Assembly Budget Subcommittee No. 3 on Climate Crisis, Resources, Energy, and Transportation

Good morning and welcome to Assembly budget Sub three. Just for the benefit of everybody in the audience and people listening, we're going to change the order. We're going to do energy first after we do the consent items, or we'll do the consent items when we finally have a quorum. So right after my introductory comments, we will be moving into energy for the benefit of everybody. There is a convention going on, and many people need to get back over to the convention.

So today we'll hear from the Department of Fish and Wildlife, our energy agencies, and the California State Transportation Agency. We'll vote on 50 items that were heard earlier this year. We have three items that are planned for discussion. For each presentation item, I'll ask each of the witnesses on the agenda to introduce themselves before they begin their testimony. At the end of the presentation items, Members of the Subcommitee may ask questions or make comments on the non presentation items.

After all the items are heard, we'll take public comment in regards to the departments before us today, first in the room, followed by phone testimony. Each Member of the public will have 1 minute to speak. The phone number is on the Committee website and should be also on the screen. If you're watching over the Internet, the number is 677. I'm sorry, 877-692-8957 Perhaps I should use these.

And the access code is 131-5447 if you encounter any problems, please contact the Assembly Budget Committee at 916-319-2099 and a staff Member will assist you. We don't have a quorum, so we won't take role. And we don't have quorum for the vote only calendar, so we will move right over to the energy trailer Bill, whichever Administration witnesses would like to start. If everybody would approach and please introduce yourself when you begin to speak. What page is that? One moment. We'll be right with you.

All right, we're ready to begin.

Thank you very much. Good morning, Chair Bennett, Honorable Members of the Committee, Rachel Peterson, Executive Director of the California Public Utilities Commission. And thank you for the opportunity to be me this morning to discuss the energy matters before you on the agenda today, we'd like to offer a brief presentation about the energy procurement and reliability proposal, specifically the administration's proposal for a central procurement entity. I'm here with colleagues from the CPUC and Department of Water Resources.

I'm going to give an overview of the process that we've envisioned with this proposal, and I think it's important to note that with this, we are setting important groundwork for the future of California's energy ensure. Our goal is to ensure that California can succeed in procuring and building the resources that we need for our clean, reliable and affordable energy future. So really want to go to what is driving this proposal.

What we at the CPUC have seen now that we've run a series of cycles of the integrated resource planning process is that it's been successful in ordering resources, and that has gotten us some steps along the way toward our clean energy future. But we've observed that the contracts have largely been for solar, photovoltaic, battery, and onshore wind resources. Those are certainly beneficial, but they are not sufficient to meet California's reliability or climate goals.

And so our response to this situation is that we're pursuing the opportunity to explore procurement in a unified manner and secure those clean, diverse, long lead time resources so that California can achieve our goals. So the steps to this process are as follows. First, the proposal before you will secure our ability to explore designating the Department of Water Resources as a potential central procurement entity.

It does not mean that they automatically will, but we are laying the groundwork to consider it in the CPUC's integrated resource planning process. So the second step is that within that rulemaking that we have going at the CPUC, we are planning to present a proposal to all of the stakeholders in that proceeding about identifying all of the options for a central procurement entity. Our trailer Bill Language before you will simply ensure that the Department of Water Resources can be considered as a viable central procurement entity.

And then third, as part of the IRP process, we'll continue to model as we have for a number of years, and consider with the stakeholders what resources California needs to ensure future reliability as we keep moving toward our climate goals. This will include analysis of those long lead time, clean, diverse resources that we have seen are challenging to procure.

Our analysis will also examine the amounts needed from those resources and which entity might be best positioned to conduct the procurement on behalf of California to ensure the best value for customers everywhere. So that's the broad outline of the process that we envision. And I have with me here Deputy Executive Director Luam Tesfai, who's in lead of our energy and climate policy work, to answer more technical subject matter questions that you may have.

I have a overview question, and that is, I appreciate the role the CPUC in terms of this, looking at this global picture, how about the coordination of that with making sure that we have grid capacity onshore to receive this wind? What sense does the CPUC have about coordinating that?

Also, I'm going to say it now, because I'll say it probably more than once in this hearing it just that as a relatively new Assembly Member, it has been, in my perception, both frustrating and a weakness, that there is not one place where I can go and the public can go to say what's the overall plan and who's in charge of it. Because when you have multiple people in charge of anything, you have nobody in charge of everything. Right?

And that's my concern, that we need to make sure all of those things are coordinated. So from an overview standpoint, not from a technical standpoint, which we can do, do you anticipate moving into that role also, and if so, or having some other even grander coordinating body or person in charge of that, could you help me with that?

I'll make a first pass chair. I appreciate the question, and then I will actually lean on my subject matter expert because there is a fair amount of technical consideration involved with your question. I think just from an overview perspective, to start off, California has a very complex energy market. We have a number of different load serving entities, different types, utilities, community choice aggregators, and energy service providers. In order to kind of eliminate the vertically integrated utility.

A couple of decades ago, the Legislature did order a change in the overall market structure. So we have a number of generation, hundreds of generation plants that are owned by individual operators, and then the CPUC has a certain amount of jurisdiction. But we are working alongside a number of other partners and agencies and entities in order to make sure that California has the energy that it needs. So it's a world of complexity, and therefore we do have a number of different programs.

And I can appreciate from the outside perspective that the number of programs presents a complexity, but between the longer range integrated resource planning process, the much Shorter term resource adequacy program, and then now this proposal, really looking at that far long lead time possibility of procuring resources, we're aiming to try to ensure that California has those resources that it needs on the very short term, year in and year out through resource adequacy, on the three to five year timescale through integrated Resource plan, and now with that longer frame.

So to the extent that that presents a coordinated view for you, I hope that partially, at least, answers your question.

I would offer that that is an attempt to try to bring sort of a comprehensive overview of procurement, but the combination of procurement and grid reliability and getting the extension of the lines, I didn't hear that in the answer. And so do you anticipate expanding into that role also from the CPUC standpoint. And can you and I very much appreciate that we have a complex system and that cuts both ways. It means it's hard for somebody to try to coordinate all of it.

On the other hand, it's really important that somebody coordinate all of it because it is a fragmented system in many ways. So could you help me with the specific idea of trying to make sure that the grid, the power lines are extended appropriately on time? All of that with your more aggressive coordination already that's taking place on the procurement side.

Yeah. And that's a great way to, one way to kind of identify or categorize the world that we're operating in. You're right. I gave an answer about procurement. We do have a number of infrastructure oversight and assurance type of programs going on as well. And there we both are active in the distribution system to ensure at that very local level that distribution system infrastructure build out is happening at the pace that California needs it, given all of our electrification goals.

And then there's a whole set of activity around transmission infrastructure where we are working with our partners at the Energy Commission and the independent system operator. I can have Director Tess FAI provide some more information on that. She's very immersed in the infrastructure planning and build out area.

So I think that the transmission side of it is the area that I have the greatest concern with. If we build all of this wind generating power and we don't have the ability to accept it because we don't have the transmission lines set, the grid set up properly, but even today I have ports are coming and saying they're just being told that they can't go forward with the electrification plans that they would like to go with now because the transmission lines are not there, the grid is not there. So we're already behind.

And so in your answer, and it's not a criticism, it's an observation and hope for improvement. In your answer on the procurement side, you're more aggressive in terms of being the coordinator. And the other, you said, well, so we hope to work with the other and hope to work with something as important as this is not very reassuring. It's like who's going to make sure that that actually is, there will be a theme. That won't be the last time that we'll hear it from here.

So anyway, thank you for the overview. Let's go ahead and go on to your more technical people.

Thank you, chair. I will turn to Deputy Executive Director, testify for a little bit more, and I will take the moment to amend. We are already working with it's not a hope to work with situation are.

I may have put words in you, maybe not have said hope to work, but working with it means who's in charge, and that's where it seems to be. Thank you.

I take your point. Thank you.

All right. And your next speaker is.

Good morning. Thank you, Chair Bennett. Thank you, Assembly Members, for the opportunity to present today. My name is Leuwam Tesfai and I'm the deputy Executive Director for energy and climate policy at the California Public Utilities Commission. I do have prepared remarks, but I did want to just touch on the question that you just had just given. It touched on a couple of issues. One, generator interconnection, but then also customer interconnection and energization issues and so on.

The generator interconnection side, speaking more specifically about some of the resources that we would potentially see a central procurement entity procuring. In February, we did send the latest portfolio analysis to the KaiSO in order to be able to model a transmission planning process, in order to be prepared to interconnect these new resources. In addition to that, the KAISO does have a generator stakeholder process that's currently open in order to look at enhancements for generator interconnection. And so they have an active stakeholder process.

But then in addition to that, in January of this year, we did transmit the latest portfolios to the KISos that they will be including that in their current Kaiso transmission planning process. I do want to include there that that did include an additional 4000 MW as part of our procurement horizon. That also included information about long lead time resources.

Some examples of that are geothermal and offshore wind so that they can already include those sensitivity analyses in their transmission planning so that they will be prepared to meet these new procurement that will be going on. So that has started. But I did want to touch on your issue of customer interconnection. You mentioned the ports, for example, those ports that are trying to more specifically energize and be able to electrify. And so the Public Utilities Commission does have an open proceeding on this issue.

A ruling did go out earlier this year, gaining information from the utilities as well as stakeholders about how to enhance this distribution planning process in order to make sure that information from large customers like ports, as well as planning entities from local governments is getting in proactively to the distribution planning process so that we can meet those energization needs.

That also includes work specifically for medium duty and heavy duty fleets and recognition of our need to electrify those fleets and be able to meet those particular needs for transportation electrification in that sector. The CPUC is launching this month on the 22nd a Freight infrastructure planning process, along with the California Energy Commission, Air Resources Board, as well as the California Transportation Commission in order to be able to focus on that issue. So those issues are underway.

We're getting responses to that ruling that I had mentioned from earlier this year, and that'll enable us to be able to take action in the near future to enhance those distribution planning processes with better data as well as more information from local entities so that we're able to meet those needs.

But just to get into some of my planned remarks on the central procurement know through our stakeholder proceeding at the California Public Utilities Commission, as outlined by Executive Director Peterson, the Integrated resource planning proceeding we have determined that clean, diverse, long lead time resources are needed to meet California's 2045 climate and reliability goals within the electric sector.

This need has been confirmed in the CEC's Senate Bill 100 report creation process, and there is a need for resource diversity within the state's electric sector resource portfolio and long lead time diverse resources provide reliability as well as greenhouse gas reduction benefits to the system that would not be procured.

In the typical procurement activities of our load serving entities, which have largely been contracting for solar, photovoltaic, battery, and onshore wind resources, we have continued to see a disproportionately high amount of procurement of these resources, which won't be sufficient to meet our reliability or climate goals and plan action will likely need to happen to support that effort.

I do want to make it clear at this component is that our load serving entities will still be doing the vast majority of procurement, and so the central procurement function will be focused on those long lead time, complex and very difficult to procure resources. So that's something that I wanted to add. I know we've met before to talk about this issue, but I wanted to make sure that that was really clear. And so why use a central procurement entity?

Long lead time resources are hard to procure. We push for the most competitive and clean resources, so resources like offshore wind, for example, despite its clear value, will not come to the top of the resource solicitations. As things stand today, electric market competition and energy resource development complexities have thus far prevented significant procurement of certain long lead time and diverse clean energy resources. As I stated earlier, most of the new energy resources procured to date have been solar, photovoltaic, battery storage, and onshore wind resources.

Long lead time resources like offshore wind, large scale duration, energy storage and geothermal have features that make them likely to require the support from some form of centralized procurement. These features include a high level of development risk, long development timelines, economies of scale, a need for significant new transmission to access key resources, federal and state permitting processes and siding processes and nontransmission infrastructure buildouts to our ports and material supply chains like steel and concrete that require extensive state level interagency coordination.

And all of that is in play. All electric customers and ratepayers are likely to benefit if all or some of these hard to procure energy resources are procured centrally. More specifically, the CPUC's midterm reliability order requires the load serving entities to procure 11,500 qualifying capacity, including 2000 long lead time resources. Originally, by 2026. We've been studying the trajectory of these efforts, and early indicators are showing that load serving entities are struggling to meet some of these procurement requirements for these specific types of resources.

And as such, the Commission earlier this year, as I had mentioned, extended the deadline for those resources to June 1 of 2028. In addition to that, we ordered an additional 4000 other procurement having the option to leverage. For example, Department of Water Resources as a central procurement entity is going to be a key tool on the table in the toolbox to procuring these long lead time, diverse resources.

As you saw in the trailer Bill Language, the identification of the central procurement entity will occur in a CPUC stakeholder proceeding. So it's not just the CPUC, it's all the developers, the ratepayer advocates, the environmental advocates, all of the load serving entities to be able to consider this as a viable option. We'll also need this authority as characterized in the proposed language.

DWR has procurement experience and through the Trailerville language will have the authority and sufficient additional resources to act if identified as the central procurement entity. I do want to specifically mention that the CPUC would still be the entity. Determining which resources need to be procured would still determine through the stakeholder process if DWR or a different entity like an IOU, for example, ends up being the central procurement entity. But this is just a tool in the toolbox for us to be able to consider that.

So with that, I'm happy to defer to the Committee and to the chair for any further questions.

Great. We'll take questions from everybody after we hear all the testimony. I do want to just while you made the point, you talked about making sure that this was only focused on long term, and that definition, I believe needs to be clarified. And so I'm just curious at the beginning of this, as we're hearing, some people are suggesting that it be clarified to focus on offshore wind and geothermal production.

Do you have an initial reaction to narrowing it down to those two, just for the benefit of clarity?

Yeah, great question. And two parts to the question. One about a focus on long lead time resources and one about getting specific as to which resource type. I would agree with you that we do want this to be focused on long lead time resources, so not resources that need to be procured, for example, for next summer, for example. That's not what a central procurement entity would be doing when it comes to identifying a specific resource like offshore wind geothermal. As I said, the modeling is identifying.

Those are the potential types of resources. But we would strongly support leveraging the proceeding with all of the stakeholders there so that we can leverage the modeling as well as the stakeholder input to identify specifically what the resources are. Because of that process, we prefer not to use language in the trailer, Bill or otherwise, to identify a specific resource, to identify a winner or a loser. We want to use the agnostic process through the integrated resource planning process.

That being said, the examples that I've given, offshore wind, geothermal, long duration energy storage, that is what the modeling is showing at this time, and we would just leverage stakeholders to further identify that and put any guardrails on whatever a central procurement entity would be doing.

Thank you. The Legislature may not agree with you in terms of trying to keep that open, but thank you very much. Your next presentation from the Administration.

Department of Finance. Amin Albin. I don't think we have any further presentations.

We have the number of other speakers that did not have room up at the table. So who else do we have? And we're going to do LA last. Right. So I know we have Beth Vaughn, Patrick Welsh. Do we have anybody besides those two?

Thank you, Mr. Chair. Patrick Welch with the California Municipal Utilities Association. I'm our senior Director of Energy Policy. CMA Members are public power utilities that provide electricity to...

Could we ask two of you to step away and stay close? Right. And is there anybody else here who's listed as a witness who has not had an opportunity to step forward? All right, so Ms. Bond and Mr. Welch, whatever order you two would prefer to go with, if you'll please identify yourself.

Excuse me, I know you just got started, but we just realized we have a quorum and it's a precious commodity here, so we're going to vote as soon as possible on our items. Thank you for pointing that out, Mr. Patterson and first call to roll, please.

Bennett here. Connolly here. Essayli here. Friedman. Garcia. Patterson. Rivas.

So the first motion is to adopt the staff's recommendation for the vote only issues one through sixteen, eighteen through thirty-four, thirty-six through forty-three, 45, 46 and 50. Can I get a motion for that, Mr. Connolly? Moved seconded by Ms Friedman. Please call the roll.

Bennett aye, Connolly aye, Essayli aye, Friedman, Garcia, Patterson, Rivas measure passes.

Thank you. The second motion is to adopt the staff recommendation for vote only, issues seven and 44. No, that's 17 and 44, thank you. Not seven, thank you for the motion. And second by Mr. Connolly, motion by Ms. Friedman. And can we call the roll, please?

Bennett aye, Connolly aye, Essayli aye, Friedman, Garcia, Patterson, Rivas.

And then third motions to adopt a staff recommendation for vote only, issues 35 and 47 through 49. Can I get a motion.

Moved by Assemblymember Friedman, seconded by Assembly Member Connolly. Call the roll, please.

Bennett aye. Connolly. Essayli no. Friedman. Garcia. Patterson no. Rivas.

And we'll leave the roll open for absent Members. And pardon the interruption. Mr. Welch, could you start all the way over again because we were talking as you before. Right.

Thank you, Mr. Chair. I appreciate the opportunity to be here. Patrick Welch again with the California Municipal Utilities Association. I'm our senior Director of Energy policy. Our Members are locally regulated and provide power to 25% of the state. Want to thank you and consultant for putting this hearing together. Also want to thank Assembly Member Eduardo Garcia for introducing the Governor's trailer Bill, also as a policy Bill. I think the hearing and his Committee the other week helped surface a lot of the issues.

And I also commend the Committee to the LAO's analysis and look forward to hearing what they have to say as well. I want to pick up where you guys were talking about in the central procurement. We agree, Mr. Chair, that this needs to be narrowed. We appreciate that the central procurement is an option to be exercised by public power utilities. What I'm going to talk about today, though, is about conditions that we're seeing in the market.

And we have significant concerns that if there is a new large procurement entity out there, largely with unfettered power, and that's how we really read this, is that they can procure anything. They could procure solar, they could procure wind, they could procure battery. We are seeing significant market constraints, and I'm going to get that into that in my testimony. Electric reliability meeting the state's clean energy goals is very important to our Members, and we're committed to maintaining reliability during the transmission.

Let me talk about those market constraints that we're seeing right now. Our Members have reported to us, and we've reported this to the California Energy Commission, that municipal utilities have issued RFPs for renewable resources, including geothermal, including batteries, including solar, accruing long duration energy storage, where they get no responses to those bids or they get responses to those bids and the prices are astronomically high. Five or six years ago, they would have gotten half a dozen responses to those bids.

Recall back to March of 2020, we were all sent to live at home. We all had to buy toilet paper. There were supply chain issues, and everyone was buying it at the same time. That exact thing is happening in the energy procurement market right now. There are supply chain delays that have delayed projects, and everyone is procuring because our Members, through their governing boards, have been ordered to procure and pursuant to state law procuring and the Public Utilities Commission has also ordered historic procurement as well.

So much competition and supply chain delays have really made it hard to timely procure resources. We have concerns that if there is a new big player in the procurement space that that could continue to constrain the market. Therefore, we do think it is appropriate to have a conversation about narrowing the functions of that central procurement authority.

So we make sure we're considerate of those market conditions and don't actually make it harder for municipal utilities and other load serving entities to do their job on behalf of their customers and meet the state's goals that you've laid out for them. Second thing I want to touch on that I don't think has been raised today in today's hearing is a portion of the Bill that would lead to potential new costs to ratepayers through a capacity payment mechanism.

There is a proposal in the Bill that would assess that would allow the Energy Commission for our Members to assess an annual, essentially a penalty, in our view, for issues that are outside of their control. Electric reliability, like I mentioned, is paramount and our Members are required by law to prudently plan for contingencies and to maintain Reserve energy. This is generally known as resource adequacy. Planning reserves for the reasons I have just mentioned about market tightness has become more challenging in recent years.

This is not only the case of market conditions, but persistent westwide heat waves, steep evening ramps, and solar comes offline. But customer demand persists and this is really a key consideration.

I think the Assembly Utilities and Committee analysis of the Governor's trailer Bill really did a good job talking about this and correctly noted that the resource adequate market is significantly constrained and prices for energy projects have risen significantly, and that a new penalty would punish utilities and their customers, and I quote, for a market condition outside of their control. CMUA's Members again have reported these market conditions to the CEC. The UNE analysis also correctly notes that the capacity payment penalty is duplicative.

There are already safety net procurement processes that assign cost utilities if there's an observed shortfall, and I think the Subcommitee analysis raises this issue as well. We also feel that the penalties are premature. Last year's budget that you guys enacted included a CEC led process to update resource adequacy and planning Reserve standards.

This process has yet to be initiated, and the UNI analysis again correctly notes that the penalties in the trailer Bill would have the effect of holding the POUs and I quote to a standard still in development and for the potential that payments will be assessed against a value that POUs were unaware they needed to meet.

And finally, I would note that the Legislative Analyst's office also cautions about impacts to ratepayers, noting that California's electricity rates are already among the highest in the nation and rising faster than inflation. And so the Legislature will want to carefully consider the potential impacts on rates and whether the potential benefits merit those costs. So for those reasons, we urge that this Committee reject that portion of the trailer Bill. That would be the capacity payment mechanisms.

And again, for the reasons I already cited about market conditions, also really have that conversation about narrowing the central procurement. And that concludes my remarks. I appreciate the opportunity to testify in front of you today and remain available for questions. Thank you.

Thank you very much. Our next witness, please identify yourself.

Great. Good morning, chair and Committee Members. My name is Beth Vaughn and I'm the Executive Director of the California Community Choice Association. We represent the community choice aggregators, the CCAS, currently serving more than 11 million customers in the state. I'd like to thank the chair for putting this hearing together, and I echo my colleagues.

Thanks to Assembly Member Garcia for bringing Forward Assembly Bill 1373 to address the important policy issues in Budget Trailer Bill we currently have an opposed and less amended position that is focused in three areas, central procurement, integrated resource planning jurisdiction, and resource adequacy penalties. First, on central procurement, we are not convinced that a case has been made as to the need for a new central procurement entity. From our perspective, the Bill targets the wrong problem. Load serving entities are fully capable of procuring new resources.

The problem is that the existing infrastructure isn't sufficient to facilitate that procurement. For example, in terms of the CPUC's midterm Reliability Procurement Order, which Director Tiffai mentioned, it was issued in June 2021 for an historic 11.5 gigawatts of new renewable and clean energy resources. The CCAs, in aggregate, have contracted for 100% of their allocation. They have 32% of that allocation based upon their load.

Specifically for long lead time resources that we've been talking about today, we have procured 167% of our allocation for long duration storage and 103% of our allocation for firm clean resources, which for the CCAS is a combination of new geothermal and new Biomass. Keeping these projects on track and delivering on time, however, is the challenge. Delays in permitting, interconnection, transmission, and continuing supply chain issues all threaten our best intentions, and ultimately whether we can keep the lights on in the next heat wave.

All that being said, if the state is committed and chair, you raise this to 25 gigawatts of offshore wind by 2045, then I think I understand why policymakers believe that central procurement is a necessary tool in the toolbox. If the state decides to move forward with a central procurement entity, then it must be designed to prevent market disruption, which Mr. Welch mentioned did a very good job, and it must also make protecting ratepayers from unnecessary costs cost increases a top priority.

To accomplish these goals, the Bill should establish clear criteria around the types of projects that may be procured and under what conditions. CalCcA proposes the four following criteria. First, central procurement should be limited to projects that take five or more years. The policy Committee analysis of the Bill suggested this as well, and we support that. Second, limit central procurement to resource rich regions that need additional infrastructure buildout, like transmission and port infrastructure. Again, the obvious examples of this are offshore wind and the Salton Sea geothermal.

Enabling this infrastructure buildout could then accelerate further resource development by other load serving entities. Third, we also need to limit the CPE, if we can call it that, for short CPE's work so that it doesn't compete with what we are already doing. CPE procurement should supplement, not supplant, procurement by LSEs. And fourth, don't immediately default to central procurement. Use this tool strategically.

Start over again with fourth.

One is don't immediately default to central procurement. Use the tool Strategically, for example, when other options are unavailable, would cause significant delay or would result in higher costs to ratepayers. My last point regarding central procurement is that it should be conducted by a central agency like the Department of Water Resources and not by the investor owned utilities. The IOUS now only serve 47% of the CPUC jurisdictional load, and that load is declining annually.

If a resource is centrally procured to meet state climate goals, then a central agency like DWR is the best way to enable cost sharing among all customers who benefit, not just those customers in an IOU territory. Those are my comments in central procurement. I'd like to turn to my second issue, which is the Integrated Resource planning jurisdiction. The Bill seeks to clarify the CPUC's current practice of issuing procurement mandates and requiring all LSEs to comply with the examples I gave with the midterm Reliability order.

We don't oppose the Commission continuing to require specific amounts and resources with particular characteristics. However, the current language is too broad, and I'm not sure if it's a drafting area error or if it's on purpose. But at the moment it reads as giving the CPUC expanded IRP jurisdiction over CCA procurement Autonomy this would override local authority and limit CCA's ability to keep rates Low for their customers, two things that are core to the local government model.

Consequently, we would ask that this language be modified and we have provided redlined edits. Then finally, the third issue. As Mr. Welch mentioned, the RA capacity payment. Again, the policy Committee analysis does a really good job in summarizing this issue. Basically, the RA market is constrained and will be at least through 2026. We at CALCCA have done an extensive analysis of the supply and demand in the market, and we have a white paper available.

The only long term solution is to get new projects built and online as soon as possible. We support penalizing bad actors, but where there simply isn't enough supply in the market to go around, penalties do nothing to incent better behavior. It's just another cost that would be borne by customers. The provision as written at the moment, risks doubling or even tripling penalties for RA deficiencies and places no limits on the CPUC's discretion in setting the penalties.

So, in summary, CaLCca supports the state's goals for reliability, decarbonization and affordability. If our distribution and transmission infrastructure continues to be an impediment to the delivery of new capacity, California will fall well short of our clean energy goals, not because procurement is struggling, but rather because the state has not addressed our significant infrastructure needs. We stand ready to work with you on these important matters. Thank you for the opportunity to appear here today, and I'm happy to take any questions.

Thank you very much. Again, we'll take overall questions after we hear from the LAO. I just want to make an overview comment, and that is, in the United States, we have tried to have a great reliance on market forces and a free market. A free market only works efficiently if there's the appropriate amount of competition. When the government starts to get involved, the government affects that competition.

Already, utility services don't have the kind of competition that Adam Smith would like to have in the invisible hand and the classic competitive market. And that's why we have a CPUC and that's why we have government regulation of those rates. But we have, as we talked about at the beginning, a complicated system, many players in that system. We're trying to blend the best of both worlds, a regulated market and the competition that is out there.

That means we have to be really careful every time we consider something. So I think I just would like to put in terms of a big overview. The issues raised are ones that give me concern about what the impact will be if we have smaller players out there who can't find anybody to be responsive right now. What happens to the responsiveness if there's central procurement out there? And what happens in terms of, if there's not a clear, clean definition of where you're going?

And then what about this additional authority that you may have over them in terms of what they're doing? So those are elements of the trailer Bill that I think we all, I've heard from a number of people have a variety of different concerns. So we're going to hear from Lao, and then we're going to open it up to Members for everything that the Members would like to explore, comment on, et cetera, and we'll try to keep moving this.

We have three big trailer bills today, and so this is going to be, I hope, Mr. Conley, who usually sticks with us to the end, along with had a good breakfast in him. Right? All right. All right. Lao, please. Right.

Thank you. Good morning. Rachel Ehlers from the Legislative Analyst Office. We did put out a pretty extensive brief on this proposal in March, and I think we've discussed it already briefly in this Subcommitee in an earlier hearing, and many of our comments are replicated in your agenda. So given that, I'm going to keep my comments very brief and happy to answer any questions. Just, there are a lot of really meaty policy questions in this proposal.

So some of the issues we would suggest you think about are, is this change really needed and is it really needed now? What is the urgency of taking this action, given all of the questions it's raising? Do you need more time to kind of grapple with some of these issues? A couple of the issues we would really highlight are impacts on ratepayers or potential impacts on ratepayers.

And also given this proposal is an expansion of responsibilities for the state, what are the risks associated, what additional risks might be taken on by the state? So is it needed now and what are some of these implications? Are really the overarching framework we would suggest you use to guide your deliberations on this issue. Thank you.

Thank you very much, Members. Go ahead, Mr. Fong.

Thank you, Mr. Chair. This is certainly a very weighty issue. I guess my first question is to the LAO, and I apologize for sitting behind you. What is the source of the authority that is creating or allowing DWR to become this central energy procurer? Is there something they're drawing?

Sorry, maybe I'm not totally understanding your question. I think the proposal before you is to authorize the CPUC to have DWR be one of the entities that could be a potential central procurer. So the statutory language would authorize DWR to be an option for CPUC to select as a central procurement entity.

Okay, I see. So the CPUC would have the authority and then they would designate the DWR to be the central procurement.

I got you. Maybe the question either to DWR Department of Finance is how would you respond to the comments that there would be a disruption in the market? I think the chair was very eloquent in this. We've seen this in other state interventions where it disrupts the dynamics in the market. And to have such broad authority given in such a dynamic energy market, how would you respond to the fact that there will be disruptions?

Correct.

Thank you for the question, Assembly Member. I'll start and then I'll ask Deputy Executive Director Tesfai to continue. I also so appreciate our colleagues from CMUA and CALCCA and your depiction, chair, of the fact that we are balancing government presence within a market situation. We are as well very carefully considering how to appropriately design the authority so that we accomplish what everyone wants to accomplish, which is our common goals towards clean energy by 2045.

And so I think the overall answer to your question, Assembly Member, is yes, we are very cognizant of the possibility of market impacts with this authority. Again, we are talking more towards the long term. And so while within the integrated resource planning process, we will have that opportunity to undertake the appropriate market design and intervention type of determinations, the CMUA and CaLCI are both stakeholders within that process, so they'll have every opportunity to add their points and design proposals as well. Let me turn to Deputy Executive Director, testify for more.

Thank you, Executive Director Peterson. And actually, so in order to respond to assemblymember Fong, I'm actually going to mirror what Ms. Vaughn actually said because I think she actually put those four points related to market impact really well. And I think that might be helpful to the other Members since they just heard that as well. So first she mentioned this limitation of five or more years as a way to protect the integrity of the market.

And that is something that I think, I don't want to say specifically five years, but that we are in agreement that these are resources that have a long lead time for development, for example, offshore wind. We're not going to get a project up and running in five years. And so I think we're in agreement there about limiting this to longer lead time resources.

And we would work with all of the stakeholders in the integrated resource proceeding in order to get that really closely defined for whoever the central procurement entity might be. Also mentioned about limitations to resource rich regions. That's something that we are working very closely with the California independent system operator to identify where those locations are in order to further define integrated resource planning for these long lead time resources, but also resources in General.

And so I think that's very much in alignment with what we're looking for here. And we would definitely be leveraging the stakeholder process to get that definition. Also, the market impact of.

No, go ahead. I think you're getting to the core.

Of my question number three. Okay. Which was competition in the market with the other load serving entities. And so when I started my remarks, not everyone was in the room. So something I did want to emphasize there is the vast majority of procurement is still going to be done by the load serving entities.

There are a small number of types of resources that are characterized as long lead time, clean, diverse resources, not solar, not onshore wind, not lithium batteries that have been identified as being very complex and difficult to procure. And so the central procurement entity would be focused in that area, not competing with the other load serving entities. With all of the other type of procurement, they're still going to be doing the vast majority of the procurement. And then finally about not defaulting to the central procurement entity.

Agree with that. We would definitely be leveraging the stakeholder process not only to identify what the central procurement entity would be, either an IOU or DWR, but then in addition to that, what resources specifically they would be procuring in order to not have that market impact that we're concerned.

I appreciate the four points. I think they're very good, I guess, generalities, but I have a hard time, and I think Mr. Welch kind of identified the core question, right. Is that it sounds like we have a difficult market dynamic and now there's another entity coming in that is well resourced because it's General Fund of California that will compete for scarce resources already there. So how does this end in a positive outcome for ratepayers?

I mean, you say that you're not competing, but you're entering into a market, the energy market, and I don't think anyone can bifurcate the energy market that way. Right? Am I missing that?

Yeah. So I can speak to it a couple of ways. First and foremost, these resources would not be funded by the General Fund. So there are resources that DWR needs to get started and get staffed up and that kind of thing. But these resources would continue to be paid for by ratepayers and so through a non bypassable charge. So I did want to make that not, we wouldn't be leveraging.

Well, let me follow up that point then. How will ratepayers be protected?

Yeah, a couple of things there. One, I think that Mr. Welch brought up some very concerning issues out there related to supply chain issues out there and tightness in the market. These are not the types of resources that the central procurement entity would be procuring. So we're talking about tightness in the market related to creation of energy storage, for example, lithiumion batteries. That's different from long duration energy storage technologies. There's tightness in the market in relation to getting solar projects online.

The central procurement entity is not working on these short term projects like solar that are being brought online. So agree with you. There wouldn't be leveraging that. There's additional guardrails as well, though. So through the integrated resources planning process, we would work with stakeholders to identify specifically which resources are having the most challenges to being brought online and narrowly designating those resources for procurement by the central procurement entity. So that's one guardrail. In addition to that, we have existing functions called the procurement review groups.

These are non market participants that look at pending contracts that are under potential review and are able to give really clear feedback to entities that might be doing that procurement. We do that right now with all of the IOUS, we can leverage that for central procurement.

So can I ask, is the existing procurement, the backstop procurement within the CPUC and COWISO, is that authority not enough?

Yeah, I think that's a great question. So it's different. So the existing backstop procurement that we have is for short term reliability and resource adequacy. So these are very short term contracts. The next one to three years, the resource adequacy program...

Why can't we apply it to long term?

Right now we don't have the authority to do that.

Why not?

It doesn't exist. We don't have the backstop procurement for. That's what we're asking for the central procurement entity to potentially be doing that. So right now that exists for just short term resource adequacy contracts in case there's a shortfall in that one to three year procurement window for system resource adequacy, local resource adequacy, flexible resource adequacy. That is a different program.

We're talking about long lead time resources here, and we would like to have the central procurement function as a potential entity for those very specific types of resources.

I guess my last question is, does the Administration, do you expect the central buyer authority to exist in perpetuity or how long do you need this?

Yeah, I think that's a great question. Something that we have been thinking about internally, what that would look like. We are constantly ordering more and more procurement as the economic growth needs of California need to be met. There might also be procurement some point in the future where an entity like this is needed. We don't want to foreclose that. We don't know.

But again, there are many, many guardrails that are in place that would be preventing any central procurement entity from just being able to go out there and procure whatever they would like. So, as I mentioned, there has to be a specific order by the Commission that says the central procurement entity is allowed to Procure X. And so if it was DWR or an IOU, for example, they wouldn't be allowed to go out into the market.

Market participants are not going to sign contracts with them because they know that there needs to be an order from the Commission designating if and when they're allowed to do that procurement.

Maybe before. I know, I cited Mr. Welch's testimony, so maybe I'll give you a chance to respond, if you don't mind.

Yeah. Thank you. Assembly Member, I think what I am hearing through the conversation, I think, again, want to thank you for hosting this conversation. Also, now that he's here, Mr. Eduardo Garcia, for also having a Committee hearing on this in Uni. I think it helps service these issues. So really, thank you.

I think what I'm hearing is that there is probably agreement that in principle, that there are potentially types of resources that are out there, like offshore wind, that are highly complex and one entity may not be able to develop it. But you have to look at that within the context of the procurement that is going on. And for better or for worse, this body and the state as a whole have ordered our Members to procure solar and wind and batteries, that is the RPS.

And so we are out there doing that. And that has created a lot of competition. And so you have to look at this within the context of the whole market. I think what matters is the words in the Bill. I think what I hear from colleagues at the PUC is we want flexibility to design the mechanism to get it right. And I understand and appreciate that.

But I think there's other stakeholders, such as CMUA, that probably would prefer more certainty in the statute so that there are guardrails that we can all see so that there is certainty in the market. I think it's about the words in the Bill. I don't think there's disagreement inherently that this is a complex endeavor. In some cases, it's how do we get there and the details that really matter.

Mr. Fung, I'm right on point, if you don't mind.

Absolutely.

Repeatedly you've said, we're not going to do that. CCAs and immunities are going to still procure the majority of, and no, we're not going to do solar, onshore wind, et cetera. But you're saying after we finish the stakeholder process, that's what's going to happen. And I think, do you have a problem?

The point is, I think there needs to be partially because we don't want to send the wrong signal to the market and have people say, zero, central procurement might start doing onshore wind now they might start doing solar. So that's where I very much appreciate that that's your intention, is to have it be as you describe, but we don't have that language identified in the Bill. And do you have a problem with us identifying the things that you're assuring us is not going to happen be identified in the bill.

Great question, and this actually was the first point that Ms. Vaughn made, which was the limitation of five or more years. It's that limitation of long lead time, identifying a specific resource, offshore wind, geothermal, that is a very challenging market signal you're sending. That is a huge impact to the market, picking a winner. And that means you're picking a loser as well.

And so what we want to do is we could have a discussion about the limitation on the amount of time that it should take to develop the kind of resource. So it's really long lead time, because solar batteries, those are not long lead time. Onshore wind, not long lead time. And so I think a focus on how long it would take to procure the resource and get it built would be a good definition for us to discuss rather than the specific resource.

It doesn't feel reassuring. Okay. And not a criticism. It doesn't feel reassuring. Tell me, why is it picking a winner? If we say offshore wind and geothermal, we can always, I mean, after you have your stakeholder hearings, you may come back, and by the way, long duration storage, but you could then come back and say, hey, we found a new thing. It's a fusion project. Right.

We could always expand, but we wouldn't send the wrong signal to the market by having this intervention be narrowed down at the beginning. Again, we could always expand, but if we just leave it to the CPUC that it could be expanded. That certainly has a number of Members concerned, but I know Assembly Member Rivas, I'm going to leave it that...

One more item I just wanted to highlight to all the Members here. I mean, there are going to be market effects here. I don't know how we can ignore the fact that when you have a central buyer entering into the market, and even the analysis says how the entrance of DWR, a large, well resourced entity with the backing of the state, would influence the market for new energy resources is mean. Basic economics will tell you that would occur.

And now you've indicated, I mean, look, General Fund resources are going to stand up this facility, and then now you've got rate payer impacts. And I think that's something. As the chair indicated, we have to really look at this. We had the same discussion when it came to the emergency portfolio that was put together, and there was really tight guardrails here.

This is a very expansive authority that is being provided, and I think that it would be naive to not look at what has happened over the last three years. When the government intervened in the labor market, when the government intervened in the housing market, when the government intervened in any other market, there has been massive disruptions. And we have energy reliability issues in our state.

And to have this come in to highlight what the Lao says, we have to be very cognizant of how the rate payers will be impacted and how the market will be disrupted. Thank you.

Thank you. I had one question. I think you've already discussed this, but we've heard from stakeholders, mainly the CCAs, about their concern with this enhanced CPUC enforcement. But where does your current authority fall short and what do you hope to gain from this proposed language?

Thank you for the question, Assembly Member and the CPUC has actually evolved our enforcement authority with respect to the resources that we expect to be procured in this more short term arena that we've been discussing, that are the orders that are flowing from our integrated resource planning process. We've built up some additional enforcement authority related to that because we have found that the resources aren't necessarily always being procured.

Now, as to your question about enforcement with respect to this longer lead time proposal, I will turn to my subject matter expert. Thank you.

Thank you. Assembly Member Rivas. I think that's an excellent question and kind of ties to some of our existing enforcement mechanisms. So just by way of background, we do have existing enforcement mechanisms in place for the resource adequacy program, which I had highlighted earlier as our short term procurement one to three years, making sure those contracts are in place.

And so this would be mirroring that for our long term procurement to make sure that the orders that we're talking about here for 11,500 additional 4000 MW from earlier this year, that we're able to keep those long term strategies on track so that we don't end up in a situation where we're scrambling for additional resources.

And so we have existing enforcement over short term, but we want to be able to mirror that through the Public Utilities Code for the Integrated Resources planning portfolio, so that when we report to the Legislature, we've issued another order for procurement, that the CPUC is able to also be responsive in saying, and we have a mechanism to enforce and make sure that that procurement is happening. And.

You had an opportunity to ask your question? Great. Other Committee Member comments?

Thank you. Just a big picture question here. Californians pay about 70% higher electricity rates than the rest of the nation. This new plan, scheme, whatever it is, is this going to result in lower electricity prices for Californians?

Well, in the first instance. Assemblymember, thanks for the question. We actually also believe that there's an economy of scale that will be achieved by an entity procuring for all ratepayers across California. So rather than assigning the responsibility to one single utility set of ratepayers, it would be an obligation of all ratepayers to pay.

And there is an economy of scale with these large, complex projects that would be the responsibility of the procurement entity to make sure that they are negotiating the absolute best terms on behalf of California.

So how much will our electricity prices go down and by when?

I appreciate the question, let me turn to my subject matter expert. I'm not positive that we can offer a precise forecast, but let me ask Deputy Executive Director Tesfai

Thank you, Executive Director Peterson. And in preparation for your question, we have had the team kind of working through some modeling numbers. So I do have some numbers that I can share with you just to kind of illustrate. But to start, as was said, the purpose of the central procurement function is to leverage economies of scale across all of the load serving entities to bring down costs for customers of these much needed resources. Again, these are not resources that are extra.

These are resources that we identified a few years ago that we know that we're going to need. More specifically, the opportunity to consider DWR is intended to offer the chance to procure clean energy resources of these long lead time nature that are uniquely needed and difficult to procure in a manner that can be done at the lowest cost to ratepayers. In our latest adopted portfolio, which had been transmitted to the CAISO, as I mentioned earlier today.

As part of the transmission planning process, the CPUC studied the new resource buildout and associated costs for reaching the stringent GHG targets and serving higher load resulting from the state's, for example, transportation, electrification, and building electrification policies.

That portfolio, which contains 86,000 megawatts of new clean resources by 2035 and would achieve the state's 100% renewable and zero carbon retail sale target 10 years earlier by 2035, is projected to increase total electric system costs by nearly $13 billion, from 40 billion in 2024 to 52.7 billion in 2035. However, over that time period, the average residential rate is projected to fall from 24 cents a kilowatt hour to 21 cents a kilowatt hour.

And the average residential monthly bill is projected to fall from $118 a month to $103 a month from 2024 to 2035. So in other words, while total costs to the system, as I said, are projected to increase under this portfolio as load grows and more resources are needed to serve demand while reducing emissions and maintaining reliability, cost to residential electricity customers are projected to go down for generation. So falling residential costs can be attributed to a couple of things.

The overall trend of renewable costs going down to the point where they are already producing a savings relative to nonrenewable energy contracts. And this was also described in our Renewable Portfolio Standard report from last year. And system costs being spread across more load because people will be charging vehicles, doing building electrification. So the per unit costs go down as you spread it over more areas.

I just want to understand. So by 2024, the average Californian USA is going to be paying from $0.24 down to $0.21 a kilowatt. Is that your position?

That is the projection.

Okay. Does the LAO agree with that projection?

Thank you. We have not looked at these numbers, so I can't opine on them one way or the other.

Assembly Member, I think you misspoke. She said between 2024 and 2035, you said by, we're not going to see rates go down in a year.

No, not in one year.

So you're saying over 10 years we might go down two cents.

Well, it's three cents,

Three cents per kilowatt hour.

Which adds up very quickly.

And the average Bill will go down from, you said 118 to 103. Right. So another way to say it is that the average Bill will go down by $15 over a 10 year period of time.

That's right. And so the reason that we did this analysis is we're talking about generation here and different resources. So focusing on that issue.

Thank you. Assembly Member Friedman.

Excuse me. I was, thank you. And then my other question is, and I don't know if you agree with those, we can discuss that offline. My other question is why are we investing so heavily in offshore wind? Why have we decided that that's the answer? I mean, there are so many other ways to produce clean energy. I think I've mentioned nuclear a few times, but offshore wind has impacts on marine life as well, which I am concerned about.

So why are we going all in on offshore wind when the National Oceanic and Atmospheric Administration has said that these projects do affect fish and whale behavior, it affects the electromagnetic fields that marine life utilize? So why are we so intent on offshore wind?

So Assembly Member, thank you for the question. And I think your question reflects some of the complexity of developing a resource like this or like geothermal or another large long lead time resource. And we mentioned early in our testimony that complexity of permitting and environmental impacts is one of those areas that the state will have to grapple with once it decides on whether or not to procure such resources. And so that would be an element of the overall procurement and permitting process.

I will submit that that's actually why we've also been submitting to the Chair and others that we would prefer not to identify a specific technology in the law is because for exactly those reasons, perhaps permitting and environmental impacts actually pose a significant barrier to one of these types of resources. And we simply won't know that for another year, year and a half, two years. And that's why we would maintain that staying neutral as to technology in the law is an important step right now.

Okay. Thank you for that. Thank you.

As we transition over to our next question and comment, I would just like to point out for the record, every procurement option we have out there has an environmental impact. So it's not like, oh, why are we doing this when offshore wind has an impact? Well, whatever you want to do has an impact. And so the question is the relative rank of those impacts. Assembly Member Friedman.

Thank you and I came in in the middle, I think, of your presentation. First, I want to thank all of the panelists. This has been a really helpful discussion, and I very much appreciate all of the information. I guess I would like to find a way to coalesce some of this discussion. And this information has been the thread that's run through the discussion. But just to make it very clear for me to be able to articulate this to my constituents.

So the goal of all of this is because these clean energy goals that we have are going to require some projects that are very large and very expensive and have a very long timeline. And so my assumption is that the goal, and tell me if I'm wrong on any of this, that the goal is to try to help bring costs down, to try to help guarantee investment into these otherwise costly projects, to kind of kickstart and to move the timelines forward.

So if, so, I'm wondering if you can just give me some idea of what is the universe of these projects look like under this scenario, and what does the universe look like if we don't move forward? Do you have any idea of the change in timeline that you anticipate or the change in cost that you anticipate I know that's tough because we don't even know exactly what technology we're talking about.

But we do assume that there's a lot of thought of offshore wind, a lot of investment possibly that this could push forward. I happen to be very supportive of offshore wind, so that's a good thing in my mind. Geothermal is another. So I'm just wondering if you've given any thought to kind of the with or without scenarios.

I'll start. Thank you for the question, Assembly Member. So in terms of using as Director Tesfai will go through the cost projections that she just went through again. We like to think of it in terms of value. Yes, the projects are expensive, but the value being delivered to ratepayers in terms of reliability, greenhouse gas reduction, emissions reduction, and then overall cost reduction for the entire portfolio that we need for California, there is a significant value being delivered to California as well.

So yes, expensive, but we believe there's an inherent value there as well.

I think maybe I didn't explain this well. I'm not asking about the value of these kinds of projects. I'm asking about what the difference is under the proposed trailer Bill, under the Administration's proposal, what we get as opposed to letting the market just be in this space.

Okay. Apologies if I misunderstood your question. Well, we are aiming towards a possibility of selecting from among a set of diverse, clean, long lead time resources. So we've been listing some of them now, but I will ask Leuwam to go through those a little bit more. But the point is to use our model and our stakeholder process to identify the attributes that we will need and then see which type of projects can meet those attributes.

Thanks for the opportunity to provide more detail. So the CPUC in an earlier procurement order had already ordered the load serving entities to procure 2,000 megawatts of these types of long lead time, clean, diverse resources. The early indicators are showing that these resources are not getting procured.

And so in a decision in February, we actually shifted the deadline for procuring those resources to June 1 of 2028 in order for us to give the load serving entities more time to try and procure these resources, as well as for us to be able to consider bringing on a potential central procurement entity to be able to move this ball forward. The central procurement entity concept, all of you have heard it before.

It wasn't something that was built just through this trailer Bill language or through the current version of the Bill. It's an idea that has been around for a while, but given we have observed these challenges in procuring these types of resources. We've already had to move the deadline to be June 1 of 2028. It's time to consider bringing an entity on like this in order to be able to try and keep some of our timelines for this kinds of procurement.

So we had already provided a deadline. The early indicators are not showing success, and so we're trying to put some other options on the table to help us with this.

So if we're talking about timeline, do you have an idea of kind of what you think the difference would be between letting the market drive this itself? You must have gotten some indication from the investors, for instance, in the projects or from any other entity that this would be helpful in speeding up that timeline. I'm wondering if you can qualify that at all. And I'm also curious, and I am going to ask the CCA to answer. CCAs, where the IOUS and the Munis are in this?

They're not here. I haven't seen them. Maybe they're going to be. Oh, okay. So you were representing?

Municipal Utilities Association.

Never mind. I'll take that back.

Assembly Member Friedman, just because it's so spot on to where you are, I was at the Pacific Coast Wind Convention yesterday. I just want to add to you, when that question was asked yesterday, all of the panelists said the same thing. If we don't have central procurement, we will not acquire 25 gigawatts of offshore wind. They said it just won't happen. Nobody's going to take that risk without central procurement.

Well, that's what I'm trying to get them to explain and talk about the. I'm just teeing it up.

Exactly. I thought it would help by pointing out what they said. Right. But anyway, back to you. Assembly Member.

Yeah, and so that is what we have also heard from the development community. And so we want to at least provide the opportunity to consider it in the proceeding. But we have heard that from the development community and just want it to be a potential opportunity. Right now, under consideration would be Department of Water Resources, if we get this language through, or potentially the investor-owned utilities. We have not considered a municipal utility right now. They are not under CPUC authority.

And so going back to what I said earlier, there would have to be a Commission order that ordered the specific procurement, and so were trying to work with entities that we have authority over. I know Ms. Vaughan would like to speak, so I'd like to allow her.

I got that idea.

Sorry. I want to parse something here. So there's been the comment about LSEs struggling. And you heard my numbers. The CCAs are not struggling. We've done over 100% of our allocation of that two gigawatts that you spoke of for, I mentioned geothermal, biomass, and long duration storage. I think we are talking about something that's a little different here. For instance, when we think about offshore wind, and I was also at the same event as the Assembly Member was, the Chair was.

This is something different that we're talking about. And so the list of criteria I had, those are all ands. They're not ors, right? They're all ands. It has to be resource constrained. It has to be long lead times. When I think of something like long duration storage, for instance, I heard the same argument from developers back in 2017 when I first came in as Executive Director of the Association for CALCCA. No one's going to do deals with your members. Where's the credit worthiness?

How are you going to stand up these contracts? Well, we've done to date with the CCAs, 11 gigawatts representing $14 billion of investment in new renewables and clean energy resources. So we can do it. And I just want to mention that the sister organization we've set up of nine CCAs called California Community Power, they are 30,000 gigawatt hours in total load. It's quite large, and they have put out an RFI. So a request for information around offshore wind, specifically, it's due next week.

Why I mention this is because back in October of 2020, before the PUC ever put long duration storage in an order for us to procure, the CCAs went out with an RFI on long duration storage. Let's find out what's out in the market. Let's find out about emerging technologies. Honestly, my colleagues other load serving engines said, oh, I wish we'd done that. What a great idea. Based upon that information, that knowledge, they were able to go out and contract.

And as I mentioned, we've exceeded our numbers on long duration storage, 167% of what was allocated to us. Now, to be fair, in February, you've augmented that with another four gigawatts, I think, in total. So there are challenges which I wanted to turn to with Mr. Welch had mentioned, is we're not seeing as many offers in the RFOs anymore. But I'll go back to my point that it has to do with deliverability. We can procure, we're good at procuring.

We also can finance procuring being local government entities. Again, why I would prefer DWR for a central procurement entity over, say, the IOUS, you can actually use the bonding financing tools. So these are a little bit more complex issues. And that's why I'm not totally sold that it's a long duration storage or geothermal.

I'm a little bit where the Chair is of, if we're talking about offshore wind, let's put it on the table and say that it's offshore wind, because I think the debate that's going on across the street at the convention center is, do you go for two gigawatts here or there, or are we really going for 25 gigawatts? And that's a big policy question for the state. Is that what the state wants to do?

Because there's so much more involved in that in terms of, I'll say, the permitting that will be wild, the transmission, the infrastructure financing, all of that. And to me, that's like a completely different question that we have or you all have in front of you, all of us as stakeholders. And that's where I recognize the tool in the toolbox.

And I think that that's where my colleagues here have looked to what's happened on the East Coast and what they've been doing in New York and New Jersey and those sorts of models. And then Committee Member Fong is gone, but that's where the detail comes about. Well, how does that work in the marketplace? And there are several models that have been put into place over there. So I'll stop, I'll get off my. Thank you for the question.

Thanks. I don't have any more questions, but I just want to say that this conversation is really, really helpful. And I think that we are seeing a lot of consensus and we're seeing some concerns, particularly in terms of making sure there are guardrails and that we're very specific and intentional in what we're trying to do. But I really appreciate us making real the goals that we have to move to 100% clean energy future. So it's also a very exciting conversation. Thank you.

Thank you, Mr. Chair. I just wanted to ask the PUC just to articulate again, what's the problem that the central procurement is trying to solve in your mind?

I'll begin. Thank you for the question. So, what we have seen through several cycles of the integrated resource planning process is that while we are very successful at procuring, and as our colleague Ms. Vaughn says, bringing online solar, photovoltaic, lithium battery, and onshore wind resources, those are not the resources that are going to deliver for 2035 or 2045. The clean energy, reliable and affordable future that we have all set ourselves as our goal in California.

And we believe that we do need our models to keep showing, and our stakeholders to keep articulating that there is another set of long lead time clean resources that need to be procured. That is the core driver of this proposal.

So I came in as your colleague was saying that she was uncomfortable having us dictate the type of energy that was going to be purchased, yet you just said the whole point is long duration or looking into the future at different types of clean energy that isn't storage, not solar. And I forgot the other one. But why would you feel uncomfortable to have the bill amended to say that?

So I have a couple of responses to that. Thank you. Also, it's a very viable question, and clearly, as we know, we've had a very good, reasonable minds might disagree on this question. I began working for the state when RPS was kind of coming out of infancy, hitting midstride. RPS, the renewable portfolio standard, never selected a technology. It always said we want renewable resources. It defined what fell into the definition of renewable, but it never picked only solar photovoltaic.

And I think the diversity of resources that California has today, which include solar PV, wind, battery, et cetera, is actually a testament to that. Sticking to that technology-neutral principle; I believe that that's the principle that we could carry forward here. Sitting here today, I am not sure that we know all of the complexity. In fact, I know that we don't know all the complexity.

Let me just cut you out there, because I'm not advocating for a type of technology. Would you feel uncomfortable if we only allowed you to purchase renewable energy?

I think we'd just aim for a definition of the length of lead time, the size, et cetera. The other things that actually we have a lot of commonality about here on the panel.

I don't think I got an answer to my question. Would you feel uncomfortable if we only allowed you to purchase renewable energy?

I'm not trying to evade the question. I'm just trying to make sure we don't enter into definitions here. That will be fine.

We have definitions for renewable. They're in statute. Would you feel uncomfortable? Again, we're supposed to be 100% clean energy by 2050. Anything that we're going to develop five years and out. Are we going to go invest in new natural gas technology?

No. Let me rephrase.

Because when we got the strategic reserve and DWR did the purchasing, which I know you directed them to do the purchasing. That's all they bought was natural gas and in the hearing last year, all they could talk about is how unreliable clean energy was. So why would we buy anything that's not clean energy that is going to be developed in the next five-plus years?

Let me try to rephrase. I agree with you, Assembly Member Ting, that we would like to define it as renewable clean, however we do it. The Strategic Reliability Reserve was about an emergency situation that we needed to cure right then and there. Yes. We would be fine defining it as only clean resources.

And so I guess you say clean versus renewable because maybe you want to be open to hydrogen.

I would have go ask my expert for a little bit of help, but I'm attempting to not enter into some definition that could be limiting.

Well, these are all definitions that are defined in code. These are not definitions I'm creating. We have statutes on these.

Right but were also trying to-

You're much more expert than me, so I'm just trying to understand what an.

Why don't I ask my expert for help here?

Thank you, Assembly Member Ting. I do want to take one step back and clarify, which I know you know, but just for the conversation, there is a difference for us between the renewable portfolio standard and doing procurement for reliability and for meeting our SB 100 goals. And so, our renewable portfolio standard program that procurement has been very important. It hasn't been done with reliability per se in mind. It's been to meet the targets that have been set in the statute.

And so, through this tool, it would be both to meet our SB 100 goals and then also to do it with reliability. So, you already mentioned hydrogen. You mentioned that there's other resources.

Those are two completely different things. Right. That's why I asked to understand the question. Right. Is reliability the problem? Are we worried about blackouts, or are we worried about clean technology that won't be developed without us purchasing it? Those are two completely different problems. And you have two completely different ways that you would solve that, in my opinion.

And the CPUC's perspective is that they are tied. So integrated resources is planning is both for reliability, long-term reliability. Strategic Reliability Reserve is short-term emergency, but Integrated Resources Planning is for both. So, both for meeting the SB 100 goals as well as doing it reliably and at the lowest cost for customers.

So it is a problem that you have energy entities, that there's energy to be purchased, and you have POUs, IOUS, and CCAs not purchasing it?

So if I may, it's a combination of complexities. So I don't think it's fair to characterize it that they don't want to purchase it. But for certain types of complex resources, by having a central procurement entity, you're able to set a market signal that is going to redevelop certain areas that need to be built in order to support the build-out of the resources.

Now you're talking about energy that we won't have access to in the next 5-10 years. Right. So what about between now and then?

We have to start today.

I don't disagree. But you're talking two different approaches, right? One's a venture capital approach, which is we are going to set aside, I don't know, millions of dollars, billions of dollars, and we're going to buy energy. So, hey, companies, go develop that energy. The other one is we're worried about blackouts and we're worried about reliability, which is an issue that's prevalent today. And that's a very different approach about what kind of energy you would buy today. But I just don't understand.

Are you saying - because this is not what this trailer bill does. Let's just talk about what the trailer bill does, which is gives you complete authority to go buy whatever you want, whenever you want, however you want. Let me just finish this. So this, to me, is about the problem that that solves is that means you have people in the energy marketplace and they're saying, "You know what? There's all this great clean energy out there. We don't want to buy it. Maybe it's too expensive.

Maybe it's not convenient." I don't know why, but based on the testimony, that doesn't seem like it's happening. So what are you going to be purchasing that these folks aren't going to purchase? Let's talk about in the near term, because I understand the far-term issue, but that's not the trailer bill you presented.

I think it's important not to conflate the Strategic Reliability Reserve with the central procurement entity, though. I think that they both exist there in different sections.

Right. But the Central Procurement Act has no definitions. You didn't say we're going to be looking at energy that's going to be developed for five-plus years. You didn't say we're only going to be looking at clean energy. In fact, you didn't even define clean energy or renewable energy or that. So for all I know, you could be buying Redondo Beach and saying, hey, we're going to find a way to keep it going and make it cleaner.

Yeah. So the trailer bill language talks about long lead time resources, and so some of the resources that you may have seen procured by DWR through the Strategic Reliability Reserve are not long lead time. They were directed not by us but through that authorization of the Strategic Reliability Reserve to be able to get what they could get for this summer, for next summer, for example, for that five-year duration. And so here it would be only long lead time resources.

So some of those concerning resources that were included in the Strategic Reliability Reserve, they're not on the table here because they're not long lead time.

And then, so why not define them in terms of at least as either clean or renewable? Because that's not in here.

Yeah. And so what we're looking for here are resources that are able to reliably get us to the SB 100 goals as defined already by the legislature. And so that's what we would be looking for for the central procurement entity.

Finish, Mr. Ting.

Just to clarify, so where is it defined in terms of the long lead time? So again, we're not in the trailer bill.

Yeah. So we want to be able to figure out exactly what that duration is through the Integrated Resources Planning process.

So then why not go through your process and then come back?

Yeah, that's a good point. Right now, as I said, we've had to move the target along, and so the timing is really of the essence in order to meet the goals that we're talking about here.

I don't disagree. Timing is of the essence, but you are not prepared to answer our questions. So I don't understand. Why would you assume that we would feel comfortable giving your authority carte blanche.

Right. So the carte blanche authority of the Public Utilities Commission, and there's also DWR. And so what I've been hearing have been guardrails about what a central procurement entity would be procuring. And so we would like to be leveraging the perspectives, not only of the modeling, but of all of the stakeholders that are here today, including our load-serving entities, development community, environmental justice community, to create an order.

But isn't your job to be engaging with these stakeholders every day so I guess-

We are. You'll hear from them.

Yeah, no, we hear from them as well. I'm not worried about that. But my concern is whether you're listening to them because, to me, this proposal should be significantly more refined than it is and doesn't seem to have been incorporating the fact that you have a proposal; it's been out for a few months now, hasn't got further refined. The stakeholders have been talking to all of us.

I assume they've been trying to talk to you, but it doesn't seem like any of their thoughts have been incorporated. Unless we get a revised trailer bill at May revise, which is, I guess, possible. I don't know if that's the plan. Is there going to be a new trailer bill to be dropped after May revise?

We'd have to defer to our administration partners on that.

Got it. But I'm just saying there's no updated thinking. And my guess is, why wasn't that incorporated prior to the development of this trailer bill?

If I can, assemblymember? The ideas actually did generate from our existing integrated resource plan process. The idea of central procurement has been an idea that has been kicking around for a few years. So that is the genesis of the proposal that landed before you.

Okay. But again, it doesn't have really any limitations. Even when we talk about long lead time, there's no definition behind anything. Everything is just like, at your discretion, you get to define long lead time. Long lead time could be one year. Long lead time could be two years.

We have hundreds of stakeholders in our proceedings who assist us with exactly those kind of market design questions. And so it would be defined in a commission order.

Sorry, I'll wrap up. Thank you, Mr. Chair. So why don't we just hold this over till next year when you've had all those stakeholder meetings and you come with us so that we actually know what we're voting on? Because at this point, I have no idea what I'm voting on at this point.

I appreciate the point. Assemblymember, again, time is of the essence. That's why we brought it to you this year.

Well, then, if that's the case, then hopefully you'll be okay with the amendments that we put in to, I guess, further refine the authority based on what we heard today.

Thank you.

Before I go to Assembly Member Connolly, I just want to follow up on this right spot-on point here, if you don't mind. I'd like to phrase it this way. Number one, the Public Utilities Commission is an independent agency, and so the legislature does not have much oversight outside of when you come for budget and these kind of conversations. But it's one thing to express your intention. We intend this to be long lead times.

We intend this to be, but at the same time, your request is, but we want to be the ones that determine what long lead time is. We want to be the ones that determine what are the projects that are resource rich and require this. And it is natural, not wrong, but it's natural for every agency, every bureaucracy, every body, every legislative body wants to have maximum flexibility and maximum control. So it's normal that you're going to ask for that.

But your justification for asking for that is because maybe we need, maybe there's some other long-term resource, and if you narrow it down just to wind, et cetera, but that implies that those other things can't be done except by central procurement. And that's a hard argument for you to make because we've already seen that long-term storage, we've been able to. Long-term storage was viewed originally that can only be done by central procurement.

And then we found out that it doesn't have to be done by central procurement; it can be done. So the argument for moving fast is we know we've got wind turbines out there that we need to get moving on, and we have an industry that is uniformly telling us, you've got to have central procurement for us to make this risk. We don't have anybody telling us that for this new surprising technology or fusion. I'm going to use fusion over and over again, just as the example.

Fusion will probably require central procurement, but we're not there yet to have that conversation. We have that. So that's a legitimate request. We need central procurement because we're hearing from the industry. We're hearing from everybody. It makes common sense. Everybody's sort of saying that and what that request has translated into the CPUC making the request through the administration. We want to have central procurement for anything that we decide is central procurement. And that's just going to inherently keep being a conflict.

So I would just encourage you to think of it from that standpoint and recognize if we don't give it all to you right now, it doesn't mean those other things, it doesn't mean fusion can't be done some other way, or it doesn't mean you can't come back for that. But if you're trying to ask us for the whole thing, the definition of the time and everything, and you say, trust us, we've got a stakeholder thing, and they'll give us input.

Well, them giving you input when you have the final decision is very different from a legislative standpoint. So I hope that helped. And I encourage you to sort of try to - that's how you meet us halfway, is to go. The more you trust us to give you more authority when you need it, the more we're willing to trust you to give you this authority as we're going forward. I hope that helps.

Assemblymember?

Yeah, thank you, and I appreciate the conversation. At this point, I'm going to just kind of try to add on to what's been said. I think you're hearing a lot of common themes because what I'm finding myself still asking or trying to answer in response to the question: why is this needed? I don't think we've gotten a clear-cut answer. To the extent, I think we have had a good discussion today and following up on a policy hearing we had on this issue as well.

It is the notion of these long lead time resources that there is a category that we want to procure as we achieve our greenhouse gas emissions goals and renewable energy goals that could otherwise be out of reach of conventional market forces. I mean, I think we get that. The problem is that's not how the language is written at this time. So I'm going to go back to the guardrail component again.

I think we need to further define issues around length of duration; size sounds like is a key component, not picking technologies necessarily. Because I go back to Assembly Member Fong's point, I think whatever you're setting out to do will have market implications. So we want to make sure we understand those and that we're not adversely affecting ratepayers. And rather than open-ended blank checks, we actually are going toward these goals that we have.

So for me to even start to get on board, I think the questions my colleagues have even more eloquently raised have to be answered around what this is going to look like and working with stakeholders to do that. Maybe I can tread a little bit of new ground on a more ground level perspective: if this were to go forward, what does a new procurement entity actually look like? Is there additional staff? If so, how many? How would it be housed within DWR, et cetera?

Thank you for the question. We'll turn to our colleague from the Department of Water Resources.

Thank you for the question. Assembly Member, my name is Delphine Hou, the Deputy Director of Statewide Water and Energy at the Department of Water Resources. We appreciate the question, and we understand that this is no small task for the department. The office under me, as was discussed before, was stood up expressly to handle all of the various aspects related to the Strategic Reliability Reserve. So that was stood up in very short order, and we have been hiring and where we need to.

We would not only have DWR employees, but we would supplement with industry experts. For example, we've had need for nuclear experts, and so we've hired those to provide us guidance as we're looking through documentation and performing the functions that we need to for the reserve and related functions. Similarly, here we are asking for startup funding from the General Fund to stand up the office.

And it's a short term aspect to be able to get up to speed so that we are a viable option for the California Public Utilities Commission to point to us. Now, once we are selected, if we are selected to perform this function, then we would move into establishing a more permanent presence to conduct whatever activity the CPUC directs us to consider for whatever the resource may be.

And there again, depending on what the resource is, we might also engage in other additional experts on particular resource types and expertise that we would need. Costs there, though on a permanent side, would be then embedded in a non-bypassable charge, and part of that funding would go through back to the CPUC for their approval in order to fund that function on a more permanent basis.

Yeah, that was going to be a follow up question. So, what do you anticipate this will cost the state and would the cost be passed on to ratepayers?

That's an excellent question. I think at this point, we don't have quite the visibility because we don't know what the procurement will be. At the outset, to start funding the office, we are requesting 32 million from the syrup funding to stand up on a temporary basis in order to get the activity started. Also, at this point in time, we won't know whether or not we will definitely necessarily go down bonding. That is an option.

It's an authority that we've requested, but we also would need to go through a competitive solicitation and really understand the resources that are available and what the financing structure is. So, at this point, I don't have an estimate of the ultimate headcount or expertise that would be needed, but it's very much dependent on the resources that may come to DWR for procurement.

Great. And final question: does the administration anticipate the buying authority would be in perpetuity, or is there a sunset date? I think you're hearing interest in establishing something along those lines as well.

At this time, we are not requesting a specific sunset date as we look at potentially designating a central procurement entity. If the circumstances in the immediate time don't indicate that we need one, we would want to wait and designate it at the time that it is needed. And so right now, we would be requesting that there is not a sunset date so that we're able to specifically look at what's needed and the timeline of that resource that's needed.

I think that has to be a part of the conversation from our side as well. So, looking forward to continuing that.

Noted. Thank you.

Before we go to Assembly Member Garcia, and I have another one of those sorts of your things just for DWR. How much money are you asking for? If you are the ones given the authority to be the center of procurement, how much money are you asking for?

Thank you, sir. We haven't actually estimated that right now we've only gotten to the part for the interim funding to stand up the office in order to start activities in order to be considered a potential central procurement entity for the CPUC.

I think once we get into the activities, once the CPUC actually designates us and we have a better understanding of what those responsibilities are and the scope of it, again, very different, as you mentioned, sir, from the offshore wind conference, 25 gigawatts of offshore wind, quite a different scope of work than perhaps 1000 or 2000 geothermal with technology and areas that we're much more familiar with. So I think once we understand that better, we'll be able to have a better estimate.

So you won't be making a budget ask in this budget? I'm going to ask you and then I'll go to LAO, You won't be making a budget ask in this budget?

I don't believe in this budget.

Department of Finance, do you have any other thoughts on that?

Yeah, my understanding is that the Administration is asking for $32 million in General Fund to stand up the office. And I think we would just highlight, as you're deliberating all of these uncertainties and timing, this is in the context of your General Fund shortfall, 32 million to stand up in office that may or may not be needed because it may or may not be selected by the PUC. So again, some tough decisions here before you.

That is the number. I really wanted to ask a question so I could ask why 32 million? Why don't we have Department of Finance answer that for us? Do you mind? Do you want to tell us why 32 million, how you came up with that number?

I can start. Okay, sure. Absolutely. And I apologize if I misunderstood the last question. The 32 million that's being requested is for the interim. My response was about a permanent position, and that hasn't been requested.

The 32 million, what we estimated was, frankly, to set up the staffing office so that we would have minimum interim staff to be able to do analysis in preparation for whatever activities that could come to DWR in terms of running the competitive solicitation, as well as including activities and outside council experts that we may need for bonding authority in case that has to be activated, but also additional staff in order to engage appropriately with all the various regulatory processes, most importantly on the integrated resource planning process with the CPUC and not the various functions related to that.

Do you have a ballpark figure of how many staff you would have on this interim level?

I don't have the numbers. I think off the - we might have to get back to you on that. I know we do have the estimates, and I apologize. I don't have it with me on hand.

Thank you very much. Assembly Member Garcia?

Thank you, Mr. Chair. And thank you to you for this presentation. All of you on the witness stand here or providing your testimony. This conversation certainly isn't a new one. We've been part of this discussion for several sessions. We've introduced the concept twice in the legislature, and I think what you're hearing today are very similar conversations, questions, comments, and concerns that we got to hear during those iterations of this idea.

And more recently, some of the questions and concerns that were raised in a public hearing in the Utilities and Energy Committee. Several times reference has been made to the analysis that was produced on the matter, and I think some of the questions and comments have already been raised. I think the benefit of having introduced the bill in policy form was to be able to inform this process and hope that, at some point, the budgetary process would also reflect many of those questions and concerns.

I'm going to ask questions, and the premise of my question comes from the gathering of information and points that were raised in that hearing. And the first question I have is capacity payments for the Strategic Reliability Reserve. CCAS, ESPs, and POUs all express concerns about the capacity payments to the Strategic Reserve. There's been a deficiency in the entities planning reserve margin. The issues they vary amongst the different entities. There seems to be real consequence to that.

The SSR capacity payments seem to double penalize the load-serving entities. They are deficient in their system. If the current penalty structure is not an adequate deterrent, why doesn't the CPUC consider adjusting the penalty mechanism rather than adding on a new payment structure questions that came up in the hearing? We'd love to hear kind of some. I know you touched on them a little bit earlier, but love to kind of get an elaborated answer on that.

Thank you Assembly Member Garcia for the opportunity to comment on that. So the Strategic Liability Reserve, as you know, has been funded through the General Fund and is being accessed by more than just the load-serving entities that are under the CPUC's jurisdiction. Given that we're trying to create an even playing field for any entity that would potentially be relying on this limited resource for emergencies. In addition to that, there are limited funds allocated from the General Fund for the Strategic Reliability Reserve.

And so these payments that you have referenced would be an ability to replenish in some way in order to not only deter use of it. We want entities to do their own procurement, but if so, provide some replenishment in order to take that off of the General Fund.

Thank you. For the POUs, the current trader bill language holds them to a planning reserve margin that has not even been set yet. That seems a bit unfair for them. How are they meant to be compliant if they don't know how much they are meant to procure? So the question here is, publicly owned utilities have raised concerns about the structure of the capacity payments in the bill proposal, holding them to a standard that has not been determined yet.

If this bill were to pass immediately, they would be responsible for capacity payments this summer based on the PRM that is unknown to them at this time. Is this the administration's interpretation intention with this language? If so, is this appropriate?

So the stakeholder process around the creation of that planning reserve margin for the POUs is with the California Energy Commission. And so I won't be speaking to that process, but for the purpose of the structure for the Strategic Reliability Reserve, if an entity ends up leveraging it, that's when the payment process would begin. And so in order to be able to replenish that entity that is right now limited.

Patrick with the California Municipal Utilities Association. I wanted to make a clarification, if that's all right. I think we disagree with the characterization that there are utilities that are leveraging the Strategic Reliability Reserve. The Strategic Reliability Reserve was set up by this body and the Governor, Department of Water Resources, the Energy Commission. It's a portfolio to deal with an emergency situation. I am not aware of any municipal utilities that are going I want to leverage that and I want to do that and I don't want to be procuring my own resources.

I have examples of utilities that have tried to increase their own Planning Reserve margin. When they go out into the market to bribe products, they cannot get them right now. That is the problem. No one wants to rely in our community on the Strategic Reliability Reserve. That indicates that there's a problem in planning and processes on the grid. We want to fix that. The problem is that the market tightness.

So I just want to clarify that we don't think the Strategic Reliability Reserve was set up to be leveraged. It's supposed to be a statewide asset to give us basically a Band Aid so that we can work through this market tightness, update our planning standards and be better on our way to more reliable future.

Thank you for that. Thank you. This has been a fairly extensive hearing. This is the benefit of having these Committee hearings. You get an awful lot of information out on the table where everybody hears it all at the same time. Because so much of this happens in this piecemeal conversation here, there and everywhere else. We have two other really extensive trailer Bill items. So we're going to move on.

I want to thank everybody for their professionalism and their presentation and consideration in terms of the answers and responses to our questions here today. So thank you all very much. We're going to move to transit now. And as soon as the transit people come up, I'm going to ask Assembly Member Ting to make a comment, to make his comments because he has to leave. And then we will get into. Oh my goodness. I didn't take witnesses. What's that? Oh, that's at the end. There you go.

Thank you. Forgot about that. Yeah, right. Good. And then we'll do voting as soon as Mr. Ting. Well, let's do the voting right away here. So we're going to open the roll back up so that we capture people that were not here for votes. And so the first motion. Will you open the roll, please? Do I have to repeat the whole thing?

More or less. What's that structure?

We're not going to do the what? Yeah. Public health.

Motion one. [Roll call]. Measure passes. Motion two. [Roll call]. Measure passes.

Motion three.

[Roll call]. Measure passes.

Great. All right. Okay, Mr. Ting.

Thank you, Mr. Chair. I apologize. I cannot stay for this very important panel. Appreciate the transit agencies for coming again and finally bringing a number. I would just say that I think very concerning that the agencies are coming and expecting a $5 billion bailout without bringing forward any accountability measures, any measures or approaches in terms of what they will do, what each of them will do to improve ridership.

As my budget staff reminds me, if we were in Sub Two and this were education, if we did a $5 billion bailout, we would take every agency we bailed out over. That's the protocol. It is for K through 12. That's a protocol. When we bailed out Inglewood, it's a protocol. When we bailed out Oakland, we would send in FICMAT, which is the finance agency, and then we would take it and appoint a receiver.

So I think that is what you, Mr. Pimentel, you and your agencies are asking of us. And I just want to know, when you go through your comments, whether you are prepared to deliver an increase in ridership. I know my colleague from Glendale will really be talking about that. I think that is the one measurement that we really need to focus on and that whether or not your agencies are willing to have the significantly increased accountability that will come with additional resources.

Having said that, it will be near impossible to do $5 billion from the General Fund or from a variety of the proposals that have been put out there by your agencies that are also a mix of General Fund or different impacted proposals. So obviously, we don't want to have any transit agency collapse in the next year or two, but what we also need to hear is what individual improvements by agency they are all willing to commit. That has not come forward at all.

Even in the hearing we had a few months ago, you didn't even have a number to present this body. So I'm glad we have a number. What I'm very disappointed is that number is not brought forward, along with what performance measures you're doing, goals and increasing ridership, also what efficiencies each agency is willing to really incorporate. These are all things we really appreciate the LAO for identifying in their report. But again, we know that this is a serious problem.

And also, and I'll just say this for my own agencies in the Bay Area, there's been a discussion in the Bay Area about whether or not to put a housing measure first or a transit measure first. In fact, the Bay Area has direct statutory authority right now. If they wanted to raise revenue via gas tax or other taxes, they can go ahead and go do that, similar to what our colleagues in Southern California did.

So I would just say for the record that I don't believe that we should be putting forward a housing measure next year. I think we should be putting a transit measure next year. If transit is on a fiscal cliff in our region, I think we have to be able to help ourselves. I think the state could provide some interim help, but I think we have to be willing to help ourselves as a region, as our voters need to help ourselves.

And so I think we need to be fully prepared to go to the voters, ask for their support to make sure that we don't have BART, Muni, AC Transit. A variety of transit agencies go off that fiscal cliff. But I feel that the agencies you represent have been fairly irresponsible. We knew this problem was coming.

To come at this late a juncture with such a large request without really a whole lot of consultation or working with our legislative leadership, I think is really disappointing and I think gives me concern and concerns me because it demonstrates that perhaps the agencies are in greater disarray than we had hoped. So I hope that I am wrong. I hope that there are specific plans on how each of these agencies will perform, improve their performance and have a fiscal plan.

I mean, just for example, we just passed a Bill on the floor about hospitals and distressed hospitals, and it's only a loan program. It's not a grant program. We are going to be loaning hospitals money in distressed areas. But the very first criterion before they get a single penny will be, have they demonstrated a long-term financial viable plan. So you can bet that that's something that we'll be looking at from each of your agencies requesting a single penny from this body.

So with that, apologies, Mr. Chair, for not being able to stay for this very important discussion. I hope that our panelists will be able to address those questions and those issues and very much appreciate the opportunity to speak. Thank you.

Thank you for your presence today and kicking off our transit section of the comments, and we'll look forward to your responses as we get into this. But we had a very remarkable LAO analysis.

We asked LAO when this issue first came to us, how long ago, six weeks ago, five weeks ago, et cetera, to come up with all of the options that they could think about and the advantages and disadvantages of those options, and they have come up with a remarkable report, an 18 page letter that they've also reduced down into more digestible seven or eight page, smaller version of that.

So out of respect for that great effort, and also because I think it frames the issue really well, I'd like to kick it off with LAO's comments. Right. Thank you.

Thank you, Mr. Chair and Committee Members Frank Jimenez with the Legislative Analyst Office. We've been asked today to present to the Committee a handout based on the letter that you mentioned that we submitted to your office and the Committee. That letter is publicly available on the Committee's website. The handout that I'll be speaking from breaks down this letter into a couple of pages, but the letter itself is more extensive.

Our handout that I'll be speaking from is also available on the Committee's website and also on our website as well at LAO.CA.gov. Given that there are three really big issues in front of the Legislature today, and all of them require extensive discussion, I'll keep my remarks short and I'll probably be jumping around the pages within the handout, but please feel free to interject any point and ask any questions.

So, turning to page one, as I mentioned before, this handout will include background on the operational funding shortfalls that transit agencies are projecting, discuss the various options that we provided to the Legislature, discuss potential accountability measures that could accompany relief, identify potential statutory changes that could also provide short term relief, and discuss long-term changes that the Legislature could begin to plan now. Turning to page two of the report, just for some initial background.

As you can see from the figure, the pandemic significantly impacted ridership across the state and impacting fare revenues that transit agencies were collecting. Ridership has somewhat rebounded, and as transit agencies exhaust federal relief funding, many are projecting operational funding shortfalls as ridership remains below pre-pandemic levels. Turning to page three, there's a figure that provides key considerations for the Legislature as it develops a relief package. This figure is also in our letter as well.

I would like to spend some time on the second major point, the structure of relief. There are several key considerations for the Legislature in developing a relief package.

This includes timing, whether relief should be provided in the budget year or beginning in a future year, duration, whether relief should be one-time or multi-year, magnitude, whether the Legislature should provide funding that covers the full statewide operation funding shortfall or only partially covers it, repayment requirements, whether relief should be allocated as a grant or as a loan and distribution. Should relief be need based or based on existing formulas? For all of these considerations, there are benefits and trade-offs for each of them.

The Legislature would need to think about whether the timing of relief on how much time it gives the Legislature to develop a relief package, how much funding certainty it provides transit agencies and being able to ensure that they do not have to make adjustments to their operations, whether that's increased fares or reduced service levels. Also need to think about the benefits on the current budget deficit that the Legislature is facing.

In certain cases, the way it's structured, it could be budget neutral or it could have budget impacts and also thinking about distribution on whether all agencies should receive relief or only those that are facing the greatest operational funding shortfalls. I'm going to jump to page nine of our handout that gets into the potential fund sources that we've identified and assessing all the benefits and trade offs of those in the previous pages.

Those kind of break down in more detail my remarks on the structure of relief and the benefits and trade-offs of those, and happy to get into those discussions as the Committee asks questions or would like to get into them during my remarks. In our analysis, we identify five potential funding sources that the Legislature could look at. Page nine. Yeah, so we've identified five potential funding sources for the Legislature to consider in thinking about providing short-term relief to transit agencies.

The first one is providing flexibility over existing or planned transit capital funds to be used on operations. In many cases, this approach would not add additional cost pressures to the General Fund, given that these funds are either already planned to be distributed or are programs that are special funds that are continuously appropriated. In many cases, these funds and programs are distributed directly to transit agencies or regional entities.

So with this approach, it would be up to the agencies themselves to determine how best to utilize funding to secure their budgets. However, a trade-off with this is that these funds, by opening up them up to be allowed for operations, would mean less funding available for the original intentions of the funds that the Legislature intended for those programs. For instance, less spending on capital and more on operational support. The Legislature could also redirect funding from existing transportation funds and programs.

The Legislature could redirect certain funds from certain transportation accounts or revenue sources to support transit operations directly, or switch funds from other General Fund supported programs to then free up General Fund to support transit operations. The benefit with this is that it would also not place additional cost pressures on the General Fund. However, by switching and redirecting state transportation funds, this could mean less funding for other transportation priorities such as highway maintenance and rehabilitation, local streets and roads, or other transit activities.

Turning to page 10, the Legislature could also look at either redirecting portions of the discretionary portion of the Greenhouse Gas Reduction Fund, also known as GGRF, or also redirecting funding to existing, currently statutory, continuous appropriated portions of the Fund. Given that this is GGRF funds, shifting funding would not place additional cost pressures on the General Fund, and it would be somewhat consistent with how the Legislature has utilized GGRF in the past. GGRF does support continuously appropriated transit programs, so there's kind of that alignment there.

A trade-off, however, would be less General or GGRF for other legislative priorities. It would also leave less room for the Legislature to find additional budget solutions. So switching General Fund activities to GGRF to sustain those programs. So by offering GGRF to support transit operations that's less of a resource, the Legislature has to find additional General Fund solutions. The Legislature could also provide additional General Fund to support transit operations within the context of the budget problem.

This could include activities such as redirecting funding from the one-time and limited term augmentations that were provided in the recent budget surpluses. It could also redirect funding from ongoing General Fund operations as well. The trade-off of this is that the Legislature would have to look at defunding certain General Fund programs. So obviously that comes with a trade-off in that these programs wouldn't be supported and would instead go to supporting transit operations. But there could be instances where shifting General Fund may make sense.

Either a program no longer aligns with legislative priorities or additional federal funds have been made available to support General Fund supported programs. So it puts less pressure on the state to fund these activities where there's federal funds. Turning to page 11, the final option that we've identified is the Legislature can always raise additional revenues over the short term. This could include increasing fuel taxes, vehicle fees or other taxes outside of the transportation space. Raising additional revenues would not place cost pressures on the General Fund.

However, depending on which charges are increased, this approach could have disproportionate impacts to certain populations who would now have to pay higher costs. And in comparison to the other approaches, this would require two-thirds approval by the Legislature. So that's an additional hurdle that the Legislature would have to cross. Turning to page 12, we've identified three accountability measures that the Legislature could implement to accompany relief. The first one is having transit agencies that receive relief conduct an analysis of their operations and future ridership.

So if transit agencies come to the state and want operational support, putting requirements on them to provide pertinent information to the Legislature that they are taking long term actions and assessing their current operations and ridership and trying to match it over the long run.

As I mentioned before, this could be a condition of receiving relief for having this reporting requirement, or it could be a condition of in the case of providing loans to transit agencies as a requirement for having those loans forgiven, that this reporting requirement be met. However, identifying an appropriate entity to oversee these plans would be another decision point for the Legislature. Currently, there is no state transportation department that currently does this type of oversight function, so that would be another decision point.

The Legislature could also require upfront reporting from transit agencies to provide information such as how transit agencies will utilize funding and how they will intend to use relief and estimates on how receiving relief will affect their operational funding shortfalls over the short-term.

In addition to receiving upfront data reporting from transit agencies, the Legislature could also consider requesting additional information from transit agencies statewide so the state is aware of how transit agencies, not just those that are facing operational shortfalls, but transit agencies across the board, are continuing to improve coming out of the pandemic. Turning to page 13, the Legislature could also increase state oversight and management.

The state could employ a similar model to the one it uses when it provides emergency loans to school districts and require a state-appointed administrator to oversee physical restructuring that any transit agency that receives relief. However, this would be a new role for the state and in contrast to local school districts, the state doesn't have a system like this currently in it established, so this would require some administrative costs and policy decisions as well in setting up this structure.

Turning to page 14, we provide statutory changes that could help transit agencies in the short-term as well. First, the Legislature continued program allocation adjustments and suspension of certain financial penalties. During the pandemic, the Legislature enacted statutory changes that secured funding for transit agencies so that they could receive funding similar to what they were receiving during prior to the pandemic. In many cases, these adjustments are going to sunset at the end of the current year.

Continuing these statutory changes over a short-term would provide additional funding certainty to transit agencies. However, it may create a disincentive for transit agencies to improve performance if they know that funding will remain constant regardless of certain metrics, such as operating revenues. In some cases, state funds are allocated based on operating revenues, so if that metric isn't updated based on a previous fiscal year and based on pre-pandemic numbers, it may not create the strongest incentive to improve performance.

The Legislature could also direct the California Air Resources Board to adjust its innovative, clean transit regulations over the short term. These regulations phase in a requirement for transit agencies to procure zero-emission buses. Short term adjustments would delay a cost associated in the short-term for transit agencies in purchasing zero-emission buses and also installing related refueling infrastructure.

The trade-off is that by taking on these short term changes, the rate at which transit agencies turn over their fleets to zero-emission buses would be much slower.

Turning to the final page, page 15, looking at longer term measures that the Legislature could begin to think of now, the first one being the Legislature could conduct analysis of potential changes to statewide transit policies. As transit agencies and locals begin to plan for transit coming out of the pandemic, the state could also look at changes it could make to support these efforts and also align transit with statewide goals.

The Legislature could conduct this analysis in various ways, such as through a legislative task force, a blue-ribbon committee, or through a state entity in coordination with other state and local entities, academics and local stakeholder groups. And then finally, the Legislature could begin now to think of how to adjust current transit programs to incentivize improved performance. In some cases, transit formula programs from the state are allocated on certain metrics that don't necessarily align with improved performance.

So the Legislature could begin now to think about a potential change in selecting a metric to allocate a portion of funding on to incentivize improved performance over the long run. But happy to take any questions. End to my remarks.

Do we have any questions for LAO at this point in time? I appreciate the verbal comments. The written comments were so clear and right on that you've eliminated most of my need for questions. I do have two quick questions. One, of the funding sources you've identified, does LAO have a recommendation or a combination of options that you would recommend for funding.

Given the task that was in front of us? We don't have a recommendation. As you mentioned before, we looked at this analysis, looking at all the options, assessing the benefits and trade-offs of each. As our report mentioned, some of them are more administratively burdensome, some seem easier to implement for the Legislature, so they all come with trade-offs.

We didn't ask you for that. So I would offer this if in your internal conversations after this, you do come up with a funding option that I hope that you would pass that on to us. If you see something that you go hey, upon further analysis thing, I'm not asking you to do that. I'm keeping the door open for you to do that if you'd like.

The other question is in the analysis of changing the suspension of certain financial penalties, and this is a question for both. First, I'm going to jump over to you. Is the $6 billion deficit determined. Assuming that we are going to be changing with all of these penalties coming back on and the suspension of all of that, is that with that happening?

So we did put this question to our membership, and just unfortunately, with the timeline between receiving the question and having answers in hand, we don't have complete information. But the information that has been provided by agencies so far has suggested that, yes, they have taken into account what would be the lapse in the statutory relief for the agencies.

To give you one clear example, BART stipulated, for example, that if the relief were maintained, their decline, or rather their operating deficit would decrease by 10 to $15 million. Their operating deficit would decrease by 10.

From what to what?

I don't have the numbers specifically in front of me for that agency, but it would be a decrease in this most immediate fiscal year of $15 million.

Is there any BART representative here that has that number? I know we have that number someplace, but anyway, if anybody can come up with that number, and then my question is for LAO, do you have a number that is associated with how much relief would we be able to provide just with this? And I'm talking about both immediately because I don't think this would be a short-term. In other words, if we did this, how much of the short-term problem would it solve?

If I can just add some additional context on this, we wouldn't be talking about necessarily new money for the agencies. The relief that would be provided is relief that is handled within the region itself. And so the structure of the relief speaks to what agencies are posting with regards to what we call revenue basis. That's the amount of revenue that the agency is generating, that serves as itself the basis for allocations from STA.

And so within the region itself, there would be no change in the available resources. What we would see, rather, is that for those agencies that have posted more minor gains in their revenue, that they would not see a significant shift of money away from them and toward other agencies.

So other agencies would lose?

Other agencies would lose. There's a balancing motion that takes place.

Agencies that would lose would be the agencies that have higher revenue where their revenue has recovered faster.

That's correct.

And when we say revenue has recovered faster, do you have a sense in the Bay Area in particular, but overall, what percentage of revenue is farebox revenue and what percentage of revenue is local contributions? And when we say revenue, do we include all local contributions? So if one entity has decided to tax themselves, and does that increase their formula because they are putting in more local revenue, or is it just farebox recovery.

So I don't have the data in hand to provide you with the breakdown of fare revenue relative to operating revenue as a whole. But within the Transportation Development Act, there's a term that is identified as local funds. And local funds take into account all sources of revenues that are locally derived, whether they're farebox, tolls, parking, local option, sales tax measure, et cetera, that get rolled into what becomes a revenue basis that serves as, again, that basis for STA allocations.

Great. Okay. Thank you very much. LAO, any adds to that? All right. Okay. Those are my two questions. We ready to.

Go to. We have one other representative here. Department of Finance.

It's Steve Wells from Department of Finance. We just like to add that the LAO has done an excellent job of presenting the issues and the policy and the fiscal ramifications.

Does that mean you'll take all their recommendations is in the future, forever on all items?

Sure.

I would say as far as the question about, which method of funding is the best, I think a lot of that will depend on what type of relief. Whether the relief is short term or long term, or what other requirements are attached to that. I think the identification of the different pots is spot on, but which one is the most appropriate, I think would be dependent upon what it is that we're trying to do.

And for the benefit of everybody going forward in the conversation, I have not spoken to an assembly member yet, that doesn't think this should be short term so that we have the ability to keep checking and have accountability measures. Now, it still may be that even though we're short term, depending on what accountability measures we make, it might influence what we choose for the funding options.

But I would say everybody ought to assume this is going to be step by step and it's going to be a check in each time, et cetera. That doesn't mean, again, that we might not choose something that has a longer lead time, that we still have the checks on.

And we probably also need to define what is the five years, is that short term or is that long term?

Good point, also. And I think I will say this as we kick it off and come over to CTA for their comments, and that is, I think we have to use this. It'd be irresponsible for us not to use this as the appropriate time for us to lust to look at the whole way we're doing transit in the state, whole way we're funding it, what's the local responsibility and all of that.

I think there's no question that virtually everybody I've been talking to on the assembly side is saying the same thing. They want to take this as the opportunity to not just go back to status quo and see where we are and find ourselves continuing. And that's particularly true.

And that's going to be my first question to you, if you want to answer it in your comments. And that is because the decline started in 2014 in ridership. So, what that basically said to us is, before COVID, before any of that other stuff, we were failing to get people out of their cars and into mass transit.

So, for us to just say, we're going to just go back to that model, just going to fund it and keep doing that, means that in 10 years from now we'd still be failing in terms of doing that. So, we have to sort of think big and think creatively about how do you change that.

And the more locked in infrastructure you have, the less flexibility you have to change. And that's something else that's been brought up a number of times and one for us to think about. So, with that, turn it over to you and really appreciate that you've already had some questions thrown at you and hope you can answer those while you make your other comments.

Happy to do so. And my remarks.

Welcome back, by the way, I know it's been a pressure time for you, here for the last six weeks.

Well, good afternoon, Mr. Chair and Committee Members. I'm actually going to depart from my prepared remarks for a moment. And address I think specifically some of the concerns or positions that were articulated by Chair Ting. And here I just want to note for you all that, there was an observation made around the timeline, the structure of our development of our recommendations.

Want to note for you that we have been engaged for many months in the process of developing recommendations within our association. We've held at this point 17 meetings of our leadership, to provide us with perspective on potential options that we could put forward to the legislature for their consideration.

And I think materially for this committee to understand, is throughout that process we have been deeply, deeply engaged with committee staff for both the two budget committees in both houses and the Transportation Policy committees. I asked my staff to pull up the number of meetings that we've had with staff, and it's roughly 15 over the last five months.

And so, with regards to collaboration, seeking of input from committees and leadership, I would stipulate that we have done exactly that, as we have developed these recommendations to make sure, that we're putting forward recommendations that are attuned to the feedback from the legislature and could potentially have viability and buy in from the legislature as things proceed.

I also want to speak directly to this concept of accountability. And here I will recognize LOA has put together some recommendations on the accountability front, separate from that process.

We as an association have been meeting to develop an accountability and reform framework. In fact, we had flagged that for your staff, as we've been meeting over the past few weeks, to talk about what would be a forthcoming release and an addendum to our budget request to better specify the requirements, both front end and back end, that would be applied to the receipt of any new dollars, as well as the use of those dollars and to just elevate that.

This is something we've spoken about in public. When I was before the Senate Budget Subcommittee number 5, just two weeks ago. I spoke to exactly that process of identifying some accountability measures that we would be soon delivering for the legislature. I'm going to go through those as I run through my remarks today.

And so I just want to emphasize, and as I start out, that we have been listening very, very closely to the message from the legislature. We believe that we are meeting the moment and the message that we've received in how it is that we've developed our framework. And so here I'll jump into specifically my prepared remarks.

Again, I want to thank you for having me back today. As I mentioned, we have been meeting within our association and our 15-member Transit Operations Funding Subcommittee to finalize and file our budget request.

That was one that was delivered at the end of last month, that does present a series of industry led consensus, funding and policy recommendations for addressing transit agencies near term needs.

Our recommendations were the outgrowth of a multi-month internal process. That involved agencies of all sizes, modal balance and geography to ensure that we were putting forward recommendations that reflected the interest of the broader state. And we were very deliberate in how we designed these recommendations.

To address the feedback that we have received from the legislature, including this committee, since the start of the year. And with some liberties, I would summarize the feedback that we've heard as follows. Number one, be mindful of the state's current budget deficit and limit to the extent possible, creating new general fund pressures. Number two, demonstrate that transit agencies have skin in the game and will make hard decisions to address their funding shortfalls.

Number three, create a foundation for recovery and selfsufficiency by addressing trenchant issues on our transit systems and further pursuing agency level operational and financial reforms. And number four, ensure accountability and access and use of new state funds by transit agencies. And as I present you today, I'll speak to how our recommendations address each of these principles.

Could you please. You said those four things were false.

Okay, that's what I want. Yeah, I just misheard you at the beginning of that when you said.

No.

I'm sorry, I was saying with liberties, I would reflect back the feedback that we've heard from the legislature and that serves as the basis for the recommendations that we're offering. And so, our budget request calls on the state, as you know, to make $5.15 billion available over the next five years for transit operations.

I would argue that that is not a request for $5.15 billion in General Fund support. As you'll see in our recommendations, we're pulling largely from funding sources that already exist within the transit space and asking, frankly, for a lot of flexibility in how we use those dollars.

Now this ask is, we would acknowledge, significant, but as I've noted, we've strived to minimize its fiscal impact to California by proposing that the state draw on Non-General Fund Revenue sources for the truly new funding we are requesting. And by proposing that the state repurpose and allow regencies to flex Transit Capital Funds for operational purposes.

And specifically, we're calling on an additional appropriation of sales tax from diesel fuel for transit operations. And additional appropriation of discretionary cap and trade revenues, conversion of a portion of out year transit capital funds to transit operations dollars.

But proposing that in a way that would honor existing multi-year funding commitments that have been made by CALSTA. And then finally, flexibility in transit capital funds to allow regions to flex up to $1.0 billion of what was a previously approved $4 billion for transit capital projects toward operations.

Now, our last two recommendations are intended to communicate that we understand that just as you are making difficult choices in this budget cycle, transit agencies too will need to make difficult programmatic decisions and prioritize their investments between capital and operations. And we are prepared to have skin in the game.

We believe that the revenue generated from our recommended funding sources will address the most immediate shortfalls our industry faces, stave off the service cuts and layoffs that would otherwise materialize, and help us reach our near-term fiscal footing.

We also understand that the legislature and the public expect California transit agencies to continue to improve their services and their rider experience, to justify further state support, and to set transit agencies on a path to achieving long term operational and financial sustainability.

Since the start of the pandemic, transit agencies have taken steps to scale back their services, drain in costs and revamp their business models to meet changing commute patterns and travel preferences.

And through an accountability framework that I will preview today, those actions would be documented, and others compelled in the short term to establish increased transparency for the State of these agency level actions and to drive agencies toward greater solvency.

So, this accountability framework, which is to be clear under its final review by my subcommittee, seeks to establish one, front end statutory requirements for any agency that endeavors to draw down the new funding we have outlined in our request.

And two, back end statutory requirements that will compel the submittal and implementation of a transit recovery plan and ongoing reporting. As we have broadcast to your staff and as I'm broadcasting to you today, we intend to submit this accountability framework for your review as an addendum to our budget request in the coming weeks.

More specifically, this accountability framework would require, as a precondition to receiving any new operations funding, that a transit agency's governing board pass a board resolution at a public meeting that one identifies and demonstrates the agency's operations funding needs through fiscal year 2728 with details on the key drivers of those needs.

Two, identifies relevant service and/or fare changes, as well as ridership recovery and operating deficit reduction strategies implemented by the agency in response to changing ridership and travel patterns. And three, identifies broad strategies and tactics for how the agency will use relief funding, to advance ridership recovery strategies and address its operating deficit.

Now this accountability framework would also require that a recipient transit agency submit to the state, a transit recovery plan within its first year of receiving funds that identifies, specific programmatic strategies it will implement to recover its ridership and to address its operating deficits.

We want these recovery plans to be data driven, and our accountability framework specifies that they must be informed by an analysis conducted or commissioned by the agency or its regional entity.

And those sources could include comprehensive operational analyses which we've talked about in the past, fair studies, as well as strategic business plans. Here, we want to acknowledge that there is, differences in how agencies are operated.

A bus agency, for example, can move forward with a COA which looks at their service lines, considers how they might be moved, how they could be adjusted in terms of service levels to meet demand as it's changed.

A rail agency with fixed capital infrastructure can't just pick up a rail line and move it to a new place. And so, there may need to be new growth opportunities that that rail agency explores, which may contemplate changes in their fare structures to develop a more steady revenue stream for them. We want to build that into our plan.

Now, our accountability framework will also require that agencies submit to the state a biennial report, that provides an update on this implementation of the recovery plan and that reports on changes to its annual ridership and operating deficit, and which highlights barriers to improving their service and financial position.

And I want to highlight, in particular, that last point of barriers to improving their services and financial position.

Because, as I've said before, while there is a lot that we can do as an industry to correct our house and to put ourselves on greater fiscal footing, there is the reality that at times there are statutory, regulatory or just logistical barriers for us doing the types of things that we want to do that we know you want us to do.

And we want to be able to highlight those in a concrete fashion that can lead to material changes in subsequent legislative sessions.

Now, as I end my comments today, I also want to restate something I highlighted in my earlier presentation, and that's that while there are certainly those changes that we can make, we do continue to grapple with some external factors. And we documented some of them at our last meeting, and that included things like homelessness and safety and security on our transit systems.

And we have also committed to participating constructively in the Transit Transformation Task Force process that has been outlined in AB 761 that is being authored by the chairs of the two transportation committees.

And we wanted to acknowledge this within our budget request ourselves, and have called on the state to pass important legislation, including SB 434 by Senator Min and AB 1377 by Ms. Friedman, which would support transit agencies in addressing street harassment and homelessness on their systems, respectively.

Now, that process, as you likely know, is geared toward identifying operational, legislative and regulatory recommendations for improving public transit in California. And would also take on reforms for transit performance and accountability measures like those in the Transportation Development Act.

Now, the way that we have established our accountability and reform framework, what we have called for within that structure, is for agencies to also provide information that can serve as a seed for that larger AB 761 process. So that we are not creating duplicative processes, but rather leveraging the processes that we may put in place for the relief funds for what is that larger conversation about long term reform.

And so I think with that, I believe I've addressed probably a lot of the interests that the committee has. No doubt there are going to be more particular questions that you have. More details to a lot of what I spoke to. Happy to take any questions from you.

Thank you. A few things. If Members don't mind me, I just want to do some overview comments. Number one, all the comments that you made, I was listening as hard as I could. Nobody can listen as fast as you were going and get it all. When will we get those in writing?

You should probably have those to you within about a week or week and a half.

Okay. So may revise comes out before that and we'll be analyzing that. So that's a little bit of a challenge, number one. Number two, congratulations. We charged you with getting after sort of a big overview, and you guys have not been standing pat. So you've come up with some things.

Still enormous challenges ahead, particularly when you think about how fragmented the system is, how many different providers there are out there. But I've recognized you've made a good faith effort to get started.

The third thing I want to bring up is, it's very clear, as I mentioned, that we want to go with short term funding to hold everybody's feet to the fire. But I'm struggling with the fact that the decisions you have to make, you will make more intelligent decisions if you know what your long-term funding is.

So I want to hold feet to the fire and at the same time I don't want to hamper you. And I hope we're able to come up with some creative way to say give people confidence that if they do X, they're going to get Y, if that's what they need. But I don't have an easy way to figure that out.

We'll turn to LAO and I'm sure they'll get that done for us again. Right. But we don't have an easy way to do that, to square that for you and give you assurances you're going to get something, while we're not confident.

Fourth thing I would say is when you say we're going to do an analysis and present that, et cetera, my experience is given the wide variety of different transportation agencies out there, that those will be wildly varying in quality. And I am suspicious that some of them will be rope-a-dope, kind of lots of analysis without being meaningful, et cetera. Hopefully there won't be too much of that.

But it doesn't by itself give, in my mind, sort of give the assembly the assurances that we're looking for, a report about what they're going to do. What is the game plan? You have to have it. But by itself, the quality of that report, we don't have an agency that's going to be here at the state level that could professionally review all of those. It's going to be a challenge to deal with that. So those are just overview comments.

But I know members have comments and I have specific questions and stuff. But I didn't want to rush to those without turning to my colleagues first. So, assembly members. Ms. Friedman.

Thank you. And thanks to everyone for your presentations. We have been certainly engaging in conversations with you and with the agencies. First, I just want to say that to me, transit is incredibly important for so many reasons. It's important because we know that we're going to have to increasingly rely on transit to meet our climate goals.

It's important because we have an aging population and a lot of people who can't drive and who are soon, we don't want driving. A lot of people who don't want to drive by choice. A lot of people who can't afford to own and operate a car that often we ignore in the mobility conversation and don't center their needs.

And our transit agencies are hamstrung often by land use patterns in communities that aren't conducive to transit.

So if there's a message I would send to our cities and our planning organizations that when you're doing your planning, if you're not thinking about how it affects transit, and if you're not thinking about how your land use planning increases people's willingness and need to take transit, you're doing planning wrong.

So there's a lot that figures into this that's outside of the control of the agencies. So I guess I would like to ask first, and you talked a lot about the agencies now working to bring more riders into the system and how we're having different effectiveness across the state.

If you can just give some more concrete examples of what the agencies are doing differently now than they were, let's say, pre COVID, that's bearing results and why some agencies are kind of having more success than others.

Yeah. So, within the survey tool that we had released to our members in January, one of the things that we asked for was what type of ridership, growth and retention strategies have you implemented. I have a few stats.

It's not by any measure the full balance of what agencies have done, and happy to share the full balance of that information, but we'll just highlight for you some of the things that the agencies have been implementing over these past few years.

70% had identified that they've implemented real time information or revamped their real time information through a structure called GTFS. It means that as you look on your iPhone or Android phone, you can see when the bus is coming. Have some assurance that it'll be there when you're ready to ride.

They've also implemented 60% of them. Contactless fair payment systems also have advanced safety and security measures to modify the customer experience.

For the contactless fair payment system, the proposition that we're offering the public, and I think what we've seen in evidence is if public transit is easier to ride, if you're not having to hunt in your pocket for spare change to ride that bus, you can just use your mobile phone, use a contactless fair payment card that we will get more riders onto the systems.

On the safety and security front, I'll just be clear, as much as 60% of the agencies have said they have taken enhanced measures, the reality is that we are batting against what are larger social dynamics, that have really put us in a position of vulnerability.

And so agencies today are implementing things like ambassador programs. You're probably familiar with LA Metro's recent announcement of a significant increase in the number of unarmed ambassadors that exist on their systems.

BART is going to be taking similar measures in short order, to make sure that there's presence on these vehicles and to address what we understand to be, whether a perception issue or an actual visceral issue, the matter of safety on public transit.

Now, we've also seen that 80% of the agencies, over time and as demand has necessitated it, have increased their service levels and have pursued integration and coordination with fellow agencies.

Now I'll highlight one dynamic that I'm aware of, quite well because I call in every month or so. And that is that every week in the Bay Area, every single transit general manager and CEO hops on an hour and a half call to talk through how it is that they can improve their services, work together to smooth out what may be inefficiencies in scheduling, challenges with regards to differences in fair payment structures, et cetera, to ultimately lead toward a better system.

Now that structure is informal, yes, but it does have a formalized antecedent in the Transit Recovery Blue Ribbon Task Force that was overseen in the Bay Area, where they talked about concrete actions. They put forward an action plan.

Reason that action plan hasn't moved forward entirely is a matter of funding. And so agencies are taking these steps. La Metro had taken a similar effort with the municipal operators in their region, and those plans again, are there. They're ready to be implemented.

The challenge that we have in really taking those steps to go that next step farther, is the funding availability, and unfortunately, we are in this compromised position at this point in time. You may have a follow up to that, so I'll just pause there.

Thank you. How many transit agencies used a portion of their COVID relief funding to offer free transit. And are you seeing a difference in the ridership or recovery or need for additional funding between the agencies that use their relief for free transit and those who used it to invest in things like safety or more reliability in the systems?

Yeah, unfortunately, I don't have complete information on a number of agencies that have implemented or that did rather implement fair free in response to the pandemic and with support from the COVID-19 relief funds, but I would stipulate that probably a vast majority did, and the reason was multifold.

Not only was it an eye toward this broader policy objective of moving toward fare free or further discounted transit passes.

And so the agencies wanted to provide some form of equity relief to those communities. Because, to be clear, at the height of the pandemic, the only people that were riding transit service were the poorest people in our state.

But really it came down to considerations of folks, many of them who were low income, who were still riding our systems at the height of the pandemic were seeing their monthly, their annual incomes decimated.

The other dynamic that was very real was that many agencies had to move to a process of doing rear door boarding. And they did that because they wanted to limit the interface between the operator and the traveling public when the transmission rates were high, because the transit buses did not often have transponders that allowed for fair collection at the rear of the bus.

I'm going to interrupt you. I understand all that, but that wasn't the question. Yes, the question was, are you seeing a difference now? Because we did this big experiment of giving free transit, and I understand that there were reasons that was done.

And I'm not saying that it was an incorrect reason, but we had a social experiment. And I'm wondering whether you're collecting any data or evaluating at all, what effect it had on ridership at this point. Because that would be helpful information I would think, for the agencies to understand whether that was an investment that paid off in terms of increasing ridership.

And I understand that wasn't the motivation, but it would still be good data to have, to understand if you want to maintain that, for instance, or if you want to roll that back. And it sounds like there really isn't much data on what that did.

Not at a statewide level. Appreciate the question. It's something I can take back to my members, but I think what we've seen more generally, setting aside the intersection with COVID relief, is that those agencies that have advanced fare free programs, we'll take sacRT as an example here, have seen monumental increases in their ridership that has brought them often back to their pre pandemic levels.

I'm sorry, the agencies that have what?

That have implemented fair free transit, at least for a base of their population, have seen significant rebounds of their ridership.

So it would be good to see the number and to see that, to understand the connection, because a lot of agencies are considering that, and also since a lot of the funding went towards that instead of other things and we're in a budget shortfall.

I think a question that we'll be asking is, what is this money going to be going for? Is it going to fair free programs? And if so, what's the real benefit to the system? Not so much the benefit to the individual riders, but what is it doing to the systems? Are there drawbacks? Things like people not being able to be removed from the system, who are not there just for transit purposes?

Sure.

So it would be good to see a deeper dive into what effect that that's had. I would think that the agencies would want themselves to understand all of the impacts before they went any further with fare free programs.

Maybe this is more of a comment, but we've had this discussion before about thinking not just about what kinds of services going into the future would work.

But also, ways of generating more revenue beyond Fairbox and beyond local tax measures, more public private partnerships, more integration of transit with other commercial entities, with other agencies like airports, and ways of combining service with other types of amenities, types of services.

We see this with, you come to the Dodgers, maybe you get free transit, or if you go to the airport, you get a reduction, things like that. More exploration of ways of bringing revenue into the system that are beyond traditional transit operations.

I would love to see a lot more exploration of that as well. I do think it's important that we think about the sustainability of our transit systems. COVID was one hit, but there could very well be more in the future.

So how do we make transit stand up on its own in whatever way you'd be doing it, especially if we're considering fare free systems. It seems to me that having free fares for certain populations, certainly people that are very low income, students and others, that is a very lofty goal and important.

But when we talk to people who are transit dependent, and I'm sure you've seen the data, they're not asking for free fares. It's just not in their top five.

They want to know that they're going to have much greater reliability and they're going to have a lot faster travel times. I always look at transit systems when I go anywhere I go into Google, the first thing I do if I'm driving is, to say how much time was this going to take me if I drive, and how much time is it going to take me if I take transit?

And it's not uncommon in Los Angeles for the transit times to be four times longer than driving. And if it's two times longer, you're kind of lucky. And we certainly need to flip that script if we're going to get our systems to where they're going to be healthy, where we're attracting the choice riders.

And also just where we're not penalizing people who are transit dependent. Right now, we have a system in so many areas where people that are transit dependent are absolutely penalized. And that time is time that they're not at work, time, when they're not with their children. It's an unacceptable amount of time.

And so if you ask them, would you rather have this dollar 50 waived or would you rather have 2 hours more of your day? They're going to say the 2 hours more of their day.

You just have a simple equation where if you're being paid even minimum wage, it's worth paying a much greater premium than they're paying in transit to have that time. So, I remain skeptical of focusing so much on fare free programs, if we're charging people a two-four hour premium for that.

Right.

So, I would love to see more of that analysis of what we could do in terms of increasing that travel time and reliability. Particularly when in Los Angeles, a vast majority of our transit riders are on buses, not on fixed rail. So I do think that focusing on metrics that are about ridership more than anything is going to be something that I'll be looking for, going forward.

I'm glad to see that you're focusing on that as well, and I think that we have not done enough of that in the past. And I also appreciate that you pointed out that there's a difference between transit systems that are relying on buses and other types of mobility rather than fixed rail, where you are much more locked in, in terms of what your options are.

But we are seeing, I would say the safety concerns that we're hearing are much more prevalent on rail than they are in buses. So I would also love to see the emphasis put on that. And I have to say I haven't seen the emphasis in our local agencies in terms of safety, cleanliness, things that we hear consistently from transit riders is keeping them away from the system.

I've personally experienced this myself. I know I have staff that have experienced it.

I think the customer experience is still really not emphasized. The feeling of a woman, a single woman alone in the system is not being centered in terms of that ridership. And if we're not focusing on that, we're really missing the boat.

Even right after the pandemic, I had a personal experience that I recounted to Metro of my mother, who's in her 80s, took the fly away to Union Station and her phone was dead and no one would let her charge her phone, for a variety of reasons.

And they literally sent her out into the street to wander around downtown LA. There was no one would offer to help her in any way except no, you're just going to have to leave and you're on your own.

That's not acceptable. It's not acceptable. I mean, just for your own humanity, you would think someone would have tried to help her a little bit more. So I think that there's a lot of work to be done and I appreciate, I certainly am very supportive of transit, of increasing funding, expanding the system, making it safe for everyone, and look forward to partnering with you on solutions. Thank you.

Thank you very much, Assembly Member Fong.

Thank you, Mr. Chair.

I want to focus on some of the proposals, I guess. In terms of the diesel tax, I want to focus specifically on that. There is a certain amount of the diesel tax that is redirected or diverted to transit. Can someone tell me kind of what that amount is? Either Department of Finance or LAO.

Thank you, Sival's Department of Finance. So the 13% diesel tax, 10 and a half percent of that goes to transit various transit ways, but essentially 10 and a half percent of that, goes to transit and the rest of the money actually goes to the constitutionally required. Bradley Burns local transportation different, actually not local transportation funds, but local funds. So all of it is spoken for at its current rate.

Okay, I appreciate that. Is there a conversation in terms of dealing with this fiscal cliff? I mean, I certainly would be concerned about this. Is there a concern of taking the entire 13% and putting into transit?

I've heard that being proposed, we would still have to pay the locals under the constitution, we'd still have to pay the locals the 3% that they get. So, it would essentially be a General Fund appropriation. I mean, it would be the equivalent to a General Fund appropriation. If we were to take that additional two and a half percent.

There'd have to be some type of backfill.

The General Fund would still have the obligation to the locals to pay the 3.3%, that they have to pay the locals, regardless of whether we took the entire 13% or continue.

I mean, how serious is the conversation about using the full 13%?

Well, again, I've just recently seen the proposal to use it. The administration, we'll take their proposal, and we'll line it up against the May revise that's coming out later this week and see where everything lines up.

Okay, well, I'll just say for the record that I think that the original intent of the diesel sales tax is to maintain and improve the roads and highways that these vehicles are using. So I would be very concerned if somehow, even though there's going to be some type of a swap, I think the original intent is going to be violated in some way. And I would just caution if that proposal is really real that we may want to reevaluate that.

Like I said, we'll certainly look at the entirety of the proposal and the different funding options against the proposal that the administration is going to be releasing.

From your perspective, I guess, what are the proposals you think are more viable than others?

Again, I think that the LAO has laid it out really well that you can either, take within the money that's already going to the transit agencies, there is a breakdown. Much of it is provided without flexibility towards infrastructure programs and then the rest towards operations.

So there's certainly the most direct route would be to be looking at some of those requirements and possibly allowing for some additional money to be flexible from the infrastructure side to be used towards operations, sort of taking that scope outward.

The next step would be looking at other transportation funds. But that's where you get into any transportation fund that isn't currently going towards transit and is then directed comes from somewhere else. So, we would all have to agree that the thing it's coming from is a lesser priority ongoing. So then there's that. And then the next priority would then be either more General Fund or some other revenue increase.

We talk about the GGRF, and there's the portion, about 15% of the GGRF is directed to transit, and of that amount, 10% is for infrastructure and 5% is for operations. So there's certainly room within that. There's the part of GGRF that is open to annual appropriations, but those funds are normally been spoken for.

And I think those funds are being considered more for backfilling a lot of the zero emission climate goals that we now are looking for solutions on the General Fund side.

So there's a lot of moving pictures there. You pull on a string and you create a other side.

Since the LAO was kind of cited, did LAO have anything to add in terms of the conversation?

No, nothing to add to that. I think finance covered that well.

Okay. Certainly looking at the, I mean, I've been very vocal about looking at the continuous appropriation, including the one for high speed rail. It may be worth having conversation of ending the continuous appropriation for high speed rail and diverting some of that to mass transit. Thank you.

Thank you very much. Before my comments, any other comments or questions? So I have a series of them. Appreciate it. Almost all of them are for you. Mr. Pimentel, I was asked a question the other day. Everybody knows why riderships has dropped recently, but what's the analysis of why ridership was dropping between 2014 and 2019?

So there's actually been some fairly robust research and findings that's been produced by the University of California at LA's Institute of Transportation Studies. They have two reports, one specific to Southern California, the other specific to Northern California.

And the reasons for the drop in ridership, frankly differ quite a bit between the two regions. In Southern California, what they presented as one of the key drivers of the decrease in ridership was the availability of commercial, or rather the availability of driver's licenses.

You may recall in roughly the mid 2010's, the state legislature passed a law to allow for undocumented people to receive driver's licenses. Now, we would argue it's a good thing, but the reality is that with folks now having access in a legalized way to a driver's license, many of them opted to drive themselves. And so that did have, in Southern California in particular, a hit on our ridership.

If you consider what the demographics are, of our transit ridership in Southern California. In the Bay Area, the findings largely related to what was, in their words, the suburbanization of poverty.

The reality that in downtown urban cores, whether it's Oakland or San Francisco, those who would have the highest propensity to ride public transit, the lower income folks in those communities, were pushed out of city centers and out towards exurban parts of the Bay Area for which public transit will exist, isn't as robust, isn't as convenient, and it drove those individuals to go out and purchase cars. And so I'm happy to follow up with a more detailed breakdown.

UCITS has produced two policy briefs on both fronts, but it does stipulate that many of the factors are external in nature and relate more specifically to broader policies that either we haven't addressed here in the state capitol or that we've addressed for various other reasons that has had an inadvertent negative impact on the industry.

I would appreciate those reports if you could do that, that would be helpful. How varied is the local support for transit across the state? This for any and all of you, how varied is it? And what percentage are we seeing right now?

Locally generated funds, either Fairbox recovery or taxes, or local governments, regional governments contributing their own operation revenues relative to all of the other sources of funding for transit? Help me with where we can get that information if we don't have that information.

Yes, much of that data is reported on an annual basis to the state controller's office serves as the basis for what are mandated reports. We can certainly pull up the specific information for you, and perhaps my colleagues at LAO may have the more specifics in front of you. But what we are seeing across the state is that localities have increasingly taken on the lion's share of investments in transit operations in particular, and that is done through the enactment of local option sales taxes.

The marquee ones in the state are in LA, where they pass two big measures, Measure M and Measure R, which collectively have generated $100 billion over a projected 40 year time horizon for public transit operations and capital.

And so what you would find is that there is variability depending on whether or not a county is identified as self help and whether that self help county has made investments in transportation.

By and large, we see that within the Bay Area, within Southern California, there's quite a lot of self help in other areas of the state, not specifically for public transit.

Is there a significant difference between Bay Area and LA area in terms of local taxes supporting transit?

Los Angeles County has far greater taxes that are applied for the purposes of transportation. What I would just note for, you know, for those agencies that have not implemented, for those counties that have not implemented, it is not out of a lack of interest or desire to do so. It's frankly a reflection of the electorate and what it will bear.

We have a lot of measures in the state that, frankly, failed with things like 64% voter support because of our two thirds threshold. It's part of the reason why we've been supporting ACA One for the three or four years that it's been introduced. Help bring that down to 55%.

LAO?

Yeah.

Just to answer your initial question, on page 49 of your agenda, there's a chart that shows a breakdown of transit funding by source. 46% in aggregate across the state is from local revenue sources.

So that's going to be local sales tax measures, as you mentioned, 17% from fares and fees, 20% from the state, and 17% from the Federal Government. And that's just the statewide aggregate, so it will vary depending on the specific agency in the region, as you mentioned.

Thank you. You do refresh my memory that I read that over the weekend, but what I didn't have was the breakdown between Northern and Southern California, for example, or just the recognition of how varied local contributions, because when it says talk about that, how much of that 46% is tax and how much of that is just operating revenue that cities and counties are putting in. Sir.

And I would be remiss if I didn't mention just one important fact, and that is, while the Bay Area itself has not necessarily put up as many self help measures, the reality is that historically their largest systems, like BART and Caltrain, have had some of the highest farebox recovery in the country, between 60 and 70%, compared to what are often 10 to 15% for most agencies nationwide.

Which is part of what's causing the challenge for us right now

exactly

as we move forward. So that gets me to the next question. If ridership went back to 100% of the 2019 level, would agencies still be facing a fiscal cliff?

The answer is yes, but it would not be as severe. One of the questions that we ask, and I'd be happy to provide this information to you and your staff, is for the agencies to break down. In particular, what are the factors that have led to their operating deficit?

So we ask very specifically for line items related to loss fair revenues lost non fair operating revenues, lost state, federal and or local revenue lost bridge tolls, which is a factor for only a few agencies in the state, increases in operating expenses as well as the increased costs of capital related specifically to the ZEV transition.

And so, while a heavy balance of the operating deficit does derive from the loss fair box, the reality is that we are also too just facing higher costs overall that are challenging our budgets in what are otherwise fairly flatlined support from the state, from the locals and the Federal Government when you take into account things like inflation.

Okay, great. The.

As the transit agencies are looking at how to reform, how to change, et cetera, I think it's important for us to requestion what are our priorities? What are we really trying to accomplish with transit? And I think that overwhelmingly, you would find the Legislature saying the highest priority is making sure that transit-dependent people have transit.

The second priority, but second, is to reduce congestion, to improve climate change impacts, and reduce car trips in general and the pollution that goes with that, and it doesn't feel like we prioritize the first one very much. We know we need it, but would we do things differently if we said, look, our first priority--we may never be able to get Californians out of their cars at the level that we want given the resources that we have.

We could do it if we had unlimited resources. We don't have unlimited resources, and we have a population pattern that is just significantly different than other countries that are much more successful with mass transit.

So if we said, 'okay, what if we took all of the money and made sure we had something that was really effective for the transit-dependent,' could that then indirectly actually become so attractive that the choice rider then started to also join that? But even if it didn't, we would at least be meeting our first priority properly and I really say that because it seems to me, if I think of BART, I don't think of BART as being a transit-dependent-only system.

You need that to be both a transit-dependent and a choice system. So there can be some places where there's an overlap where you're doing both of those, but so many of these agencies are down to the point where they're really just dealing with transit-dependent people. City of 100,000 people in Ventura County is running their transit system for the benefit of transit-dependent, not choice riders. Some of those systems have chosen control of their system is more important to them than economically running the system.

In other words, they don't want to give up local control and join a regional effort that could reduce costs and make it a better system for the transit-dependent because they don't want to give up control. I don't think we should be bailing those people out if local control is more important than providing a really efficient system, and so we have dozens, if not hundreds, and we have hundreds of those systems across the board in the state, not all of them making those decisions.

Do you have any thoughts on that? Where are the transit agencies in terms of recognizing they have a priority, I think, to transit-dependent and then a secondary societal responsibility to try to reduce congestion and pollution?

I would say it's top of mind for every transit CEO and general manager that I talk with, and I talk to most on a nearly daily basis. What I would emphasize as being one of those solutions that addresses not only the needs of the transit-dependent populations but that can also serve as an attractive value proposition to those choice riders is transit prioritization, and here I mean transit prioritization on our city streets, on our county roads, and on our state highway system.

And I say that because, to Ms. Friedman's point earlier, as much as fare-free transit programs are an economic benefit to those that are disadvantaged, oftentimes what matters more is the frequency and the reliability of your transit service, and the reason why we are often infrequent or unreliable is because we are navigating a streetscape that was not designed to support public transit.

If you're in a bus and you're with 50 people and you're stuck in traffic and that traffic is a queue of ten cars, there may be ten people in those cars, and somehow, for some reason, the 50 people are behind them as if they matter less and so we've got to find a way to reorient that. Some of the work that we've done and that I've highlighted in previous conversations has been to allow for transit prioritization projects like bus-only lanes to be exempt from CEQA.

To be clear, that only went into effect in 2021, and so agencies are taking advantage of that, but we haven't had a long lead time to be able to implement that in a way where we've seen measurable benefits. One area where we have seen that implemented is in the City of San Francisco where they have just after a multi, multiyear process--and this predated the CEQA exemption--built some bus-only lanes on Geary.

And what that has proven to do is to increase the travel times--or rather decrease the travel times, increase the reliability of their service, and I was with the manager for SFMTA just yesterday. He was noting that they have received something like 130 percent of their pre-pandemic ridership levels on that same bus line, and it is not a mistake. It is because of the attractiveness of the service, but also would note for you that there are also operational benefits from a financial perspective related to that.

If you consider that you make an investment in public transit and you think of things like cost per hour, cost per hour factors in labor costs per hour. So to the extent that you can streamline the service, allow that to run more efficiently, that is fewer hours in which a transit operator is behind the wheel and stuck in traffic, and those monies can be then reinvested in operations that expand service and expand access. That is a boon to both low income folks and those choice riders.

Consistent with what I've been hearing which is the bus-free lanes or the bus-only lanes, seems to be the most efficient thing we have going at this point in time. So since we're on that topic, I want to comment about free fares. I think free fares are being viewed as very favorably because they increase ridership and they have a social equity sort of component to it, but we have to recognize over and over again in the United States that a free resource does not get allocated properly by the users of that resource.

So temporarily we will see a fare increase. I mean, we will see a ridership increase, but eventually you'll see people abusing it because it's free--no matter what resource it is--if you make it completely free. So I think a reduced fare, free fares for a limited number of people, for certain kinds of people, but if we try to go all the way to free, you do create the abuse of the resource because you're not pricing it properly even for the decision.

If it's a small fare and you have to think about that, then at least you think about that before you jump on. So I wanted to get that out there into the record, and just my final question is, the innovation that I think we have to undertake in the next five to ten years is significant, and I just don't think we can underestimate how innovative we have to be. There may be place--hard decisions should be made about what infrastructure investments should we abandon versus what infrastructure investments should we keep.

Should we go to much more frequent buses for the transit-dependent? Almost all the arguments are: yes, much more frequent buses and make that much more reliable. For fixed rail for choice riders that we're still subsidizing at 20 and 25 dollars a rider--we're subsidizing--it's a hard choice. Politically, it's a hard choice, but think about how much that funding could go to a transit-dependent population in another situation. Assembly Member Connolly, you've been very patient.

You were out before I started talking, and you came in right after I started. So unfortunately you had to wait.

No, I appreciate that. I've enjoyed your questions. I think they're well taken and appreciate the dialogue. Maybe circling back, I want to get a more clear picture on exactly where we are in terms of the budget and the issue at hand. It's been referred to as a fiscal cliff. Have we already traveled over the fiscal cliff? Are we imminently facing the cliff? If so, is it this upcoming fiscal year? Two years out? Three years out? Where are things at?

I'll try by answering that question first. Thank you so much for the question. On page 50 of your agenda, there's estimates from the California Transit Association that shows the aggregate operational funding shortfall, so that is all the agencies are expected to seize fiscal cliffs. So as you can see, in the upcoming budget year, it's around 230,000,000, but significantly increases in budget year plus one to one billion and continuing on, and in many cases, these operational funding shortfalls are ongoing, absent of any changes from the transit agencies.

I'm going to just offer one thing to you. The numbers here on page 50 are self-reported and they have not been vetted yet by state agencies, et cetera, going forward.

Yeah, that's important to know. Go ahead.

Yeah, and as the Chair mentioned, they are self-reported, so there is no official state estimate on what the operational funding shortfalls will be. Different transit agencies use varied assumptions in calculating those estimates, so there is no apple to apple comparison between agencies to get an exact statewide estimate, but these are self-reported estimates.

And as we've discussed, we know different agencies are in different situations. In my district, some smaller agencies are doing relatively well serving transit-dependent riders, youth, seniors--others with the more regional, by choice ridership, not as well. How are we going to respond to different circumstances as we contemplate both short-term and longer term relief potentially?

Yeah. I think it's still very much an item for open discussion with the Legislature, but I think one of the ways that we have envisioned providing support is ensuring that monies are available to address what may be varying needs for the agencies. For some of them, it may rightly be that fiscal cliff, and I think Frank did a good job of outlining specifically the timeline for us hitting that as an industry.

But for others, it may be monies that can be used to further support the agencies in their recovery, and so I know well the circumstance in your district where we've got agencies like--we're in transit that are performing fabulously, I think, but the reality is that they are still below their pre-pandemic ridership levels and additional resources may be necessary to help them regain that final balance.

And the proposition that we're offering there is, while we have had so much focus on this fiscal cliff, the reality is that for those agencies that have not yet fully rebounded to pre-pandemic levels or bested them, the reality is that at some point, if we see that their revenues continue to be low relative to where they were pre-pandemic, they may find themselves eventually at a position where they need additional resources.

We want to try to preempt that by providing them the support that's necessary to recover, to revamp their services, and to not be a drain on what would be state resources for fiscal relief as those agencies have found themselves on better footing.

But I also want to just maybe highlight that within our accountability and reform framework, for any agency that is looking to receive new monies, whether it is for fiscal cliff or for addressing some of those rideship recovery strategies, there would be an expectation from us as an industry, and we know this is the Legislature's prerogative to document how those agencies are utilizing those dollars and then providing information with an ongoing set of reports that actually specifies what traction they're getting for their investment.

Like how have you actually modified your operating deficit or regained your ridership so that at the end of this--whatever horizon we're looking at--our preference would be five years--we have a clear understanding of what did the relief actually do beyond just cover a financial hole?

No, and I appreciate that, and also how you outline the accountability framework. As has been discussed, a lot of this predated the pandemic. I was on Metropolitan Transportation Commission. We were talking about the transformation process way back, including things around seamless mobility, fare integration, network management, that sort of thing. Wayfinding. I agree, I think, with everyone that this will be a step-by-step process.

It has to be concurrent with commitment to transformative processes, and so I think things like measuring ridership, concrete benchmarks like that are going to be crucial. Question: as we look longer term, are there examples of agencies or actually states or other--even internationally--where there has been a permanent funding source established for transit? Do we have examples of that?

So I would say that there are examples. I mean, in all instances, even here in California, we do have the base of funding support for transit capital and operations. What we haven't really done though, is adjust those dollars in a way that reflects what may be inflationary pressures and what is also changes in the built environment.

I mean, the reality is that we have become an increasingly sprawling society and we haven't accounted for how all of that requires new infrastructure development, longer hours of operation just to actually provide that service to that one individual or the hundreds of individuals that might be on the other end, and so I think we are interested in having a conversation, and I think it would have to be something we do over the mid to long-term. We do want to focus on this near-term relief.

Again, our preference is for five years, but then over the long-term, have that conversation that would involve an analysis of what are other states doing, what are other countries doing to provide the basic support for agencies to be effective over the long-term, but I wouldn't continue to argue that in addition to the funding conversation which is critical, I think there are changes to how it is that we allow transit to operate in our society that we're going to have to grapple with as well.

So we're not just expending investments that ultimately get stymied by some local process that prevents us from actually getting efficacy for the investment, and so those things are going to have to be taken in tandem.

Yeah, no, I agree with that, and as daunting as this is, that kind of creates an opportunity. We have to look at things like transit prioritization, other concepts where we're making transit usable for folks, affordable. I tend to agree with the Chair. I think there's a role for free fares, but I think we have to carefully think that through as well. This is going to be a great ongoing discussion. I think this was a good start today, but I think a lot more work to be done and continuing to be creative. So thanks.

Appreciate that, and we look forward to the continued conversation.

So thank you very much, and I want to thank you guys. Leave you with these thoughts, at least from this Committee's perspective, I think. One: I think there's a very vague issue out there about timing. What's the timing in terms of how long do we need to take to understand how we might address a solution? What's the timing back in terms of getting commitments? What's the timing back for accountability measures? All of that is something we have to work out.

I think you hear a willingness if everybody's willing to work together, a willingness to try to work that out, but with a fair degree of skepticism certainly coming from us. So that's one, in terms of that. Two: I think you make a great point about transit prioritization which is not a topic that's been talked about enough, but if we want transit to be a fundamental part of social equity from the standpoint of serving the transit-dependent, we should consider transit prioritization much more.

If we want transit to be a fundamental part of climate change and congestion improvements, then we also should be more willing to commit to transit prioritization and that politically has cost to it and we need to recognize that. Another thing that I think you'll see the Legislature be focused on is, what is the level of local support? I think most people would say that the locals who both know their areas best, but also this is a local responsibility.

The state can help, but the state traditionally has been helping primarily in capital cost and leaving the locals to make their own decisions about operation and maintenance. To the extent that locals are stepping up and both coming up with significant funding and making good decisions, it's a lot easier for the state to help those agencies. Those agencies that aren't coming up with significant local dollars, I think, are in a different spot.

And then the question is, what do you do with local agencies that aren't meeting the needs of their transit ridership, and I think you're going to see the state start to come up with some thoughts about what happens to districts that don't meet the needs of the transit-dependent in terms of other funding sources that may not be available to those local agencies when they move forward.

And the final thing is, I think there's no question it's going to be tied much more to--ridership and local revenue will be the drivers because there's going to have to be a view that ridership is not going to continue to just fade and we're investing more and more in sort of a sunk hole, right, in terms of going forward.

So I leave that with you, and as you communicate back to everybody, we will obviously have more conversations because we're going to leave this item open also. So this Subcommittee is not finished with this item as we go forward. Thank you very much, Mr. Pimpultey. We really appreciate it. LAO, thank you for a second one. Department of Finance, thank you very much also for coming forward, and I want to thank our consultant over here for still hanging in there, and we still have one more to go.

So thank you very much for being here. So now we're going to go, and while the people come up on the Joshua Tree issue, I'm going to go to the restroom. What's that? Just like the other one. We do the comments on the topic at the end of the hearing. I'm sorry for that. So that'll be after we finish Joshua Tree. So if you'll give me just a minute.

Okay. Ironically, agenda item one is starting at 130 or 115. Right? So we have three of you here. I want to start this off before you make comments, because of the length of time that we've been here. Sorry that you guys have all had to wait so long to be on. But my understanding, I had a conversation with Assemblymember Rebecca Bauer Cahan, that she has spoken with you and that you guys are closer to working things out. So I want to recognize that.

I think that what we should do here with this part of the Committee hearing is try to just make sure we call out publicly sort of the major issues that are out there. But we don't have to have as much of a conversation about the issues that we've reached agreement on or that you've reached agreement on with the Assembly Member. And for your benefit. I know you're very concerned about the reject recommendation.

Assuming that the conversation here is consistent with the things that I've heard from Assembly Member Bauer Kahan, I will be not asking for us to make a vote today in terms of the recommendation to reject, which will effectively mean the item will be left open. Right. Okay. So with that, we'll let you start, Director, and appreciate all of the conversations we've had to date on this topic.

I appreciate the collaboration, chair and I think. Do you want to go first?

Yeah, maybe start. Crystal Sherta, Department of Finance just really appreciate.

Bring that microphone closer. Much closer, please. Yeah.

Crystal Sherta, Department of Finance. Just want to thank you for your opening comments. As you indicated. And as Director Bonham, I'm sure we'll talk about more. The conversations that we've had with budget staff, but also with the Committee staff have continued and have been really meaningful conversations to really get this really important and unprecedented TBL kind of to the finish line. So I really appreciate your opening comments and also appreciate holding this item open so we can continue those collaborative conversations. Thank you.

Great. Thank you.

So, chair, good afternoon. My name is Chuck Bonham. I'm the Director of the California Department of Fish and Wildlife. And on issue one, for your vote only calendar, I'd like to do three things this afternoon. My notes say this morning I'd like to step back and just sketch the broader context we find ourselves in the circumstances before us.

Second, I'd like to use your staff outline on page 29 of the agenda to touch on the high point elements of the Western Joshua Tree Conservation act trailer Bill proposal by also adding some observations for each of those elements. And then lastly, I'd like to conclude by framing the debate that I think is a legitimate, substantive policy discussion and give you my thoughts on how we're progressing through those debates.

So to begin with, just stepping back a little bit, I want to offer you some of the lived experience I've been having at the Department for about the last three years. And really where this starts is to ask, what is the western Joshua Tree? So it's a plant. It's spread across the Mojave and Great Basin desert regions of California. It's loved by many, most likely because it's really visually distinctive.

It almost creates an ecological paradox of this incredibly tall tree with a unique silhouette in an otherwise seemingly barren desert landscape. Townser named after it. It's the name of a famous rock band's famous album. So Joshua Tree means a lot to many, but it is iconic. And we know our Native American elders, leaders and nations have relied upon it since the beginning of time for food, fiber and other sources. So that's the Joshua Tree. But what's going on with the Joshua Tree?

It's in a decline, which is true for almost all species. If one looks to the moment of European settlement across the American continent in perhaps another paradox at this moment in time, in 2023, it is doing well. But you can also see that it may not do well in the future. This question of where it fits on that spectrum right now, of course, is one where reasonable scientists can have a disagreement. But what we see today is this iconic tree is widespread.

It's present across 5300 sq. Mi, so five plus counties, and it's abundant, the record shows. The scientific literature indicates the current population size of the tree is somewhere between 4.3 million and 9.8 million trees across five counties. But also in the record, and all of the habitat suitability climate models our Department is looking at have a common denominator. Conclusion as you get closer to 2100, these species will be more dramatically affected by climate change.

So we have a situation of doing well or widespread and abundant now. But this climate change threat on the horizon, identified in all the scientific literature and analysis. The tree, the status of the tree, and in the very same place the tree calls home, we have this convergent of equally important state values. You've spent most of today talking about energy.

The place in California where we will carry a burden to hit our renewable portfolio standard and zero carbon goals is the sighting of renewable energy in this very same place. That's not disputed. We have housing challenges across California, and it's true in this area as well. Yesterday I took a look at our housing colleagues housing element implementation data dashboard, where they calculate regional housing needs. If you take San Bernardino, county, its calculated need as of April is 138,110 units. They've completed 8309 units.

In Kern, county, the calculated need is 57,648 units, and they've completed 4519 in Los Angeles County. Of course, Palmdale and Lancaster are two of our fastest growing communities in this region.

And if one thinks about a future where there's more protective regulation around the western Joshua Tree to conserve it, and one thinks of a traditional approach to that engagement, it's possible that single family houses, individual residents, would be facing permitting loads they've never experienced before at a permitting rate that arguably might have a regressive effect on those who can afford it the least. So the tree, how is it doing? It's in the very same place.

This convergence of values and that brings us to the California Endangered Species Act. It's been around since the early 80s. It has a structure within it by which any individual in the state can submit a petition to our California Fish and Game Commission, which is a separate, constitutionally created, independent entity. A petition to protect western Joshua Tree was submitted in October of 2019. Our Commission voted to give it preliminary candidate protection in September of 2020. Today, that Commission has still not reached a final decision.

For three years, I personally and our Department have been sitting through countless public hearings, listening to the divergent opinions on how to handle this convergence of important issues. And I've been asked several times, including by our Commission, to see if we can find a way to thread the needle that brings us to the Western Joshua Tree Conservation act trailer Bill Proposal.

Importantly, if we do nothing, if there is not protection for the Joshua Tree, we default back to two laws that were written in the 1970 and 1981 era. The first is the California Native Plant Protection Act. It's in the Fish and Game Code. It's not going to save the tree from extinction. It wasn't built for climate change. The other law is the California Desert Native Plants Act. It's in the Food and Agricultural Code. I'm certain it won't prevent extinction of the tree.

It wasn't built for climate change. It is the controlling law. Today, it gives local county sheriffs and agricultural commissioners the discretionary approval to cut a tree for a $5 fee. All those things combined bring us to the administration's proposal. Let me turn to agenda page 29 and just tick through I think your staff's correct assessment of the key elements in the administration's approach.

The first and the foundational element is entities and people would need to come to the Department for permission to impact the tree if specific conditions are met. And importantly, this starts with avoidance and minimization, the ability for the Department to require people to avoid the impact to begin with and to minimize it secondarily. After that, the foundation of our proposal creates an option. An entity or a person could elect to opt into an in Lou fee calculation.

So it's optional, it's a choice, and this creates a simpler template for permitting. It's innovative, a word I heard used in the last agenda item by Committee Members. The fees themselves are based on science. We took a look at the climate models. The climate models tell you the lesser habitat for tree today is the lower elevation habitat in the already developed incorporated city space. It's already hotter under climate change. It will get hotter faster than the better habitat, which is higher.

Elevation, tends to be more northern in latitude and is adjacent to already publicly preserved spaces. The fee structure is in the lower, the fee is less. In the higher quality, the fee is higher. The funds would be generated deposited into a Fund which allows us to achieve this innovative benefit. If we approach this traditionally, we will end up going person by person, project by project, with postage styles, piecemail mitigation. That is not what this tree needs.

This tree needs a landscape scale ability to create climate refugia. Calculating where the climate impact is happening fastest first, and where it has the greatest likelihood of adaptability and resiliency. Creating the Fund allows you to do that landscape scale conservation. That's innovation. It requires the Department to implement a conservation plan for the tree. Frankly, a decade ago, if local communities and resource agencies had worked on a habitat conservation plan, perhaps we might not be in this predicament. But no one did.

Creating a conservation plan for the tree, doing it with all parties, is linked to the distribution of the assets in the Fund for the strategy to save the tree in the long run. Next element, and this is a first time element ever I'm aware of in the entire Fish and Game code. We do not have a specific law about an iconic tree that says the Department should do comanagement with Native American tribes. Native American tribes care about this tree since before we were here.

They have thoughts on relocation and other things, and this proposal incorporates all of that feedback we've heard from tribes in small C consultation. Next, the workload the Department foresees if we're stuck with a traditional approach to this confluence is immense. Imagine every single person who has a dead and dying tree. The traditional structure is not set up for that. Imagine local government needing to do sewer hookups for public work projects. Imagine the single family housing wanting to add in a pertinence.

The Department doesn't typically engage in that space. So the proposal has an element which includes delegated authority to the local government, assuming it meets a series of conditions subject to our oversight, reporting and accountability. And then lastly, the whole thing has several time based effectiveness criteria, performance criteria, ability to reevaluate the fee, whether we're achieving conservation of the tree or not, cost of living increase for the fee, and data driven accumulation on an annual cycle to track progress, success or failure, and implement adaptability.