Overview of the Texas Emissions Reduction Plan (TERP) Joint Hearing of the House Appropriations Subcommittee on Article VI, VII and VIII and the House Environmental Regulation Committee July 10, 2012 Prepared by the Legislative Budget Board
Why TERP Was Created TERP was established through the creation of Chapters 386 and 387, Health and Safety Code, by Senate Bill 5, 77 th Legislature, 2001, with the following main goals set forth: To assure that the air in this state is safe to breathe and meets minimum federal standards established under the Federal Clean Air Act (42 U.S.C. section 7407); To develop multi-pollutant approaches to solving the state s environmental problems; and To adequately fund research and development that would make the state a leader in new technologies to solve environmental problems while creating new business and industry in the state. Source: Texas Commission on Environmental Quality, Texas Emissions Reduction Plan (TERP), Biennial Report to the Legislature, December 2010 Legislative Budget Board Page 2
Why TERP Was Created (continued) Senate Bill 5 also directed the Texas Commission on Environmental Quality (TCEQ) to remove two mandatory measures for achieving reductions in emissions of nitrogen oxides (NOx) identified in the State Implementation Plan (SIP) and replace them with voluntary incentive programs. (SIP is the roadmap the state uses to demonstrate to the EPA that Texas is on target to reach air quality attainment status.) The two removed strategies, which applied only in the Houston-Galveston and Dallas-Fort Worth nonattainment areas, were: a limit on the use of construction and industrial equipment from 6 am to 10 am; and a requirement that the owners and operators of certain diesel-powered construction, industrial, commercial, and lawn and garden equipment replace such equipment with authorized lower emission replacements. Incentive funding was also expected to be available to help achieve reductions in counties located in other nonattainment and near-nonattainment areas. Legislative Budget Board Page 3
Original Components of TERP Program Implementing Agency Current Status Emissions Reduction Incentive grants Motor Vehicle Purchase or Lease Incentive Program TCEQ Comptroller of Public Accounts Existing Never Implemented Energy Efficiency Program Public Utility Commission Never Implemented New Technology Research and Development Program (NTRD) Building Energy Performance Standards Texas Council on Environmental Technology (TCET) moved to the TCEQ in 2005 Energy Systems Laboratory (ESL) /Texas Engineering Experiment Station (TEES) Eliminated by the 82 nd Legislature, Regular Session, 2011 Existing Legislative Budget Board Page 4
Original TERP Funding Sources Revenues related to the TERP were directed to the Texas Emissions Reduction Plan Account No. 5071, a General Revenue-Dedicated Account created through passage of Senate Bill 5, 77 th Legislature, 2001. The fund originally consisted of: $225 title fee on out-of-state vehicles registering in Texas, the main funding source envisioned for TERP; 10 percent of the registration fee for truck trailers and commercial vehicles; 1 percent surcharge on each sale, lease, or rental of new or used off-road equipment; 2.5 percent of the total charge for retail sale or lease of year 1996 and earlier on-road diesel motor vehicles over 14,000 lbs; and $10 fee per commercial motor vehicle inspection. Legislative Budget Board Page 5
Funding Changes by the 78 th Legislature The $225 registration fee on out-of-state vehicles was ruled unconstitutional and was never collected. To replace the lost revenue source, the 78 th Legislature enacted House Bill 1365 which: Established a new vehicle title transfer fee of $15 to $20, depending on the county where the vehicle is registered; Increased the surcharge on off-road equipment from 1 to 2 percent; and Added a 1 percent surcharge for the sale, lease, or use of model year 1997 and later heavy-duty on-road vehicles. Revenue collections for TERP increased from $20.6 million in fiscal year 2002 to $143.1 million in fiscal year 2004. Legislative Budget Board Page 6
TERP Legislation Since it s creation by the 77 th Legislature, every succeeding legislature has modified TERP. 78 th Legislature, 2003 House Bill 37, which transferred appropriations made to TCET to the TCEQ; House Bill 43, which defined roles of the TCEQ and TCET in administering NTRD; and House Bill 1365, which established new revenue sources for TERP and increased the number of counties and types of projects eligible for funding. Legislative Budget Board Page 7
TERP Legislation (continued) 79 th Legislature, 2005 House Bill 2481 Designated that a portion of the certificate of title fee going to the TERP Account No. 5071 would instead be directed to the Texas Mobility Fund, with an equal amount of money being sent from the State Highway Fund No. 6 to the TERP Account No. 5071; and Eliminated the TCET and designated that all NTRD funding would be transferred to a nonprofit research organization in Houston. House Bill 3469, which authorized the TCEQ to create the Texas Clean School Bus Program to provide grants for technologies that reduce diesel-exhaust emissions inside the cabin of a school bus. Legislative Budget Board Page 8
TERP Legislation (continued) 80 th Legislature, 2007 Senate Bill 12, which raised the maximum cost-effectiveness of a grant project and added marine vessels to the list of vehicles and equipment eligible for funding. House Bill 160 added rail relocation and improvement as projects eligible for TERP funding. 81 st Legislature, 2009 Senate Bill 1759 established the Clean Fleet Program, providing incentives for the owners of large vehicle fleets to replace diesel vehicles with hybrids or alternative fuel vehicles. Legislative Budget Board Page 9
TERP Legislation (continued) 81 st Legislature, 2009 (cont d) House Bill 1796 Established the New Technology Implementation (NTIG) Program within TERP to provide incentives for clean energy projects, new technology projects, and electricity storage projects; and Transferred the administration of the NTRD program back to the TCEQ from the nonprofit research organization that had been administering it. Legislative Budget Board Page 10
TERP Legislation (continued) 82 nd Legislature, 2011 Senate Bill 20 and Senate Bill 385 both establish three new grant programs within TERP: The Natural Gas Vehicle Rebate Program; The Natural Gas Fueling Station program; and The Alternative Fueling Facilities Program. Senate Bill 527 eliminates the NTRD program and creates a new air monitoring program to fund regional air monitoring projects. Currently, the TERP program is set to expire on September 1, 2019. Legislative Budget Board Page 11
Current Statutory Funding Allocations for TERP TCEQ administrative costs Program Statutory Funding Allocation (Annual) Up to $3.4 million Regional Air Monitoring Program Up to $7 million in 2012 and 2013 & up to $3 million in future years Emissions Reduction Incentive grants Clean Fleet Program Clean School Bus Program On-Road Diesel Purchase or Lease Incentives New Technology Incentive Grants, including electricity storage projects related to renewable energy Air Quality Research Remaining funds 5 percent Up to 4 percent Up to 10 percent Specified amount Specified amount Health effects study Up to $200,000 Supplement funding for Air Quality planning transfer to Clean Air Account No. 151 Up to $500,000 Energy Systems Lab (ESL) develop and compute creditable emissions reductions obtained through wind and other renewable energy resources for the SIP ESL administrative costs Up to $216,000 Up to 1.5 percent Legislative Budget Board Page 12
2012-13 Estimated Expenditures 2012-13 Expenditures (in millions) Percent of Total TCEQ Administration $6.4 5.6% Regional Air Monitoring Program $14.0 12.1% Emissions Reduction Incentive Grants 1 $55.7 48.3% Texas Clean Fleet Program (minimum) $5.7 5.0% Texas Clean School Bus Program (maximum) $4.6 4.0% Texas Natural Gas Vehicle Grant Program (minimum) $18.3 15.9% Alternative Fueling Stations/Clean Transportation Triangle Program (maximum) $4.6 4.0% Alternative Fueling Facilities Program $2.3 2.0% Health Effects Study (maximum) $0.4 0.3% TCEQ Research $2.0 1.7% Energy System Laboratory Contract (maximum) $0.4 0.4% TCEQ Total $114.3 99.2% Texas Engineering Experiment Station (ESL admin. costs) $0.9 0.8% GRAND TOTAL $115.2 100.0% 1 TCEQ Rider 21 allocates an additional $8M per fiscal year for Emissions Reduction Incentive Grants, once revenue exceeds the Biennial Revenue Estimate. This is not included above. Legislative Budget Board Page 13
TERP Revenue Sources Fiscal Year 2011 $10 Commercial Vehicle Surcharge $5.3 (3%) 10% Commercial Vehicle Registration Surcharge $10.1 (6%) Interest $4.1 (3%) 2% Fee on Sale/Lease of Off-Road Diesel $34.2 (21%) Vehicle Title Transfer Fee $98.5 (61%) On-Road Diesel Fee (1%-2.5%) $10.0 (6%) Total Revenue: $162.2 million Legislative Budget Board Page 14
TERP GR-Dedicated Account No. 5071 Revenue, Expenditures &Fund Balance (in millions) Fiscal Years 2002 to 2013 $700 $600 $500 $400 $300 $200 Expenditures Revenues Fund Balance $100 $0 Sources: TCEQ, Comptroller of Public Accounts, LBB (*projected) Legislative Budget Board Page 15
Funding Levels: 2008-09 to 2012-13 Biennium During the 2008-09 biennium, the TCEQ received $337.8 million in total funding for TERP. During the 2010-11 biennium, the TCEQ s funding for TERP was reduced to $233.0 million. During the 2012-13 biennium, the TCEQ s funding for TERP was further reduced to an appropriated level of $114.3 million. The TEES appropriation for the ESL for TERP, which was $1.9 million per biennium since 2006, was reduced to $0.9 million in 2012-13. Legislative Budget Board Page 16
2012-13 Biennial Revenue Estimate The Comptroller s Biennial Revenue Estimate (BRE) for 2012-13 projected $306.5 million would be received into the TERP Account No. 5071, including $153.6 million in funds transferred from the State Highway Fund No. 6 to the TERP Account No. 5071. Through May 31, 2012, the TCEQ reports that fiscal year 2012 revenues are being collected at a level 18.1 percent higher than originally expected. The TCEQ expects to receive an additional $16 million for TERP programs because it is expected that the BRE will be exceeded for 2012-13 for the TERP Account No. 5071, and the TCEQ has appropriation authority for up to $8 million per year in excess of the BRE provided in TCEQ s Rider 21. Legislative Budget Board Page 17
Estimated Fund Balance in TERP GR-Dedicated Account No. 5071 According to the TCEQ, the fund balance in TERP Account No. 5071 totaled $412.8 million on August 31, 2011. Using the fund balance on August 31, 2011 as reported by TCEQ, the Comptroller s 2012-13 Biennial Revenue Estimate for TERP Account No. 5071, the projected fund balance as of August 31, 2013 is $601.7 million. This assumes TCEQ and TEES will expend all appropriations out of TERP Account No. 5071 in 2012-13. Legislative Budget Board Page 18