Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Energy Resources Conservation and Development Commission (3360)

The Energy Resources Conservation and Development Commission (commonly referred to as the California Energy Commission, or CEC) 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.

Proposed Funding. The budget proposes commission expenditures of $233.3 million from various state and federal funds in 2002-03 ($5.7 million General Fund). This is $131.9 million, or 36 percent, less than current-year estimated expenditures. The large 2002-03 reduction is mainly due to one-time General Fund monies appropriated in the prior year in Chapter 7x, Statutes of 2001 (SB 5x, Sher), which have been carried forward to the current year for various programs to promote energy efficiency and peak-load conservation. The carryforward amount was further augmented by the 2001-02 budget trailer bill--Chapter 111, Statutes of 2001 (AB 429, Aroner).

ERPA Fund Condition

Budget Underestimates ERPA Revenues

The budget assumes no increase in Energy Resources Programs Account (ERPA) revenues in the budget year. We recommend assuming 2 percent revenue growth in the budget year, thereby raising total ERPA revenues by about $900,000. We further recommend using these additional ERPA revenues to offset activities currently supported by the General Fund, for a savings of $900,000.

Background. The ERPA fund supports many of the basic programs of the CEC, including its siting and energy forecasting functions. State law directs electric utilities (both privately and publicly owned) to collect a state energy surcharge of two-tenths of one mill ($0.0002) per kilowatt-hour (kWh) of electricity consumed by all electrical customers. The commission estimated that in 2000 the average household contribution to ERPA was approximately $0.40 a month, or less than $5 annually. The Board of Equalization collects the surcharge from the utilities. 

ERPA Revenues Underestimated. The CEC indicates that, because of increased conservation over the past few years, ERPA revenues have declined. However, recent electricity demand forecasts indicate that the state's electricity demand will continue to grow at a pace faster than estimated conservation growth in the budget year. California's electricity demand, assuming conservation of around 15,200 gigawatt hours, is forecast to grow around 3.4 percent from 2001-02 to 2002-03. This incorporates a slight decrease in conservation from the current year and an underlying base load growth of 2.1 percent. Even if the same higher level of conservation savings estimated for the current year is also assumed in the budget year, electricity demand would still grow nearly 3 percent.

Since the ERPA surcharge is assessed on every kWh consumed in California, we estimate that some growth in ERPA revenues should be expected in the budget year. We recommend a conservative estimate of 2 percent to take account of the multitude of recent programs funded to promote energy conservation. This assumption results in total ERPA revenues of $46.2 million in the budget year. Therefore, assuming the expenditures proposed by the budget, the ERPA fund should end the budget year with a fund balance of $1.8 million approximately $900,000 more than estimated in the Governor's budget.

General Fund Savings Opportunity. The upward revision of the ERPA fund balance provides the Legislature with an alternative funding source for the commission's activities currently supported by the General Fund. Therefore, we recommend using the $900,000 in additional ERPA revenues to offset the commission's General Fund supported activities (see discussion below).

Energy Facility Licensing Program


The CEC's Energy Facilities Licensing Program (referred to as the siting program) is responsible for licensing thermal power plants of 50 megawatts (MWs) or greater (excluding hydroelectric, wind, and solar facilities, which are not subject to this process). After approving a proposed power plant, the commission is required 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 also approve any modification 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 MW standard or type of facility exclusions mentioned previously.

Proposed Funding

The Governor's budget has proposed expenditures from all funds of $18.8 million. This total includes expenditures of $5.5 million from the General Fund, including $1.1 million in ongoing spending. This proposed funding is a reduction from the current-year estimated expenditure level of $21.3 million, due to the Governor's proposed reduction in siting contract funds in the budget year and one-time expenditures in the current year for a survey of coastal power plants. This funding supports 130 positions in the budget year, composed of 90 permanent positions and 40 limited-term positions that will expire in 2003-04. The commission also has $6.5 million budgeted for consulting contracts ($1.7 million General Fund).

New Fee Proposed. The Governor's budget also proposes to establish a new fee on energy licensing applications filed with the commission. The fee is proposed to be $25,000 per filing and will partially defray the costs of licensing a new power plant. The budget assumes that there will be ten new siting applications filed in the budget year for total revenues of $250,000. These revenues will be deposited in the commission's ERPA fund, where they will be used to support siting contracts previously supported by the General Fund.

Siting Workload Changes Frequently

Workload History. Over the past few years, the CEC's siting program workload has been volatile due to a variety of factors, including shortage of electricity supplies, high electricity prices, and uncertain market conditions. Only ten applications were filed to build new power plants in 1999-00, 36 applications were filed in 2000-01, and it is estimated that 15 applications will be filed before the end of the current year. In addition, the compliance monitoring workload has increased substantially over this time period. The workload has increased from 39 cases in 1999-00 to an estimated 86 cases in the current year to monitor power plants in both the construction and operation phases. The commission is projecting a smaller siting workload for the budget year--currently estimating around ten new siting applications in 2002-03. This volatile workload poses challenges in providing a funding level that adequately reflects the program's workload.

Factors Affecting Future Workload. There has been obvious growth in the siting workload of new electricity power plants over the past two years. However, since last summer, the recession and conservation have contributed to lower consumer demand for electricity and lower electricity prices. In addition, over 2,000 MW of new electricity generation sited by the CEC have come on-line in California over the past year. There is another 3,600 MW in construction to be on-line for next summer and 9,800 MW, comprised mostly of larger power plants, in construction and scheduled to be on-line by 2003. These combined factors have resulted in the commission receiving fewer siting applications for new power plants over the past few months. The construction of new power plants has also been slowed by the Enron Corporation's bankruptcy, which has lowered the stock prices and credit ratings of many large energy companies, making it difficult for them to raise capital for new projects. Given these factors, we believe that the siting program's future workload may be less than it is currently budgeted to accommodate.

Updated Projections Needed on Siting Workload

We recommend the Legislature approve $900,000 for ongoing energy siting contracts from the Energy Resources Programs Account instead of the General Fund. We also withhold recommendation on the remaining General Fund support of the siting program ($4.6 million) until the commission provides an updated schedule of expected application filing dates and corresponding workload projections prior to budget hearings. (Augment Item 3360-001-0465 by $900,000 and reduce Item 3360-001-0001 by $900,000.)

As noted previously, the Governor's budget proposes $5.5 million General Fund to help support activities of the siting program. These funds support 40 limited-term positions and contract funds (some of which are ongoing) that were added to the siting program in the current year to help address the increased workload.

As noted above, we have identified $900,000 in additional ERPA revenues that we recommend be used to offset the commission's General Fund expenditures in the budget year. Since ERPA traditionally supports the siting program activities, we recommend that the Legislature approve $900,000 for ongoing energy siting contracts from ERPA instead of the General Fund. This would provide $900,000 in ongoing savings to the General Fund.

We also believe there may be additional General Fund savings available pending an updated schedule of expected application filing dates and corresponding workload projections. 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 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. The effects of the recession and increased electricity conservation on the state's electricity demand, and the number of new electricity generators slated to come on-line in the next two years, has and will continue to reduce the number of siting applications received by the commission. Therefore, we believe additional General Fund savings could be likely. As a result, we withhold recommendation on the remaining General Fund support of the siting program ($4.6 million) until the commission provides an updated schedule of expected application filing dates and corresponding workload projections prior to budget hearings.

Funding of Siting Program Should be Changed

We recommend that the Legislature consider alternative funding sources to support the siting program, including the establishment of fees on electricity generators and/or reassessing the electricity ratepayer fees that fund the Energy Resources Programs Account.

Current Funding Source for Siting Program. The commission's power plant siting program has historically been funded from ERPA, which is supported by a surcharge on ratepayers' electricity bills. However, the budget proposes $5.5 million General Fund support for the siting program, including some ongoing support of the program. We recommend that if the Legislature finds these funds are needed in the budget year (see discussion above), they should be paid for by fees levied on power plants and/or ERPA. (The latter may require reassessing ERPA fees so that they cover all costs associated with the siting program.)

Governor's Fee Proposal. As mentioned previously, the Governor has proposed a $25,000 up-front fee for all plants submitting licensing applications to the commission. This proposed fee is a nominal amount and only covers a portion of the costs associated with licensing a power plant and supporting compliance activities throughout its lifetime. The department has indicated that the fee level was chosen based on fees levied in other states and was also set at a level that would deter applicants that were not serious about building a new power plant. As noted earlier, the budget projects the siting division will receive ten siting applications in the 2002-03 budget year for total fee revenues of $250,000. These fee revenues only defray a small portion of the $18-plus million dollars budgeted for 2002-03 siting and compliance activities. The fee revenue is also not adequate to cover ongoing General Fund costs associated with supporting siting activities. The fee revenues are proposed to be deposited in ERPA and are to fund siting contracts that were previously supported by the General Fund.

Alternatives for Funding Siting Program. We recommend two alternative funding sources for the siting program that potentially could result in $1.1 million in ongoing General Fund savings and $4.4 million in one-time savings. They include the following:

We believe that either the generators or ratepayers--as opposed to general taxpayers--should support the siting program since they are the entities that directly benefit from the services provided by the siting program. Therefore, we recommend the Legislature consider establishing fees on electricity generators to support the siting program and/or reassess the electricity ratepayer fees that support ERPA so that they are sufficient to support all expenditures associated with the siting program.

Return to General Government Table of Contents, 2002-03 Budget Analysis