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