7. Areas for Investment
In this section, we address the definitions of each of the areas approved, or not approved, for investment of EPIC funds, as well as the authorized budget levels. The staff proposal described four different areas suggested as appropriate for EPIC funding that correspond roughly to the product development cycle. Those are:
· 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 proposed to fund this area at $55 million per year.
· Technology demonstration. This area supports assisting technology development through the "valley of death" and toward commercialization. This area was proposed for $50 million per year of funding in the staff proposal.
· 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. This area was not proposed to be funded in the staff proposal.
· 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 proposed to fund this area at $15 million per year.
7.1. Applied Research and Development
As summarized above, staff proposed applied research and development activities that provide electricity sector benefits for pre-commercial activities and technologies. Examples from past investments include:
· Appliance and building standards;
· Efficiency of energy use from industrial, agricultural, and water end users;
· Efforts to understand the implications of, and approaches to, integrating ever-increasing amounts of intermittent renewable generation;
· Evaluating the implications of electric vehicle (EV) adoption on the grid;
· Pioneering efforts to increase the visibility of transmission system operations through the use of advanced information technologies; and
· Reducing environmental barriers to energy deployment.
Staff did not propose to specify the exact areas of applied research and development, but expected that the administrator would propose those in each investment plan for consideration. Also in the investment plan, the criteria for evaluating proposals would be detailed. Staff also proposed that research projects should generally be selected on a competitive basis with an allowance for some exceptions and that there should be a pre-project funding limit, to be proposed in the investment plan.
A number of parties are generally supportive of the staff proposal. AEE agrees with the definitions and supports the funding level suggested. CFC supports the definition of applied research, as distinguished from basic research, and agrees that basic research should not be funded through this mechanism. The Black Economic Council et al. supports the funding allocation, but recommends specific attention be given to Light Emitting Diodes (LEDs) as they believe this technology can provide significant benefits to the low income community if its initial costs can be reduced. The Efficiency Council is also generally supportive, but requests that it be made clear that all types of energy efficiency innovations be eligible for funding, including technologies, but also strategies and "methods of approach."
Several parties commented that the definitions in the staff proposal are vague and should be further clarified. PG&E suggests that the Commission adopt the definitions of RD&D terms used by the federal Office of Management and Budget, such as basic research, applied research, and deployment. CALSTART recommends that the research types be specifically defined and identified as an acceptable usage of EPIC funds. The Joint Environmental Groups also believe that the scope of applied research should be expanded to include research on the impact of electricity sector on the environment and public health. CEU argues that research should be expanded to include improving the affordability and achieving environmental benefits using conventional energy technologies.
CBD believes funding should be set aside for research into relative carbon emissions and potential forest impacts of bioenergy facilities over policy-relevant time scales to ensure that ratepayers and the environment achieve real benefits from the EPIC program.
CCEJ believes the intent of the staff proposal was and should be to support the next generation "clean energy technologies," which CCEJ defines as zero- and low-emission technologies, not just renewables. They also argue that clean transportation technologies should be included. PG&E argues that renewables-related research should be focused on integration of renewables and not new technologies per se. For transportation-related expenditures, PG&E recommends that those be limited to utility services "up to the meter" and not "beyond the meter" to maintain consistency with established Commission policy in the EV proceeding per D.11-07-029 and D.10-07-044.
The utilities also all generally argue that applied research and development activities should be more precisely defined to avoid overlap and duplication with existing utility-administered RD&D efforts. SDG&E and SCE also argue that vague definitions of research areas would give too much discretion to the CEC to set policy in the EPIC program.
All three utilities also argue that the funding level for applied research is too high. SDG&E proposes that the CEC should use 50% of the funds for longer-term, applied research and early product development. Finally SDG&E disagrees with the staff proposal's suggestion to allow noncompetitive bids in some circumstances, such as "when contracting with universities." SDG&E believes that this would allow a loophole for universities to siphon EPIC money for overhead expenses. SDG&E also clarified in comments on the proposed decision that their objection on the staff proposal was about the lack of transparency of CEC PGC RD&D program administration and non-competitive bids in general, not necessarily aimed specifically at universities.
To demonstrate the reasonableness of the funding level of $55 million proposed in this area, the staff proposal presented a comparison of applied research funding at the federal level and historically. No party presented any compelling argument or contrary evidence that this level is unreasonable. It is very similar to applied research and development funding levels authorized in the past and is smaller than the budget levels prior to electricity restructuring. Therefore, we will approve this budget amount beginning in 2013.
Many parties offered thoughtful comments on more precisely defining applied research and development and/or specific areas that should be funded with EPIC. We do not wish to be too precise at this stage with defining potential funding areas because of the risk that we will unintentionally exclude a worthy investment area. Therefore, we adopt a definition of applied research and development that includes activities that are intended to address specific practical problems in the electricity industry. Applied research and development includes activities that are generally before the commercial stages of technology development. It does not include basic research that is seeking to expand scientific knowledge for its own sake.
We also specifically include in this definition several areas suggested by parties. Consistent with the suggestion of CCEJ, technologies included in this area are any clean energy technologies, not just renewables and not just supply-side options, as requested by the Efficiency Council. Demand-side technologies, as well as non-technology elements such as strategies and methods to enhance adoption of clean energy technologies, are also included. In addition, applied research and development that addresses the environmental and public health impacts of electricity-related activities is also included. Clean transportation is also an acceptable funding area, as long as there is a linkage to the electricity sector and ratepayer benefits. Building codes and appliance standards are also potential areas for investment, as suggested by the Efficiency Council in their comments on the proposed decision.
Finally, on the issue of competitive bidding, this is generally our selection process of choice in all areas. However, there may be limited and unique circumstances where it is not possible or desirable. In each investment plan, the administrators may propose a limited authorization for non-competitive bidding for particular purposes. An example, as suggested by the Efficiency Council in their comments on the proposed decision, could be continuation of funding for successful projects. These exceptions to competitive bidding should be justified separately and clearly for a specific purpose. During consideration of the first set of investment plans, we will also consider whether there should be a separate approval process required for any contract or grant not awarded through a competitive bidding process, to set a higher standard for the use of a non-competitive process.
In addition, in each investment plan, the administrators should include a detailed set of criteria upon which competitive bids will be evaluated.
7.2. Technology Demonstration and Deployment
The staff proposal generally defined technology demonstration as the installation and operation of pre-commercial technologies at a scale sufficiently large and in conditions sufficiently reflective of anticipated actual operating environments, to enable the financial community to effectively appraise the operational and performance characteristics of a given technology and the financial risks it presents. Staff proposed that $50 million in annual funding be directed towards these types of activities.
In addition, the staff proposal suggested that 20% of the technology demonstration funding be set aside for funding bioenergy projects. Staff also recommended that half of the funding be committed through grants, while the other half be deployed through pay-for-performance contracts designed to encourage actual energy production from the installations with compensation based on that energy output. Conceptually, the pay-for-performance approach was designed to help bridge the gap between demonstration and deployment by demonstrating the viability of technologies in the real world.
Finally, the staff proposal suggested that the investment plans propose an approach to requiring some amount of matching funds from other funding sources.
Parties' comments in the area of the definition of technology demonstration were not extensive. The Black Economic Council et al. repeats their emphasis on LEDs summarized above, suggesting funding for start-ups and manufacturing of LEDs. The Joint Environmental Groups generally support using EPIC funds to support pre-commercial clean energy technologies and emphasize that "information about the funded demonstration projects should be made public to the greatest extent possible, to ensure market participants are able to learn from the experiences of previously-funded projects."18
CFC suggests continuing the emphasis on ratepayer benefits by requiring a selection criterion that there be a "reasonable probability the demonstration project will produce direct ratepayer benefits as defined in the Staff Proposal."
SDG&E recommends that the IOUs should retain control over 50% of the demonstration funding because only they can integrate new research to determine if new emerging products are compatible with existing power system infrastructure. In addition, SDG&E does not believe that EPIC funding should be used for RD&D efforts of independent power producers (IPPs), because this would create a possible double-payment by ratepayers: once through EPIC and a second time through a power purchase agreement for an IPP's unregulated profit.
Solar Highways suggests that the definition of technology demonstration should be broadened to capture not only technology, in the strictest sense, but also innovative strategies for deploying technology.
MEA argues that the use of EPIC funds to support IOU-run renewable energy programs would violate statutory requirements related to equitable treatment of community choice aggregator (CCA) customers in that they would be subsidizing bundled customer procurement and would also potentially violate the requirements of Code Sections 380(h)(5) and 366.2(a)(5) which require that funding be administered on a non-discriminatory basis for the benefit of all customers. MEA suggests that to avoid these issues, the IOUs should remit EPIC collections from CCA customers to the CCA for investment.
Finally, CCEJ suggests that the Commission develop a cost-share program with DOE and offer matching grants.
It does not appear that parties have any disagreement with the general definition of technology demonstration offered by the staff proposal. The staff proposal defines technology demonstration as the installation and operation of pre-commercial technologies at a scale sufficiently large and in conditions sufficiently reflective of anticipated actual operating environments, to enable the financial community to effectively appraise the operational and performance characteristics of a given technology and the financial risks it presents. This is a reasonable definition and we will adopt it. We also agree with Solar Highways that this definition can extend to innovative deployment strategies as well as the technologies themselves.
As in the previous section addressing the definition of applied research and development, we do not offer specific funding areas in order to avoid being too prescriptive. Instead, the administrators should propose more specific funding areas in the investment plans.
As already discussed earlier in this decision, we are modifying the staff proposal which recommended designating the CEC as the sole EPIC administrator in favor of adding an explicit role for the utilities as administrators for some technology demonstration activities. More specifically, we find that there is an important role for utilities both in technology demonstration as well as deployment. By deployment, we mean installations that are directly interconnected or located on the electricity grid of the IOUs. Deployment may also include strategies and other activities that are not specifically about the deployment of a technology itself, but are designed to test successful ways of encouraging customer adoption of clean energy technologies, such as electric vehicles, energy efficiency, or renewable generation, for example.
In general, we do not draw a bright line between the activities that should be undertaken by the CEC and those that utilities should fund. However, in general, we expect that the utilities will fund more deployment-related activities while the CEC will fund more demonstration activities. Close coordination will be important to ensure there is no duplication of effort.
In comments on the proposed decision, SDG&E states that it is unclear what amount of funding will be available to each utility in this area.19 We clarify that each utility will administer the portion of the funding that is actually collected from its ratepayers.
In addition, with respect to the competitiveness concerns raised by MEA as well as by SDG&E with respect to IPPs, we clarify that EPIC funds should not be used by the utilities to fund electricity generation-only demonstration or deployment projects. This is because this type of activity would give the IOUs an advantage over other competitive retail providers, such as CCAs and electric service providers.
A number of parties addressed the issue of utility funding of generation-only projects in their comments on the proposed decision. MEA continues to support a prohibition on utility funding of generation-only projects for competitiveness reasons.20 Several other parties, including TURN, PG&E, and the Joint Environmental Groups,21 oppose this prohibition as too restrictive, potentially defeating the purpose of some technology demonstration and deployment funding.
The prohibition was designed to address two separate competitiveness concerns. The first is the one identified by MEA, where because EPIC funds are being collected from utility distribution rates paid by all customers regardless of electric retail provider, the funds should not be used to advantage only IOU development of generation options, without allowing similar opportunities for other retail providers on behalf of their customers, since all customers contribute to the funds. The second concern is related to competition in the development of new generation itself, which TURN points out could be alleviated by prohibiting only the investment of EPIC funds in utility-owned generation.
After considering parties' comments, we continue to find it appropriate to prohibit IOU investment in generation-only projects using EPIC funds. The EPIC utility funding is intended, as elaborated elsewhere in this decision, to address primarily utility electricity grid-related technology demonstration and deployment. However, there may be instances where utility investments in generation-only projects could be desirable and appropriate. We do not wish to create too many restrictions on the types of projects that the utilities may propose.
Thus, if the IOUs wish to propose generation-related projects, they may propose to do so utilizing other funding sources, not those collected from all distribution customers such as EPIC. Any such proposals should be included in the utilities' triennial investment plans ordered in this decision, but should propose to utilize another appropriate funding source other than EPIC, most likely generation revenues. Thus, any RD&D generation-related investments proposed by the utilities can be considered in the same venue alongside EPIC funding proposals by the CEC, but simply utilizing separate funding.
Since the CEC will be undertaking projects that should benefit electric ratepayers overall and is acting on behalf of all ratepayers as administrator of funds, the CEC does not have an inherent incentive to bias its investments to favor itself over competitors. Customers of MEA, as well as other competitive providers, will have access to and benefit from the results of the research and investments handled by the CEC, just as IOU customers will. Thus, the prohibition on funding generation-related demonstration and deployment projects with EPIC funds does not apply to the CEC.
The staff proposal included a budget of $50 million for technology demonstration activities. No party specifically objected to this amount, except those that generally oppose EPIC overall. Since we are adding utilities as administrators and further emphasizing deployment activities relative to the staff proposal, we will increase the budget for technology demonstration and deployment to $75 million annually, which reflects the historical level of public interest investment while also taking into consideration utility RD&D expenditures.
A budget of $30 million per year will be reserved for utility administration, with $45 million reserved for CEC administration. This achieves a reasonable balance between truly public interest investments that are more appropriate for the CEC to administer and those that are closer to commercialization and deployment stage and more appropriately handled by the utilities.
When combined with the other areas to be administered by the CEC, this equates to approximately 20% of the EPIC budget to be administered by the IOUs, with 80% to be administered on behalf of electricity ratepayers by the CEC.
We also eliminate the requirement in the staff proposal that at least half of the technology demonstration funding should be expended as grants with the other half devoted to pay-for-performance projects. Both mechanisms may be worthwhile, depending on the project, but we leave it to the discretion of the administrators to propose the payment mechanism best suited to the investments they propose in each investment plan.
Finally, we ask the administrators to propose in their investment plans any requirements to seek or obtain matching funds from other sources. In general, consistent with the comments on the proposed decision from several parties including Silicon Valley Leadership Group (SVLG) and the Efficiency Council, we encourage the use and leveraging of matching funds whenever possible.
Also in comments on the proposed decision, several parties, including PG&E and SVLG, raise the issue of how this category of EPIC investments does or does not include or impact the utilities' ongoing support for emerging technologies in the context of their energy efficiency and demand response programs. We clarify that it was not our intent to disturb ongoing programmatic support for demand-side technologies that occurs regularly in other contexts. Thus, this EPIC budget authorization for technology demonstration and deployment is in addition to the budgets authorized separately in the utilities' energy efficiency and demand response portfolios.
However, to ensure closer coordination in the future, we will require that the utilities include in their EPIC investment plans an informational discussion of the related demand-side emerging technology activities that are occurring outside of the EPIC funding process. We also clarify that the EPIC process should not become a venue for consideration of proposals for demand-side emerging technologies that were otherwise rejected in the energy efficiency or demand response proceedings.
As summarized above, the staff proposal recommended that 20% of the technology demonstration funding be set aside for bioenergy projects, without distinguishing between the various types of bioenergy technologies.
A number of parties support the staff proposal, some with modifications. TURN supports the 20% set-aside, and believes that the effort should be coordinated with utility renewable procurement mechanisms. PFT/WRTC are also supportive, and suggest that guidelines be established within this funding category, including incentives for distributed biomass facilities. The Joint Environmental Groups and the University of California conceptually support dedicating funding toward bioenergy projects, but suggest that 20% may be too high. Both suggest reevaluating the funding amount during each investment plan process. AECA and Sustainable Conservation also support emphasis on biomass but believe that the 20% budget may be too small and should be more specific about the various types of bioenergy technologies and their potential.
SDG&E believes that incentives for biogas and biomethane may be appropriate and offers some programmatic suggestions. However, they feel that the carve-out definition is too vague, and that EPIC funding should not be used to incentivize additional baseload power production which the state does not need.
SCE argues that setting aside funding for bioenergy interferes with the market and artificially picks winners. They argue that there is no record demonstrating that this technology should be favored over any other.
CBD also argues that the 20% carve-out for bioenergy is unjustified given serious scientific questions as to whether biomass energy projects actually deliver environmental, sustainability, or ratepayer benefits.
There are many different types of bioenergy technologies and fuels, each with different electricity production, environmental protection, public safety, and other benefit profiles. While biomass, specifically at community-scale, has potential forestry and fire prevention benefits, dairy digesters and other anaerobic digesters offer other potential environmental benefits for cleaner water, decreased GHG emissions, and onsite electricity production. Biomethane production for pipeline injection and landfill gas electricity production also reduce GHG emissions.
Given these varied potential benefits, we believe that setting aside 20% of the technology demonstration and deployment funding, during the three-year period of the first investment plan, to fund bioenergy projects is just and reasonable. For subsequent investment plan cycles, we will reevaluate this set-aside, depending on the results during 2012-2014.
The proposed decision applied the 20% set-aside for bioenergy from both the utility and CEC budgets for technology demonstration and deployment. In comments on the proposed decision, both the Joint Environmental Groups22 and PG&E23 argue that a 20% set-aside only makes sense in the context of the CEC's portion of the EPIC program, especially when the utility funds are divided across utilities. We agree and clarify that the 20% set-aside for bioenergy for the first investment plan cycle should only apply to the CEC's funding for technology demonstration and deployment.
This does not mean, however, that utilities cannot propose bioenergy-related initiatives, should they wish to. For example, SDG&E suggests that a CSI-like program should be developed for biogas.24 While we do not adopt this proposal explicitly in this decision, SDG&E is free to propose this in its investment plan, to the extent that it complies with the other requirements we impose in this decision.
7.3. Market Support
The staff proposal generally described market support as those programs that seek to enhance the competitive position of certain preferred, commercially-proven technologies relative to the incumbent technologies. In California in the renewables area, these have largely consisted of targeted rebate programs or procurement mandates imposed on the IOUs, including the RPS, the California Solar Initiative (CSI), and the Self Generation Incentive Program (SGIP). In addition, the CEC has overseen the emerging renewables program (ERP), the Existing Renewables Facilities Program (ERFP), and the New Solar Homes Partnership (NSHP).
The staff proposal generally described support for these types of programs and activities, but declined to recommend additional funding from EPIC at this time. The reasons were various. In the case of the NSHP, funding would have been recommended on a policy basis, but legal constraints capping the CSI budget limit staff's ability to recommend additional funding without legislative change. Similarly, staff recommended consolidating the ERP into the SGIP since the technologies supported are similar, but additional funding is also problematic due to a statutory cap on the SGIP budget. In the case of the ERFP, staff did not recommend continuing the program at all, since it would represent offering a continuing subsidy to a set of established and commercialized technologies with no strategy for ending the subsidy in the future or moving the technologies toward competitiveness.
Most parties' comments were devoted to a specific program under the market support category, as discussed further below. Only a few parties commented generally on the staff recommendation not to fund any market support activities at this time.
AEE would like to see attractive financial incentives for in-state manufacturing of clean energy technologies, though it is unclear whether this would merit a market support program or market facilitation activities.
AECA and Sustainable Conservation, BAB2E, the Joint Biomass Parties, and Waste Management all would support various types of market support programs for bioenergy. AECA and Sustainable Conservation propose a program for biogas funded at $20 million annually. BAB2E would like to see biosolids and biogas included as technologies worthy of market support funding. The Black Economic Council et al. continues to suggest an LED program.
All of the IOUs, along with CFC and CLECA, agree with the staff proposal not to fund additional market support activities at this time.
We defer discussion of market support issues and funding in general to the more specific categories of programs discussed below. However, we decline to fund any of the specific areas suggested by parties' comments above, because they are either too technology-specific and/or not sufficiently well developed to be a program that we could easily adopt immediately. Some areas are worthy of further consideration, as further discussed below.
The staff proposal suggested that technologies previously eligible for ERP funding could be transferred into the SGIP, since it is a similar program designed to address similar technologies. This would streamline programs and, in time, reduce market confusion by offering one program instead of two. The eligibility rules for project size in the SGIP would need to be reduced, which was already contemplated in D.11-09-015, a decision which made several modifications to the SGIP and allowed that ERP technologies could participate in SGIP if the PGC was not renewed. However, the staff proposal did note that the SGIP program budget is currently capped pursuant to § 379.6(a)(1). Finally, the staff proposal recommended that the SGIP continue the eligibility requirements recently adopted by the CEC.25
A number of parties support the logic of the staff proposal to consolidate programs. However, many are concerned about ensuring adequate funding in the SGIP to support the migrating ERP technologies. AEE and CCEJ both recommend allocating EPIC funds until the SGIP budget is augmented by the Legislature. CCEJ also expresses skepticism that the Legislature will augment the SGIP budget.
Altergy presents its own ERP experience as a case study for why additional SGIP funding and program changes should be done before transferring ERP technologies into the SGIP. Altergy states that it submitted approximately $60 million worth of rebate applications to the ERP in late 2011 for renewable fuel cells, but the program ran out of funding reservations around the same time, potentially jeopardizing a large order which Altergy had already secured with its customers. Altergy also argues that discontinuing funding for the ERP would effectively end market support for deployment of commercial technologies such as theirs.
CCDC supports the staff proposal in concept and would like to see an increase in the SGIP budget to ensure that all eligible technologies, including combined heat and power (CHP), are adequately funded. CCDC also suggests that any funds used to support technologies formerly eligible for the ERP should come out of the SGIP budget for renewables and not for clean CHP.
CEERT comments that merely reconsidering funding levels and eligibility rules for SGIP is not sufficient to support this program area.
PG&E, SDG&E, and TURN all support moving the ERP into the SGIP. SDG&E also points out that the venue for any changes to the SGIP should be the CSI/SGIP rulemaking and not this proceeding. TURN argues that the budget cap situation for the SGIP may not be as dire as some parties' comments suggest, and that there may be adequate funding to support ERP projects already within SGIP.
The staff proposal for consolidating the technologies funded by the ERP into the SGIP is logical and should serve to streamline programs and reduce program duplication and confusion over time. Program consolidation was already contemplated by the Commission in D.11-09-015, which modified the SGIP program to comply with SB 412 (Kehoe, Stats. 2009, Ch. 182).
The proposal by AEE, Altergy, and CCEJ to fund additional ERP projects via EPIC until such time as the SGIP changes are made by the Legislature or the Commission, while superficially appealing, may actually perpetuate the continuing problem of lack of funding for these types of programs. While the SGIP now includes a declining rebate schedule similar to the CSI program that aims toward market transformation for participating technologies, the ERP did not include such provisions. Because the ERP and SGIP had different rebate levels and rules, continuing both programs would perpetuate inconsistent program support for similar technologies of different sizes and would not necessarily be positive for the long-term sustainability of these programs or technologies. Contrary to Altergy's assertions, ending the ERP will not end support for commercial technologies such as fuel cells; instead, the projects will still be eligible under the SGIP.
In addition, we agree with TURN that the SGIP budget situation may not be as insufficient as some parties suggest. Thus, we encourage entities with eligible technologies to explore applying for SGIP funding right away. We also clarify that the venue for Commission consideration of any additional SGIP changes will be R.10-05-004 or its successor proceeding and not the EPIC rulemaking. We will not be making any SGIP rule or budget modifications in this docket.
Longer term, the Commission would also support further augmenting the SGIP budget to allow additional opportunities for former ERP-eligible technologies to receive funding. We strongly encourage the Legislature to consider this issue, approve additional funding during 2012, and return any funds borrowed for other purposes.
As mentioned above, the staff proposal recommended discontinuing funding for this program since it represents an ongoing subsidy to existing and commercialized generation technologies.
CBD specifically supports the staff proposal to eliminate the ERFP and suggests that any biomass activities funded under EPIC should be consistent with AB 32 and Executive Order S-3-05. The Joint Environmental Groups also support discontinuing funding for the ERFP, arguing that mature renewable technologies, including existing biomass facilities, can compete for contracts in the RPS solicitations. TURN also agrees with this reasoning. PG&E believes that the RPS and AB 32 policies already provide adequate support for existing renewables facilities. SDG&E suggests that current contracts under the ERFP should be phased out at the end of those contracts.
The Joint Biomass Parties disagree that funding for existing biomass facilities should be discontinued, arguing that the loss of the PGC creates a gap for those facilities and the biomass industry in general, given the high cost of transporting and processing biomass fuels. Waste Management agrees. The Joint Biomass Parties therefore propose a targeted fuel support program to address the challenges associated with biomass fuel, and argue that the ancillary benefits of waste diversion, cleaner air, healthier forests, and reduced GHG emissions need to be considered and viewed as electricity ratepayer benefits.
BAB2E supports creating new programs similar to the ERFP, particularly to support commercialization of biosolids from wastewater treatment processes as a renewable energy resource.
AECA and Sustainable Conservation also would like to see at least $20 million annually set aside for a biogas development program that falls into the market support category and not simply technology demonstration.
In general, we agree with many of the parties representing bioenergy interests in this proceeding that the bioenergy technologies have the potential to create win-win projects for the state. As stated earlier, biomass offers the potential for forestry and fire prevention benefits, biodigesters may help protect water quality and reduce GHG, and landfill gas and other biomethane production may also help reduce GHG.
Many of these potential benefits may be important for the state as a whole, but in many cases, they are not direct benefits to electricity ratepayers. Thus, it is unclear why electricity ratepayers should be the sole funding source, via EPIC, for subsidizing commercialized technologies using these fuels for their potential non-energy benefits.
While the PGC may have been an important funding source to spur the development and/or support continued operation of biomass facilities as part of the ERFP in the past, it is unclear why the Commission should continue indefinitely to offer electricity ratepayer subsidies to a particular type of facility or fuel that appears to continue to be expensive relative to other options. The RPS program in California is, by definition, technology neutral. Thus, biomass and other bioenergy facilities are free to compete in RPS solicitations and other related programs such as the feed in tariff. In addition, PG&E has signed a number of power contracts that provide at least a temporary solution to allow continued production from existing biomass facilities.
If ongoing fuel or other subsidies are necessary, it may be wise for the state to consider a more diverse funding source beyond electricity ratepayers, such as the revenues anticipated from the cap and trade program of AB 32 or another source that more appropriately allocates costs and benefits beyond electricity ratepayer benefits. The Commission will continue to participate in and be supportive of multi-agency and/or multi-party discussions of bioenergy policy for the state, such as the Bioenergy Interagency Working Group. A coherent strategy and/or program for encouraging more bioenergy in the state, capturing not only the electricity benefits but also the non-energy benefits, should be a continuing priority. But EPIC funds alone are not the appropriate source for funding such a program.
We feel similarly about the introduction of any new market support programs for particular commercialized bioenergy (or any other commercialized) technologies or fuels.
The staff proposal suggested that the NSHP should be eligible to be continued, as a matter of policy, because it is a vital piece of the CSI program targeting builders of new homes. However, according to the analysis in the staff proposal, the Commission would only have the authority to augment NSHP funding via EPIC, or by any other means, by reducing the budget for another element of the CSI program, since that program budget overall is capped pursuant to § 2851(e).26
Most parties are in support of finding a way to continue funding for the NSHP. CBIA states that there are "other viable options for the continuation of NSHP that do not require taking funds from the general market program." CBIA suggests EPIC monies can be used for this purpose, but does not offer a statutory analysis or explain how this might be done.
SDG&E supports continuing the NSHP and disagrees with the staff analysis that the CSI cap prevents collecting additional funds to support the program. They also suggest that the program can continue until its statutory end date, as long as the IOUs continue to administer the program, the cash flow process is modified to protect the funds, and the NSHP incentives decline over time, consistent with the CSI. They argue that "the only difference would be that the CEC will not be a middleman, holding NSHP funds that may then be diverted to other uses."27
SEIA is also in support of continuing the NSHP, and argues that installation of distributed renewable generation on new homes is consistent with the guiding principles laid out in the staff proposal. In addition, SEIA requests that the Commission allocate contingency funding to the NSHP should the Legislature resolve statutory constraints.
The Joint Environmental Groups also support continuing the NSHP, but agree it must be done statutorily. PG&E seems to agree as well, stating: "If the overall EPIC funding level were modestly decreased compared to current EPIC collections and the Legislature increased the CSI funding cap similarly, the NSHP funding shortfall effectively could be transferred to the CSI program in order to provide room for extended NSHP funding based on forecast need, without an increase in overall electric rates."28
CEU opposes funding the NSHP altogether, arguing that solar is an expensive technology that primarily benefits the rich. Still, CEU also suggests that the Commission should plan ahead in the event that the Legislature acts to remove barriers to NSHP funding by building in some "headroom" into the EPIC budget.
We agree with the staff proposal that the NSHP is an important program as part of the CSI and we would like to see it continued. It encourages builders to help us move toward our goal of construction of all zero net energy new homes in California by 2020.29
Unfortunately, under § 2851(e)(1), funds supporting the NSHP program would count under the overall CSI budget cap. Because the NSHP is a named program under the suite of programs that is part of the CSI, and if we were to utilize EPIC funds to support continuation of the NSHP, it would become a program supervised by this Commission. According to the terms of § 2851(e)(1), the funding would count toward the overall budget cap, since it clearly would be used to "further the goals of the California Solar Initiative." Thus, although conceptually we would be willing to allocate EPIC funds to help continue the NSHP, we would have to reduce the budget of the CSI general market program in order to do so.
Last year, SB 585 (Kehoe, Stats. 2011, Ch. 312) authorized the Commission to add funding to the CSI general market program in order to ensure that it has sufficient budget to reach its goals. Thus, we are not inclined to borrow money from that program to continue to fund NSHP, creating a new shortfall after the previous shortfall was just recently remedied.
We also note that some of the $400 million in funding allocated by statute to NSHP was already collected as part of the PGC funding before it expired last year. In addition, the additional funding collections necessary to reach the budget of $400 million would be smaller had the Legislature not borrowed additional PGC funding for budget purposes, leaving the program further under-funded.
We do not believe it is appropriate to collect funding a second time (once from PGC and another time from EPIC) to replace NSHP program funding. However, it could be appropriate for EPIC funds to be used to cover the NSHP program funding that has not yet been collected from ratepayers.
To resolve this situation, we urge the Legislature, in 2012, to return the PGC funds to the CEC for NSHP use, as well as modify both the total CSI funding cap and/or the funding source for the NSHP to allow the Commission to continue to fund the NSHP without reducing the budget for the CSI general market program.
The Legislature could accomplish this by modifying the current provisions of § 2851(e) to allow EPIC funds to be used for the NSHP. It could also authorize us to collect additional funding for NSHP directly in rates, similar to other CSI expenditures. Should the Legislature act to provide either option, we would authorize funding for no more than the remainder of the $400 million in NSHP funding that was not already collected as part of the PGC, which we understand to be approximately $250 million. This would not constitute an overall increase in rates, because it would replace the collections that were previously part of the PGC.
Finally, similar to the SGIP discussion, the venue at this Commission for any changes to the CSI program or the NSHP program as a result of further legislative action in 2012 or in the future, would be R.10-05-004 or its successor proceeding and not this proceeding.
7.4. Market Facilitation
The staff proposal defined market facilitation as a wide range of activities that includes program tracking, market research, education and outreach, regulatory assistance/streamlining, and workforce development to support clean energy technology deployment. Staff proposed that $15 million annually be budgeted to support these activities by the CEC on behalf of IOU electric ratepayers, with $5 million for program tracking and market research, $8 million for regulatory assistance and streamlining, and $2 million for workforce development.
Staff proposed to discontinue funding for generalized education and outreach activities in the area of renewables.
CEU made comments in support of efforts to streamline permitting and other regulatory barriers for both renewable and conventional technologies. Both AEE and CALSTART would like to see more emphasis on the manufacturing stage of technology development utilizing EPIC funding, specifically as part of the market facilitation area.
In the area of bioenergy, Waste Management recommends that the Commission expand the scope of the market facilitation category and/or include a new program to support biomass energy, while CBD argues that funding regulatory streamlining for biomass could obscure rather than help impacts on forests and climate. AECA and Sustainable Conservation believe that some funds should be used to support regulatory and permit streamlining efforts that impede deployment of biogas facilities.
The Efficiency Council comments that market facilitation efforts should include demand-side management activities and not just activities related to renewables.
CFBF suggests that the definition of market facilitation should be broadened to include facilitation of distributed generation, net metering, and local planning as it relates to the use of marginal agricultural lands, as well as electrification of remote irrigation pumps that currently rely on diesel motors. CFBF suggests that efforts should be made to address optimal deployment of distributed generation in local jurisdictions in a way that does not adversely impact or convert productive farmlands. EPIC funding could be used to support mapping efforts to identify unproductive lands for deployment. Regarding the diesel-fueled pumps, CFBF suggests that EPIC funds could be used to expand/continue a program to support conversion of diesel engines to electric.
CFC and SDG&E agree with the staff proposal not to provide funding toward generalized outreach and education on renewables. Meanwhile, the Black Economic Council et al. argues the opposite: that community outreach and education is essential to enable deployment of new technologies, especially in underserved communities. They also recommend that the workforce development funding amount be increased from $2 million annually to at least $14 million annually, citing a number of reports and articles highlighting the decline in funding and opportunities for low-income individuals to receive training to become qualified for green jobs.
PG&E opposes the use of $15 million in market facilitation funds for the purposes described, stating: "However worthy these programs may be on their own merits, they are not energy RD&D, and they are largely duplicative of other programs that utility ratepayers are already funding."30 SDG&E agrees, arguing that market facilitation activities do not benefit utility customers.
In addition, SDG&E does not believe that EPIC funds should be used to fund such activities as the Desert Renewable Energy Conservation Plan or workforce development, arguing that there are other statutes, funding sources, or agencies that should govern these efforts. SDG&E also argues that use of EPIC funds to support AB x1 13 (M. Perez, Stats. 2011, Ch. 10, 1st Extraordinary Session) is specifically prohibited, because that statute specifically states that the CEC "shall only implement this section by the Legislature from the Renewable Resources Trust Fund or other funds from the Energy Resources Program Account."31
In general, we agree with the staff proposal that there are activities in the areas of market research, program tracking, education and outreach, regulatory assistance/streamlining, and workforce development that are consistent with the goals of EPIC and provide benefits to electric ratepayers by ensuring that other activities are successful. These market facilitation activities help ensure that products or strategies make it all the way through the technology development cycle and are delivering benefits to consumers. For the reasons discussed here, these market facilitation activities under the EPIC program are therefore just and reasonable. Similar to other areas, we expect the investment plans will be much more specific in terms of the activities proposed to be funded in each three-year period. However, we provide the following guidance.
First, generalized outreach and education on the basic value of renewables should not be funded. However, if the outreach and education is targeted toward specific populations or benefits, it may be worthy of funding. If the CEC wishes to propose targeted funding in this area, its investment plan should include details on the purpose and strategies for conducting specific outreach.
We also decline to designate funding to specific programs out of market facilitation funding, such as the diesel pump conversion suggested by CFBF. If they so desire, the administrators may propose a program of this type for our consideration in the investment plan evaluation process. However, as of this decision, it is unclear to us how diesel pump conversion to electricity would be developing, demonstrating, deploying or facilitating new technology adoption, since this proposal appears to utilize established technologies. Thus, it may be more appropriate to address this issue through rates, line extension rules, or other means than EPIC funding.32 The Commission is open to considering the benefits of this and other similar proposals either as part of EPIC, if appropriate, or in another proceeding.
We also agree with SDG&E that Public Resources Code section 25619(d) prevents us from authorizing EPIC funds specifically to implement AB x1 13. However, that does not mean that EPIC funds cannot be used for more general permit and regulatory streamlining purposes. The CEC should describe in its investment plan the more detailed purposes for which these funds will be used.
We generally support the other activities described in the comments or in the staff proposal and $15 million is a reasonable sum annually to fund these combined activities. Market facilitation includes renewables, but may also include many other clean energy technologies. Demand-side activities should certainly be eligible for funding, as should permitting and streamlining activities associated with deployment of various forms of bioenergy. It is less clear how market facilitation funds would interact with supporting clean technology manufacturing in California, but this is also a possibility if the CEC has specific proposals in the investment plans.
18 Comments of Joint Environmental Groups, March 7, 2012, at 7-8.
19 SDG&E opening comments on proposed decision, May 14, 2012, at 9.
20 MEA opening comments on proposed decision, May 14, 2012, at 2.
21 TURN opening comments on proposed decision, May 14, 2012, at 4; PG&E opening comments on proposed decision, May 14, 2012, at 4; and Joint Environmental Groups' opening comments on proposed decision, May 14, 2012, at 5.
22 Joint Environmental Groups' opening comments on proposed decision, May 14, 2012, at 9-10.
23 PG&E opening comments on proposed decision, May 14, 2012, at 7-8.
24 SDG&E opening comments on proposed decision, May 15, 2012, at 20.
25 http://www.energy.ca.gov/2011publications/CEC-300-2011-004/CEC-300-2011-004-ED12-CMF.pdf.
26 The operative language is in §2851(e) (1) which states: "Programs under the supervision of the commission...shall not exceed two billion one hundred sixty-six million eight hundred thousand dollars ($2,166,800,000) and includes moneys collected directly into a tracking account for support of the California Solar Initiative and moneys collected into other accounts that are used to further the goals of the California Solar Initiative." (Emphasis added.)
27 SDG&E comments, March 7, 2012, at 21.
28 PG&E comments, March 7, 2012, at 10.
29 See the September 2008 California Long Term Energy Efficiency Strategic Plan, available at: http://www.cpuc.ca.gov/NR/rdonlyres/D4321448-208C-48F9-9F62-1BBB14A8D717/0/EEStrategicPlan.pdf and its 2011 update available at: http://www.cpuc.ca.gov/NR/rdonlyres/A54B59C2-D571-440D-9477-3363726F573A/0/CAEnergyEfficiencyStrategicPlan_Jan2011.pdf.
30 PG&E comments, March 7, 2012, at 10.
31 SDG&E cites to Public Resources Code § 25619(d).
32 See D.05-06-016 for a previous program adopted by the Commission to facilitate conversion of diesel agricultural pumps to electricity.
