BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 998 - De León Hearing Date:
April 24, 2012 S
As Amended: April 17, 2012 FISCAL B
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DESCRIPTION
Current law requires California's electric utilities to first
meet their energy needs through cost-effective energy efficiency
measures before renewable and conventional generation.
Current decisions of the California Public Utilities Commission
(CPUC) require investor-owned utilities (IOUs) to administer
energy efficiency programs in multi-year portfolios designed to
meet pre-established energy savings goals and funded by
ratepayer charges, currently at about $1 billion per year.
This bill requires the CPUC to require IOUs to develop and
implement on-bill repayment (OBR) programs for eligible energy
efficiency, renewable energy, and distributed generation
investments under which a customer pays down a loan from a
third-party lender with payments that are listed as a separate
line item on the customer's utility bill.
This bill would require that on OBR obligation "runs with the
meter," meaning that any subsequent owner or occupant of a
property is required to assume the obligation to make remaining
payments on the loan as a condition precedent for receiving
electric or gas service.
Current law and CPUC decisions establish an escalating series of
procedures for a utility to follow when a customer fails to pay
charges for utility service, including customer notice, payment
options, site visits, and culminating with service
disconnection.
Current law prohibits utilities from terminating residential
service for nonpayment of debt owed to a third party.
This bill would make an exception to the prohibition on
terminating service for nonpayment of third-party debt and
provide that, if a customer pays less than the total amount owed
for utility service and the OBR payment, the CPUC may require
that the amount paid be prorated and requires that any shortfall
be treated consistent with CPUC rules for failure to pay for
utility service.
This bill would require, effective July 1, 2013, that every
seller of real property subject to an OBR repayment obligation
deliver to the buyer a notice of that OBR obligation under a
standard notice and disclosure form that this bill requires the
CPUC to adopt.
This bill would provide that, once the standard form notice is
delivered, a seller of real property is not required to provide
a buyer any additional information about the OBR repayment
contract.
This bill would provide that a buyer's receipt of the standard
form notice, plus acceptance of utility service, operates as the
buyer's acceptance of the OBR obligation, except for any amounts
owed prior to the beginning of service for the buyer.
This bill would require the CPUC to ensure that any residential
OBR program include protections and program access for middle-
and low-income customers and adequate disclosure that allows
customers to knowingly weigh the benefits of investment and
determine whether the investment is in the customer's best
interest.
This bill would require the CPUC to establish program elements
for OBR programs, including, but not limited to, establishment
of energy and cost savings evaluation standards and
requirements, prepayment options, and project inspection
services or requirements.
This bill would require that IOUs promptly remit customer loan
payments to the third party lender.
This bill requires IOUs, if a dispute arises between the
customer and the lender over the customer's obligation to pay
the OBR debt, to collect the disputed amount due and hold it in
an interest-bearing account.
This bill would provide that an IOU shall require that it be
provided with a copy of loan documents as a condition for
providing OBR services.
BACKGROUND
Existing Energy Efficiency Programs - Energy efficiency is
California's top strategy for reducing energy use and meeting
the state's energy needs. Energy efficiency is at the top of
the "loading order," and California's utilities are required to
first meet their energy needs through cost-effective energy
efficiency measures before renewable and conventional
generation. The state's IOUs and, to a lesser extent, the
publicly owned utilities (POUs), administer hundreds of energy
efficiency programs that provide financial incentives and
rebates for installing energy efficient appliances, lighting,
windows, HVAC systems and other technologies or measures.
As reviewed in an informational hearing of this committee on May
17, 2011, and several hearings on energy efficiency funding from
the American Recovery and Reinvestment Act of 2009 (ARRA),
California has made substantial investment in a multitude of
energy efficiency programs financed with ratepayer and taxpayer
dollars, including:
$1 billion per year from IOU ratepayers for programs approved
by the CPUC, with about 29 percent for commercial
buildings.
$300 million per year from IOU ratepayers for free
weatherization services for IOU low-income customers
approved by the CPUC.
$30 million per year in federal funding for free
weatherization services for low-income residents
administered by the California Department of Community
Services and Development (CDCS).
$185 million in one-time funding for free weatherization
services for low-income residents from the American
Recovery and Reinvestment Act of 2009 (ARRA) administered
by CDCS.
$280 million in one-time ARRA funds for energy efficiency
programs administered or coordinated by the California
Energy Commission (CEC), including Energy Upgrade
California.
New Energy Efficiency Loan Program this Month - Just a week ago,
another new energy efficiency retrofit loan program was launched
with $25 million in ratepayer funds. On April 17, 2012, the
California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA) within the State Treasurer's
Office adopted emergency regulations to implement a "Clean
Energy Upgrade Financing" program, as required by ABx1 14
(Skinner, 2011).
Focus on Buildings - California's Title 24 energy efficiency
building regulations, first adopted by the CEC in 1978 and
updated every three years, specify requirements relating to
lighting, insulation, windows, HVAC systems, and other
construction details designed to reduce energy consumption and
lower energy bills for consumers. The state's Title 20 energy
efficiency appliance regulations specify energy use standards
for most major household and commercial appliances that must be
met in order to be sold in California. There is general
agreement that these building and appliance standards have been
a major contributor to the state making progress toward
achieving energy efficiency goals. CEC adoption of the 2013
update to the building standards is slated for May to be
effective in 2014.
Recognizing that about half of California's residential and
nonresidential buildings were built prior to adoption of the
building standards, AB 758 (Skinner, 2009) required the CEC to
develop a comprehensive energy efficiency strategy for this old
building stock. To date, the CEC has used ARRA funds for some
pilot programs to develop and advance the tools, protocols and
workforce to conduct best practice building energy assessments
and retrofits, which the CEC says will generate information for
developing the long-term strategy.
AB 758 also required the CPUC to investigate the ability of
electric and gas utilities to provide energy efficiency
financing options to their customers to implement the
comprehensive strategy that CEC is developing. The CPUC hired a
consultant, which released a report in July 2011 called "Energy
Efficiency Financing in California - Needs and Gaps -
Preliminary Assessment and Recommendations." The report
concluded that a $4 billion annual investment in energy
efficiency is needed to meet California's aggressive energy
goals, and it identified on-bill collection of loan payments as
one of many options for energy efficiency financing but
recognized legal and regulatory barriers to its implementation.
CPUC Proposal Delays Residential OBR - The CPUC is expected to
adopt a decision in May providing guidance for IOUs in
developing energy efficiency programs for the 2013-2014 program
cycle, including financing options that will increase customer
adoption of energy efficiency measures. The Proposed Decision
(PD), with consideration of the consultant's report, several
rounds of public comments and several days of workshops on
financing, declines from requiring residential OBR at this time.
The only OBR requirement in the PD is for an IOU energy
efficiency consultant to pursue the design and development of
financing program options to be piloted in 2013 and scaled up in
2014 including, among other strategies, a possible OBR option
for the multi-family residential market and an OBR strategy for
all non-residential customers.
The PD states that there are "many reasons" for not requiring
OBR for single-family residential customers at this time,
including:
It is unclear how much of an advantage OBR provides to
ensure customer payment of energy efficiency loans based
solely on the likelihood that customers pay their utility
bills, which would provide lenders sufficient security to
offer low interest rates.
Lack of legal authority to allow utilities to initiate
collection actions for non-payment of portions of the
utility bill not related to provision of utility services
that could lead to disconnect, citing Public Utilities Code
Sections 779.2 and 771, which prohibit disconnect for
third-party debt.
Lenders' desire to analyze long-term utility payment
histories in order to assign a credit risk would require
utilities to make customer payment information available.
It is uncertain whether OBR can or should require "bill
neutrality" so that the monthly loan payment does not
exceed the amount of energy savings from the measure
financed.
It is not clear that OBR, on its own, will be able to
make significantly more financing or better rates and terms
available than home equity loans.
Thus, instead of requiring residential OBR at this time, the PD
directs IOUs to collect data on performance of other programs
and build a database of California loan payment history from all
sources of energy project loans, which would inform a future
decision on residential OBR. Significantly, the PD also
requires IOUs to propose in their 2013-2014 portfolio
applications the continuation of existing energy efficiency
financing programs supported by ARRA funds that are expiring
this year.
COMMENTS
1. Author's Purpose . According to the author, this bill
would provide Californians access to low-cost loans for
energy efficiency and renewable electricity generation
projects that can be repaid through monthly utility bills,
thereby creating energy savings, reducing carbon emissions,
and generating jobs.
2. Is Another New Program Needed ? Given the many existing
energy efficiency programs, including the new loan program
just adopted by CAEATFA, is now the time to require yet
another new program, with all the start-up administrative,
outreach, marketing and education costs that each new
program requires? Why not follow the approach suggested by
the CPUC's PD - continue non-residential OBR and pilot
programs, focus on continuing ARRA funded programs, and
build a database of California loan payment history from
all current sources of energy project loans that can inform
a future decision on whether to implement residential OBR?
3. Removing Legal Barrier to Residential OBR . This bill
would eliminate what the CPUC identifies as a legal barrier
to residential OBR - current law prohibiting termination of
residential utility service for nonpayment of debt owed to
a third party. This bill amends that law to make OBR an
exception to this prohibition and expressly allows
utilities to treat underpayment of OBR obligations as
failure to pay for utility service. Some parties, such as
the Division of Ratepayer Advocates, object to this change
and claim that the threat of losing utility service is not
necessary for OBR to work. Many stakeholders say that this
potential loss of service is precisely what enables lenders
to be able to offer customers low interest rates and
attractive loan terms. The committee may wish to consider
whether any effective residential OBR program with terms
attractive to customers is possible without providing
lenders the security that loan payments will be subject to
utility collection procedures.
4. Will Utility Service Disconnections Increase ? Failure to
pay a utility bill triggers a series of escalating
procedures required by CPUC rules, including customer
notice and offering of payment options that eventually can
lead to service disconnection. The CPUC recently updated
its service disconnection procedures for PG&E and Southern
California Edison, with special requirements for disabled
and other vulnerable populations, with the goal of reducing
disconnections. Low-income customers generally experience
disconnection at a rate that is three tiers higher than
average. This bill would make failure to make a monthly
payment on an energy efficiency loan another potential
cause of utility service disconnection. Is this a good
idea just as utilities are implementing the new
requirements to minimize customer disconnections?
5. Can Customers Count on Projected Savings ? This bill does
not require "bill neutrality" for residential OBR, but
instead requires the CPUC to establish OBR program
elements, including establishment of energy and cost
savings evaluation standards and requirements. The CPUC's
PD points out, however, that many variables affect whether
an energy efficiency measure will achieve projected savings
and actually reduce a monthly utility bill, especially over
a loan repayment period of 10 or more years. These include
the behavior of the customer utilizing the new equipment
(whether a customer elects to enjoy more heat or cooling
once monthly bills go down), climate zone, quality of
contractor installation, changes in numbers of occupants at
a residence, new appliances or equipment added to a
household, and fluctuating energy costs.
The author provides a residential OBR example of a
homeowner with a monthly utility bill of $175, who borrows
$7,200 for duct sealing, a programmable thermostat, new
windows, and a new refrigerator, which together are
projected to cut $70 from the monthly utility bill. With a
15-year loan at 5 percent interest, the monthly loan
payment would be $57. The homeowner's total monthly
payment would be $162 ($105 for utility service plus $57
OBR payment), for a monthly savings of $13.
The significance of the $13 savings will vary by customer,
but it is very probable that the other variables described
above would offset a $13 savings in any given month. What
is a customer's remedy if the total monthly bill savings is
not what was projected? Will customer dissatisfaction with
an energy efficiency OBR loan impact utility or lender
costs of administering the program?
6. Will Customers Have Adequate Information ? This bill
requires the CPUC to ensure that any residential OBR
program include adequate disclosure that allows customers
to knowingly weigh the benefits of investment and determine
whether the investment is in the customer's best interest.
The primary benefit would be lower utility bills, which are
difficult to guarantee, as discussed above, plus comfort
and aesthetics. Although not specified in the bill, the
CPUC also should ensure disclosure of the potential
downsides of OBR - the total monthly bill does not
decrease, the inability to make timely monthly payments
could lead to service disconnection, and the OBR obligation
running with the meter could impact sale of the property,
to name a few. These issues are among those for which the
PD suggests more data is needed before requiring
residential OBR.
7. The Next Owner's Obligation to Pay . In order to ensure
a long enough loan repayment period to minimize monthly
payments, this bill requires the OBR obligation to run with
the meter and makes acceptance of the remaining loan
obligation a condition of getting electric service for any
subsequent owner or occupant of the property. The bill
requires the CPUC to develop a standard notice and
disclosure of this obligation that sellers would be
required to provide to potential buyers and specifies that
a seller is required to tell no more. Does the CPUC have
sufficient expertise to ensure that the required notice
would not create a title defect? Would yet another
boilerplate disclosure form in a real estate transaction,
with no obligation to tell more, adequately inform
potential buyers of OBR obligations and the potential for
utility service disconnection for nonpayment?
8. What Impact on Utilities ? In the CPUC's proceedings,
IOUs raised the question of whether OBR makes them subject
to various federal and state consumer finance laws and
regulations, an unresolved issue. This bill would require
that IOUs promptly remit customer loan payments to the
third party lender, would require IOUs to treat an
underpayment as failure to pay for utility service, would
require IOUs, if a dispute arises between the customer and
the lender over the customer's obligation to pay the OBR
debt, to collect the disputed amount due and hold it in an
interest-bearing account, and would provide that an IOU
shall require that it be provided with a copy of loan
documents as a condition for providing OBR services. The
committee may wish to consider what impact these OBR
requirements would have on IOUs and their core obligation
to provide utility service, especially compared with other
programs the IOUs may administer to achieve energy
efficiency goals.
9. Renewable Energy and Distributed Generation . The bill
requires OBR programs for not only energy efficiency, but
also renewable energy and distributed generation
investments, although little detail about the latter is
specified. It is unclear how OBR for renewable generation
and distributed generation would overlap with existing
programs supporting these investments, such as the Self
Generation Investment Program, the New Solar Homes
Partnership, and the California Solar Initiative. Moreover
there are no parameters for the program specified including
performance requirements, evaluation of need (note that
customers now have options to install solar with no
up-front investment), or consideration of whether the cost
of the generator must have a pay-back less than the cost of
utility service, among other issues.
10. Ratepayer Impact . The author states that the OBR
programs this bill would require IOUs to implement would be
part of the energy efficiency portfolios they administer as
approved by the CPUC and funded with ratepayer money.
Although OBR financing would come from third-party lenders,
it appears that other program costs would be borne by
ratepayers. These include IOU administrative costs and the
cost of outreach, marketing and education to convince
customers to pursue OBR energy efficiency retrofits. In
addition, the bill is silent as to who would pay an OBR
obligation when a property is vacant or in foreclosure.
The bill provides that a subsequent buyer of a property
assumes the ongoing OBR obligation but not any past due
amounts, but it does not specify who is required to pay.
Should ratepayers be required to assume these unknown
costs?
11. Proposed Amendment . In light of all the questions about
the OBR program established by this bill, the reasons cited
by the CPUC's PD for not requiring residential OBR at this
time, the potential for increasing the incidence of
residential customers being subject to utility service
disconnection, and unknown costs that would likely be borne
by ratepayers, the author and committee may wish to
consider amending the bill by deleting its current
provisions and instead:
Authorize the CPUC to require IOUs to develop OBR
programs for energy efficiency only, not renewable energy
and distributed generation, with flexibility among IOU
programs and with different program elements for
different property categories.
Specify that an IOU could meet this requirement with
OBR pilot programs as approved by the commission.
Authorize the CPUC to require residential OBR
programs only after the CPUC makes a report to the
Legislature on the results of pilot programs on
residential OBR that the CPUC may require IOUs to
conduct.
POSITIONS
Sponsor:
Environmental Defense Fund
Support:
Abundant Power
Beutler Corporation
Building Owners and Managers Association of California
California Business Properties Association
Support: (continued)
California Housing Partnership Corporation
Carbon Lighthouse
Commercial Real Estate Development Association
Distributed Energy Consumer Advocates
Division of Ratepayer Advocates, if amended
Green Campus Partners
Groom Energy Solutions
International Council of Shopping Centers
Lime Energy
NAIOP of California
Renewable Funding
Rockwood Consulting
Saving Neighborhood Energy to Generate Neighborhood Wealth
SCIenergy
SolarCity
Sunetric
Sunrun
Oppose unless amended:
Bear Valley Electric Service
California Land Title Association
California Pacific Electric Company
Pacific Power
San Diego Gas & Electric Company
Sempra Energy Utilities
Southern California Gas Company
Oppose:
Pacific Gas and Electric Company
Southern California Edison
Jacqueline Kinney
SB 998 Analysis
Hearing Date: April 24, 2012