consider amendments to clarify that this bill affects funds
collected thus far for the EPIC and, going forward,
replaces EPIC charges and programs with the charges and
programs authorized by this bill.
PRIOR VOTES
Senate Governance and Finance Committee
(6-3)
Assembly Floor (58-14)
Assembly Appropriations Committee (12-5)
Assembly Natural Resources Committee
(6-2)
Assembly Utilities and Commerce Committee
(10-0)
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
California Chamber of Commerce
California Large Energy Consumers Association
Southern California Edison
Kellie Smith
AB 723 Analysis
Hearing Date: July 3, 2012