BILL ANALYSIS �
SB 134
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Date of Hearing: September 6, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 134 (Corbett) - As Amended: August 30, 2011
SENATE VOTE : (vote not relevant)
SUBJECT : Public contracts: bid preferences: solar photovoltaic
system.
SUMMARY : Requires state agencies to provide a 5% price
preference in state contracts for the purchase or installation
of solar panels that are manufactured or assembled in the state.
Specifically, this bill :
1)Requires a state agency accepting bids or proposals for a
contract to purchase or install a solar photovoltaic (PV)
system through a power purchase agreement or through direct
purchase to provide a 5% price preference to a business
certifying that all of the solar panels installed have been
manufactured or assembled in this state. Requires that the
preference shall be provided as follows:
a) For contracts to be awarded to the lowest responsible
bidder, the bid preference shall be 5% of the bid price of
the lowest responsible bidder meeting specifications; or,
b) For contracts to be awarded to the highest scored bidder
based on evaluation factors in addition to price (best
value), the bid preference shall be 5% of the total score
of the highest bidder.
2)Prohibits a non-compliant bidder from receiving a bid
preference.
3)Requires a business to submit specified documentation and
information to the state agency to be eligible for the 5%
price preference.
4)Requires the Department of General Services (DGS) to establish
a process to verify that a business meets the criteria for the
5% price preference.
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5)Requires that if the bids are tied as the lowest responsible
bid or the highest scored bid, then the tie shall be resolved
in favor of the entity that has the higher number of full-time
assembly or manufacturing employees in California at the time
of the tie.
6)Creates the following definitions:
a) "Assemble," "assembled," or "assembler" means connecting
individual solar cells into larger groups whereby the solar
panel or module is the end product;
b) "Manufacture," "manufactured," or "manufacturing" means
the transformation of raw materials into a solar panel,
including the manufacture of solar wafers, the
postprocessing of solar cells, or the manufacture of solar
cells.
c) "Power purchase agreement" means a financial arrangement
in which a third-party developer owns, operates, and
maintains a solar PV system, and a state agency agrees to
site the system on its roof or elsewhere on its property
and purchases the system's electric output, not the system
itself, from the third-party developer for a predetermined
period of time;
d) "Solar cells" means the basic building block of PV
technologies. "Solar cells" are functional semiconductors,
made by processing and treating crystalline silicon or
other photosensitive materials to create a layered product
that generates electricity by absorbing light photons;
e) "Solar panels" means individual solar cells assembled
into larger groups whereby the solar panel or module is the
end product, and consists of a series of solar cells to
capture and transfer solar-generated electricity, a backing
surface, and a covering to protect the cells from weather
and other types of damage, and may include an affixed power
quality, product efficiency, power conversion, balance of
systems, and enhancements to the panel; and,
f) "Solar PV system" means a system created by installing
multiple solar panels in the same location to increase the
electrical generating capacity. In a "solar PV system" the
solar panels and solar cells represent the highest
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intellectual content and dollar-value items associated with
solar PV energy generation.
7)Makes legislative findings and declarations.
EXISTING LAW :
1)Governs the solicitation, review and award of state contracts
and establishes various programs and preferences in public
contract law designed to serve a broad public purpose, such as
preference for small businesses, disabled veteran business
enterprises (DVBEs) and recycled products. Existing law
designates the DGS to administer the Small Business
Procurement and Contract Act (Small Business Act), including,
but not limited to, small business, microbusinesses and DVBE
certification processes.
2)Requires DGS and state agencies entering into contracts for
goods, services, information technology, and construction, to
establish small business participation goals, provide for
small business bid preferences, and provide assistance to
small businesses, under the Small Business Act.
3)Establishes bid preferences for certified small businesses and
microbusinesses for the award of state procurement contracts
of at least 5% of solicitations made either on the basis of
lowest responsible dollar bid or on the basis of highest
score, with a single bid preference limit of $50,000.
Non-small businesses that subcontract at least 25% of their
contracts with certified small businesses also qualify for the
small business bidders' preference.
4)Defines a small business as independently owned, not dominant
in its field of operation, domiciled in California, employing
100 or fewer employees, and earning $10 million or less in
average annual gross revenues for the previous three years.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"Executive Order S-20-04 mandated that state agencies evaluate
the merits of using clean and renewable onsite energy generation
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technologies in all new buildings or large renovation projects.
"California has installed PV solar systems on state property,
including land controlled by the Department of Corrections and
Rehabilitation, the Department of Mental Health, and several
California State Universities. However, DGS does not know if
any of the solar panels on state property were made in
California. There are at least 10 companies that assemble or
manufacture solar panels in California. Solar manufacturing is
a growing business and many companies are deciding to locate in
California."
"California-made panels create important manufacturing jobs in
our state, causes significant investment in our communities, are
made with cleaner energy than foreign-made panels, and will
demonstrate California's innovative technology. Other states
and countries are using tax incentives, low-interest loans,
cheap labor, and cheap, dirty energy to lure California
clean-technology manufacturers away from California. Many other
states have preferences for state-manufactured goods, such as
Alaska, Idaho, Montana, and West Virginia. If California is
going to install solar panels on state property, it should
attempt to support California manufacturers. "
Background . This bill would establish a product-specific price
preference of 5% for California companies that manufacture solar
panels. Companies that merely assemble solar panels from
out-of-state or different countries would also qualify for the
price preference.
State law governing public works contracting is specifically
designed to prevent unfair advantages and impropriety for
specific bidders in the award of public contracts. While public
contract law makes exceptions for a few categories of bidders,
such as preferences for small businesses and DVBEs, these
programs are designed to serve a public purpose across a broad
spectrum of the economy, not a specific product sold by a
limited number of private business interests.
While arguments for this bill claim that there are at least 10
companies that assemble or manufacture solar panels in
California, DGS indicates that only four or five of these
companies could currently qualify for the preference provided by
this bill.
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One of those companies recently filed for Chapter 11 bankruptcy
after receiving a $535 million federal loan in 2009 intended to
subsidize green energy startups. At a time when the state is
operating at a deficit and vital state programs are facing
reductions, the committee may wish to consider whether it is a
public benefit to offer a price preference to a limited number
of eligible companies, particularly when one has already filed
for bankruptcy despite receiving significant public financing.
A price preference in state contracts for a specific product
manufactured by a small number of companies is unprecedented in
California policy. The precedent established by this bill could
compel many other companies to seek price preferences for their
own proprietary products or services.
Further, while it is beneficial in today's weakened economy to
support and promote products made in California - and, in turn,
the California workers who make these products - it may be more
appropriate to pursue this goal across a broad spectrum of the
economy and in a manner that allows unrestricted statewide
participation and benefit. This was done earlier this year when
this committee approved SB 497 (Rubio) of 2011, which would
grant a 5% bid preference in state contracts to all California
companies.
Legislative Counsel has opined that this bill may "impermissibly
infringe on Congress' power to regulate commerce with foreign
nations (cl. 3, Sec. 8, Art. I., U.S. Const.) or intrude on the
federal government's foreign affairs powers (see cl. 3, Sec. 10,
Art. I, U.S. Const.). It has long been held that 'power over
external affairs is not shared by the States; it is vested in
the national government exclusively' (U.S. v. Pink (1942) 315
U.S. 203, 233). Therefore, states are prohibited from enacting
laws with more than 'incidental or indirect effect' on foreign
affairs, or that have 'potential for disruption or
embarrassment' of United States foreign policy (Bethlehem Steel
Corp. v. Board of Com'rs of Dept. of Water and Power of City of
Los Angeles (1969) 276 Cal.App.2d 221, 228)."
Related Legislation . SB 175 (Corbett) is a similar bill that
would provide a 5% price preference in state contracts for the
purchase or installation of solar panels that are manufactured
or assembled in the state. This bill was held in the Assembly
Business, Professions and Consumer Protection Committee.
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SB 497 (Rubio) of 2011, requires that a 5% bid preference be
given to a California business in state contracts. This bill
was held in the Assembly Appropriations Committee.
Previous Legislation . SB 967 (Correa) of 2010, would have
requires a 5% bid preference be provided on state contracts for
goods and services exceeding $1 million, including contracts
funded by the federal American Recovery and Reinvestment Act of
2009, to contractors who substantiate that 90% of their
employees performing work on the contract are California
residents, by July 1, 2011. This bill was vetoed.
Support . According to the Fremont Chamber of Commerce, "Fremont
is home to Solyndra, Solaria, Greenvolts, and a new Tesla plant,
to name a few of the green technology companies that are
locating operations here. We are excited about becoming a hub
for green technology, but we also know the tremendous loss of
jobs our state has experienced in this current economic
downturn. We ourselves experienced the closure of the New
United Motor Manufacturing, Inc. (NUMMI) plant and the entire
state experienced the ripple effect of �NUMMI]. Particularly
considering the current unemployment rate in California and the
need to generate and maintain well-paid manufacturing jobs in
our state, we believe that the state should invest its money in
businesses that are located here and generating jobs and income
for the State of California. State purchases should be used to
stimulate the State's economy and put people back to work in
California."
Opposition . According to the California Chamber of Commerce and
the California Manufacturers & Technology Association, "By
limiting the bidders, competition will be reduced, resulting in
less choice and higher prices on the resulting contracts, making
the advancement of energy efficiency goals less attainable.
Furthermore, state costs in bid preferences, especially at a
time of fiscal crisis, negates the measure's intended purpose of
job creation and economic stimulation. A potential result of
protectionism legislation is retaliation from our trade partners
- other states and international trade partners. To the extent
that California limits bidders, California companies could be
penalized in trade with other states and nations. This practice
creates a patchwork of reciprocity and retaliation that makes it
difficult for California businesses to contract with other
states. We believe that this will have a net negative effect on
California businesses and their employees."
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REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation
City of Fremont
Clean Economy Network
Fremont Chamber of Commerce
Nanosolar
Petra Solar
Sierra Club California
Solaria
Solyndra LLC
State Building and Construction Trades Council
Opposition
California Chamber of Commerce
California Manufacturers & Technology Association
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301