BILL ANALYSIS �
AB 1303
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Date of Hearing: April 11, 2011
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 1303 (Williams) - As Proposed to be Amended: April 11, 2011
SUBJECT : Energy: public goods charge.
SUMMARY : Extends the sunset date from 2012 to 2020 on the
Public Goods Charge (PGC) for public interest energy activities
and the programs funded by the Renewable Resources Trust Fund
(RRTF).
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, to 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 charges 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.
COMMENTS : According to the author, California is an
environmental policy leader. The PGC is key to our leadership as
it provides for innovation and renewables. The programs funded
by the Renewable Resources Trust Fund (RRTF) and Public Interest
Energy Research (PIER) are key to meeting our state's energy
goals and needs.
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However, the author states that PIER and RRTF need to be
reevaluated. "We must ensure that those who benefit from the
funds are actually helping pay into the fund, place increased
emphasis in deployment of ready technologies that can also
increase jobs, while remaining a leader in environmental policy
and ensuring ratepayer funds are being maximized".
1)Background : Historically, the three primary investor-owned
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 PUC 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), Chapter 854, Statutes of 1996, deregulated the
California 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), Chapter 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 (PIER), SB 90 required the California Energy
Commission (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 CEC to report to the
Legislature a description of the allocation of funds, and the
need for the reallocation of money.
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SB 1194 (Sher), Chapter 1050, Statutes of 2000, extended the
collection of a public goods charge 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 PIER and Renewable RD&D programs, the CEC was
directed to 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 PIER and Renewable
RD&D reports were provided to the Legislature and subsequently,
SB 1250 (Perata) Chapter 512, Statutes of 2006, extended the
continuation of funding but amended the programs focus.
The electricity PGC funds three primary programs: 1) Public
Interest Energy Research (PIER)--$62.5 million annually,
administered by the CEC; 2) Renewable Energy Program--$65.5
million annually, administered by CEC; and 3) Energy
Efficiency--$228 million annually, retained by IOUs with CPUC
oversight.
2)PIER : This bill seeks to extend the sunset date for the PIER
program from 2011 to 2020.
The 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 will collect $69.7 million in 2010-11.
The funds are annually appropriated, which means the
Legislature reviews the department's spending priorities every
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year during budget hearings. To date, PIER has funded nearly
$700 million for projects that range from building and
industrial 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
a tighter focus; 2) allow IOU rate recovery of public interest
research; and, 3) create a public-private partnership for
electricity research.
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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 vigorously pursued.
6)RRTF : This bill seeks to extend the funding for the programs
funded by the Renewable
Resources Trust Fund (RRTF). Under current law the Renewable
Resources Trust Fund 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 is 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
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
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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 guidelines 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.
As of July 2010, a total of 27 MW of solar had been
installed on new homes 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,
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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 (RPS) tracking needs; and other consumer
education activities promoting renewable energy.
7)A clean energy economy : The California Apollo Alliance
released a report entitled "The
California Apollo Program: Creating and Keeping Clean Energy
Jobs in California". This report offers a comprehensive
strategy for building the state's economy and creating jobs
through the continued expansion of California's clean energy
economy. Further, the report notes a series of recommendations
for how the state can create and maintain clean energy jobs in
California: 1) create jobs by transforming the way California
generates and uses energy; 2) create jobs by maintaining
California's global leadership in the clean energy economy; 3)
create jobs by making it (the technology) in California, by
California's, and 4) create economic prosperity for all and tap
the skills and productivity of California's workforce.
8)Related legislation : This bill is substantially similar to AB
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723 (Bradford) which aims to
extend the sunset date for the electricity PGC from 2011 to
2016.
9)Proposed amendments : Since the author intends to reevaluate
the programs funded by the
PIER and RRTF programs, this committee may wish to amend the
bill to strike the reference to Public Utilities Code Section
399.8 .
REGISTERED SUPPORT / OPPOSITION :
Support
California Biomass Energy Alliance (CBEA) (with amendments)
Opposition
California Manufacturers and Technology Association (CMTA)
Analysis Prepared by : Gina Adams / DaVina Flemings / U. & C.
/ (916) 319-2083