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 9 9 5 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