BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 1186 - Skinner Hearing Date:
June 19, 2012 A
As Amended: June 6, 2012 FISCAL B
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DESCRIPTION
Current law requires the California Air Resources Board (CARB) to
determine the 1990 statewide greenhouse gas (GHG) emissions level
and approve a statewide GHG emissions limit that is equivalent to
that level, to be achieved by 2020, and to adopt GHG emission
reduction measures by regulation. CARB may include the use of
market-based mechanisms to comply with the GHG reduction mandate.
Current regulations of the CARB establish a cap and trade program
under which the electric distribution utilities (investor owned
and publicly owned utilities and coops) are to be allocated
emissions allowances to compensate ratepayers for the costs of the
cap & trade program. Auction proceeds and allowance value obtained
by an electrical distribution utility must be used exclusively for
the benefit of retail ratepayers of each electrical distribution
utility. Additionally, proceeds obtained from the monetization of
allowances directly allocated to investor-owned utilities (IOUs)
are subject to any limitations imposed by the California Public
Utilities Commission (CPUC).
This bill requires the IOUs to submit an expenditure plan to the
CPUC for the proceeds of auction revenues and restricts the CPUC
from approving those plans unless ten percent of auction revenues
are allocated to cost-effective energy efficiency (EE)
improvements in K-12 schools, on a grant basis. The IOUs would
also be required to make an effort to leverage other EE funding
sources, but not at the expense of either schools or the
program(s) developed pursuant to this bill.
BACKGROUND
Cap & Trade - The adopted cap and trade regulation imposes a cap
on the aggregate GHG emissions allowed from "capped sectors." The
entities covered within these sectors constitute approximately 85%
of all statewide GHG emissions. Each year the cap declines,
resulting in a reduction in GHG emissions over time. To comply
with the cap, covered entities must surrender to the state a
number of "compliance instruments" equal to the amount of their
GHG emissions, as expressed in the equivalent metric tons of CO2.
The regulations describe two types of compliance instruments: (1)
an "allowance" to emit GHGs, all of which are generated by the
state in an amount equal to the cap; and (2) an "offset" resulting
from an emissions reduction achieved in an uncapped sector and
generated by a third party pursuant to a protocol adopted by CARB.
Under the cap and trade regulations many of the allowances are
freely allocated to the covered entities, some are held in a price
containment reserve, and the remainder auctioned. Allowances
received or purchased can be traded, thus creating an emissions
market which, according to CARB, minimizes compliance costs and
encourages businesses to invest in GHG emissions reductions. CARB
plans to hold auctions quarterly starting in November 2012, and
monies collected for allowances sold at auction are deposited into
the Air Pollution Control fund, with the exception of allowances
sold on behalf of IOUs and other electric distribution utilities.
IOUs are given enough allowances to cover all of their emissions,
but are also required to auction them. The revenues from these
auctions are then returned to the IOUs to be used for ratepayer
benefit in accordance with direction from the CPUC.
Emissions allowances to IOUs - In the first year CARB staff
recommended that an auction reserve price for 2012 auctions be set
at $10 per metric ton. At that price it is estimated that the IOUs
could receive approximately $650 million for the quarterly
auctions that CARB has planned to be held. If auction prices were
to exceed $10 per metric ton, the utilities' revenues could be
commensurately higher.
Revenues to the electric utilities are not currently subject to
Legislative appropriation. The governing boards of publicly owned
utilities (POUs) will make allocation decisions on behalf of their
ratepayers. For the IOUs, in anticipation of those revenues and
under the direction of the CARB, the CPUC commenced a rulemaking
in 2011 to consider the use of revenues generated from the sale of
cap & trade emission allowances. The commission is considering
how the IOUs should allocate the revenues from the auction of GHG
emission allowances received from CARB and is specifically
considering the following questions:
What portion, if any, of revenues should be returned
directly to customers to offset GHG compliance costs versus
held for use for other purposes?
To the degree a portion of the revenues is to be returned
directly to customers to offset GHG compliance costs, how
should that value be returned? and
To the degree a portion of the revenues should be used for
other purposes, how specifically should it be used, beyond
broad categories of potential use?
Senate Budget Action - On May 23rd, the Senate Budget Committee's
Subcommittee #2 took action to direct the CPUC and the IOUs, to
rebate any cap and trade revenues collected by the utilities to be
refunded to ratepayers in the form of a "climate dividend" rebate.
That action was affirmed by the Senate Budget Committee on June
7th.
IOU EE Programs - The IOUs are winding down their last triennial
EE program cycle and the CPUC has just issued a decision
establishing the parameters by which the IOUs will design their
portfolios and propose program budgets for 2013-2014. Those
investment plans and budgets are due to the CPUC in July.
In the last cycle, not including low-income programs,
approximately $1 billion per year was dedicated to EE between the
three largest IOUs. Those funds are dedicated to broader programs
which are available to all utility territory customers such as
lighting, appliance rebates, workforce education and training, and
marketing education & outreach. The utilities also develop and
administer more targeted programs to specific sectors including
schools, agriculture, manufacturing and the like. Typical
spending plans can include more than 50 different targeted
sectors.
Two IOUs reported targeted K-12 expenditures. Southern California
Edison spent $21 million between 2006 and 2011; San Diego Gas &
Electric reported $2.8 million for 2010 to May 2012; and, since
2010, PG&E has provided over $13 million in incentives to K-12
schools.
Energy Conservation Assistance Act (ECCA) - This program was
established more than 30 years ago and is one of the oldest of
California's many programs designed to reduce statewide energy
consumption through EE measures. The program makes low-interest
loans (currently at a 3% rate of interest) to cover up to 100
percent of a project with a maximum loan amount of $3 million and
maximum repayment term of 15 years. A loan repayment amount cannot
exceed the estimated energy savings from a funded project.
According to the CEC, the ECAA program has issued 320 loans to
schools for a total of $45,117,285.
School Bonds - Often overlooked is the fact that funding and work
provided to modernize and maintain schools tends to result in, and
overlap with, EE improvements. The School Facilities Program is
broken into several different funding mechanisms - based on how
much spending authority was approved with each bond. Two of the
program's larger funds are for new construction and modernization
projects. Smaller funds in the program pay for overcrowding
relief, charter schools and career technical education facilities.
The state's Modernization Program provides state funds on a 60/40
state and local sharing basis for eligible improvements to
educationally enhance existing school facilities. Projects
eligible under this program include modifications such as air
conditioning, plumbing, lighting, and electrical systems. Since
1998, $8.85 billion in general obligation bonds have been approved
by the voters. As of fall 2011, $7.49 billion has been allocated
to schools and $750 million remained.
COMMENTS
1. Author's Purpose . The author argues that, with tightening
budgets and more cuts coming to K-12, most schools cannot
afford to do retrofits or even access what little financing
options there are in the state. By directing some of the
IOUs' auction revenues to EE measures in public schools, all
ratepayers - indeed all taxpayers, school districts, local
governments, and students - will benefit from improved
educational opportunities and increased budgetary
flexibility, while also reducing greenhouse gas emissions.
Importantly, utility ratepayers benefit by reduced load, and
utilities meet their obligation to prioritize efficiency.
AB 1186 requires the IOUs to submit to the CPUC for approval
an expenditure plan for any revenue from the sale of
allowances. The bill requires that the IOUs spend a fraction
of their revenues on school energy improvements, including,
but not limited to, advanced lighting controls, HVAC, and
water heaters. Over 70% of California's public school
classrooms are over 25 years old. In addition, schools
account for approximately 12% of all commercial energy
consumption, representing not only a significant cost to
California's public schools, but also demonstrating that
schools have a sizable greenhouse gas footprint. Last year's
General Fund expenditures for utility bills at California's
K-12 public schools exceeded $1 billion - more than was spent
on school books and supplies, combined.
2. Pending 2012 Budget Act . Initially, the electricity
sector will receive a free allocation of emissions allowances
which the electric distribution utilities are then bound to
sell into the market. CARB intended the revenues from those
sales to help reduce the cost burden on electricity users
from electricity price increases expected to result from the
implementation of the cap and trade program.
As an example, PG&E has reported that it estimates a 5.3%
increase in residential rates in 2013 as a result of a
handful of factors including an increase in renewable energy
costs and implementation of the GHG cap and trade program.
PG&E has asked the CPUC to allow it to return 100% of the
auction revenues to its ratepayers. If approved, the 2013
rate increase to customers is estimated to be reduced to 2.9%
as opposed to 5.3%.
To address those costs, the Senate Budget Committee has taken
action to require that 100% of the revenues from the auction
allowances be rebated to IOU ratepayers in the form of a
climate dividend. This bill is inconsistent with that
action.
3. Energy Efficiency Financing . In recent years the actions
of the CPUC, the California Energy Commission and the
Legislature have supported stretching EE dollars in an effort
to stimulate deep building retrofits. The focus is to
establish financing programs which will allow a ratepayer to
finance EE improvements which would be paid back with by
savings on their gas and electric bills. That focus extends
to all sectors - residential, institutional, and commercial.
This bill is inconsistent with that effort.
4. Disparate Treatment . The mandated EE dollars in this bill
apply only to the IOUs however, the POUs will also benefit
from the sale of free allowances issued by CARB. The POUs
are free to rebate all revenues to taxpayers, allocate all
revenues to EE, or to do anything in between as long as there
is a direct ratepayer benefit from the proceeds.
5. Related Legislation . In addition to the budget action
referenced in comment 2 above, two other bills are pending
consideration which effect the distribution of cap and trade
revenues:
SB 1572 (Pavley) - Establishes the Greenhouse Gas Reduction
Fund within the Air Pollution Control Fund and requires that
all moneys collected pursuant to the market-based compliance
mechanism be deposited in the Fund and available upon
appropriation by the Legislature for the purposes of carrying
out the California Global Warming Solutions Act. Status:
Passed Senate 23-13, May 31, 2012.
AB 1532 (J. Perez) - Establishes procedures for deposit and
expenditure of regulatory fee revenues derived from the
auction GHG allowances pursuant to the cap and trade program
adopted by the CARB. Specifically requires the CPUC to
develop and transmit to CARB an investment plan which
includes requirements on how the IOUs may use any allowance
auction moneys the IOUs might collect pursuant to a
market-based compliance mechanism. Status: Passed Assembly
49-27, May 29, 2012.
6. Double Referral . Should this measure be adopted, the do
pass motion should refer the bill back to Rules for
consideration of a re-referral request from the Senate
Environmental Quality Committee.
ASSEMBLY VOTES *
Assembly Floor (70-0)
Assembly Appropriations Committee (17-0)
Assembly Utilities and Commerce Committee
(13-0)
*Prior version not relevant.
POSITIONS
Sponsor:
Coalition for Adequate School Housing
School Energy Coalition
State Building & Construction Trades Council of California
State Superintendent of Public Instruction
Support:
Bonita Unified School District
Breathe California
California State Association of Electrical Workers
California State Pipe Trades Council
California Teachers Association
County School Facilities Consortium
Desert Sands unified School District
Ella Baker Center for Human Rights
Fagen, Friedman and Fulfrost
Marysville Joint Unified School District
McKinstry
Oakland Unified School District
Partnership for Children and Youth
PMSM Architects
West Contra Costa Unified School District
Western States Council of Sheet Metal Workers
Oppose:
California Chamber of Commerce
California Construction Trucking Association
California Council for Environmental and Economic Balance
California Farm Bureau Federation
California Large Energy Consumers Association
California League of Food Processors
California Manufacturers & Technology Association
California Metal Coalition
California Taxpayers Association
Pacific Gas and Electric Company
PacificCorp
San Diego Gas & Electric
Southern California Edison
Western Wood Preservers' Institute
Kellie Smith
AB 1186 Analysis
Hearing Date: June 19, 2012