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.
The budget proposes expenditures of $363 million from various state and federal funds in 2008–09. This amount is $330 million, or 48 percent, less than current–year estimated expenditures. This decrease is due mainly to a decrease of $398 million in expenditures from the Renewable Resource Trust Fund, reflecting a recent statutory change that shifts funding of renewable energy incentive payments to the “off budget” electricity rate–making process. The budget also proposes $100.9 million from the Alternative and Renewable Fuel and Vehicle Technology (ARFVT) Fund to implement recently enacted legislation that created a new program.
The budget proposes $100.9 million from special funds to begin implementation of the Alternative and Renewable Fuel and Vehicle Technology Program, $100 million of which is for awarding grants and other financial incentives. We recommend the adoption of budget bill language that makes the appropriation of the $100 million for awarding grants and incentives contingent on the completion of statutorily required guidelines and the submittal of these guidelines for legislative review. (Reduce Item 3360–001–3117 by $100 million and adopt related budget bill language governing appropriation of a like amount.)
The Alternative and Renewable Fuel and Vehicle Technology Program. In 2007, the Legislature enacted the California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007 (Chapter 750, Statutes of 2007 [AB 118, Núñez]). The act created two new programs—the ARFVT Program, to be administered by the Energy Commission, and the Air Quality Improvement Program, to be administered by the Air Resources Board (ARB). The programs are primarily funded by increases in various vehicle, vessel, and other air quality–related fees that are projected to raise upwards of $150 million annually for each of eight years. The revenues to be administered by the Energy Commission are deposited into the ARFVT Fund. This write–up focuses on the ARFVT Program.
Statute Specifies Program Goals, Eligible Fund Uses, and Financial Award Criteria. The act identifies the primary goals of the ARFVT Program as development and commercialization of technologies for renewable and nonpetroleum fuels that help to achieve the state’s climate change goals. The act states that the program is not to prefer any particular vehicle or fuel technology. Rather, the program is to provide financial incentives, such as grants, loans, and loan guarantees for specified types of projects that meet specified criteria, including furtherance of a number of air quality and other environmental and energy goals. In addition, the act requires ARB to develop guidelines to ensure that activities that receive awards from the Energy Commission pursuant to the ARFVT Program (1) complement efforts to achieve federal and state air quality goals, and (2) maintain or improve upon emissions reductions and air quality benefits included in specified standards and regulations.
Budget Requests Funding for Budget–Year Financial Awards. The budget proposes $100.9 million for the ARFVT Program in the budget year. Of that amount, $100 million would fund competitive grants and other awards to qualifying public and private projects— including fuel, vehicle, and workforce development projects—that meet the criteria described above. The remaining amount—$891,000—would fund six permanent positions that, in the budget year, would work alongside existing commission staff to establish the program through activities such as development of an investment plan in keeping with statutory requirements.
Financial Awards Dependent on Statutorily Required Guidelines. As mentioned above, AB 118 requires ARB to adopt guidelines to ensure that activities that receive ARFVT Program awards from the Energy Commission complement efforts to achieve federal and state air quality goals and maintain or improve upon emissions reductions and air quality benefits. In its AB 118–related budget proposal, ARB requests $1.7 million and 11 positions to begin implementation of AB 118. Among the activities described in ARB’s budget proposal is development of the guidelines mentioned above, which, according to ARB’s budget request, ARB expects to adopt no later than July 2009. Based on our discussions with program staff, we understand that developing these guidelines is a priority activity for the budget year and that it is likely that the guidelines will be completed some time during the budget year.
Start–Up Funds Are Warranted in the Budget Year, but Award Funds Should Be Made Contingent on Guideline Development. We find that it is appropriate that the Legislature appropriate funds to the Energy Commission for its program start–up activities in the budget year. Assembly Bill 118 requires the commission to establish a financial awards program that is relatively complex. Program administration must comply with numerous award criteria identified in the act, as well as related standards and regulations. And, unlike other state administered financial award programs, a particularly diverse class of projects may qualify for program awards—including projects for research, demonstration, infrastructure, and workforce development. Energy Commission staff will be busy in the budget year developing an investment plan to guide the financial awards.
Given the importance placed by the Legislature on the development of guidelines by ARB that will direct the commission’s program awards, we recommend the adoption of budget bill language to facilitate legislative oversight over this aspect of AB 118’s requirements. Specifically, we recommend that the Legislature (1) reduce the commission’s appropriation from the ARFVT Fund by $100 million and (2) adopt budget bill language making an appropriation of an additional $100 million from the ARFVT Fund for grants and financial incentives contingent on the submittal of completed guidelines for legislative review. This will give the Legislature the opportunity to evaluate whether the program guidelines adopted by ARB, and the Energy Commission’s investment plan which is based on these guidelines, satisfy the Legislature’s goals and priorities as identified in the act. We recommend the adoption of the following language:
Item 3360–001–3317 — For support of the State Energy Resources, Conservation and Development Commission ……………………………..$891,000
Provisions:
1. An additional sum of $100 million is hereby appropriated from the Alternative and Renewable Fuel and Vehicle Technology Fund for the award of grants and other financial incentives by the commission pursuant to Chapter 750, Statutes of 2007 (AB 118, Núñez), not sooner than 30 days after notification to the Chairperson of the Joint Legislative Budget Committee of the completion of specified guidelines required by Chapter 750 to be developed by the Air Resources Board, or not sooner than whatever lesser time the Chairperson, or his or her designee, may determine. To the extent that monies are made available pursuant to the terms of this appropriation, unexpended funds from the appropriation at the end of the 2008–09 fiscal year shall revert to the Alternative and Renewable Fuel and Vehicle Technology Fund.
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