BILL ANALYSIS                                                                                                                                                                                                              1
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                  SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                                 DEBRA BOWEN, CHAIRWOMAN
               

               SB 5X -  Sher/Bowen/Burton                              
               Hearing Date:  February 13, 2001       S
               As Amended: February 5, 2001       FISCAL           B
                                                                            
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                                        DESCRIPTION
                
               This bill is essentially divided into three different  
               parts:

               Part 1 enhances the existing low-income energy assistance  
               programs. 
               Part 2 establishes a variety of energy efficiency programs.  

               Part 3 creates a program to increase distributed electric  
               generation capacity, particularly with respect to state and  
               municipal buildings.

               All three parts of the bill rely on General Fund money on a  
               one-time basis.  

                Low-Income Energy Assistance Programs
                
               This bill provides:

               1)$100 million in new money for the existing California  
                 Alternate Rates for Energy (CARE) program, a California  
                 Public Utilities Commission (CPUC) administered program  
                 which provides a discount on gas and electric bills for  
                 low-income customers;
               2)$20 million for the CPUC to fund weatherization programs  
                 for low-income customers;











          3)$60 million to the Department of Community Services and  
            Development (DCSD) for low-income assistance;
          4)$60 million to DCSD to expand low-income energy  
            weatherization programs.

           Energy Efficiency Programs
           
          This bill provides:

          1)incentives to encourage the purchase of high efficiency  
            appliances:  a) $66 million to investor-owned utility  
            (IOU) customers through the CPUC; b) $20.2 million to  
            municipal utility district (MUD) customers through the  
            California Energy Commission (CEC);








































               2)incentives to encourage the purchase of whole-house and  
                 indoor fans:  a) $5.8 million to IOU customers through  
                 the CPUC; b) $2.2 million to MUD customers through the  
                 CEC;
               3)incentives to encourage the construction of  
                 high-efficiency residences: a) $28 million to IOU  
                 customers through the CPUC; b) $6.7 million to MUD  
                 customers through the CEC;
               4)incentives to encourage the use of high-efficiency  
                 lighting in commercial and residential buildings: a) $100  
                 million to IOU customers through the CPUC; b) $6.8  
                 million to MUD customers through the CEC;
               5)$20 million for retrofits for pumps and motors of oil or  
                 gas producers and pipelines;
               6)$15 million to encourage installation of load-shifting  
                 and energy efficiency technologies in municipal  
                 buildings;
               7)$70 million to encourage load-shifting in buildings; 
               8)$32 million for incentives to construct high efficiency  
                 nonresidential buildings; 
               9)$45 million in innovative energy efficiency programs;
               10)  $50 million to lower urban air conditioning usage in  
                 schools, colleges, universities, hospitals, and other  
                 non-residential buildings;
               11)  $15 million for innovative peak load reduction  
                 measures in the service areas of public utilities; 
               12)  $50 million for a peak load reduction program for  
                 agricultural customers;
               13)  $14.5 million to encourage installation of high  
                 efficiency traffic lights;
               14)  $64 million to provide incentives for water and waste  
                 water treatment systems to reduce peak usage;
               15)  $15 million to encourage installation of  
                 demand-responsive and energy efficiency technologies in  
                 municipal buildings; 
               16)  $50 million to encourage implementation of energy  
                 efficiency programs in state buildings;
               17)  $10 million to the Department of Consumer Affairs for  
                 a public education program;
               18)  $7 million to teach students about energy efficiency;
               19)  $1.4 million and 16 people for the CEC to implement  
                 its part of this energy efficiency program;
               20)  $600,000 for the CEC to assess electric and natural  
                 gas markets. 











           Electric Generation Capacity
           
          This bill provides:

          1)$100 million to provide incentives to purchase large  
            renewable and clean electric generation systems;
          2)$58.4 million to encourage installation of clean electric  
            generation systems in state and municipal buildings;
          3)$50 million to install clean electric generation systems  
            at state buildings;
          4)$29.2 million to encourage the purchase of small  
            renewable electric generation systems and water delivery  
            systems;
          5)$24 million to retrofit electric generation units to  
            improve environmental performance;






































               6)$21.6 million to encourage installation of clean electric  
                 generation for state and municipal buildings; 
               7)$20 million to provide incentives to retrofit generation  
                 units at municipal water districts to improve  
                 environmental performance; 
               8)$17.5 million to install clean electric generation at  
                 Department of Correction facilities;
               9)$10.8 to encourage the purchase of small, renewable  
                 electric generation systems;
               10)  $3 million to local governments to expedite permitting  
                 of electric generation facilities.

               For electric generation projects which the state  
               undertakes, the bill proposes that the projects be eligible  
               to be exempt from competitive bidding requirements and the  
               capital outlay process, and that the procedures established  
               be exempt from the Administrative Procedures Act.  

               State generation projects are encouraged, but not required,  
               to be clean.  

               The provisions of this bill sunset on June 30, 2003.

               Total expenditures in the bill are $302.1 million for  
               electric generation initiatives, $240 million for  
               low-income customer initiatives, and $733.2 for energy  
               efficiency initiatives, for a total of $1.2753 billion.

                                         BACKGROUND
                
                Low Income Energy Assistance
                
               Current law establishes a low income energy assistance  
               program for electric and natural gas service customers of  
               the IOUs known as CARE which is funded by a surcharge on  
               energy bills.  The CARE program includes both discounts on  
               the electric and natural gas bill, as well as a residential  
               weatherization program.  

               Current regulations limit CARE eligibility to those  
               households earning less than 150% of the federal poverty  
               level, which is an annual income of $25,800 for a family of  
               four.  The CARE discount, which is established by the CPUC,  
               is 15% of a family's monthly electric or natural gas bill.   










          The cost to ratepayers for the CARE program is about $180  
          million annually.  

          The percentage of eligible customers who participate in the  
          CARE program varies widely throughout the state.  In PG&E's  
          service area, 36% of eligible customers participate, while  
          in SCE's service area, 59% of those eligible are  
          participating.  Between PG&E, SCE, and SDG&E, a little more  
          than one million households participate in CARE.













































               A second low income energy assistance program, known as the  
               Low Income Home Energy Assistance Program (LIHEAP), is  
               funded by the federal government and administered through  
               the Department of Community Services and Development.  This  
               program is budgeted at $63 million this year, though that  
               has been supplemented with about $40 million in additional  
               emergency federal funding.  

               LIHEAP eligibility is 60% of the state's median income, or  
               about $33,000 per year, and serves about 150,000 people  
               statewide, far fewer than the CARE program. 

               LIHEAP has three programs:  1) home energy assistance,  
               payable directly to the utility or other energy provider;  
               2) a crisis program for emergencies; 3)  a residential  
               weatherization program.   The current levels of home energy  
               assistance provide funding for about 2.3 months of energy  
               payments.

                Energy Efficiency
                
               The electric restructuring statutes provided for  
               substantial funding of energy efficiency programs through a  
               non-bypassable surcharge on electric bills.  Last year AB  
               995 (Wright), Chapter 1051, Statutes of 2000, and SB 1194  
               (Sher), Chapter 1050, Statutes of 2000, were enacted,  
               extending that surcharge for 10 years.  The energy  
               efficiency portion of the surcharge is less than 1% of each  
               customer's bill and the money derived from the surcharge  
               pays for energy efficiency programs administered by the  
               CPUC and delivered by the IOUs.  Last year, the Legislature  
               also approved AB 970 (Ducheny), Chapter 329, Statutes of  
               2000, which authorized $50 million for a variety of energy  
               efficiency programs.  Those funds have been committed to  
               six types of projects which were specified in the  
               legislation.

               Investments in energy efficiency programs have proven to be  
               very cost-effective.  In May 2000, the CPUC reported that  
               in 1999, it spent $242 million in energy efficiency  
               programs to save 825 million kilowatt hours of electricity  
               and 15 million therms of gas, making the programs far  
               cheaper than buying additional energy.  Similar savings  
               were reported for 1998 programs.  A March 2000 RAND study  










          commissioned by the CEC found cumulative benefits of up to  
          $1,300 per capita with reduced air pollution.

                                     COMMENTS
           
           Low Income Energy Assistance
           
          The intent of the additional CARE and LIHEAP funding  
          provided by this bill is to help low-income residents cover  
          what many hope is a temporary increase in the price of   
          electricity and natural gas.  While electricity rates have  
          so far increased only modestly in the wake of a January  
          2001 action by the CPUC to raise rates by an average of 9%  
          for all IOU customers (CARE program participants were  
          exempted from this increase) natural gas prices have risen  
          substantially (the price of natural gas has been  
          deregulated for over a decade, allowing the utilities to  
          pass along the actual costs of the natural gas they  
          purchase on behalf of their customers).   The author and  
          committee may wish to consider  clarifying that the $100  
          million appropriated to the CPUC by this bill is used to  
          supplement the existing program and gives the CPUC the  
          flexibility to target assistance to low-income natural gas  
          customers. 






























               A separate issue from providing additional assistance for  
               temporary hike in the price of natural gas is the issue of  
               the adequacy of the existing CARE program.  

               Proposals (including SB 2X (Alarcon), which is pending  
               before this committee) have been made to permanently  
               increase the CARE discount from 15% to 25% and to increase  
               the income eligibility threshold from 150% of the federal  
               poverty level to 200%.  

               While the proposals in the bill are funded on a one-time  
               basis out of the General Fund, any proposal to permanently  
               increase the CARE discount or to increase the income  
               eligibility threshold will be funded on an ongoing basis  
               from the existing CARE surcharge.  The cost of increasing  
               the CARE discount from 15% to 25% has been estimated at $87  
               million annually, while the cost of raising the eligibility  
               threshold hasn't been determined.  Legislative Counsel has  
               determined that statutorily making such  changes to the  
               CARE program would be classified as a tax increase.   
               However, the CPUC could be directed to re-examine the  
               adequacy of the CARE program given current market  
               conditions.

               As noted above, the participation in the existing CARE  
               program is relatively low.  One way to improve those  
               participation rates would be to automatically enroll  
               customers also enrolled in the low-income Lifeline  
               telephone service program.  This may be workable if the  
               current eligibility criteria are maintained, but if the  
               CARE eligibility criteria is raised to 200% of the poverty  
               level then the two programs will have different criteria,  
               thus making automatic enrollment more difficult, if not  
               impossible.  An alternative may be to have the telephone  
               companies notify every Lifeline customer about the CARE  
               program, then let the customer make the decision about  
               whether to apply for assistance.

               The additional funding for the LIHEAP program in this bill  
               more than doubles the current budget.  The bill allows the  
               department to spend the funding over several years, at its  
               discretion.  The DCSD reports that its programs are  
               currently oversubscribed, indicating that the additional  
               funding could well be consumed this year.  











          The LIHEAP program is a much smaller program than CARE, but  
          it also includes customers who get their heating from  
          non-utility sources such as propane and from MUDs.  Unlike  
          CARE, which accepts and funds all qualified applicants,  
          LIHEAP is underfunded and turns away eligible applicants.   
          Adding additional funding to DCSD as a supplement to the  
          LIHEAP program will provide energy assistance more  
          comprehensively than just increasing the CARE program.   
          That approach may well be more equitable in that this bill  
          appropriates General Fund money, not just money from IOU  
          ratepayers.   The author and committee may wish to consider   
          appropriating the entire $120 million to DCSD as a  
          supplement to LIHEAP, giving it the flexibility to allocate  
          the funds between energy bill assistance and weatherization  
          activities (currently, the bill provides $100 million for  
          energy bill assistance and $20 million for weatherization  
          activities).  Further,  the author and committee may wish to  
          target  the funding towards coverage of  additional  LIHEAP  
          participants, rather than increasing the subsidy for  
           existing  participants.

































                Energy Efficiency Programs
                
               The list of energy efficiency programs in the bill  
               represents programs evaluated by the CEC which meet three  
               basic criteria:  

                    1)  provide peak demand reductions; 
                    2)  can be implemented by this summer; 
                    3)  are less costly than building new generation to  
               meet summer peak loads.  

               Many of these programs have been initiated pursuant to AB  
               970 (Ducheny), which authorized $50 million for a variety  
               of energy efficiency programs. Other programs are currently  
               run through the CPUC and administered by the IOUs. 

               The AB 970 money has been spent, but according to the CEC,  
               more funding for those same programs will have  
               cost-effective results. This bill provides additional  
               funding for both the CEC and CPUC programs, as well as  
               providing funding for similar programs by MUDs.  

               One issue  the author and committee may wish to consider  is  
               whether a minimum matching criteria should be established  
               in order for a public or private entity to receive funding  
               via these programs.  Any entity that receives funding will  
               benefit from reduced energy bills for years and decades to  
               come.  Since those entities will be able to pocket 100% of  
               the future energy bill savings,  the author and committee  
               may wish to consider  whether it's appropriate for those  
               entities to be required to shoulder some percentage of the  
               initial capital investment that will be used to garner  
               those savings.  One approach would be to set a statutory  
               matching "floor," but allow the CEC and CPUC to increase  
               the match requirement as they see fit on a  
               program-by-program basis.

               The programs are more completely described below:

               q encourage the purchase of high efficiency appliances:   
                 $66 million to IOU customers through the CPUC (page 10,  
                 line 15); $20.2 million to MUD customers through the CEC  
                 (page 11, line 21).  These are existing programs.   
                 Savings are estimated at 84 MW in summer 2001 and a total  










            of 167 MW once the program is completed.

          q encourage the purchase of whole-house and indoor fans:   
            $5.8 million to IOU customers through the CPUC (page 10,  
            line 18); $2.2 million to MUD customers through the CEC  
            (page 11, line 24).  This is an existing program through  
            the CPUC which will be expanded.  Savings are estimated  
            at 4 MW by summer 2001 and a total of 43 MW once the  
            program is completed.

          q incentives for the construction of high-efficiency  
            residences: $28 million to IOU customers through the CPUC  
            (page 10, line 27); $6.7 million to MUD customers through  
            the CEC (page 11, line 26).  This is an existing program  
            which will be expanded to utilize the new, more energy  
            efficient building standards adopted by the CEC and  
            effective July 2001.  The goal is to encourage builders  
            to meet the standard earlier and to build better than the  
            standard.  Cost is estimated at not more than $1,000 per  
            home.  Savings are estimated at 37.2 MW in the summer of  
            2001 and a total of 93 MW once the program is completed.

































               q incentives to encourage high-efficiency lighting in  
                 commercial and residential buildings: $100 million to IOU  
                 customers through the CPUC (page 10, line 39); $6.8  
                 million to MUD customers through the CEC (page 11, line  
                 35).  This is an existing program which will be expanded.  
                  Savings are not estimated; subsidy levels are not  
                 specified.

               q $20 million for retrofits for pumps and motors of oil or  
                 gas producers and pipelines (page 10, line 29).  This  
                 program was brought to the CPUC by the California Oil  
                 Producers' Electric Cooperative and is estimated to save  
                 22 MW by summer 2001 with a total of 27 MW once all the  
                 funds are spent.  Subsidy levels are not specified. 

               q $15 million to encourage installation of load-shifting  
                 and energy efficiency technologies in municipal buildings  
                 (page 11, line 3).  This is a new CEC program which will  
                 provide incentives for municipalities to install demand  
                 responsive systems in buildings which automatically  
                 reduce electricity use when emergencies are declared.   
                 Savings are estimated at 36 MW in summer 2001 with a  
                 total of 45 MW once the program is completed.  Subsidy  
                 levels are not specified.

               q $70 million to encourage load-shifting in buildings (page  
                 11, line 38).  This program is similar to the prior  
                 program except that it's directed at non-governmental  
                 buildings.  About 7,000 buildings should participate  
                 resulting in savings of 160 MW during summer 2001 with a  
                 total of 210 MW once the program is completed.  Subsidy  
                 levels are not specified.

               q $32 million for incentives to construct high efficiency  
                 non-residential buildings (page 11, line 6).  This is  
                 similar to a prior program which focussed on residential  
                 buildings.

               q $45 million in innovative energy efficiency programs  
                 (page 11, line 9). This is funding which the CPUC may  
                 award if it determines that new ideas or programs not  
                 articulated in this bill can provide energy efficiency  
                 benefits.











          q $50 million to lower urban air conditioning usage in  
            schools, colleges, universities, hospitals, and other  
            non-residential buildings (page 12, line 3).  This is an  
            existing CEC program known as Cool Communities which uses  
            shade trees and reflective roofing materials to improve  
            energy efficiency.  From 600-700 buildings will be  
            covered in the program with savings estimated at 75 MW in  
            summer 2001 and 150 MW once the program is completed.   
            Incentives are estimated at $333/kw of savings.

          q $15 million for innovative peak load reduction measures  
            in the service areas of public utilities (page 12, line  
            7).  This is similar to the $45 million program for the  
            CPUC, except that this funding is for the CEC to award if  
            it identifies any worthy new ideas for energy efficiency.

          q $50 million for a peak load reduction program for  
            agricultural customers (page 12, line 10).  This program  
            is generally targeted at demand-management and energy  
            efficiency practices, including metering, telemetry,  
            pumps, and related equipment.  Subsidy levels are not  
            specified.
































               q $14.5 million to encourage installation of high  
                 efficiency traffic lights (page 12, line 12).  This is an  
                 existing program which substitutes energy efficiency  
                 traffic lights for traditional incandescent lights.  The  
                 grant program covers about 35% of the cost.  Savings are  
                 estimated at 3 MW by summer 2001 with a total of 14 MW  
                 once the project is complete.

               q $64 million to provide incentives for water and waste  
                 water treatment systems to reduce peak usage (page 12,  
                 line 15).  This is an existing CEC program which  
                 subsidizes the purchase of energy management systems and  
                 other energy efficiency projects at water and waste water  
                 plants.  Savings are estimated at 44 MW in summer 2001  
                 with a total of 145 MW once the project is completed.   
                 From 300-400 individual projects are envisioned.  Subsidy  
                 levels are not specified.

               q $15 million to encourage installation of  
                 demand-responsive and energy efficiency technologies in  
                 municipal buildings (page 12, line 18).  This is  
                 duplicative of a prior project, which  the author and  
                 committee may wish to consider  deleting from the bill.

               q $50 million to encourage implementation of energy  
                                                        efficiency programs in state buildings (page 13, line  
                 12).  The Department of General Services has surveyed  
                 state facilities and identified over 100 energy  
                 efficiency projects, including lighting retrofits, energy  
                 management systems, and air conditioning replacements.   
                 These projects will cost far more than $50 million, but  
                 this expenditure is intended to start on those projects  
                 that provide the most energy savings per dollar spent.

               q The bill provides $10 million to the Department of  
                 Consumer Affairs to develop a public awareness program to  
                 reduce peak electricity usage (page 13, line 1).   
                 Combined with an additional $10 million pursuant to  
                 Executive Order D-18-01, the $20 million public awareness  
                 campaign will devote $18 million to television, radio,  
                 and print advertising buys and $2 million for production,  
                 research, collateral materials, and project management.   
                 Television ads are currently running.  The goal of the  
                 program is to achieve a minimum 8% reduction in consumer  










            energy usage.  By way of contrast, the extensive public  
            education campaign associated with the original electric  
            restructuring effort cost approximately $80 million. 

          q $7 million for school-based education on energy  
            efficiency (page 12, line 27).  The program will focus on  
            K-6 and utilize off-the-shelf materials as well as  
            coordinate with existing utility-sponsored efforts.

          q $1.4 million and 16 people for the CEC to implement its  
            part of this energy efficiency program.

          q $600,000 for the CEC to assess electric and natural gas  
            markets.  It's unclear why the CEC needs this money and  
            how it will be spent.

          q The bill requires the CEC to evaluate the effectiveness  
            of the programs funded by this bill.   The author and  
            committee may wish to consider  having the same sort of  
            evaluation apply to  all  of the energy conservation and  
            load shifting projects, including those administered by  
            the CPUC and municipal utilities, and have those  
            evaluations submitted to the Legislature early next year.































               Periodically concern is raised about the participation of  
               the IOUs in the administration of these energy efficiency  
               programs.  The CPUC has for years used those utilities to  
               implement energy efficiency programs but intends to  
               re-examine that policy sometime this year.  Given the  
               urgent need to deploy these programs for this summer, it  
               seems appropriate to continue administering these programs  
               in the same manner that they've been administered over the  
               years instead of creating a new avenue to award funding,  
               which may take some time to set up.

                Electric Generation Capacity
                
               The bill provides for $287.5 million to subsidize the  
               installation of new, clean electric generation, often in  
               state and municipal buildings under various programs that  
               are described on Page 2 of this analysis. 

                The author and committee may wish to consider  whether such  
               assistance is premature.

               Unlike the energy efficiency programs which have a long  
               track record of success and a relatively broad scope of  
               applicability, these electric generation programs are new,  
               relatively narrow in applicability, and may not need  
               subsidies to achieve the goal of more electric production.   


               The biggest hurdles to more widespread deployment of  
               additional customer-owned generation are likely utility  
               stand-by charges, air permitting rules, and customer  
               reluctance to assume the responsibility for generating his  
               own electricity (such as the need to obtain adequate fuel  
               supplies).  

               As a policy matter, increasing the quantity of  
               customer-owned generation reduces the amount of energy  
               passing through the electric grid.  That leaves the fixed  
               costs associated with owning and operating the grid to be  
               recovered from fewer customers, most likely residential and  
               small commercial customers.  Arguably, the incentive for a  
               business to create or install its own generation already  
               exists through the potential of creating a reliable source  
               of energy and a potentially cheaper source of energy.











          The notion of a subsidy for more customer-owned generation  
          is best considered in a broader context which deals with  
          all of these issues.  As such,  the author may wish to  
          consider  removing this section of the bill.

          Two sections of this measure are designed to provide  
          incentives to retrofit  existing  generation at the  
          Department of Corrections ($24 million on page 13, line 22)  
          and municipal water districts ($20 million on page 12, line  
          30) so that they run cleaner and are therefore available  
          during Stage 2 energy emergencies.   The author and  
          committee may wish to consider  leaving this section of the  
          bill intact, but adding to it a matching requirement,  
          similar to the one described in the energy efficiency  
          section of the measure.  

          The bill provides $3 million to local governments to  
          expedite their efforts in the powerplant permitting  
          process.  Because powerplant siting is not the subject of  
          this bill,  the author and committee may wish to consider   
          removing this language and inserting it instead into SB 28X  
          (Sher), which deals specifically with powerplant siting  
          issues.






























               SB 28X (Sher) is currently pending before the Senate  
               Environmental Quality Committee.

                                         POSITIONS
                
                Sponsor:
                
               Author

                Support:
                
               Californians Against Waste
               Clean Power Campaign
               Environmental Defense
               Lieutenant Governor, Cruz M. Bustamante
               Older Women's League of California
               Planning and Conservation League

                Oppose:
                
               None on file


               Randy Chinn 
               SB 5X Analysis
               Hearing Date:  February 13, 2001