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  








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               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  








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          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  








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          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  








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          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  








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          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.