Senate Budget and Fiscal Review Subcommittee No. 2 on Resources, Environmental Protection and Energy

Senate Budget Subcommitee Number two on Resources, Environmental Protection and Energy will come to order. We are holding our hearing in the O Street Building and we've got our Members here. All right, before we begin, let's establish a quorum.

[Roll Call]

We have a quorum. We have 25 issues on today's agenda and we'll be discussing the six issues listed in the discussion session of the agenda. After discussion, we will have public comment on all of those items. We will not hold a vote today. All items are being held open. Items will be voted at a future hearing.

All right, let's start with issue number one, Proposition for Climate Bond Expenditure Plan for Clean Air and Energy. At first we will hear from Ms. Lauren Greenwood representing Go Biz and I Bank, who will represent the Governor's proposal.

Good morning, Chair and Members. My name is Lauren Greenwood. I serve as a Senior Deputy of Legislative and external affairs for GoBiz. Our BCP before you is related to legislation that was passed last year, SB254.

As a quick reminder, SB254 charges our energy unit with managing the first of its kind Transmission Infrastructure Accelerator, which is comprised of CPUC, CEC, CAISO, Ibank and other agencies, plus consulting parties to develop a financing and development strategy for eligible transmission projects to receive financing from the California Transmission Accelerator Revolving Fund.

Our IBANK team works with GOBIZ in Tandem and will collaborate to implement the provisions of this measure. I Bank will evaluate projects and approve them based on financial viability. I Bank will continue to monitor and service loans for service loans for the life of these loans and debt, even after their authority to use the funds sunset.

The BCP before you includes a request for staffing and resources, nearly $26 million in total over the program Administration over five years through budget year plus four. It includes a request for 10 limited term positions to support the California Transmission Accelerator Revolving Fund.

Further implement the requirements of SB254 manage incoming program funds from proposition and AB 1207 over five years to support public financing for qualified transmission projects. Happy to answer any additional questions.

Thank you. Finance. Would you like to provide any comments?

LAO Helen Kerstein with the Legislative Analyst Office so we don't have any specific concerns with the proposal. It does appear broadly consistent with Prop 4 and the implementing legislation.

However, we note this is a great example of some of the comments that we provided, I think, to the Committee last week on Prop 4 Proposition for kind of new programs. Right. This is a very significant size new program. I think this is the largest single appropriation for a new program in this year's Prop 4 budget.

So it's pretty large. And this is really the full amount basically of the transmission funding. So there is still my understanding is there's still quite a bit of detail that's yet to be worked out on exactly how the program will be implemented.

To the extent the Legislature has specific ideas of how you want the program to operate, this like with other new programs, this is the time that you could weigh in. So if you're comfortable with the approach that the Administration is taking, no further direction would be needed.

But if you do have some additional ideas, providing that direction in the statute would be would probably be helpful. So happy to take questions if it's appropriate. Thank you.

All right. Questions? Yes.

Thank you. I'm wondering how Go Biz and the Department of Finance are. How does this relate to driving down energy costs for ratepayers?

Molly, I'll let my energy unit colleague

try to take a stab at this. I think the theory, the thinking around the transmission infrastructure accelerator is that with state financing and support, the project sponsor would not include those portions into their rate base or their rate of their request for a return on equity, therefore lowering ratepayer costs.

So I mean, so I hear you in the biggest picture conceptually, but does it go to any further depth? Because I mean, it could result in it costing less, but that doesn't necessarily mean it comes back to the ratepayers.

Good morning. Andrew Marsh with the Department of Finance. So as my colleague from GOBIZ noted, when a transmission company is seeking a rate of equity or return on equity, they have to go to the Federal Energy Regulatory Commission, FERC and have an authorized rate of return. And so they were.

The language in SB 254 prohibits the entity from seeking a rate of return. So they couldn't recoup that in their rates that they that CPUC works with them to set.

Dr. Choi? So SB254 requires gobis to develop a financing development strategy for eligible transmission projects received from the California Transmission Accelerator. Financing. Right. What has Go Biz and I bank done so far since the enactment of SB254 in engaging with transmission project developers and coordinating with other state agencies.

And when does the Department expect to submit the strategy to the Legislature?

We've had some ad hoc meetings with some interested developers and investment firms who are have inquired about SB 254 and the Transmission Infrastructure Accelerator and the Prop 4 funds.

In terms of this strategy that is due to the Legislature, we would need funding to bring on consultants, and I think that's part of the budget request to help us develop this report. In terms of the types of public private partnerships strategy or plan that the state can pursue. In terms of transmission financing, as was

noted by the LAO, the funding that is being requested is all the funding, as opposed to only taking a portion of it. How much would be needed to just put together, to put together the plan?

So I think there's two. There's the Prop 4 funding, which doesn't allow for administrative services for this program.

And so I'm estimating, you know, having done other types of reports and bringing on consultants to do something similar for other areas, estimating about $3 million to, for the consultants, just because this issue area is highly regulated and a very niche market.

So the expertise that would be needed and the types of consultants, you know, we're estimating that it would cost around

that much because we do, we recognize that we do have a structural deficit, structural problem here. It isn't just whether we're going to be able to have a balanced budget. It's whether or not we're going to do something about the structural problems that we do have.

And we're never going to do that if we keep implementing the bills that, that my colleagues and I have passed and asked you to implement. Those are hard decisions that we'll have to be making very soon.

My other question for I Bank, and it goes back to ratepayer savings is how is I Bank proposing to optimize the use of state funds in the revolving Fund and maximize ratepayer savings?

That's really yet to be seen, Senator. You know, as my colleagues said, we do need to bring on consultants and evaluate what would be optimal financing alternatives. The legislation is very broad and gives us the ability to make direct loans, provide financial guarantees, or even purchase insurance or surety.

And so there are a variety of different financial tools which could be utilized, but we really don't have the staff or the consultant expertise to evaluate that at this point.

Transmissions, we're talking about billions of dollars, right?

Correct.

And the Fund that is being put together is hundreds of millions of dollars. And even if you gave all of it to one transmission, explain to me how that's going to work.

So a combination of different things. One is, ideally, we hope to be able to leverage the funds and be able to access the bonds markets to be able to borrow more essentially so that this is essentially seed money to be able to catalyze a larger borrowing.

But in addition to that, it's really just about figuring out what's the right, you know, how we're going to be able to utilize that.

Very good. And how will you ensure that the state funds are protected? Because this is a revolving loan that's part of.

Part of the analysis we would do is an evaluation of the borrower counterparty. And so there's two parts of this.

One is the developer needs to come through the transmission planning process from Caiso and then separate from that, we will undergo a financial analysis of the borrower and their financing plan, of which we would expect to just be a portion of the plan.

As you pointed out, these are billions of dollar projects and we're not going to have the funds to Fund them in their entirety of their need. So we're going to be part of a syndicate, likely lending into this or providing some sort of financial support.

And we'll evaluate that and we'll evaluate them as a counterparty, which is why we do need consultants in place to really evaluate the soundness of their financing plan.

Without a doubt, we need transmissions. This is the infrastructure we need. And there's been lots of talk about this need and the fact that we're behind on it.

And I appreciate my colleagues, my colleague having introduced this and having it signed by the Governor, but we also want to be realistic in how we move forward with it and how.

Are there any accountability measures I bank has looked at to ensure that you're able to recoup the funds if a project is delayed or cancelled or mismanaged?

Well, one is we would expect that if we're going to be disbursing funds, likely if it goes through, if we utilize a bond, they'll be disbursed to a third party trustee and so funds will be drawn down as they're spent. It won't be like we're just transferring the money to a developer up front.

And so it would be working through. There are mechanisms in place, similar to any project that utilizes a bond issue, that you don't transfer all the funds to a third party and they spend it as they want.

Very good. Thank you. No other questions. Then we're going to move on to issue number two. Thank you. Energy demand Response Trailer Bill language. All right. First we're going to hear from Ms. Deanna Carrillo from the CEC and Executive Director Luam Tesfai from the CPUC who will present the governor's proposal.

Chair, if I mind I'm David Evans from the Department of Finance. Finance would like to provide an overview over the two proposals and then we'll pass it on to the respective Members from the PUC and the cdc. Okay. Good morning, Chair Members. My name is David Evans from the Department of Finance. I will be presenting the two trailer Bill Language proposals in issue two.

The 2026 governor's budget proposes two pieces of trailer Bill language to consolidate the remaining funding for demand side resources to respond to grid emergencies in 2026, while also transitioning state efforts and resources towards more long term emergency demand response efforts and that have more reliable funding streams to provide the greatest repair value.

So the first language proposal in issue two authorizes the General Fund appropriated originally in 2021 for the Distributed Energy Backup Assets Program, DIVA program to be used for the demand side grid Support program, the DSGS program, to support any emergency trigger demand reductions during the summer.

This summer of 2026, this redirection of 22 million General Fund from the DEEPA program to the DSGS program will supplement the remaining existing funding that's in the DSGS program, which is about $30 million for a combined total about $52 million to respond to any grid emergencies this summer. So that's the first proposal.

The second language proposal authorizes the accumulated interest in the California School Healthy Air Plumbing and Efficiencies program, the CAL SHAPPE Fund, which has approximately $70 million to be returned to the electrical corporations for use during the summers of 2027 and 2028 to reduce RatePay costs that support the emergency Load Reduction program, which is also ELRP or a cost efficient equivalent program which is under development by the Puc.

The language also directs the CEC and the CPUC to work together to transition existing electrical corporation customers who are participating in the DSGS program to the ELRP or an equivalent program underneath the cpuc. This concludes my presentation.

I'm here joined by my colleagues from the CEC and the CPUC and we're happy to address any questions that you may have.

Thank you. All these acronyms. All right, next, Ms. Deanna Carrillo.

Good morning, Chair Members. I'm Deana Carrillo with the California Energy Commission. I have nothing to add to the proposal, but I'm happy to answer any questions.

Good morning, Chair Reyes and Members of the Committee. Likewise, Luam Tessfi, Executive Director for the California Public Utilities Commission, ready and prepared to answer any questions on the proposal.

Thank you.

Hello. Helen Kerstein, again, the one comment I wanted to make is just to point out that part of this proposal includes transferring $22 million of money that was previously provided from the General Fund, as you heard, from the DBA program to Dsgs.

Absent this transfer, that funding would naturally revert back to the General Fund because the in pretty short order because it's due to expire shortly, the appropriation. So we just wanted to flag that for you because you could capture that savings as General Fund savings should you not choose to do this.

So again, it sort of fits into that larger framework that we talked about with the Committee last week about sort of thinking about what are your highest priorities for General Fund. And we think this is another area where you'll want to weigh is Dsgs demand side grid support among your highest priorities for General Fund resources this year?

Because absent this proposal, the money would revert back to the General Fund.

All right. Yes, Senator, thank you.

Well, I think there's also a proposal from SDG and E for it to go back to the ratepayers. Right. So from CAL ... funding, that's what you're specifically referring to. Right.

So there are actually two pieces, I believe, to the proposal. So there's one is the General Fund Dollars, and that's the piece I was referring to. Absent that, that would refer to Fund. There's a second piece which is the emergency load reduction piece and the CAL Shape piece, and I believe that's the piece.

Perhaps my colleagues may have more information, but I believe that's the piece you may be referring to.

David Emmons from the Department of Finance, my colleague from the LAO is correct. I think the question that you were responding to was regarding the CAL ... program and the administration's proposal to use the interest, the remaining interest that's in the program to revert and go back to the IOU to assist ratepayers.

Okay. So I guess my question is why is the CAL .... funding not being used for schools and classrooms? Because that's the point of that program. So I guess, I mean, my question is why has the Administration not used it for that?

So the administrative. David Evans, Department of Finance Although there's no governor's budget to extend the Cal State program, the intentions of the Cal State program wasn't for it to be like an indefinite program. There was always within statute, a sunset date for it for the program.

And so the intentions of the Administration is to provide, like, the greatest benefit to ratepayers. And so those are ratepayer funds that the schools have utilized. And so the remaining funds that are about to sunset that we would.

The proposal is so those can go back to the IRUs, or they can go back to the ratepayers, and then the interest that was accumulated within the Fund to also go back to ratepayers.

So although the governor's budget doesn't extend the Cal State program, we do want to point out that Proposition 2, which is a statewide school facilities bond that passed in November 2024, approved 8.5 billion in state General Fund obligation bonds for Tk 12 great public schools for projects that are similar to the Cal Shape programs for the school ventilation programs, the plumbing program within calsha that potentially could be used for using those resources as well.

Okay, so it sounds like what you're saying is that you think there's. The position is that it's potentially redundant of other programs or bonds that are funding the same types of improvements in schools.

I wouldn't necessarily characterize that as redundant, but there's other avenues, other revenue streams that could be utilized. And so we're trying to. We recognize that utility rates are rising and trying to use the available funding streams that we have to be able to address and mitigate those rising utility rates for ratepayers.

And then. Thank you. And then my second question is there seems to be a clear stakeholder preference for DSGs. So why is the proposal to shift the funds to ELRP?

So DSGS is more of a statewide program, but ELRP is a program that was designed for, like, the utility ratepayers. And so the Cal State program is a program that utilize the ratepayer funds from the IOUs. And so we want to basically have the funds go back to the original fund source, which would be the IOU ratepayers.

Okay. Okay, thank you.

All right, so. And the funding was frozen the end of last year, right, for the CAL Shape.

Yes, ma'am. Okay.

So potentially, and I think one of the arguments is to use that money for HVAC in the schools, to continue to use it in the schools. That's one of the arguments.

That is one of the arguments. That we potentially could use it for schools or we can return it and let the money revert back as it is currently in statute and that it will revert back without any additional action. So that would require an additional action by the Legislature to extend the program.

The administration's proposal is to let the program sunset as it is currently in statute and then the interest will revert also back to the ratepayers.

Very good. Now going back to issue number two. The DSGs and the ELRP are both intended as tools to provide energy reliability and avoid disastrous public safety power shutoffs, right? Yes. So in 2025 or prior years, how are these programs used to avoid pspss?

For that I'm going to turn it to our respective colleagues and so I would turn it over to my CC colleague that can speak to specifically DSGS program and then my colleague from the PUC that can speak to ELRP specifically. So I'm going to pass it to CECE first.

Good morning again. Deana Carrillo with the California Energy Commission. DSGS and ELRP are are similar but very different programs in addressing grid reliability. Since 2022, which was the last extreme heat event that the state had. Our recent summers have been mild this Last year in 2025, DSGS is operated based on trying to avoid extreme emergency alerts.

We recently developed a storage virtual power plant, so so to speak, which grew to approximately tested this last year. It was able to produce about 500 incremental megawatts during test events, but it wasn't triggered for an emergency alert.

Okay.

Thank you, Louis. By California Public Utilities Commission. I wanted to address the part of your question about how DSGS or ELRP demand side grid support program or emergency emergency load reduction program were used to avoid public safety power shutoffs. PSPs. Those programs do not address any aspect of public safety power shutoffs.

Though as Director Carillo was explaining, demand side grid support program and emergency load reduction program are to support the grid in a time of electricity and security. Public safety power shutoffs rather are triggered by many factors that are focused on conditions like wind speeds, low humidity conditions specifically that will potentially trigger a wildfire.

And so the triggers for those events, public safety power shutoffs versus a reliability event are triggered by two different things. And so the emergency load reduction program or demand side grid support program will not function as part of the public safety power shutoff. Thank you for that.

The DEBA, DEBA. All these acronyms. Yeah, Alphabet soup. Why does that program have 22 million left over and what projects were they originally awarded? To. And why were the funds reverted back to the program?

Yeah, I'll take that question. Thank you. The distributed electricity backup assets program authorized in statute was designed to support two types of projects. The first was enhancements to the bulk grid to bring on clean resources. And then the second were projects on the distributed in the distributed on the distribution system.

When we launched DEBA, we focused on the bulk grid projects first. I'm going to just refer to my notes to make sure I get my numbers right in the Alphabet soup. So they were bulk grid projects that we brought on clean or increase their capacity.

And of those we authorized about $123 million for 297 megawatts on that bulk grid system. Two of those projects are not moving forward due to CEQA issues and federal financing concerns. So they were awarded, but aren't moving forward. We've got some additional funds available that could be used for DSGs this summer.

Okay, in DSGs, expenditures are estimated to be approximately 54 million this last year, correct? Last year. That's quite a jump. The year before. Yeah, it is. Which is at $14 million. So under the governor's proposal to shift the DBA funding to DSGS, it brings the total remaining funds to 52 million, which is what was discussed earlier.

Do you anticipate this being sufficient to last through 2026? Through this 2026 season?

We do believe it'll be sufficient for this 2026 season, given the finite amount of funds. We're redesigning the program so we will have the. We'll bring in the megawatts based on the funding available. Whereas last year in 2025, when you see that big growth, it was probably a three times growth of the storage virtual power plant.

Okay, give me just a moment to check on something. DSGS has largely been a successful program and one that has grown to enroll over 1000 megawatts. Why is the Administration proposing to start over in ELRP or a brand new program at cpuc?

I'm David Emerson, Department of Finance to your remarks. DSGS has been a successful program, but the original vision and intent of the program was not for it to be an indefinite ongoing program in perpetuity. But it was like we during the budget season, we had sufficient funding for it to support the program.

But there was always an attempt for the program to sunset while new grid emergency systems could be could come online. And so this is just part of that continuing of the narrative that the transition that the program would discontinue as more resources come online and then that we can rely on more reliable long term funding sources.

But I think something that we should look at is if something is successful and it appears that this is a successful program, why don't we continue with something that's successful even if we intended it to be something that was temporary? If we find that something is temporary but it is successful, why aren't we not continuing with it?

Given our current budget climate, this is the administration's proposal in order to use the available funding that we have from the resources that we've provided to continue the DSGS program and the original intent of the program. However, we're happy to engage the Legislature in discussions if there's an alternative proposal.

Well, one of the proposals that I've heard of is if we continue funding DSGs and combine that with a $50 million clean energy justice pot in Prop 4, then we may be able to close some of the peaker plants like the one in Oxnard instead of recontracting the 1.2 billion with DWR for that Piqua plant.

So we're happy to engage the Legislature with that if there's a pivot from the 2025 Budget act which allocated the, you know, the $50 million in which you're referring in prop funds to the DEBA program.

But there is like specific language that we agreed with the Legislature to delegate those funds for the DBA program with provisional language with specified like further intent for it to be to flow through Deepa. So it would, we wouldn't need to.

There would have to be some action by the Legislature to kind of like rewire that to do that.

zero, you know, we can do that.

Yeah, but that was the original, the original intent. The proposition for statute, it is broad. So those dollars could go to Debo or DSGS or more Alphabet soup, long duration energy storage program. But that was just our understanding at the time.

Especially if we know that the Prop 4 money, 40% of that is intended for disadvantaged communities. So we have to find ways to make sure that as we distribute the Prop 4 money that we are taking care of the disadvantaged communities that the voters intended when they passed Prop 4.

If I may just raise one technical issue regarding the Prop 4 funding specific for DSGS. DSGS is designed to Fund private entities that are working on aggregation. Prop 4's by statute is limited to public agencies, local governments, nonprofits. And so there is a little bit of a.

Again, the Legislature can look at the language, but the existing language is a little challenging on that element. I wish I didn't have to make that technical note, but that conflict does

exist and our agencies then make contracts with some of the private industry to take care of business.

But let's look at those technicalities and see what we can do so that the purpose of Prop 4 and the purpose of what we're trying to do to make sure we provide breaks for the ratepayers, for instance, that we're able to take care of that. I do want to ask. Can you walk me? Sorry, I think. Sorry.

Sorry. Chair, I think another technicality, the PUC has something. zero, I'm so sorry.

Yes. Chair Luom testified Public Utilities Commission. I also just want to provide a point of clarification. The ones through cooling facilities, for example, the one in Oxnard that were under contract that expires at the end of 2026. There's no expectation for extension of those facilities. There'll be an upcoming meeting through the water Board on that.

I serve on that advisory Committee along with the Energy Commission and the CAISO. And so those contracts won't be extending past 2026. And you know, we do an annual assessment about the potential closure for those facilities and there has been no request to extend those facilities, those ones through cooling facilities that were in the strategic reserve.

So more good news to be coming in the next few months.

More good news to be coming. Thank you so much. Thank you.

For before you pivot to the next. Could I just second what you're saying?

So I just wanted to support what the chair is asking about and focusing on here, which is that it does seem like there are Members of the Legislature and stakeholders who really have a lot of confidence in DSGs and want it to continue and that there is a concern that ELRP is just not as effective, it's not as cost effective.

It doesn't, it hasn't enrolled very many. And I wonder, you know, if you could speak to that a little bit more directly, that it's, you know, it's just, it's just not as successful.

David Evans, Department of Finance we're happy to follow up in writing with like specific facts and figures on, you know, ELRP or on DSGs, if there's like specific questions at this time.

Okay. Well, I guess my bottom line comment is just to support what the Chair is saying and the concern that this maybe is a little bit misguided here and we should focus back on the thing that's already working and that might have a better chance of being successful.

So, you know, relooking at the DSGS versus ELRP decision point. Thank you.

And along the same lines, I do want you to walk us through how the agencies plan on transferring all of these customers from DSGS and ELRP or a new program. How long do you envision that the transfer will take and what percentage or capacity or customers do you think will be lost in that process?

I know you can get back to us later, but you're the expert. You've got to tell us something about this.

David Evans, Department of Finance there's an active proceeding that's underway with the PUC as far as evaluating this transition from the demand side grade support program, participants of that program to ELRP or an equivalent program. So we I don't want to get ahead of that process, but there is a proceeding that is currently underway.

Yes, just a few other procedural components. The rulemaking, demand response rulemaking. The commission issued the scoping memo for that proceeding in February and and so that proceed that scoping memo, it outlines the issues to be considered in the proceeding as well as the schedule for the proceeding.

And so this issue of transitioning customers successfully from demand side grid support program into the emergency load reduction program or a new program of a new design was listed as an issue in the proceeding to be addressed. And then that schedule indicated that we would provide a decision on that this year.

So really important to get that done timely.

Unfortunately, the report would be done, would be completed after we have completed this budget and that becomes a problem for us as we make our decisions. And my next question I think has already been asked by Senator Blakespear.

All right, before you move on. Yes sir. I want to just clarify my understanding. Fundamentally all these programs and the Prop 4 is to generate to my memory was $100 billion in total 10 billion top four.

10 billion.

$10 billion. That's a lot of money. That's all in essence people will have to pay for through those money that you are doing. All different kinds of programs, CalShare, DSGS, DEBA, all these efforts are essentially it should be addressing the energy reliability and eventually lower rate for consumers through all these activities. Have you achieved it?

To my knowledge, California's energy cost is the highest in the country, isn't it? I will keep on adding higher cost, eventually higher and higher for the consumers instead of lowering it. And then also unused funds that you refund like $22 million to the rate fares. How much does it end up with?

Like $1.50 or $2 per month which will be very negligible. All kinds of work that you are doing. But in essence the bottom line is that the consumers repayers are not benefiting from any of the activities so far what I hear. Can you educate me what you are trying to do?

In essence is it to spend the money to do the work for the clean energy. So your activity so far that the climate agenda based energy production and production, distribution and storage all of those activities should be geared for essential lower rate and reliability. That's the bottom line, isn't it?

What have you achieved so far from its creation?

David Evans, Department of Finance so I want to help clarify some of the points that you made. So regarding the Prop $4 proposition for the 10 billion that you mentioned. So that prop has like specific specified language of the dollar allocation of where they can go to so the $320,325,000,000 which was addressed in issue one is paramount.

It was being used as seed money to that for it's being used by C money for I Bank and then plus the 5% of the annual cap investments through the continuation of the cap and invest program.

So that's being used as seed money to help for long term relia infrastructure planning that will eventually so those costs will not be attributed to ratepayers.

But that's good. The long term reliability that sounds fancy but have you resulted from the all those program efforts? What have you achieved? Have you achieved a lower rate and more reliable and wouldn't have to worry about blackouts or rolling energy supplies in coming summers?

Senator Erin Carson with Department of Finance would just clarify that the Prop 4 bond funds those were just appropriated in the fall. So the departments that were appropriated those funds are in the process of developing regulations and setting program guidelines to distribute those funds.

In terms of the energy programs, as my colleague mentioned, we are proposing to utilize those funds in the budget year to address the issues that you are raising on ratepayer affordability and long term grid stability. But we're happy to follow up with your office with more details if you like.

Can somebody predict that in five years or 10 years this $10 billion that will be spending on the energy production and clean energy and reliability that where our states energy reliability will be at and what the per kilowatt rate for the energy for the consumers will be?

Can Somebody predict in five years or 10 years will be lowest clean energy production and reliable energy production in California or are we going to still maintain the highest rate payer in the United States?