LEGISLATIVE SUBCOMMITTEE RECOMMENDATION: SUPPORT
SUMMARY OF BILL: This bill has three main provisions. It would (1) authorize the California Energy Commission (CEC) to impose civil penalties to enforce its appliance standards pursuant to Title 20 of the California Code of Regulations; (2) requires the CEC and Contractor's State Licensing Board (CSLB) to identify and investigate the failure of contractors to comply with the Title 24 building standards and obtain necessary building permits, and to conduct an education and awareness campaign for contractors and consumers; and (3) require that an investor-owned utility (IOU) provide rebates or incentives only if the recipient certifies that a licensed contractor was used, as appropriate, and any applicable permitting requirements were followed.
SUMMARY OF SUPPORTING ARGUMENTS FOR RECOMMENDATION:
This bill will raise consumer awareness of the importance of complying with appropriate building and construction permitting requirements. Studies have shown that 90% of heating, ventilation and air conditioning (HVAC) systems installed in California do not have proper permits and/or were not installed by licensed contractors. More importantly, there is evidence that demonstrates that the acquisition of HVAC permits leads to energy savings.1 This bill appropriately places the responsibility of adhering to these requirements on consumers and takes the IOUs out of the business of enforcing code compliance. While the CPUC supports the requirements in the bill, we are concerned that it may result in potential unintended consequences of lower participation and fewer energy savings from utility programs, in part, because an incentive amount will only offset a small percentage of the costs of obtaining a permit.
DIVISION ANALYSIS (Energy Division):
This bill would primarily impact IOU energy efficiency programs covering new residential, commercial, and industrial construction projects, and residential and commercial HVAC systems. However, the bill would have limited overall impact on these programs since the statewide component of these programs already require permits prior to receipt of incentives. Moreover, the bill would only affect "downstream" incentive programs (i.e. where rebates or incentives are paid to a customer or that customer's contractor) and not "upstream" programs, where the incentive is paid to manufacturers who agree to stock designated high efficiency products in the California marketplace.
Most of the IOU incentives paid for efficient HVAC systems are administered through upstream programs, which will not be affected by this bill. Downstream programs currently account for less than a quarter of the savings expected from HVAC programs in the current 2010-2012 program cycle, with upstream programs accounting for the majority.
While laudable, the bill may have unintended consequences
CPUC staff supports the bill's goals of encouraging consumers to comply with all applicable permitting requirements, especially if those requirements lead to incremental energy savings. However, we are concerned that the high costs of obtaining a permit, including administrative hurdles, may negatively impact HVAC program participation.
CPUC staff estimate that a utility incentive represents approximately only 20% of the total cost of obtaining HVAC permits (including mechanical, electrical, structural, incremental labor costs, HERS rating, etc.) so consumers may view obtaining a permit as more trouble and cost than it is worth. This may result in lower participation and fewer energy savings from utility programs. As long as an imbalance exists between the cost of permit compliance and the value of utility incentives, homeowners and building owners will find ways to circumvent the law.
Other major problems not addressed by the bill are: (1) the lack of resources and staff at local building departments to enforce the law and (2) non-standardized or administratively burdensome permitting requirements across 500+ jurisdictions, which discourage customers and contractors from following the law.
Bill preceded by negotiations with CEC and Attorney General's Office
From June 2010 through March 2011, CPUC staff, the Attorney General's Office, CEC, and the CSLB participated in negotiations with the IOUs regarding the same issues addressed in this bill. As a result of these negotiations, the IOUs agreed to take four specific actions to further support compliance with Title 20 appliance standards and Title 24 building codes (beyond activities already in place through many IOU programs and activities, specified in the next section):
1. Provide a statement on their websites encouraging consumers to confirm that an appliance has been certified for sale by the CEC.
2. Inform rebate-partner retailers of the California requirement that only CEC-certified products be sold; and in instances where the IOUs provide information about specific appliance models to retailers, the IOUs agreed to include only models that the IOUs have verified are in the appliance database as of the date specified in that communication.
3. Add a check box to all HVAC rebate applications confirming that the applicant has used a licensed contractor and followed all applicable permitting requirements. (Note: This measure is now being codified in this bill.)
4. Post a consumer education piece on their websites which includes a discussion of why quality installation matters, the benefits of hiring a licensed contractor, and the quality assurance that comes through obtaining a permit.
Other provisions of the bill
The provision authorizing CEC to enforce its appliance standards would: (1) have consistent statewide impacts on manufacturers; and (2) would not disproportionately harm IOU rebate programs relative to transactions in the broader marketplace. Finally, the provision requiring an investigation of contractor noncompliance would also have consistent statewide impacts and may actually produce some small benefits by encouraging participation in the IOUs' HVAC Quality Installation program.
PROGRAM BACKGROUND:
Several IOU activities and programs in the 2010-2012 energy efficiency program portfolios (authorized pursuant to D.09-09-047) are designed to improve compliance with permitting and code requirements, as specified further below.
Statewide HVAC Residential and Commercial Quality (QI) Installation subprograms
Pursuant to D.09-09-047 and the approved statewide HVAC Program Implementation Plan,2 the Residential and Commercial Quality Installation (QI) programs ($17 million and $10 million, respectively) require building permits for central AC and heat pump systems prior to receiving incentive payments. These technologies represent the large majority of HVAC systems for which installations trigger Title 24 requirements.
Most of the IOU incentives paid for HVAC systems are administered through the Upstream Equipment Incentives subprogram of the statewide HVAC program. The upstream program offers incentives to distributors who sell qualifying high efficiency HVAC equipment. This bill would not apply to this subprogram since it assumes a "downstream" incentive design where incentives are paid to the customer (or contractor) after the system is installed.
Statewide Codes and Standards Compliance Enhancement subprogram
As part of the IOUs 2010-2012 energy efficiency portfolio, the Codes and Standard program was expanded to include new Compliance Enhancement subprogram, funded at $3.8 million. The goal of this program is to increase Title 24 code compliance by helping to improve building department code enforcement processes from beginning to end. Activities include: training and supporting building officials; simplifying and expediting permitting and compliance processes; and a pilot program with 12 local building departments to investigate knowledge and skill gaps and code enforcement processes in detail, in order to indentify opportunities to streamline enforcement practices and improve consistency between jurisdictions.
Western HVAC Performance Alliance (WHPA) Compliance Committee
Several of the activities described above in the CE subprogram are being implemented in partnership with HVAC industry stakeholders through the WHPA. The WHPA3 is an HVAC industry forum established to advise the IOUs on implementation of the California Long-Term Energy Efficiency Strategic Plan (Strategic Plan)4 and funded through the statewide HVAC program in the 2010-2012 EE program portfolio. The Compliance Committee is tasked with implementing HVAC Goal #1 of the Strategic Plan: "Consistent and effective compliance, enforcement, and verification of applicable building and appliance standards." Through this forum the IOUs are actively working with the California Energy Commission, California State Licensing Board and other industry stakeholders to improve code compliance.
Statewide Workforce Education and Training (WE&T) program
Under the statewide WE&T program, the IOUs are involved with several activities to support a trained and educated workforce, that is designed, in turn, to support improved code compliance
HVAC WE&T subprogram - Under the statewide HVAC program, this $10 million subprogram offers industry specific education and training opportunities targeted at all levels of the HVAC value chain. Building on the findings and recommendations of the WE&T Needs Assessment, this subprogram will seek to influence quality-inclined contractors, installers, and technicians to deliver premium services to their customers, including ensuring compliance with Title 24 building codes.
Energy Centers subprogram- Through the "Centergies" subprogram of the 2010-2012 statewide WE&T program ($75 million), the IOUs offers conducts seminars and workshops that address the knowledge and skill gaps of builders, developers, contractors, designers, installers, plant engineers and operators, agricultural owners and managers, and city and county building department staffs.
STATUS: SB 454 passed the Senate 24-15 and is awaiting committee assignment in the Assembly.
SUPPORT/OPPOSITION:
Sponsor: Natural Resources Defense Council
State Building and Construction Trades Council, AFL-CIO
Support: California Energy Efficiency Industry Council (if amended)
Environmental Defense Fund
Sierra Club California
Opposition: None on file
STAFF CONTACTS:
Dan Chia, Deputy Director-OGA (916) 324-5945 dc2@cpuc.ca.gov
BILL LANGUAGE:
BILL NUMBER: SB 454 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 31, 2011
AMENDED IN SENATE MAY 4, 2011
AMENDED IN SENATE APRIL 12, 2011
AMENDED IN SENATE MARCH 29, 2011
INTRODUCED BY Senator Pavley
FEBRUARY 16, 2011
An act to add Section 7110.05 to the Business and
Professions Code, An act to amend Section 25900
of, and to add Section 25402.11 to, the Public Resources Code, and to
amend Section 399.4 of the Public Utilities Code, relating to
energy.
LEGISLATIVE COUNSEL'S DIGEST
SB 454, as amended, Pavley. Energy efficiency standards.
(1) Existing law establishes the State Energy Resources
Conservation and Development Commission and vests with the commission
jurisdiction over specified matters related to energy. Existing law
requires the Attorney General, upon the request of the commission, to
petition a court of competent jurisdiction to enjoin violations of
law that is within the subject matter of the commission. Existing law
requires the commission to prescribe, by regulation, appliance
efficiency standards.
This bill would authorize the commission to establish an
administrative enforcement process to enforce the above standards.
The bill would provide for the assessment of civil penalties by the
courts or administrative civil penalties by the commission for a
violation of the above standards. The bill would require the
penalties collected to be deposited in the Appliance Efficiency
Enforcement Subaccount, which this bill would establish in the Energy
Resources Program Account, and would authorize the commission to
expend the moneys in the subaccount, upon appropriation by the
Legislature, as specified. The bill would require the court, upon
granting of relief for a violation of the above standards, to award
the commission the reasonable costs incurred by the commission in
investigating and prosecuting the action.
(2) Existing law requires the commission to prescribe, by
regulation, building design and construction standards, and energy
and water efficiency design standards for new residential and
nonresidential buildings.
This bill would require the commission and the Contractors' State
License Board to collaborate to identify and investigate the failure
of licensed and unlicensed contractors to comply with the above
standards and to obtain the necessary building permits, and to
conduct an education and awareness campaign for contractors and
consumers regarding the permitting requirements.
(3)
(2) Existing law provides that it is the policy of this
state and the intent of the Legislature that the commission
administer cost-effective energy efficiency programs authorized
pursuant to existing statutory authority. Existing law provides for
the regulation of public utilities under the Public Utilities Act. A
violation of the Public Utilities Act is a crime.
This bill would prohibit a public utility from issuing rebates or
incentives for energy efficiency improvements unless the recipient of
the rebate or incentive certifies that a licensed
contractor was used, as appropriate, and the applicable permitting
requirements were followed, for the improvement or
installation was done in compliance with all applicable
permitting requirements and by a licensed contractor, if applicable
. Because a violation of this provision would be a crime under
the Public Utilities Act, the bill would impose a state-mandated
local program.
(4)
(3) The California Constitution requires the state to
reimburse local agencies and school districts for certain costs
mandated by the state. Statutory provisions establish procedures for
making that reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. It is the intent of the Legislature to enact
legislation that maximizes the energy saved by the state's various
energy efficiency statutes, regulations, and programs.
SEC. 2. The Legislature finds and declares all of the following:
(a) California's building and appliance energy
efficiency standards, specified in Part 6 of Title 24 of,
and Article 4 Article 4 (commencing with Section 1601)
of Chapter 4 of Division 2 of Title 20 of ,
the California Code of Regulations, respectively,
represent a state resource for accomplishing increased energy
efficiency in newly constructed buildings, additions, and
alterations to existing buildings, and in appliances. These
standards are recognized as leading the nation in energy savings and
serving as one of the primary energy policy tools that has resulted
in California's per capita energy use staying essentially constant
over the past 30 years while that of the rest of the United States
increased steadily by nearly 50 percent.
(b) The effectiveness of the building energy efficiency standards
is dependent on the conscientious efforts of licensed contractors in
California to build buildings and install components and equipment in
compliance with the standards.
(c) The Governor and the Legislature recognize that many buildings
are being retrofitted by unlicensed contractors and without required
permits. Contractors operating in the underground economy are in
flagrant violation of California contracting law. Unlicensed and
licensed contractors who market their services with these underground
practices engage in unfair competition, undercutting legitimate
contractors who endeavor to conscientiously comply with contracting,
building, and business laws. This underground activity denies state
and local governments license and building permit revenue,
diminishing the ability of state and local agencies to provide
enforcement services intended to protect consumers by ensuring
compliance with these laws. These practices particularly damage and
diminish the potential for conscientious compliance with the building
energy efficiency standards.
(d) The mission of the Contractors' State License Board is to
protect consumers by regulating contractors to promote the health,
safety, and general welfare of the public in matters related to
construction. As a part of fulfilling this mission, it is important
for the board's licensing program to include efforts to eradicate the
underground practice of performing construction work without
building permits and failing to comply with the building energy
efficiency standards.
(e) The State Energy Resources Conservation and Development
Commission is responsible for establishing energy efficiency building
codes and appliance standards in California. As such, that
commission has expertise in how to raise awareness and enforce these
standards. It has become critically important for that commission and
the Contractors' State License Board to ensure that all buildings
and appliances meet California's efficiency standards and send a
strong, definitive message to those whose objective is illegal
financial gain at the expense of safe building practices and energy
efficiency.
(f)
(b) The appliance efficiency standards deliver
cost-effective energy savings to consumers. They are an important
component of the state's programs to manage its energy consumption,
conserve natural resources, and improve the quality of life for all
its citizens. The Governor and Legislature recognize that significant
quantities of appliances are sold and offered for sale in California
that do not meet the state's energy efficiency standards. The
products needlessly consume resources and saddle consumers with
hidden long-term costs after the initial purchase. Furthermore,
inadequate certification of appliances sold in California undermines
the state's ability to ensure that products sold in California meet
the state's efficiency standards.
(g)
(c) These violations result in a substantial financial
loss to consumers who purchase energy efficiency goods and services,
and represent unfair competition that dramatically impacts the
economic viability of legitimate businesses. It is critical for
California to maintain a business climate favorable to legitimate
competition, so that conscientious contractors, manufacturers,
distributors, retailers, Home Energy Rating System raters, and other
businesses are able to sustain their businesses against unfair
competition.
SEC. 3. Section 7110.05 is added to the
Business and Professions Code, to read:
7110.05. The State Energy Resources Conservation and Development
Commission and the board shall collaborate to identify and
investigate the failure of licensees and unlicensed contractors to
comply with the building energy efficiency standards and to obtain
building permits, and to conduct an education and awareness campaign
to increase knowledge of permitting requirements among contractors
and consumers.
SEC. 4. SEC. 3. Section 25402.11 is
added to the Public Resources Code, to read:
25402.11. (a) (1) The commission may adopt regulations
establishing an administrative enforcement process for a violation of
a regulation adopted pursuant to subdivision (c) of Section 25402
and for the assessment of an administrative civil penalty not to
exceed two thousand five hundred dollars ($2,500) for each violation.
The process shall comply with the requirements of Chapter 4
(commencing with Section 11400) and Chapter 4.5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code.
(2) In assessing the amount of an administrative penalty, the
commission shall consider all of the following factors:
(A) The nature and seriousness of the violation.
(B) The number of violations.
(C) The persistence of the violation.
(D) The length of time over which the violation occurred.
(E) The willfulness of the violation.
(F) The violator's assets, liabilities, and net worth.
(b) If the commission finds that a violation of the regulations
adopted pursuant to subdivision (c) of Section 25402 has occurred or
is threatening to occur, the commission may refer the matter to the
Attorney General to petition a court to enjoin the violation. The
court may grant prohibitory or mandatory injunctive relief as
warranted by issuing a temporary restraining order, preliminary
injunction, or permanent injunction, and may assess a civil penalty
not to exceed two thousand five hundred dollars ($2,500) for each
violation, considering the factors specified in paragraph (2) of
subdivision (a).
(c) Penalties collected pursuant to this section shall be
deposited into the Appliance Efficiency Enforcement Subaccount, which
is hereby established in the Energy Resources Program Account. The
moneys in the Appliance Efficiency Enforcement Subaccount may be
expended by the commission, upon appropriation by the Legislature,
for the education of the public regarding appliance energy efficiency
and for the enforcement of the regulations adopted pursuant to
subdivision (c) of Section 25402.
(d) An order imposing an administrative civil penalty shall be
subject to judicial review pursuant to subdivisions (a) and (b) of
Section 25534.2.
(e) A person shall not be liable for a civil penalty pursuant to
subdivision (b) if that person is subject to an administrative civil
penalty pursuant to subdivision (a).
(f) In a civil action brought on behalf of the commission pursuant
to this section, upon granting relief, the court shall award to the
commission the reasonable costs incurred by the commission in
investigating and prosecuting the action.
SEC. 5. SEC. 4. Section 25900 of the
Public Resources Code is amended to read:
25900. Except as provided in Sections 25402.11 and 25531, if the
commission finds that any provision of this division is violated or a
violation is threatening to take place that constitutes an emergency
requiring immediate action to protect the public health, welfare, or
safety, the Attorney General, upon request of the commission, shall
petition a court to enjoin the violation. The court may grant
prohibitory or mandatory injunctive relief as warranted by way of
temporary restraining order, preliminary injunction, and permanent
injunction.
SEC. 6. SEC. 5. Section 399.4 of the
Public Utilities Code is amended to read:
399.4. (a) (1) In order to ensure that prudent investments in
energy efficiency continue to be made that produce cost-effective
energy savings, reduce customer demand, and contribute to the safe
and reliable operation of the electric distribution grid, it is the
policy of this state and the intent of the Legislature that the
commission shall continue to administer cost-effective energy
efficiency programs authorized pursuant to existing statutory
authority.
(2) As used in this section, the term "energy efficiency"
includes, but is not limited to, cost-effective activities to achieve
peak load reduction that improve end-use efficiency, lower customers'
bills, and reduce system needs.
(b) (1) Any rebates or incentives provided by any public utility
for energy efficiency improvement and installation of energy
efficient components, equipment, or appliances in buildings shall be
provided only if the recipient of the rebate or incentive
certifies that a licensed contractor was used, as appropriate, and
any applicable permitting requirements were followed, for the
improvement or installation. the improvement or
installation was done in compliance with all applicable permitting
requirements and by a licensed contractor if a license is required.
(2) This subdivision does not imply or create new authority or
responsibility, or expand existing authority or responsibility, of
the public utilities for the enforcement of the building energy and
water efficiency standards adopted pursuant to subdivision (a) or (b)
of Section 25402 of the Public Resources Code, or appliance
efficiency standards and certification requirements adopted pursuant
to subdivision (c) of Section 25402 of the Public Resources Code.
(c) The commission, in evaluating energy efficiency investments
under its existing statutory authority, shall also ensure that local
and regional interests, multifamily dwellings, and energy service
industry capabilities are incorporated into program portfolio design
and that local governments, community-based organizations, and energy
efficiency service providers are encouraged to participate in
program implementation where appropriate.
SEC. 7. SEC. 6. No reimbursement is
required by this act pursuant to Section 6 of Article XIII B of the
California Constitution because the only costs that may be incurred
by a local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction, within
the meaning of Section 17556 of the Government Code, or changes the
definition of a crime within the meaning of Section 6 of Article XIII
B of the California Constitution.
1 Swan, Eric, Jarred Metoyer, and Wim Bos, "Too Much Stick? Not Enough Carrot? Testing the Presumption of Non-Compliance," 2008 ACEEE Summer Study on Energy Efficiency in Buildings.
2 Current versions of PIPs are available at http://eega.cpuc.ca.gov/Main2010PIPs.aspx.
3 For information about WHPA, go to www.performancealliance.org.
4 The Strategic Plan was adopted by the Commission in D.08-09-040. It is available on the Engage360 Web Portal at www.engage360.com/images/stories/ceesp/caenergyefficiencystrategicplan_jan2011.pdf
