Dan Morain

Editorial page editor, political affairs columnist and editorial writer

Dan Morain: Bloom Energy and déjà vu all over again

06/01/2014 12:00 AM

05/30/2014 7:51 PM

The concept behind Assembly Bill 2267 was reasonable: Millions of California customers of PG&E and other utilities would chip in a few bucks to help California companies trying to come up with alternative energy.

Six years later, after the Democratic-controlled Legislature approved the bill on a party-line vote, the results have become skewed. Not surprisingly, memories have faded about exactly which legislators and lobbyists did what. What is clear is that there has been one big winner.

The California Public Utilities Commission has paid bonuses to what it calls “California suppliers” totaling $52 million. Of that sum, nearly $39 million has gone to one company, Bloom Energy Corp., based in Sunnyvale.

Bloom, one of Silicon Valley’s golden companies, manufactures Bloom Boxes, black cubes fueled by natural gas that produce electricity for companies such as Wal-Mart and Google. Perhaps Bloom will help solve the greenhouse gas issue. I hope it does. But this latest run on a state-subsidized program feels like déjà vu all over again.

California spends billions annually in tax breaks and other incentives to help corporations reduce greenhouse gases and consumers find alternatives to emitting carbon.

One such subsidy goes by the nondescript name, Self-Generation Incentive Program, S-GIP in Capitol jargon. It’s the focus of intense lobbying now as supporters, including Bloom and the Silicon Valley trade group Technet seek to extend the subsidy until 2019.

Bloom so deftly tapped S-GIP in 2010 – receiving what was estimated at $200 million – that the Public Utilities Commission suspended the program and retooled it so there would be money for other companies. Bloom remains a major beneficiary.

“The program supports multiple innovative clean energy technologies, diversifying California’s energy portfolio while creating jobs in our state,” Josh Richman, Bloom’s vice president of business development and government affairs, said in an email statement.

A testament to how programs evolve, grow and become captive to insiders, S-GIP dates to the energy crisis of 2000 when, on the final day of legislative session, lawmakers rewrote a bill hoping to encourage more electricity generation.

A single sentence on Page 20 of the 2000 bill required that the California Public Utilities Commission adopt “differential incentives for renewable or super clean distributed generation resources,” a recent Assembly staff report says. The sentence was so obscure that legislative staff analyses at the time made no mention of it.

Since then, the program has been extended at least a half-dozen times, and the Public Utilities Commission has paid or intends to pay $521.3 million to companies that meet its criteria.

Of that sum, Bloom Energy has received or is in line to receive $286.7 million – including the California bonus. The next largest recipients are GE Energy, at $45.5 million, and Fuel Cell Energy, at $43.8 million.

PG&E, Southern California Edison and San Diego Gas & Electric customers fund such programs by paying a few bucks on monthly bills in various public goods charges.

None of this is bad. We all have a stake in the fight against climate change and should help combat it, and government ought to encourage innovation. The question: What are we getting for our nickels and dimes?

A particularly searing analysis by the Assembly Natural Resources Committee staff found that utility ratepayers paid $33 million for S-GIP in 2012 and got benefits in greenhouse gas reductions valued at $7 million, hardly a good return on investment.

“As a greenhouse gas reduction measure, S-GIP would appear to fail the cost-effectiveness test,” the analysis says.

The Legislature added the California-first provision to S-GIP in 2008. A section, about 190 words in a 3,000-word bill, sets forth the requirements. Companies must have headquarters in California, own and operate a manufacturing facility here, and employ Californians.

That makes sense. But what if an alternative energy company based in another state opened a California factory? Why should it have to wait five years to benefit from the California-supplier provision?

Connecticut-based Fuel Cell Energy believes its technology could help replace energy lost since Southern California Edison shuttered the San Onofre nuclear plant in Southern California. Its lobbyist, V. John White, said the company has been “looking to expand” in California.

“They were looking at the law as odd,” White said.

Odd, indeed. The Assembly analysis said the bonus program “does not clearly require the actual products receiving S-GIP funds to be manufactured in California.”

“So the provision appears to support the perverse result that a company based in California can collect a bonus for expanding its manufacturing out of state, while a company based outside California that would like to manufacture in California must wait for five years before it’s eligible for the bonus,” the analysis says.

The provision was inserted on the Senate floor near the end of the 2008 legislative session. In the end-of-session rush, there was no review of the fiscal impact of the California-first provision.

The 2008 bill’s author, Felipe Fuentes, was an assemblyman representing the San Fernando Valley and now is a Los Angeles city councilman.

“I don’t remember it. I don’t know if someone said I had to take this amendment (to get the bill approved),” Fuentes told me last week. Sometimes, he added, “you have to make the deal to get the bill out.”

Whether the California-only provision gets changed remains to be seen.

Gov. Jerry Brown inserted paragraphs in his budget last month that would extend the program but make no significant changes. Legislation by Assemblyman Rich Gordon, D-Menlo Park, would extend the S-GIP program until 2019, at $83 million a year, with some modifications.

AT&T, Bloom, Facebook, SolarCity, the solar panel company whose chairman is billionaire Elon Musk, and Technet are pushing for its extension.

Technet’s directors include executives from Cisco, Oracle, Google, Microsoft, Bloom and the venture capital powerhouse Kleiner, Perkins, whose investment helped create Bloom. Technet’s corporate members and their representatives have spent $12 million on California campaigns since 2008, by my count.

Based on all that, you can bet S-GIP will be extended. That might not be bad. No right-thinking Californian should want to abandon efforts to to fund alternative energy. But spending that benefits insiders fuels cynicism and will alienate the rest of us who must foot the bill.

About This Blog

Dan Morain has been a columnist at The Bee since 2010 focusing on state government and politics. He previously worked for The Los Angeles Times covering the California Supreme Court when Rose Bird was chief justice, the Legislature when Willie Brown was speaker and the governor's office during Gray Davis' tenure. Dan Morain can be reached at dmorain@sacbee.com or 916-321-1907. Twitter: @DanielMorain.

 

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