BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 410 - Wright Hearing Date:
May 3, 2011 S
As Introduced: February 16, 2011 FISCAL B
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DESCRIPTION
Current law that sunsets January1, 2012, requires the State Energy
Resources Conservation and Development Commission (CEC) to develop,
implement, and administer a program to fund public interest energy
research, development and demonstration (RD&D) activities that, as
determined by the CEC, are not adequately provided for by
competitive and regulated markets.
Current law establishes the goal of the CEC's RD&D program, known
as the Public Interest Energy Research program (PIER) as
developing, and helping bring to market, energy technologies that
provide increased environmental benefits, greater system
reliability, lower system costs, and tangible benefits to electric
utility customers.
Current law requires the CEC to give preference to California-based
entities when awarding PIER grants.
Current law authorizes CEC, if it determines that it is in the best
interest of the state, to spend PIER funds with sole course
contracts and interagency agreements and authorizes CEC to contract
with outside entities for technical, scientific and administrative
services, provide awards to any individual or entity for planning,
implementation, and administration of projects or programs,
establish multiparty agreements, and make advance payments for
subcontractors.
Current law authorizes CEC to negotiate with PIER grant recipients
for the state to collect an equitable share of rights in any
intellectual property derived as a result of PIER-funded research.
This bill would extend these provisions until 2022.
Current law that sunsets January 1, 2012, requires the CPUC to
require each investor owned utility (IOU) to assess as a ratepayer
surcharge, commonly known as the Public Goods Charge (PGC), $228
million per year for energy efficiency and conservation activities,
$65.5 million for renewable energy, and $62.5 million per year for
RD&D.
This bill would extend these provisions until 2022.
BACKGROUND
The Public Goods Charge and PIER - The PGC was established by AB
1890 (Brulte, 1996), which deregulated electricity markets. The
bill directed the three large IOUs - San Diego Gas and Electric
Company, Southern California Edison Company, and Pacific Gas and
Electric Company - to collect from ratepayers as a nonbypassable
system benefits charge including $228 million per year for energy
efficiency and conservation activities, $65.5 million for renewable
energy, and $62.5 million for research, development and
demonstration, with amounts subject to annual adjustment. The $62.5
million for research is about 18 percent of the total PGC.
AB 1890 also established the PIER program, with the PGC as its sole
source of funding, because of a concern that the IOUs would no
longer fund energy research in a deregulated competitive market and
that overall energy research by the private sector and federal
government was in decline. CEC is required to award PIER grants to
fund research projects that "advance science or technology" and are
"not adequately provided for by competitive and regulated energy
markets" with the goal to develop, and help bring to market, energy
technologies that provide increased environmental benefits, greater
system reliability, lower system costs, and tangible benefits to
electric utility customers. Subsequent legislation in 2000 (SB
1194, Sher) and 2006 (SB 1250, Sher) requires PIER to fund RD&D on
advanced electricity generation, climate change and the
environment, energy efficiency and demand-response strategies that
reduce demand, renewable energy, transmission and distribution of
power, and transportation. AB 2267 (Fuentes, 2008) requires CEC to
give preference to "California-based entities" when awarding PIER
grants.
Natural Gas PIER Program - The CEC also administers, in tandem with
the electric PIER program, a public interest energy research
program funded by a surcharge on natural gas ratepayers at an
annual level of $24 million. AB 1002 (Wright, 2000) gave the CPUC
authority for the natural gas program, but the CPUC, by decision,
appointed the CEC to administer in it, although the University of
California also was considered a potential administrator. The CPUC
adopts an annual resolution approving the CEC's award of natural
gas research funds. In the 2004 resolution, CPUC stated that
"after four years" it would assess the program, a review the CPUC
commenced in 2010 and is still ongoing.
Total Funds of $700 Million - Through 2010, the CEC had awarded
nearly $700 million in ratepayer funds for research under the
electric and natural gas PIER programs, which the CEC estimates has
resulted in billions of dollars in savings to ratepayers,
particularly from energy efficiency standards for buildings and
appliances to which PIER research contributed. CEC points to, for
example, $912 million in annual savings from television standards,
$90 million from external power supply standards, and $5.4 million
from residential furnace fan standards. PIER funds also leverage
other research dollars, according to CEC, by providing critical
matching funds for recipients, averaging about $1.50 for every $1
in PIER funds. The CEC also claims that existing funding for RD&D
is inadequate, pointing to 48 project proposals totaling $30
million that were rejected in the last two years for lack of funds
even though they passed technical merit and had potential to
advance technologies and provide public benefits.
Publicly Owned Utilities - SB 1890 also required the publicly owned
utilities (POUs) to collect a PGC, in an amount commensurate with
the IOUs' PGC. The POUs were given discretion to use their PGC to
fund any or all of energy efficiency, renewable energy, public
interest energy research, and rate discounts and other programs for
low-income customers. POUs do not remit their funds to the CEC but
instead independently administer their own programs. Some POUs
have been awarded PIER funds for RD&D.
State Coordination of Energy Research - Prior to 1996, IOUs
conducted RD&D with funding recovered through rates approved by the
CPUC. Law in effect at the time required an annual coordinating
meeting among state entities involved in energy RD&D, including the
Electric Power Research Institute, Natural Gas Research Institute,
IOUs, POUs, state energy officials and representatives of
environmental and consumer groups. After PIER was established, the
CPUC limited IOU rate recovery of RD&D costs, and the law requiring
the annual coordinating meeting was repealed.
SB 1038 (Sher, 2002) requires CEC to convene a PIER advisory board
with representatives from the CPUC, consumer and environmental
organizations, utilities, and legislators, and requires it to make
recommendations to guide CEC's award of PIER funds. The board met
in 2008, November 2010, and March 2011. Minutes of the last two
meetings reveal an expression from members of uncertainty as to the
board's authority and purpose and a desire to see PIER funding more
strategically focused. In addition to the board, CEC has
established an extensive network of informal collaboratives and
advisory committees that provide input on award of PIER funds. CEC
also has some limited informal coordination with the CPUC and ARB,
which each separately administer energy research programs.
Prior Reviews of PIER - SB 1038 (Sher, 2002) required an
independent review of PIER, which was conducted by the California
Council on Science and Technology. The council's final report in
2005 recommended that PIER needed a clearly articulated strategic
plan with objectives and priorities for meeting the state's future
energy needs and that CEC should develop a new governance
structure, including an option for administration outside of CEC.
A 2009 Department of Finance audit concluded that CEC had not
adequately responded to prior recommendations to improve PIER
governance and reduce overhead and administrative costs. These
issues also were addressed in hearings held by this committee on
August 10, 2010, and March 1, 2011.
LAO Report - The Legislative Analyst's Office (LAO), which reviews
all PIER sole-source contracts, recently conducted an independent
review of PIER and issued a report in January 2011. LAO concluded
that CEC has not demonstrated a substantial payoff in ratepayer
benefits from the more than $700 million in PIER-funded research
since 1996 and challenged the energy savings that CEC attributes to
PIER-funded research leading to the state building and appliance
standards. Nonetheless, LAO concluded that continued investment by
the private sector and the state in public interest energy research
is necessary if California is to make the technological
breakthroughs that will enable it to achieve its ambitious state
energy goals. LAO proposed three potential approaches for
reforming the state's role in energy research:
1. Continue the PGC and PIER under CEC but improve the
strategic focus of research funded;
2. Discontinue the PGC and PIER and instead direct utilities
to conduct their own research programs and recover their
research costs in rates; and
3. Continue the PGC but discontinue PIER and instead direct
utilities to conduct their own research programs with input
from a new coordinating council with representatives of state
energy officials.
PGC for Energy Efficiency - The $228 million of the PGC for energy
efficiency is not dedicated by statute for any particular program.
The funds are retained by the IOUs and become the base of the
budgets for their energy efficiency programs approved in three-year
cycles by the CPUC and supplemented with funding from rates. The
IOUs' total annual energy efficiency program cost is about $1
billion.
PGC for Renewable Energy - The $65.5 million of the PGC for
renewable energy is deposited into the RRTF, with 20 percent
allocated to the Existing Renewables program, 79 percent to the
Emerging Renewables program, and 1 percent to Consumer Education.
Since 2007, the RRTF funds the New Solar Homes Partnership. CEC
administrative costs for RPS also are paid from the RRTF.
COMMENTS
1. Author's purpose . According to the author, the primary
purpose of this bill is to re-authorize the PGC. Although the
bill as introduced extends all three programs until 2022
without substantive change, the author anticipates making
further amendments to the bill that may help shape the
discussion as this effort moves forward. The author states:
"In view of the changes that have occurred in the regulation
of California's energy markets in the years since these
programs were first enacted, it has become evident that the
role of the CPUC in overseeing utility research and
technological development should be re-examined and
strengthened. Similarly, the ratepayer benefits derived from
energy efficiency programs funded by the PGC need to be
revisited. I ask for the support of the Committee to move
this bill along as these negotiations continue."
2. Related Legislation . SB 35 (Padilla) repeals the PGC and
statutory authority for all programs funded by it and
establishes a new California Energy Research and Technology
program for funding energy research. It is scheduled for
hearing in this committee on May 3.
AB 723 (Bradford) extends sunset on public goods charge
and PIER for four years to 2016. It passed the Assembly
Committee on Utilities and Commerce 10-0 and is in the
Assembly Committee on Natural Resources.
AB 1303 (Williams) extends the PIER program for eight
years until 2020. It passed the Assembly Committee on
Utilities and Commerce 10-0 and is in the Assembly Committee
on Natural Resources.
POSITIONS
Sponsor:
Author
Support:
California Biomass Energy Alliance (with amends)
California Energy Efficiency Industry Council
South Coast Air Quality Management District
University of California
Oppose:
California Manufacturers & Technology Association
Jackie Kinney
SB 410 Analysis
Hearing Date: May 3, 2011