BILL ANALYSIS                                                                                                                                                                                                                   1





             SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                            DEBRA BOWEN, CHAIRWOMAN
          

          AB 995 -  Wright                                  Hearing  
          Date: June 13, 2000             A
          As Amended: June 8, 2000                FISCAL           B

                                                                       
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                                   DESCRIPTION
                                                             
           Current law  states legislative findings that the  
          transmission and distribution of electric power are  
          essential services imbued with the public interest that are  
          provided over facilities owned and maintained by the  
          state's electrical corporations.

           Current law  declares the delivery of electricity over  
          transmission and distribution systems is currently  
          regulated, and will continue to be regulated to ensure  
          system safety, reliability, environmental protection, and  
          fair access for all market participants.

           This bill  states legislative intent that electrical  
          corporations continue to be responsible for operating and  
          controlling all facets of their electric distribution  
          grids.
           
           This bill  requires electrical corporations to continue  
          operating their electric distribution grid in their service  
          territories consistent with existing law.
           
           This bill  requires electric corporations to make reasonable  
          investments in their distribution grids and be afforded a  
          reasonable opportunity to recover the costs of those  
          investments from ratepayers. 

           Current law  requires investor-owned (IOU) and municipal  
          utilities to collect a public goods surcharge from each  
          electricity customer to fund four specific programs:  1)  











               energy efficiency; 2) renewable energy sources; 3) research  
               and development of alternative energy supplies; and, 4)  
               assistance to low-income users.

                Current law  funds the first three programs at specific  
               amounts and sunsets on December 31, 2001 (the low-income  
               assistance program is a needs-based activity that doesn't  
               sunset).
                
               This bill  extends the collection of the public goods  
               program surcharge for each of these programs for ten years.  


                This bill  requires the California Energy Commission (CEC)  
               to develop an investment plan for the renewable energy and  
               research & development programs.  This plan must be  
               approved by the Legislature before any of the program money  
               can be spent.




































           This bill establishes a review panel, to be appointed by  
          the Governor by January 1, 2004, and requires the panel to  
          review the CEC's goals associated with the public goods  
          programs by January 1, 2005.  

           This bill  transfers the administration of the research and  
          development funds for the energy efficiency program from  
          the California Public Utilities Commission (CPUC) to the  
          CEC.  

                                    BACKGROUND
           
          Electrical corporations providing distribution services own  
          and operate the electric distribution grid connecting the  
          transmission lines to homes and businesses.  The grid  
          provisions in this bill state legislative intent that these  
          electrical corporations are entitled to manage their own  
          grid systems and recover "reasonable" costs associated with  
          their investments in this portion of the distribution  
          system.  

          The second major part of the bill alters the public goods  
          charge program and extends it for ten years.  The CEC is  
          required to develop and submit to the Legislature an  
          investment plan for both the renewable energy and research  
          & development programs - and the money collected pursuant  
          to the public goods charge can't be spent until the  
          Legislature approves the investment plan.  At the five-year  
          mark, a panel appointed by the Governor must review the  
          programs and determine whether they're meeting their  
          prescribed goals.  At that point, another investment plan  
          must be approved by the Legislature before money collected  
          pursuant to the public goods charge can be spent. 
           
           The public goods surcharge and accompanying programs were  
          created in the original electric restructuring legislation,  
          AB 1890 (Brulte), Chapter 854, Statutes of 1996.  AB 1890  
          provided a transition to a competitive marketplace in  
          energy generation, recognizing certain energy activities  
          which provide a clear public benefit may not be invested in  
          or funded in a competitive environment.  To support these  
          important activities, AB 1890 set up a per kilowatt hour  
          surcharge paid by all electric customers to fund four  
          public goods categories: 1) energy efficiency; 2) renewable  











               energy sources; 3) research and development of alternative  
               energy supplies; and, 4) assistance to low-income users. 

               The public goods surcharge amounts to less than 3% of an  
               electricity customer's bill.  This surcharge was put in  
               place for a four-year period for three of the programs,  
               with the low-income program set aside as a needs-based  
               program with no sunset.  The public goods surcharge for  
               energy efficiency, renewable energy, and the public  
               interest energy research & development programs will sunset  
               on December 31, 2001.

               According to the CPUC, the energy efficiency programs  
               funded by the investor-owned utilities generated over $2.7  
               billion in net benefits between 1990-1997 and a March 2000  
               by the Rand Corporation noted similar benefits.   






































                                   QUESTIONS  
                                         
           1.Do the provisions of the bill related to the utilities'  
            electric grids merely re-state existing law or do they  
            expand the power and authority of the utility companies  
            in a manner that may have a negative impact on  
            competition and on consumers?

          2.Should the utilities be able to recover costs  
            specifically for telling customers about the CARE program  
            when those customers call the utility to establish  
            service?

          3.Is the review panel established by this bill necessary or  
            is there a more cost-effective and efficient way to  
            achieve the author's goal of providing an outside look at  
            how the CEC is running the public goods programs?  If a  
            new review panel is necessary, should its makeup and  
            operation be further defined?

          4.Should public entities be precluded from receiving a  
            customer credit for the purchase of renewable energy?

          5.Does this bill unfairly preclude providers of wind power  
            from being able to compete for public goods money?

          6.Should utilities be precluded from offering rebates to  
            customers who purchase energy efficient refrigerators?
                                         
                                    COMMENTS
           
           1)Defining the Distribution Grid  .  The bill attempts to  
            reaffirm the electric corporations' role in the  
            distribution system and requires utility distribution  
            companies to continue to make reasonable investments in  
            their own distribution grid.  

            The distribution grid is defined in this bill as those  
            facilities owned and operated by an electrical  
            corporation used to deliver light, heat or power that  
            aren't under the control of the Independent System  
            Operator (ISO).

            Whether this section of the bill is simply a reflection  











                 of existing law and practice or whether it gives utility  
                 distribution companies some authority that they don't  
                 have today is a matter of some disagreement.

                 The Utility Reform Network (TURN) believes the CPUC must  
                 continue to explore various options for distribution, and  
                 by specifically defining the utility's role and  
                 responsibilities in the manner that this bill does, it  
                 could impair the CPUC's ability to promote competition.

                 The issue of competition and distributed generation is  
                 addressed between Page 18, Line 37 and Page 19, Line 18  
                 of the bill and it appears to give the CPUC wide latitude  
                 to exercise the same authority it has the ability to  
                 exercise today.







































           2)CARE Program  .  This bill requires utilities to provide  
            customers who call the utility to establish service with  
            information on the California Alternative Rates for  
            Energy (CARE) program and how to apply for it.  This  
            requirement comes with a specific reimbursement authority  
            to the utility for any costs associated with telling new  
            customers about the CARE program.  This information is  
            already provided in billing inserts and as such,  the  
            author and committee may wish to consider  whether a  
            separate reimbursement should be provided to utilities  
            for telling customers - who are already calling the  
            utility to set up service - about a particular program.

           3)The Public Goods Charge Extension  .  The public goods  
            program was set up to fund projects to provide public  
            benefit through energy program investments for four  
            years, ending on December 31, 2001. 

            The amount of money required to be raised and spent is as  
            follows (in millions):  

                                 1998-2000   2001        2002 (proposed by  
            AB 995  )
            Energy Efficiency        $228      $188$228   
            Renewable Energy    $62.5          $62.5$62.5
            Research & Dev.          $109.5    $136.5  $135
            Low Income     Need based - no sunset

            The funding levels are adjusted each year to account for  
            a growth in electric commodity sales or inflation  
            (whichever is less). 
           
          4)Accountability:  The Investment Plans  .  Rather than  
            simply extending the sunset date on the existing law, AB  
            995 sets up a series of sections dedicated to each  
            program category.

            Two of the sections - renewable energy and public  
            interest research & development - require the CEC to  
            develop investment plans that must be approved by the  
            Legislature before any of the public goods surcharge  
            money can be spent in these areas. 

            This is similar to a requirement that was placed in AB  











                 1890 as it pertained to the renewable energy program.  In  
                 that instance, it required the Legislature to pass a  
                 bill, SB 90 (Sher), Chapter 905, Statutes on 1997, into  
                 law authorizing the money to be spent on specific public  
                 goods programs in a specified manner.  This bill requires  
                 "legislative action" to spend the money collected for the  
                 public goods program, but it doesn't specify that the  
                 action needed is to pass a bill into law.  As such,  the  
                 author and committee may wish to consider  clarifying AB  
                 995 to require that a subsequent bill is needed to  
                 authorize the public goods money to be spent.

                5)Renewable Energy Investment Plan  .  The bill requires the  
                 renewable energy investment plan to meet certain  
                 objectives, including increasing California's in-state  
                 generated renewable resources and obtaining the greatest  
                 environmental benefits from these technologies.  The CEC  
                 is required to consider production incentives for new  
                 renewable energy, incentives for emerging renewable  
                 technologies, customer credits, customer education,  
                 incentives for biomass, incentives for solar thermal  
                 generation, and incentives for specified fuel cell  
                 technologies.  While the CEC is free to allocate the  
                 dollars in any categories it sees fit, it should be noted  
                 that the specific listing of particular technologies is a  
                 departure from the more general guidance given under  
                 existing law.   The author and committee may wish to  
                 consider  whether such specificity will be beneficial by  
                 encouraging the CEC to consider programs it may not have  
                 considered in the past or whether it will inadvertently  
                 be detrimental by encouraging the CEC to spread funding  
                 across a wide range of programs in smaller amounts, thus  
                 reducing the effectiveness of public goods funding.

                6)Public Research Investment Plan  .  This initial investment  
                 plan would address the recommendations of the CEC's  
                 public interest review panel report issued in March 1999.  
                  Both this and the renewable energy investment plan would  
                 have to contain funding targets and projected impacts for  
                 the market and for the environment.  Once completed,  
                 these plans would go to the Legislature for approval by  
                 March 1, 2001 for five years and again on March 31, 2006  
                 for an additional five years. 











           7)Mid-Term Exam: The Governor's Review Panel  .  This bill  
            requires the Governor to appoint an independent review  
            panel to review the operation of the programs before they  
            can be re-authorized in 2006.  The panel, which must be  
            appointed by January 1, 2004, and must deliver a report  
            by January 1, 2005, is charged with considering whether  
            the CEC's funding of the various programs is consistent  
            with statutory goals and whether the programs are  
            optimizing costs. 

            The bill requires the panel to include, at a minimum,  
            "members with expertise on the energy service needs of  
            large and small electricity consumers, system reliability  
            issues, and energy-related public policy," but isn't  
            further defined.   The author and committee may wish to  
            consider  whether the review panel should be more formally  
            structured to address questions such as: 1) How large  
            should it be?  2) Should the makeup be more specifically  
            delineated to ensure a wide range of opinions and views  
            will be represented on the panel?  3) How will panel  
            members be compensated? 

            If the purpose of the panel is to provide an outside look  
            at how the CEC is operation the public goods programs,  
             the author and committee may wish to consider  whether  
            having the Electricity Oversight Board, the Legislative  
            Analyst, or the State Auditor provide this review would  
            be more efficient.
           
           8)Customer Credit for Renewables Purchases  . Existing law  
            gives all customers who buy renewable power a purchase  
            credit as an incentive to buy green power.  This credit,  
            which amounts to 14% (or up to $75.6 million of the new  
            and emerging renewable technologies funds), allows buyers  
            of renewable energy to receive a credit of up to  
            1.5-cents per kilowatt hour - not to exceed $1,000 per  
            customer. 

            This bill - Page 22, Lines 38-40 - precludes public  
            entities from receiving these customer credits after  
            January 1, 2002.














                 On the one hand, it could be argued that if public  
                 entities want to buy green power, they should pay for it  
                 with their own funds instead of buying it because they'll  
                 receive a subsidy that will reduce their overall energy  
                 costs.  

                 On the other hand, it could be argued that if a subsidy  
                 is going to exist to promote the use of renewable power -  
                 a subsidy that could reduce the overall energy costs of  
                 anyone who takes advantage of it - there shouldn't be a  
                 limitation on who can tap the subsidy.  Furthermore, many  
                 believe it's beneficial to make as many people aware of  
                 the pluses of renewable energy as possible and providing  
                 public agencies with access to the credit is one way to  
                 accomplish that goal.

                  The author and committee may wish to consider  whether  
                 such a limitation is appropriate.

                9)Wind Grant Limitations  .  This measure makes wind  
                 generators who are currently under contract with an  
                 electric utility eligible for public goods subsidies only  
                 for the incremental power that results from a re-powering  
                 and only if the generator declines to accepts a higher  
                 capacity payment.  The capacity payment is costly and  
                 adds to the stranded costs paid by ratepayers through the  
                 competition transition charge (CTC).  Payment of stranded  
                 costs that stem from these higher capacity charges can be  
                 extended beyond the statutory end of the rate freeze.

                 The rationale for such a limitation is to prevent a  
                 wind-powered generator from receiving two subsidies - one  
                 from the public goods charge and another from the higher  
                 capacity payment.  This bill takes a "pick your subsidy"  
                 approach, requiring wind-powered generators to opt for  
                 either the capacity payment (paid for by ratepayers out  
                 of the CTC) or the public goods payments (paid for by  
                 ratepayers via the public goods surcharge on their bill).  
                  Non-wind powered generators don't have the option of  
                 receiving a capacity payment, so their eligibility for  
                 public goods monies isn't conditioned in the same manner.

                 Having said that, this bill appears to contain another  
                 inconsistency in how it treats wind-powered generators  










            and other electric generators.  That's because under this  
            bill,  all of the electrical production  (past and future)  
            from biomass and solar facilities is eligible for  
            consideration by the CEC for public goods charge  
            subsidies, but for wind-powered generators,  only the  
            incremental electrical production  (future) is eligible  
            for consideration by the CEC for the public goods charge  
            subsidy.

             The author and committee may wish to consider  whether  
            such a distinction is fair and appropriate.

           10)Should Refrigerator Rebates Be Banned?   This bill  
            precludes energy efficiency funds from being used to  
            finance "refrigerator rebate" programs run by many  
            utilities.  While such programs may provide an incentive  
            for people to buy new, energy efficient refrigerators,  
            the author is concerned the old, energy inefficient  
            refrigerators they're supposed to replace may simply wind  
            up in a person's garage to be used for extra food or  
            beverage storage, meaning the rebate program could  
            actually lead to a net  increase  in energy usage, instead  
            of a net  decrease  .

            Instead of simply eliminating the refrigerator rebate  
            program entirely,  the author and committee may wish to  
            consider  whether a better approach might be to condition  
            the award of any rebate on the buyer providing proof that  
            the old appliance has been properly disposed of or  
            donated to an organization.
                                         
                                 ASSEMBLY VOTES
           
          Assembly Utilities & Commerce Committee(11-0)*
          Assembly Appropriations Committee  (21-0)*
          Assembly Floor                     (76-0)*

          * Votes were on a prior, unrelated version of AB 995.

                                    POSITIONS
           
           Sponsor:
           Author












                Support:
                American Association of Business Persons with Disabilities
               American Lung Association of California
               California Chamber of Commerce
               California League of Conservation Voters
               California Manufacturers & Technology Association
               California Public Interest Research Group
               California Retailers Association
               Coalition of California Utility Employees
               Consumers First
               ELEY Associates
               Episcopal Environmental Commission of the Diocese of  
               California & the Regeneration 
                   Project
               Global Green USA (opposed to amendment described in Comment  
               8)
               Global Possibilities
               Independent Energy Producers
               National Energy Foundation
               Natural Resources Defense Council
               Next Generation
               Pacific Gas and Electric Company
               Planning and Conservation League
               Positive Energy
               Sacramento Municipal Utility District
               Sacramento Tree Foundation
               SeaWest
               Southern California Edison
               Union of Concerned Scientists
                
                Three private individuals (all of whom oppose the amendment  
               described in Comment 8)






















           Oppose:
           California Wind Energy Association
          Office of Ratepayer Advocates
          The Utility Reform Network (TURN)
          Western Power Trading Forum

          
          Anna Ferrera
          AB 995 Analysis
          Hearing Date: June 13, 2000