BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 654 - Haynes Hearing
Date: April 24, 2001 S
As Amended: April 16, 2001 FISCAL B
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DESCRIPTION
This bill creates a refundable tax credit for individuals
and corporations equal to the product of the percentage of
the reduction in electricity consumption (not to exceed
25%) on a year versus year basis and the person's (or
company's) electricity bill for that year.
This bill requires every investor-owned utility (IOU) to
provide on customer bills the amount by which the customer
has reduced his or her consumption compared to the prior
year.
BACKGROUND
Increasing energy efficiency and conservation efforts may
well be the only way to avoid blackouts and skyrocketing
prices this summer.
SB 5X (Sher), Chapter 7, Statutes of 2001, and AB 29X
(Kehoe), Chapter 8, Statutes of 2001, collectively provide
over $500 million for energy efficiency programs. The
Governor has also created a program to pay consumers who
cut their electricity use by more than 20% through the
summer months.
Using less energy has a number of benefits. First, lower
usage reduces the customer's bill directly. Second, lower
overall consumption reduces the price of electricity for
everyone, even those who don't cut their consumption.
Third, lower usage lowers the likelihood of blackouts.
Paying customers to conserve, as is the approach in this
bill, is an appealing and direct way to encourage
conservation. It's simple, universally applicable,
theoretically easy to administer, and the savings begin
with the first kilowatthour (kwh) saved. Rather than pay
exorbitant prices to out of state generators and marketers,
paying customers to conserve returns money to customers.
There are indications the Department of Water Resources
(DWR) will be forced to buy a significant amount of
electricity on the spot market this summer. Spot market
prices have been incredibly high and, absent some action by
the Federal Energy Regulatory Commission, there's no reason
to believe prices this summer will moderate back to
anywhere near historically average levels. With spot
market prices anywhere from $0.25/kilowatt-hour (kwh) to
$0.75/kwh, or 5 to 15 times their historic levels, many
energy efficiency programs will be comparatively
cost-effective.
COMMENTS
1)Logical, Yes, But Is It Workable? Like the Governor's
20/20 Conservation Program, the appealing concept in this
bill must be considered in light of a number of practical
implementation and fairness issues.
2)Changes In Weather, Not Behavior, Can Earn Cash .
Rewarding a customer for electricity reductions on a year
vs. year basis may inadvertently provide a customer with
unearned benefits because changes in electricity usage
are driven by many factors, including the weather. For
example, if Year 1 has a relatively warm summer compared
to Year 2, then customers will receive the tax credit
created by this bill for no reason other than the fact
that the temperature dropped.
3)Change In Family, Not Behavior, Can Earn Cash . A
customer might have teenagers in the house in Year 1, but
in Year 2 those teenagers may have left for college or
moved out on their own. In this case, a customer would
receive a tax benefit - financed by every other taxpayer
in the state - solely because the size of their family
was reduced.
An analysis by Pacific Gas & Electric (PG&E) comparing
customer usage from the summer of 1999 versus the summer
of 2000 found that 12.6% of customers reduced their usage
by more than 20% and an additional 12.6% reduced their
usage between 7% and 20%. Without controlling for major
changes in customer circumstance, the refundable tax
credit program created by this bill will unfairly reward
some customers. This may be even more true with business
and industrial customers, who may have reduced usage
because they are doing less well or are suffering from a
contraction in their business.
4)How Are New Customers Treated? A second complication
with a year vs. year comparison is that many customers
don't have a history. In PG&E's service territory,
one-third of residential customers change location every
year, making it difficult to make a comparison. While
statistics aren't available for business customers, it's
reasonable to believe that there is substantial turnover,
particularly with small businesses.
5)Is Reduction Based On The Home Or On The Individual? One
of the features in the Governor's 20/20 Reduction Program
that many view as unfair is that a person's savings are
based on the amount of energy used in the home the prior
year. So, a single person moving into a home that was
occupied by a family of four the prior year is likely to
easily be able to reach the 20% savings level mandated by
the program, but a family of four moving into a house
that was occupied by a single person the year before is
likely to have a difficult time meeting the 20% savings
level.
This bill, on Page 2, Lines 19-24, appears to take an
arguably fairer approach by basing the person's tax
credit on the amount of energy they save from year to
year, not on the amount of energy used in the physical
structure. However, this approach isn't without
inequities either. For example, a person moving from a
house to an apartment is likely to get a conservation tax
credit solely based on their decision to move to a
smaller living space, while a person going from an
apartment to a house likely won't see any benefit.
6)A Compounding Benefit . Programs that pay people to
conserve electricity, by their very nature, tend to most
directly reward those who haven't conserved in the past,
and consequently have the most ability to cut usage,
while those who have a history of conservation won't see
much, if any, benefit.
This bill, like the Governor's 20/20 Conservation
Program, adds a financial benefit on top of the "natural"
financial benefit that comes with conserving electricity
(the less you use, the less you pay). Furthermore, those
who have the financial ability to buy new energy
efficient appliances that cut their electricity usage
without any other change in behavior will receive the tax
credit provided by this bill.
7)Municipal Utility Customers Pay For Program But Can't
Benefit . The bill has a further inequity in that it
excludes customers of municipal utilities despite the
fact that those customers pay state income taxes that
will be used to finance the tax credits created by this
program. The author and committee may wish to consider
whether this program should be extended to customers of
all utilities.
8)Comparing Usage On Monthly Bills - How Exactly Is It
Done? The program envisioned in this bill provides the
customer with the benefit of his conservation efforts
only once a year when the taxes are paid. By deferring
the reward, the impact of the program may be diminished.
A more potent system would be to reward the customer
immediately by reducing their bill for savings achieved
in the prior month.
Page 2, Lines 4-10 of the bill attempts to provide
customers with some feedback by requiring the IOU to
show, on each monthly bill, how much each customer has
reduced his or her usage in the current year when
compared to the prior year. The author and committee may
wish to consider how the logistics of this comparison
should work when a customer moves between utilities. If
a customer moves from PG&E's service territory to
Southern California Edison's (SCE) service territory,
will SCE be able to access the customer's PG&E files in
order to provide the comparison to last year's usage?
There is an additional implementation issue with regard
to the customer's usage date and how it's displayed on
the bill. According to PG&E, its accessible billing data
is limited to the current month plus the previous 12
months. The year vs. year comparison required by this
bill will require changes to the billing system which may
be complex and costly, particularly in light of
additional billing changes contemplated by the CPUC in
its rate design and in various other bills currently
being considered.
9)How Are The Energy Savings & Tax Credit Amount
Calculated? Page 2, Lines 19-24 of the bill defines
"energy conservation percentage" as the amount of
electricity a person has saved from one year to the next.
Page 2, Lines 13-18 then requires that figure to be
multiplied by the cost of electricity paid by the
taxpayer in the taxable year in question to create the
amount of the tax credit. Many larger customers are
billed different rates for electricity depending on when
it's consumed. Electricity at peak times costs much more
than electricity at non-peak times. This bill doesn't
differentiate between the two and weigh energy savings
occurring during peak times more heavily than energy
savings occurring during non-peak times.
10) Potential Cost . How
much this bill could cost the state treasury depends on
how much energy people conserve, what the price of power
is, and how many people apply for the refundable tax
credit. If you assume that everyone conserves the
maximum amount and is eligible for the 25% credit cap in
the bill and multiple it by the $25 billion in total
utility revenues assumed in the CPUC's recently proposed
rate increase, the cost of the program is about $6.25
billion per year.
11) Related Legislation . SB 63X (Perata), which is
pending in this committee, approaches energy efficiency
in a fashion similar to this bill by paying customers up
to $0.10/kwh for every kwh reduction in usage this summer
compared to the prior summer.
POSITIONS
Sponsor:
Author
Support:
California Apartment Association
California Manufacturers & Technology Association
Howard Jarvis Taxpayers Association
Oppose:
None on file
Randy Chinn
SB 654 Analysis
Hearing Date: April 24, 2001