BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 723 - Bradford Hearing
Date: August 13, 2012 A
As Amended: August 8, 2012 FISCAL/Urgency B
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DESCRIPTION
Prior law which sunset January 1, 2012, requires the
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)
establish 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, 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 and transfers all
funds collected under orders of the CPUC for the EPIC to the
CEC.
This bill creates the Clean Energy Investment Program to be
administered by the CEC to support the state's renewable energy
goals by developing an investment plan, in consultation with an
advisory body in public meetings, for technology demonstration
and deployment and market facilitation for clean energy
technologies.
Current law directs the CEC to use remaining fund balances in
the Renewable Resources Trust Fund (RRTF) for the close-out of
awards in the Emerging Technologies program and Consumer
Education activities.
This bill directs that the remaining RRTF funds also be used for
the New Solar Homes Partnership, the allocation of grants for
renewable energy planning under AB x1 13 (V.M. Perez, 2011), and
for the Clean Technology and Renewable Energy Job Training,
Career Technical Education, and Dropout Prevention Program
administered by the Superintendent of Public Instruction (SB x1
1, Steinberg, 2011).
This bill is operative only if SB 870 (Padilla) regarding energy
research is also enacted.
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; and
Benefits for low-income consumers, although this program
was not subject to the sunset.
In 1997, the Legislature created the RRTF, into which 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 the CEC to develop investment plans for renewable
energy and public interest research funding, which the
Legislature had to ratify before the 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 the
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). In 2011 the
Legislature increased the percentage to 33% by 2020 (SBx1 2,
Simitian).
In 2005, the Legislature authorized spending 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
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
stay 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 provide 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.
COMMENTS
1. Reconsideration . This bill was considered by the
committee on July 3rd and a motion was made to pass the
bill as amended which failed passage by a vote of 6 to 2.
Reconsideration was granted. Since that hearing the bill
has been amended to address the issues raised in the prior
committee analysis.
2. 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. Although the CPUC has established new programs
to support renewable goals, similar in scope and funding to
those supported by the PGC, and ordered the continued
collection of the former PGC funds through its EPIC
program, the constitutionality of the commission's action
has been called into question. This bill would resolve
that issue and also ensure that the Legislature has
oversight of the programs by the CEC.
3. Clean Energy Investment Program . The program structure
proposed in this bill is similar to that created for the AB
118 program which relies on a vehicle registration fee to
fund grants and loans to develop and deploy innovative
technologies that transform California's fuel and vehicle
types to help attain the state's climate change policies.
That program requires the CEC to design a plan for
submission to the Legislature on a track that parallels the
budget process. This allows the CEC the flexibility to
fund programs that are fast-changing and gives the
Legislature the oversight over funding priorities which can
change from year to year.
The new clean energy program authorized by this bill would
supplant the old RRTF and require that an investment plan
be developed by the CEC, in consultation with an advisory
body that would meet twice a year and be subject to open
meetings requirements. The advisory body would be
comprised of utilities, the PUC, ISO, environment and
business associations and others to work with the CEC staff
to develop an investment plan for approval by the full
commission. The funds could be used for technology
demonstration and deployment and market facilitation for
clean energy technologies.
4. Fund Allocation . This bill transfers all new PGC funds
to the RRTF. This fund was used for several years to
administer renewable programs under the former PGC. In the
budget trailer bill the Legislature called for specific
uses for the funds remaining in the old program and for
future loan paybacks from the General Fund. In order to
keep the old and new funds separate and the purposes clear,
the author should work with the Appropriations Committee to
create a new fund for the new renewable program funds -
Clean Energy Investment Program Fund - and specifically
allocate research dollars to a separate fund.
5. Is PGC Funding Necessary for Energy Efficiency ? The
requirement to collect PGC funding for energy efficiency
began prior to the CPUC ordering IOUs to administer energy
efficiency programs. 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 later adopted by the CPUC.
Its May 2012 decision providing 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. The
authority of the CPUC to increase energy efficiency funding
on its own motion is also clear and therefore the statutory
extension of energy efficiency funding in this bill may not
be necessary. The author may wish to discuss this issue
with the Senate Appropriations Committee.
6. Leftovers . The resources trailer bill (SB 1018) to the
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). This bill provides the CEC
with the authority to use remaining RRTF funds for these
purposes.
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
California League of Food Processing
California Manufacturers and Technology Association
Howard Jarvis Taxpayers Association
Southern California Edison
Kellie Smith
AB 723 Analysis
Hearing Date: August 13, 2012