3. Summary of February 10, 2012 Staff Proposal

The staff proposal issued February 10, 2012 included a policy rationale for continuing public interest funding in the energy area where private capital is unlikely to provide adequate support. The staff proposal noted that public funding at the federal level has been in decline since the 1980s, and that continued ratepayer funding in California for development and deployment of clean energy technologies, specifically for electricity, can help:

· Meet greenhouse gas (GHG) emissions reductions goals under Assembly Bill (AB) 32;³

· Support the move toward a cleaner energy economy overall;

· Continue California's leadership position as a clean technology innovator;

· Provide energy security and independence;

· Leverage private and federal funding for California;

· Continue to bring state and local environmental benefits;

· Promote job development and economic growth; and

· Ensure that investment results are transparent, open, and publicly available to promote public purposes.

The staff proposal cited to a number of studies and reports that support continued and augmented public interest energy funding, including the California Legislative Analyst's Office (LAO), the American Energy Innovation Council, and several others. In general, studies show that energy RD&D funding has fallen steadily since 1978 up until the American Recovery and Reinvestment Act in 2008. Many other countries also have much higher RD&D expenditure levels than the United States.

The staff proposal recommended continuing ratepayer funding for activities with a clear nexus in ratepayer benefits for the electricity industry. Staff recommended that the investments should support:

· Ratepayer and societal benefits;

· AB 32 and Executive Order S-3-05 goals;

· The "loading order" from the Energy Action Plans;

· Low-emission vehicles/transportation;

· Safe, reliable, and affordable energy services;

· Economic development; and

· Efficient use of ratepayer funds.

The staff proposal divided recommended activities into the following areas, designed to correspond with the product development cycle:

· Applied research and development. This area supports investment in applied science and technology that provides public benefits but for which there is no current clear business case for deployment of private capital. Staff recommended funding at $55 million per year;

· Technology demonstration. This area supports assisting technology development through the "valley of death" and toward commercialization. Staff recommended funding at $50 million per year;

· Market support. This area involves supporting technologies that are commercially viable but still need public support to achieve economies of scale and be competitive with other more established technologies. No funding was recommended by staff in this area because some activities can be funded by other programs and/or because of legal constraints in the solar area;

· Market facilitation. This area involves activities to address non-price barriers to adoption of clean technologies, such as regulatory barriers and lack of information, as well as supporting market research and tracking of results. Staff recommended funding at $15 million per year in this area; and

· Administrative costs. The staff proposal included allowing the EPIC administrator to charge up to 15% of the funding for administering the program, with an additional 0.5% reserved for Commission policy oversight and direction.

The total annual budget recommended in the staff proposal was $142 million, to be funded in the following percentages by the three large investor-owned utilities (IOUs):

· Pacific Gas and Electric Company (PG&E): 50.1%;

· San Diego Gas & Electric Company (SDG&E): 8.8%; and

· Southern California Edison Company (SCE): 41.1%.

The staff proposal included a recommendation that the administrator for the EPIC program be required to submit an investment plan to the Commission for approval every three years, covering the succeeding three-year program time frame, through 2020. Utilities would also be asked to submit triennial funding requests for technology demonstration and deployment activities, within an annual budget of $40 million, to ensure coordination with the EPIC program. Each investment plan would be required to include targeted areas for investment, screening and scoring criteria for evaluating funding proposals, as well as metrics against which the program's success will be evaluated.

The administrator would also be required to submit an annual report detailing program activities. In 2016, staff recommended that Commission staff hire an independent evaluator to assess program success and identify areas for improvement prior to approval of the final investment plan through 2020.

Under the staff proposal, the Commission maintains overall policy oversight for the EPIC program, consistent with its general authority over collection and disbursement of ratepayer funds. The administrator of the EPIC funds would be authorized to operate within parameters set by the Commission, and further delineated in each investment plan approved by the Commission.

Staff recommended that the California Energy Commission (CEC) be chosen as the administrator for the EPIC funds. The CEC, in coordination with Commission staff, would convene scoping workshops and stakeholder consultation and seek a wide variety of input and expertise.

Finally, staff recommended two options for transferring funds from the utilities to the CEC periodically, in order to minimize the potential for funding diversion to other purposes as part of the state budget process.

³ AB 32 (Nunez, Stats. 2006, Ch. 488), signed into law in 2006, established the California Global Warming Solutions Act of 2006. Pursuant to this Act, the state must reduce its greenhouse gas emissions to 1990 levels statewide by 2020.