Legislative Analyst's Office Analysis of the 2001-02 Budget Bill

Energy Resources Conservation and Development Commission (3360)

The Energy Resources Conservation and Development Commission (commonly referred to as the California Energy Commission) is responsible for forecasting energy supply and demand, developing and implementing energy conservation measures, conducting energy-related research and development programs, and siting major power plants.

The budget proposes commission expenditures of $210.8 million from various state and federal funds in 2001-02. This is $106.1 million, or 33 percent, less than current-year estimated expenditures. This large reduction is mainly due to (1) one-time General Fund monies appropriated in Chapter 329, Statutes of 2000 (AB 970, Ducheny), for a $50 million energy conservation grant program and an expedited power plant siting process; (2) Public Interest Energy Research (PIER) program funds carried over into the current year and an assumption that no PIER funds will be carried over into 2001-02; and (3) the near exhaustion of Petroleum Violation Escrow Account (PVEA) funds in the current year. These reductions are partially offset by increased expenditures in the budget year of (1) $10.6 million General Fund for alternative fuel projects, (2) $5.9 million ($3.2 million General Fund) for electricity-related analysis and energy efficiency standards development, and (3) $3.1 million General Fund for increasing workload associated with the Energy Facilities Siting Program.

Petroleum Violation Escrow Account

In the "Crosscutting Issues" section of this chapter, we discuss the history of PVEA and the fall off of settlement revenues into the account. We recommend that the Energy Commission report to the Legislature, prior to budget hearings, on a multiyear projection of expected administrative costs and interest earnings, so that the Legislature can determine how many years PVEA can be expected to provide some funding for energy-related projects.

Energy-Related Proposals

Additional Resources for Siting Program

We withhold recommendation on the $3.1 million General Fund request for 19 three-year limited-term positions (16 continuing and 3 new positions) and consulting funds for anticipated workload in the Energy Facilities Siting program until the commission provides an updated schedule of expected application filing dates and corresponding workload projections prior to budget hearings. Further, we recommend that if the Legislature approves an augmentation, it should be funded from the Energy Resources Programs Account rather than the General Fund.

The commission's Energy Facilities Siting program was budgeted at $19.2 million and 90 positions for the current year. The budget proposes $3.1 million from the General Fund for 19 three-year limited-term positions (continuation of 16 positions created pursuant to Chapter 329, plus 3 new positions) and additional consultant contracts for the program in 2001-02. The proposal is based on the commission's projection of increased workload related to reviewing energy facility siting applications the commission currently expects to receive in 2001-02.

The Warren-Alquist Act requires commission approval of the construction of electricity-generating power plants, unless the plant generates less than 50 megawatts of electricity or is a hydroelectric, wind, or solar facility. After approving a proposed power plant, the act requires the commission to ensure that the facility is in compliance with all applicable federal, state, and local laws, as well as any conditions of certification required by the commission. The commission must approve any modifications to these plants. For plants not subject to its jurisdiction (such as those that predate the siting approval process), the commission must approve plant modifications unless the modifications meet the megawatt or type-of-facility exclusions noted above.

Anticipated Filing Dates Tend to Slip. The commission periodically updates its schedule of when it expects project proponents to file applications for the siting review process. This schedule is adjusted frequently as project details often change as projects develop, requiring proponents to file the siting application later than initially expected. These adjustments then alter the commission's staffing needs. As a result, we withhold recommendation on the $3.1 million request until the commission provides an updated schedule of expected application filing dates and corresponding workload projections prior to budget hearings. In addition, the commission should report on the status of new plant construction and actions to expedite approval and construction of power plants.

Fund Source. The commission's power plant siting program has historically been funded from the Energy Resources Programs Account (ERPA), which is supported by a surcharge on ratepayers' electricity bills. However, the budget request proposes an ongoing amount of $3.1 million from the General Fund to support this activity. We recommend that if the Legislature approves an augmentation to the siting program, it should be funded from ERPA, consistent with program and department history. We note that the proposed ERPA fund balance at the end of the budget year, if all proposals in the Governor's budget were adopted, would be $2.7 million, or $0.4 million less than necessary to support this proposal. However, as discussed below, we recommend the Legislature shift $3.5 million of one-time expenditures proposed for energy efficiency and alternative energy grant programs from ERPA to the General Fund. Thus, for the Governor's energy-related proposals, our recommendations would result in one-time expenditures receiving General Fund support, while ongoing responsibilities would be supported by ERPA. This would provide sufficient resources in ERPA to support the siting proposal.

Long Term Energy Baseload Reduction Initiative

We recommend that the Legislature approve the $2.8 million General Fund request proposed for electricity demand analysis on a one-time basis as the Energy Commission has not made the case that General Fund support is needed on an ongoing basis. We further recommend that the Legislature approve $3.5 million for one-time energy efficiency proposals and solar and distributed generation grant programs from the General Fund instead of the Energy Resources Programs Account. (Augment Item 3360-001-0001 by $3.5 million and reduce Item 3360-001-0465 by $3.5 million.)

The Governor's budget proposes $5.9 million ($3.2 million General Fund) for a Long-Term Energy Baseload Reduction Initiative as outlined in Figure 1.

Customer Characteristics Survey. Most of the General Fund augmentation is requested for a proposed customer characteristics survey. The commission would collect and analyze data on electricity use across all sectors—residential, commercial, and industrial—to improve its demand analysis models. According to the commission, the total annual cost of this proposed survey is $4.5 million. While the commission requests $2.8 million General Fund annually, the remaining $1.7 million would be provided by the Public Utilities Commission (PUC) from a ratepayer surcharge that supports conservation and energy efficiency programs administered by the utilities and overseen by PUC. These utility program funds currently provide approximately $3 million for such surveys. The PUC, however, based on its assessment of priorities, has reallocated $1.3 million in funding to other purposes and has decided to fund only $1.7 million for this survey in the budget year. In view of the current energy situation, the PUC decision to only partially fund this program in the budget year may be appropriate. It is not clear, however, that partial funding should be on an ongoing basis. Thus, we recommend that the Legislature approve the $2.8 million request for one year only. This recognizes the fact that PUC could reassess priorities next year and allocate additional funds for this purpose.

Switch Funding to General Fund From ERPA. As discussed above, we believe the ongoing commission programs, such as power plant siting, should be funded from ERPA. To accommodate this, one-time proposals could be supported by the General Fund as necessary to free up ERPA funds for the ongoing programs. As noted above, the $3.1 million siting proposal exceeds the proposed $2.7 million fund balance at the end of 2001-02. The budget, however, proposes $3.5 million in ERPA support for one-time projects—$2.5 million for energy efficiency activities (see Figure 1) and $1 million for Solar and Distributed Generation Grant programs, pursuant to Chapter 537, Statutes of 2000 (SB 1345, Peace). These proposals appear to have merit. As a result, we recommend that the Legislature approve this $3.5 million in proposed one-time spending from the General Fund instead of ERPA. This would provide sufficient resources in ERPA to support the siting proposal.