BILL ANALYSIS 1 1 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 X 1 5 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