BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Carole Migden, Chair
1 (Murray and Campbell)
Hearing Date: 5/26/05 Amended: 5/16/05
Consultant: Lisa Matocq Policy Vote: E, U & C 10-0
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BILL SUMMARY: SB 1 would establish the Million Solar Roofs
Initiative (MSRI), the goal of which is to place one million
solar energy systems, or 3,000 megawatts (MW), on new or
existing residential and commercial buildings by 2018.
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Fiscal Impact (in thousands)
Major Provisions 2005-06 2006-07 2007-08 Fund
PUC $ 140 $ 279
$ 279 Special*
Costs should be recovered
from fee revenues.
CEC $ 705 $1,385
$1,485 Unspecified
Costs should be recovered
from revenues.
State agencies' energy costs See
comments below Various
*Public Utilities' Reimbursement Account (PURA)
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Current law, (SBX2 82, Ch. 10, St. of 2001), requires the
Department of General Services, in consultation with the
California Energy Commission (CEC) to ensure that solar energy
equipment is installed, no later than January 1, 2007, on all
state buildings and state parking facilities where feasible and
cost-effective, as specified. Apparently, very few systems have
been installed as a result of this statute.
Existing law also establishes numerous subsidy programs for
solar photovoltaic (PV) systems. For example, the
Self-Generation Incentive Program (SGIP), within the Public
Utilities Commission (PUC), provides incentives to customers for
the installation of qualifying (greater than 30 kW) solar, wind
turbines, etc. The current incentive is $3.50/watt. The SGIP is
funded by a charge imposed on utility bills, which generates
about $125 million annually, of which the PV portion is about
$70 million. The PUC has imposed an administrative sunset of
December 31, 2007. A cost-effectiveness report of the SGIP is
due in July 2005.
Current law also establishes the Emerging Renewables Program
(ERP), administered by the CEC, for systems less than 30 kW,
which provides a rebate of $2.80 per watt for installation of PV
systems. In addition, there are a number of other solar
subsidies available, such as:
7.5% personal income and corporate tax credit for
taxpayers who purchase solar or wind systems. Approximately
4,000 taxpayers claimed the solar credit in 2003;
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property tax exemption for solar energy systems
installed between January 1, 1999 and January 1, 2006;
net metering program for PV systems, which credits the
customer for electricity produced by spinning the meter
backwards;
federal tax credits.
Since 1976, the state has provided more than $1 billion in tax
credits for solar energy systems. In addition, the PV portions
of the CEC and PUC programs mentioned above generate about
$100-110 million annually. This bill proposes to increase the
number of PV systems in the state from about 12,000 to one
million, or increase solar capacity from about 93 MW to 3,000 MW
(about the equivalent of six small power plants) by increasing
electricity rates and offering solar subsidies. Specifically,
the bill:
requires the CEC to develop, implement and fund the
MSRI, and establish solar subsidies, not to exceed the
subsidy level in existence on January 1, 2006 (probably
$2.80-3.00/watt, or about $7,250 for a 2.5kW residential
system), which decrease annually to zero by the end of
2016;
requires the CEC, in implementing the MSRI, to evaluate
the costs and benefits of having an increased number of
solar systems as part of the electrical system, as
specified. STAFF NOTES that such a cost-benefit analysis
would not identify individual homeowner costs and benefits
over the life of the system;
requires the PUC to adopt a program by January 1, 2007
to implement and finance the MSRI, and to include the
reasonable cost of the program in the distribution revenue
requirements of electrical corporations;
requires the PUC program to be a cost-effective
investment by ratepayers in peak electricity generation
capacity, as specified;
requires municipal utilities to adopt similar programs
with proportionate expenditures;
requires production home builders to offer solar as an
option;
requires the CEC to conduct random audits of solar
energy systems to evaluate their operational performance;
provides that upon implementation of the MSRI, the PV
portions of the ERP the SGIP shall be discontinued and
their respective funding (about $100-110 million) deposited
into the MSRI Trust Fund at the 2004-05 levels;
exempts low-income customers participating in the
California Alternate Rates for Energy (CARE) program from
any rate increases necessary to fund the program;
and makes related changes.
The average annual electricity bill for a homeowner in
California is $1083, and the average homeowner will consume
8,760 kWh per year of electricity (Environment
California Research and Policy Center). An average residential
PV system is about 2.5 kWh (Tucson Electric Power Company) and
costs about $22,500 ($9,000/kw per the
Senate Energy, Utilities and Communications Committee analysis).
For illustrative purposes, the existing CEC rebate on a system
of this size would be $7,000, the 7.5% state tax credit would be
$1162, bringing the system cost down to $14,338, a reduction of
36%. The cost may be further reduced by federal and property
tax credits, among
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other subsidies. Assuming a 28.5% reduction in electricity
consumption (source: Tuscon Electric Power Company), this
system should generate electricity cost savings of approximately
$309 annually, or $6180 over 20 years. In this case, and taking
into consideration direct costs and benefits only, it does not
appear that this system is cost-effective. However, supporters
point out that solar energy provides additional benefits such as
pollution reduction, averting the need to build additional power
plants, cost avoidance on transmission grid maintenance, etc.
and that these factors should be taken into consideration in a
cost-benefit analysis.
The bill anticipates that technological advances in the solar
industry and increased demand will drive down the cost of solar
systems over the next 10 years. On the other hand, some would
argue that providing increased subsidies eliminates much of the
competitive pressure to reduce price and promote innovation.
STAFF NOTES that the author and committee may wish to consider
amending the bill to make continuation of the MSRI after a
certain period, say for example, five years, contingent upon a
finding by the CEC that the benefits, both statewide and to
consumers, exceed the costs.
The total costs of the MSRI are indeterminable, and depend on a
number of factors, such as participation, mix of residential to
small commercial to industrial, future costs of solar, etc., but
are likely to be in excess of $2 billion, and could be as high
as $7 billion (based on PG&E projections). STAFF NOTES that the
author and committee may wish to consider imposing a cost cap,
and/or rate increase cap to better control costs.
Washington recently passed a solar subsidy bill. It provides a
production-based incentive where customers can earn a credit of
15 cent per kWh of electricity generated by renewables - up to
$2,000 annually. With a production-based incentive, the rebate
is paid over time, promoting maximum efficiency of the solar
projects over the + 20-year life expectancy. With a
capacity-based incentive, like California's, the subsidy is paid
up front, and there is no guarantee that the system will perform
as expected or that the owner will maintain the system to ensure
performance. STAFF NOTES that the author and committee may wish
to consider amending the bill to make the subsidy program
production-based. The author and committee may also wish to
consider a progressive subsidy, i.e., where the amount of the
subsidy is based on need.
California's electricity rates are among the highest in the
nation. The electricity cost savings associated with 3,000 MW
are indeterminable, but significant. On the other hand, rate
increases will help fund the subsidy program. STAFF NOTES that
energy costs of state agencies are in excess of $500 million
annually. For illustrative purposes, a 1% increase in the
state's energy costs could result in increased costs of $5
million annually.
STAFF RECOMMENDS that the bill be amended to:
1. clarify that only one solar program is to be
established;
2. clarify which existing subsidy, the PUC's or CEC's, is
referred to in the subsidy cap language on page 12, lines
15-17;
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3. allow the CEC to recover its administrative costs,
either from surcharge revenues or a subsidy application
fee;
4. clarify the language regarding the rollover of funds
from the existing CEC and PUC solar programs at the same
level as the 2004-05 fiscal year, because arguably, the CEC
had no funding in 2004-05 and was required to borrow;
5. establish a sunset on the provisions of the bill that
are to sunset in 2018.
PUC staff estimate increased costs of $279,000 annually for
three personnel years (1 PURA IV and 2 PURA IIIs, including
benefits). PURA revenues are derived from an
annual fee imposed on utilities. Therefore, any increased costs
to the PUC should be recovered from fee revenues.
Net increased costs to the CEC could range from $490,000 to
$920,000 in the first year, and increase to $1.4+ million by
2007-08, and up to $2+ million by year 10. Costs include
database setup, eight staff (avg. salary and benefits of
$87,000) to review and process up to 80,000 applications,
$300,000 for technical support annually, two to five accounting
staff, materials and training for builders and contract services
($300,000 to $900,000 annually), and ongoing database
maintenance and periodic spot checks of system performance.
SB 1017 (Campbell), pending in Senate Revenue and Taxation
Committee, would extend the sunset dates on the on the personal
income and corporate tax, and property tax exclusion. The
Franchise Tax Board estimates a revenue loss of about $2 million
annually in 2006-07 and $4 million annually in 2007-08.
AB 1099 (Leno), pending in the Assembly, makes the property tax
exemption permanent, as specified.
SB 199 (Murray) of 2004 dealt with genetic privacy when it was
in the Senate. The bill was amended in the Assembly to contain
some provisions similar to this bill. It failed passage in the
Assembly Utilities and Commerce Committee.
SB 118 (Bowen) of 2004 dealt with conflict of interest
provisions of the Public Utilities Commission (PUC) when it was
in the Senate. It was amended in the Assembly to establishes a
Solar Energy Peak Procurement Program, within the PUC, to award
solar rebates for the installation of grid connected solar
energy systems and required the establishment of a Solar Peak
Energy Affordable Housing Revolving Fund in the State Treasury.
It also contained legislative intent to fund the program at $100
million annually, without raising rates or fees. It died in the
Assembly.
SB 289 (Murray) of 2003 required that an unspecified percentage
of single-family residences, constructed on or after January 1,
2006, include a solar energy system, and made related changes.
It was held on this Committee's Suspense File.
AS PROPOSED TO BE AMENDED, the bill addresses Items 1-5 of staff
recommended amendments above.