BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 11 (Pavley/Cannella) - Alternative fuel and vehicle technologies: funding programs. Amended: May 15, 2013 Policy Vote: EQ 8-1, T&H 6-2 Urgency: Yes Mandate: No Hearing Date: May 23, 2013 Consultant: Marie Liu SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: SB 11 would extend until January 1, 2024, extra charges on vehicle registrations, boat registrations, and tire sales in order to fund the AB 118, Carl Moyer, and AB 923 programs. This bill would also extend the authority of local air districts to impose vehicle registration surcharges in their area. Fiscal Impact: Annual revenues of $180 million (special fund) for various AB 118 programs until 2024, of which $20 million be directed for the construction and operation of a hydrogen fueling network in FY 13-14, FY 14-15, and FY 15-16 and up to $20 million in the remaining years. Annual tire fee additional revenue of approximately $26 million (special fund) for the Carl Moyer Program. Annual costs in the hundreds of thousands of dollars to the ARB, CEC, and Bureau of Automotive Repair to continue to administer various air quality and alternative fuel programs and associated reporting requirements which will be fully covered by the surcharge extensions. Background: The California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007 [AB 118 (Núñez) Chapter 750/2007] increased vehicle registration fees (+$3), Smog Abatement Fee (+$8), boat registration fees ($10/$20), and special identification plates (+$5) until January 1, 2016 to fund three programs: 1. The Alternative and Renewable Fuel and Vehicle Technology Program (ARFVTP), administered by the California Energy Commission (CEC), provides grants, revolving loans, loan guarantees, and other financial to accelerate the development and deployment of clean, efficient, low carbon SB 11 (Pavley/Cannella) Page 1 alternative fuels and technologies. ARFVTP is funded by $2 of the vehicle registration fee and receives approximately $100 million per year total. 2. The Air Quality Improvement Program (AQIP), administered by the Air Resources Board (ARB) in consultation with local air districts, funds projects that reduce criteria air pollutants, improve air quality, and provide research for alternative fuels and vehicles, vessels, and equipment technologies. AQIP is funded by smog abatement fees, boat registration fees, and special identification plate fees and receives between $30-36 million per year. 3. The Enhanced Fleet Modernization Program (EFMP), under which ARB, in consultation with Bureau of Automotive Repair (BAR), pays to permanently remove cars and small trucks from operation through voluntary retirement by their owners. EFMP is funded by $1 of the vehicle registration fee and receives approximately $30 million per year. The Carl Moyer Memorial Air Quality Standards Attainment Program (Moyer Program) [AB 1571 (Villaraigosa), Chapter 923/1999], administered by ARB and local air districts, funds the incremental cost of cleaner-than-required vehicles, engines, and equipment. The primary objective of the program is to achieve air quality emission reductions that would not otherwise occur through regulations or other legal mandates. The Moyer Program is funded by vehicle registration surcharges adopted by local air districts in nonattainment areas. Authority to assess these fees sunset on January 1, 2015. The Moyer Program was expanded by AB 923 (Firebaugh), Chapter 707/2004 to cover additional pollutants and engines and imposed a $1 fee on tire sales to fund the Moyer Program and CalRecycle, and establishes air quality improvement programs through local air districts. AB 923's provisions sunset on January 1, 2015. The Alternative Fuels Law required CEC and the ARB to develop and adopt a state plan to increase the use of alternative fuels by June 30, 2007. In response, the CEC and ARB published the State Alternative Fuels Plan in 2007 and set alternative fuel use goals of 9% in 2012, 11% in 2017, and 26% by the year 2022. Proposed Law: This bill would extend all the surcharges for the SB 11 (Pavley/Cannella) Page 2 AB 118 programs, the Moyer Program, and AB 923 until January 1, 2024. All fees would be extended at their current rate except the AB 923 tire fee, which will be extended at $0.75 instead of $1 after January 1, 2015. All programs would also be extended unchanged except the ARFVTP program, which would be amended to specifically make intelligent transportation systems an eligible project and to award financial assistance to provide at least 100 publically available hydrogen fueling stations. Specifically on the hydrogen set-aside: The funding would be $20 million annually for three years plus up to $20 million for an additional eight years for grants, loan incentive programs, revolving loan programs, or other forms of financial assistance. The funds must be deployed in a manner to achieve a network sufficient to provide convenient fueling to vehicle owners and to expand that network to support a growing market for hydrogen fueled vehicles. The CEC would have four years to encumber the appropriation. The CEC may cease providing funding for the building of hydrogen fueling stations if the CEC, in consultation with the ARB, determines that the private sector is establishing publically available hydrogen fueling stations without government support. The CEC and ARB would be required to annually report on progress towards establishing a hydrogen fueling network and the remaining cost and timing to establish a network of 100 publically available hydrogen fueling stations. This bill would require ARB, by July 1, 2013, to convene a working group to evaluate the policies and goals of the Moyer Program and AB 923. This bill would also require the CEC and ARB to report biennially, beginning in 2014, on the status and implementation of the state's alternative fuels goal. CEC and ARB would be required to evaluate of the use of applicable investment programs, the impact of federal fuel policies, and the impact of existing state policies on attaining the alternative fuels goal. Related Legislation: AB 8 (Perea) was introduced with identical SB 11 (Pavley/Cannella) Page 3 language to the introduced version of SB 11 but has been amended differently. AB 8 is in the Assembly Appropriations Committee. Staff Comments: In respect to the AB 118 program, this bill would result in annual revenues of approximately $180 million from extension of various vehicle, vessel, and other air quality-related surcharges. This would result in approximately $105 million for ARFVTP, approximately $45 million for AQIP, and approximately $30 million for EFMP. This bill represents a departure from the discretion the Legislature granted the CEC in determining the best way to allocate ARFVTP funds in order to "develop and deploy innovative technologies that transform California's fuel and vehicle types to help attain the state's climate change policies." Under the current structure, the CEC prepares an investment plan with a stakeholder advisory committee to outline the program's funding priorities. Funds are awarded according to the investment plan. In contrast, this bill would predetermine the minimum amount of spending that must be spent on hydrogen. From 2008 to 2010, CEC awarded $22.7 million to fund 11 public hydrogen fueling stations and one hydrogen transit stations. These stations are expected to be operational sometime late this year to mid-2014. The FY 11-12/12-13 proposed awards were recently announced allocating an additional $12 million for seven stations. This solicitation received $15 million in applications for up to $28.6 million in funding. The draft 2013-14 investment plan included an additional $20 million for hydrogen infrastructure funding. Staff notes that if the most recent round of funding is indicative of future demand for financial assistance, combined with the four year encumbrance period allowed under this bill, it is possible that a substantial backlog of available funding in the ARFVTP could develop. In the current round of solicitations, funding is being made available as grants for up to 65% of the project costs (75% was offered in the earlier round of funding). According to the CEC, higher funding compared to other alternative fuels is necessary as hydrogen is at a much earlier stage of fueling infrastructure development. According to the CEC, the average cost for hydrogen fueling SB 11 (Pavley/Cannella) Page 4 stations with a fillable supply has been $2.2 million in past solicitations. Stations with onsite generation cost between $3 and $4 million. Assuming the average cost of building the initial fueling network stays the same, that most fueling stations are based on fillable supplies (vs. onsite generation), and that the CEC continues to only give grants for 65% of the costs, supporting the establishment of 100 publically available stations will cost approximately $145 million. This bill would provide between $60 and $220 million for hydrogen infrastructure. Staff notes that by funding early fueling stations in preparation for the early commercial rollout of hydrogen fueled vehicles in 2015-17, the state is helping to mitigate the industry's risk that these vehicles will become a viable market. Under this bill, the payoff for the state to mitigate this risk would be secondary- the air quality improvements and greenhouse gas (GHG) emission reductions that will be a result of a change in fuel use. In order to reach the 2050 GHG reduction targets set by ARB, nearly all vehicles will need to be zero emission by 2050. This bill may need several technical amendments. Under this bill: 1. CEC and ARB would be required to jointly review and report on progress towards establishing a hydrogen fueling network. However, the audience of the report is not specified. Presumably the report should be made available to the Legislature and the public. 2. ARB would be required to convene a working group to evaluate the policy goals of the Moyer Program and AB 923 by July 1, 2013. Although this bill is an urgency clause, it is highly unlikely that the Governor will sign this bill before July 1, 2013, should it be passed by the Legislature. 3. The tire fee is currently collected by the Board of Equalization (BOE) under a contract with the ARB and CalRecycle. The BOE has suggested that the AB 923 provisions be amended to allow it to be appropriated money directly to administer the fee collection. BOE further notes that the change in the AB 923 fee under this bill will result in some additional administrative needs, though the 2015 implementation date mitigates the cost. The author made commitments to the Senate Environmental Quality SB 11 (Pavley/Cannella) Page 5 Committee and the Transportation and Housing Committee to address several matters in the bill. The most recent amendments reflect commitments made in the Environmental Quality Committee. The author has provided this committee with draft amendments to address the following issues discussed in the Transportation and Housing Committee: 1. Requirements that the ARFVTP and the AQIP incorporate a benefit-cost score that reflects the expected GHG or criteria pollutant emission reduction per dollar awarded expected. 2. Ensure the likelihood that the building of hydrogen fueling stations and the release of hydrogen-fueled vehicles are synchronized. 3. Clarify that Article XIX of the California Constitution applies to some of the revenues collected under AB 118. Proposed Author Amendments: Clarify that Article XIX applies and incorporate a cost-benefit requirement into the ARFVTP and the AQIP. The committee amendments would delete reporting regarding alternative fuel use and specify that consumer incentives for light-duty vehicles shall not be greater than compensations given to consumers under the EFMP program.