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ARIZONA STATE LEGISLATURE
Forty-seventh Legislature – Second Regular Session
GENERATION AND ENERGY EFFICIENCY
Minutes of Meeting
Chairman Lucy Mason called the meeting to order at 3:14 p.m. and attendance was noted by the secretary.
Mrs. Chase
Mr. Jones
Mr. Konopnicki
Mrs. Mason, Chair
Ms. Aguirre
Mr. Brown
Mr. Nelson
Mr. Pierce
Michael Neary, Arizona Solar Energies Industries Association and Desert Sun Solar
Penny Allee Taylor, Southwest Gas Corporation
Tom Hansen, Tucson Electric Power
Kristen Mayes, Arizona Corporation Commissioner
Brian O’Donnell, Southwest Gas Company, Engineering Department,
Molly Greene, Salt River Project (SRP)
Jeff Schlegel, Southwest Energy Efficiency Project (SWEEP)
Brian O’Donnell, Southwest Gas Company, Engineering Department
Person recognized who did not speak (page 5)
The Chairman announced the renewable generation and energy efficiency bills to be discussed are:
H.B. 2429, solar energy tax incentives
Michael Neary, Arizona Solar Energies Industries Association and Desert Sun, reported that last year there was a similar bill that came close to making it through the legislature and it included quite a few of the things that H.B. 2429 does. He said that they took that bill and simplified it as the other bill had been a little confusing and it was realized that the same results could be achieved by increasing the residential tax credit from $1,000 to $2,000 for installing a solar device. There are also homeowners who would like to install more than one solar device and because of that there is a tax credit cap of $5,000 for the duration of the time that homeowner owns the home.
The other portion of the bill is for commercial tax credit which has been changed in this bill to a simple 10 percent tax credit for installing solar devices on commercial property. That tax credit would be capped at $25,000 per system and no more than $50,000 in tax credits for any one company. There might be a company with outlets that eventually wants to go solar on all their outlets. He said they did not put the same type of cap on commercial as residential because, for example, a company might install a system on property that they are leasing. They simply capped it at $25,000 per system or $50,000 per year. The homeowner is limited as to what he can install.
There is a $7M cap on the commercial end of the tax credit per year. This is pretty much an arbitrary figure, but he doubts if it would ever be reached. Mrs. Mason asked if there is information or a study as to what the usage has been and what the savings to the state has been. Mr. Neary said he thought it would be a great idea if someone would do that study but he does not know of any that exists. Mr. Neary commented that it is difficult for them to get figures from the Department of Revenue. Mrs. Mason said the legislature could help with that. Mr. Jones asked if there are figures on what has been saved in Arizona in terms of energy consumption. Mr. Neary said that once they figured that it was $28 per solar water heating unit per month. Mr. Jones said the assessment should not only be about dollars but about reducing Arizona’s reliance on other forms of energy.
There are two other portions of the bill. One is a property tax measure that would limit any property taxes on properties where solar devices are installed. When one company ran the numbers, it realized it would save $50,000 in energy but spend $75,000 more in property tax because of the increased value of the property with the addition of the solar devices. The other part of the bill would eliminate the sales tax completely on solar devices. The elimination of sales tax is a factor in purchasing.
Mr. Konopnicki recommended that there be an amendment requiring a cap of $1M on the residential portion of the bill. Chairman Mason said although it cannot be done in this meeting without a quorum it certainly is fiscally responsible to do so when possible.
Penny Allee Taylor from Southwest Gas Corporation reported that they have been working with the solar industry on this bill very thoughtfully and will continue to do so. They realize that it is very important to them as an energy company. She said that a similar bill did come about last year and they did not have any issues then. Since last year, however, an energy bill just passed and they are somewhat concerned about the most recent federal energy act wherein there is a 30 percent tax credit and the Arizona Corporation Commission is entertaining some incentives to help out the solar industry.
With the new incentive she said that one area of business that is potentially really hurtful to their industry is on the water-heating side -- in the residential -- which is the base load for going into someone’s home and if the water heating load is displaced, then Southwest does not go into that home at all because there is not enough usage to pay for the infrastructure to be put in place. She said that commercial water heating is a very big hit for the gas company as well so they have taken a model out of California wherein is the requirement that if one has natural gas service they will use natural gas to heat water as well; there is an exception within their law that if someone does not have natural gas service to their business or home then they are free to use electric and encouraged to use solar.
Michael Neary clarified that there has been no agreement on these issues; that the gas company and the solar industry have talked about many ideas. He observed it is a very difficult issue because it is very competitive and the hot water heating issue is also a very important issue with the solar industry. He said they are still struggling both on the residential and the commercial issues to resolve them.
Tom Hansen, Tucson Electric Power, said that regarding Mr. Konopnicki’s recommendation of a cap on the program for the residential customers, though he does not disagree that a cap is probably an excellent idea, he believes it needs to be a fairly high cap. He reported that at Arizona Public Service (APS) and Salt River Project (SRP) they have been developing some fairly successful residential programs and a $1M cap could put a crimp in those programs. He requested that the cap be set at between $5M to $7M. Otherwise, he said he anticipates the programs will run into problems sometime in 2007. Secondly, he stated he is very much in support of this bill and observed that Arizona is facing some interesting choices ahead in energy and that the price of natural gas has increased dramatically in the last two years and it is not anticipated that those increases will be reduced in the future.
Kristen Mayes, Arizona Corporation Commissioner, said she thinks this is a great bill. She said there is essentially a crisis in natural gas in this country and anything that reduces the amount of natural gas that is used in Arizona at a time when the price of it is spiking dramatically is a good thing. It might not be a good thing for Southwest Gas in the short term but is in the public interest. Southwest Gas, however, is facing an incredible explosion of growth in the state of Arizona and that compared to what is basically a minimal loss of business as a result of this bill will more than make up for whatever business or revenues are lost as a result of this tax credit.
Chairman Mason reported this H.B. 2429 did pass through the Environment Committee with a vote of 9‑0 so there has been a lot of positive support on it.
H.B. 2427, tax credit; renewable energy production
Molly Greene, Salt River Project (SRP), reported that in general SRP is pleased to support any reasonable bill that supports renewable energy. She said they have an interest in some amendments in the form of a cap on the overall fiscal impact.
Jeff Schlegel, Southwest Energy Efficiency Project (SWEEP), reported that there is some discussion about a number of potential amendments to the bill. One is to add combined heat and power (CHP) to the bill as an eligible technology to generate electricity; another amendment is to add a cap to the bill, and this addresses Mr. Konopnicki’s concern. A third amendment is about Integrated Gasification Combined Cycle (IGCC) which is a special advanced coal technology that is being considered in Arizona. There is a proposal from a party to add IGCC to the list of technologies.
Brian O’Donnell, Southwest Gas Company, Engineering Department, reported that with CHP electricity is produced at the same time as heat. In the normal power plant there is a big waste of heat rising in the form of clouds of vapor. CHP is a very high efficiency method in that the heat, instead of being wasted, is being used for another purpose. He said it is not the intention to take the base load away from the electric companies, but rather they are proposing that in those peak times when there is high demand for energy perhaps CHP could be used to reduce those peaks and in effect reduce the need for more power plants in Arizona and that is the purpose of one of the amendments. Penny Allee Taylor added that with natural gas it is most efficient when it is used directly and not fed through a power plant.
H.B. 2430, energy cost savings measures, requirements
Jeff Schlegel, Southwest Energy Efficiency Project (SWEEP), explained that H.B. 2430 basically cleans up four existing statutes that address state facilities and schools clarifying that energy life cycle costing shall be used for the analysis of energy efficiency and renewable energy investments. Essentially energy efficiency and renewable energy costs on the front end to invest in them but then they save energy over time. There are energy purchasing and energy performance contracts developed that allow state facilities and schools to invest in energy efficiency or renewable energy and then to pay that back over time through their energy cost savings. The existing statutes are either unclear or inconsistent, so this bill modifies the existing statutes. It clarifies that the performance contracting maximum term for these energy contracts could be 25 years or the life of the measure. So if you have a measure that is only going to last 15 years, the maximum contract term would be 15 years; if you have a measure that lasts 30 years, then the maximum contract term would be 25 years. The longer contract terms are necessary for renewable energy options primarily much like some families need a 30-year mortgage and much like the utility industry amortizes or finances generating plants and transmission lines over decades sometimes 30 or 40 years. This bill also deletes the eight-year pay back in the 40-40-20 shared savings provision which to date no state agency has been able to get through because it is just one hurdle after another. No one is really taking advantage of these older statutes because they are complicated and conflicting (Attachment 1).
Penny Allee Taylor stated that there is no conflict in this bill for Southwest Gas only that they added a small definition for Combined Heat and Power (CHP) for clarification.
H.B. 2501, schools; energy efficiency funds
Jeff Schlegel, Southwest Energy Efficiency Project (SWEEP), said this bill is solely an accounting mechanism which is important to allow energy saving investments in schools. It does not provide any funding directly but solely creates an account in the school finance regulations that allows for the investments of energy efficiency to be made on the capital portion of the budget and the savings from those investments to come from the maintenance and operation portion of the budget allowing the money saved in those reductions in cost to be used to pay off the investment in capital through this account mechanism (Attachment 1). It will allow schools to more easily participate in the utility programs designed to help schools save energy and reduce their energy costs.
Molly Greene, Salt River Project, said they support H.B. 2501 and are working on some amendments. They have also been working on a pilot program with schools. She said they are obviously very interested in energy savings. The balance is in trying to ensure that any kind of a program is not administratively prohibitive and that the energy savings are actually realized. What they are looking for is transparency with everyone testifying at the forefront what it is that is expected to be achieved and that the resources that are put into the program have a discernible effect. Mrs. Mason asked if this is partly a deficiency in the current statute to be able to allocate funds that are already there and to get them into the schools. Ms. Greene answered that is correct and that they want to have real and proven benefit from the limited resources that are spent in the school system and that there are actually energy savings that are achieved without hurdles and burdens, without being cost prohibitive or an administrative nightmare. For that reason SRP is being very thorough in the language used to be certain that it will actually get the dollars into the program. Mrs. Mason confirmed with Ms. Green that these dollars are not coming from the General Fund.
Person recognized who did not speak:
Ken Clark, Governor’s Office
Folder 2119, tax credit; energy efficient products
Jeff Schlegel, Southwest Energy Efficiency Project (SWEEP), reported that this measure provides for a tax credit for certain energy efficiency products: central air conditioners, heat pumps, ceiling fans and light fixtures and washing machines. The idea is to piggy-back on the federal tax credit. The federal government gives a credit of $300 in the current energy bill for these items and the state would provide a tax credit of $150 per installation for the air conditioner and the heat pump. It is not just any energy star products but the ones with relatively high standards to encourage people to invest in them. There is also a tax credit of $100 for energy star clothes washers which save energy and water. For ceiling fans and lighting fixtures there is a 20 percent tax credit (Attachment 1).
Mr. Jones asked if there is a cap on this. Mr. Schlegel stated there is not currently a cap in the bill. Mrs. Mason said she had asked for a number of fiscal notes which will be ready in about two weeks as JLBC is so backlogged. This is a folder still and she said she would invite the members to look at it and sign on if they choose and said there can be some more discussion. She thought the numbers are small enough and that the main idea is to piggy-back on the federal energy bill and jumpstart it here in the state.
Mr. Schlegel commented that Mrs. Mason wanted to limit the fiscal impact but still do something to benefit consumers so they went through a list of products and picked out those mentioned, keeping in mind especially saving water and energy.
Without objection, the meeting adjourned at 4:20 p.m.
______________________________
Pat Hudock, Committee Secretary
February 17, 2006
(Original minutes, attachments and tape are on file in the Office of the Chief Clerk.)
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AD HOC COMMITTEE ON RENEWABLE
GENERATION AND ENERGY EFFICIENCY
2
January 30, 2006
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