BILL ANALYSIS AB 44 Page 1 Date of Hearing: August 30, 2010 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Cameron Smyth, Chair AB 44 (Blakeslee) - As Amended: August 19, 2010 SUBJECT : Improvement Act of 1911: contractual assessments. SUMMARY : Expands the use of voluntary contractual assessments to include financing electricity purchase agreements. The Senate amendments delete the Assembly version of this bill, and instead: 1)Expand the use of voluntary contractual assessments to include financing electricity purchase agreements by expanding the definition of "permanently fixed to real property" to include systems attached to a residential, commercial, industrial, agricultural, or other real property pursuant to an electricity purchase agreement between the owner of the system and the owner of the assessed property. 2)Require the electricity purchase agreement to contain all of the following provisions: a) The attached system is an eligible renewable energy resource pursuant to the California Renewables Portfolio Standard Program; b) The term of the electricity purchase agreement is at least as long as the term of the related assessment contract; c) The owner of the attached system agrees to install, maintain, and monitor the system for the entire term of the electricity purchase agreement; d) The owner of the attached system cannot remove the system before the end of the term of the contractual assessment lien; e) After installation, the electricity is purchased by a single payment using the funds from the contractual assessment program; AB 44 Page 2 f) The right to receive the electricity from the system is tied to the ownership of the assessed real property and must be automatically transferred with the title to the real property whether the title is transferred by voluntary sale or judicial or non-judicial foreclosure or by any other means; g) The system must provide electricity to the assessed property and to no other property or location. The property owner must not use the electricity generated from the system for any location other than the assessed property; h) The electricity purchase agreement identifies the public agency that is a party to the assessment contract on the real property as a third-party beneficiary of the electricity purchase agreement until the assessment lien is fully paid and, only until then, prohibits amendments to the electricity purchase agreement without the public agency's consent; and, i) The property owner is guaranteed the electric power from the system, under the public agency criteria. 3)Require a public agency's legislative body to establish criteria to ensure that a real property owner is guaranteed the electricity from a distributed generation renewable energy source if the owner of the system files for bankruptcy, to the extent permitted by federal law, prior to authorizing public agency officials and property owners to enter into voluntary contractual assessments for financing the installation of distributed generation renewable energy sources attached to a residential, commercial, industrial, agricultural, or other real property pursuant to an electricity purchase agreement. 4)Require a public agency's legislative body to find that any electricity purchase agreement funded with a contractual assessment is structured, to the extent permitted by federal law, to provide protections to the property owner in the event of a bankruptcy of the system's owner; the protections may include the use of a special purpose entity or other adequate security. EXISTING LAW : AB 44 Page 3 1)Authorizes public agencies, as defined, in California to designate areas within which legislative bodies and willing property owners may enter into contractual assessments to finance the installation of distributed generation renewable energy sources or energy or water efficiency improvements. 2)States legislative intent that the authorization listed above should be used to finance the installation of distributed generation renewable energy sources and energy or water efficiency improvements that are fixed to residential, commercial, industrial, agricultural, and other real property. 3)States that for the purpose of financing the installation of water efficiency improvements, "public agency" means a city, county, city and county, municipal utility district, community services district, sanitary district, sanitation district, or water district. 4)Prohibits the authorization from being used to finance the purchase or appliances or installations not fixed to real property. 5)Makes findings and declarations concerning the need for energy and water efficiency improvements in order to address global climate change, the deterrent effect of high up-front costs on making those improvements, and the need to authorize an alternative procedure for authorizing assessments to finance the cost of energy efficiency improvements in order to make them more affordable and promote their installation. 6)Declares that a public purpose will be served by a contractual assessment program that provides the legislative body of specified public agencies with the authority to finance the installation of distributed generation renewable energy sources or energy or water efficiency improvements to residential, commercial, industrial, agricultural and other real property. 7)Authorizes the legislative body to determine that it would be convenient, advantageous, and in the public interest to designate an area within the public agencies' jurisdiction, which may encompass the entire jurisdiction or a lesser portion, within which authorized legislative body officials and property owners may enter into contractual assessments to finance the installation of distributed generation renewable AB 44 Page 4 energy sources or energy or water efficiency improvements that are fixed to the property. 8)States that the term "energy efficient improvements" includes, but is not limited to, the installation of distributed generation renewable energy resources; and, that any energy efficiency improvement must be fixed to the real property. 9)Requires that the resolution adopted by the governing body direct the appropriate city official to prepare a report including specified provisions. 10)Provides that, upon the written consent of an authorized city official, the proposed arrangements for financing the program pertaining to the installation of distributed generation renewable energy resources, energy or water efficiency improvements fixed to real property may authorize the property owner to purchase directly the related equipment and materials and to contract directly for the work on the property owner's residential, commercial, industrial, and other real property. 11)Specifies that assessments may be levied only with the free and willing consent of the owner of each lot or parcel on which an assessment is levied at the time the assessment is levied. 12)States that assessments levied pursuant to this chapter, and the interest and any penalties thereon shall constitute a lien against the lots and parcels of land on which they are made until they are paid. 13)Requires that a specified city official enter into consultations with the office of the county auditor or controller in order to reach agreement on what additional fees, if any, will be charged to the city or county for incorporating the proposed contractual assessments into the assessments of the general taxes of the city or county on real property, and to include a report on the results of these consultations in the report to be submitted to the legislative body of the city. 14)Requires a legislative body to publish notice of a hearing regarding contractual assessments. 15)Defines "city" for purposes of these sections as a city, AB 44 Page 5 county, or city and county. 16)Defines "water district" as any district or other political subdivision, other than a city or county, a primary function of which is the irrigation, reclamation, or drainage of land or the diversion, storage, management, or distribution of water primarily for domestic, municipal, agricultural, industrial, recreation, fish and wildlife enhancement, flood control, or power production purposes. 17)Specifies for the purpose of financing the installation of distributed generation renewable energy sources or energy efficiency improvements, "public agency" means a county, city, city and county, or a municipal utility district, an irrigation district, or public utility district that owns and operates an electric distribution system. 18)Authorizes, under the Mello-Roos Community Facilities Act of 1982, a community facilities district to pay for work deemed necessary to bring buildings or real property, including privately owned buildings or real property, into compliance with seismic safety standards or regulations. Only work certified as necessary to comply with seismic safety standards or regulations by local building officials may be financed. AS PASSED BY THE ASSEMBLY , this bill created incentives for investor owned utilities and non-utility companies to build energy storage devices that store energy produced from renewable facilities. FISCAL EFFECT : Unknown COMMENTS : AB 811 (Levine), Chapter 159, Statutes of 2008, proposed to further the public interest of addressing climate change through energy conservation efforts by authorizing cities to provide up-front financing to property owners to install solar or other renewable energy-generating devices or make specified energy efficiency improvements to their properties through a system of contractual assessments. Prior to AB 811, contractual assessments were only authorized for certain types of public works projects. Under contractual assessments, the property owner or owners within a designated area choose to assess themselves for the cost of energy efficiency improvements or public works projects (i.e., under grounding of power lines or installation of streetlights). The local government then AB 44 Page 6 provides the up-front funds for the project, and the property owners pay an annual assessment until those funds, plus interest, are repaid. The underlying purpose is to create a means by which a project that provides both a public benefit and an incidental benefit to particular property owners can be financed without imposing the cost on property owners in other parts of the city who derive no benefit. AB 474 (Blumenfield), Chapter 444, Statutes of 2009, added water efficiency improvements to the list of improvements that can be paid for through a contractual assessment between a willing property owner and a public agency. Since the 2008 Levine bill took effect, communities throughout California have developed financing programs to help property owners pay for renewable energy improvements. Financing solar power through electricity purchase agreements offers significant advantages over financing individually-owned solar systems. Electricity purchase agreements alleviate the property owner's responsibility for maintaining the system and provide incentives for the third-party service-provider to operate systems at maximum efficiency. Third-party providers can also take full advantage of federal tax credits and accelerated depreciation schedules, significantly reducing the costs of solar systems. Economies of scale also allow third-party providers to deliver solar power at lower costs. This bill improves on the Levine bill's success and benefits property owners by combining voluntary contractual assessment programs' low-cost financing with electricity purchase agreements' advantages over individually-owned solar systems. Support arguments: Supporters state that the cost associated with purchasing renewable energy improvements can be very cost prohibitive for many property owners. Even with the use of contractual assessments many property owners still cannot make the costs and the projected savings pencil out. Supporters believe that by allowing the third-party provider to own the actual system, where they are able to receive the bulk tax credits and discounts, more property owners will be able to participate in renewable energy programs. Supporters argue that providing additional options for the financing of these important projects is vital to reducing the use of electricity from the grid. Opposition arguments: Opposition could argue that this measure AB 44 Page 7 adds yet another improvement to the laundry list of improvements that a local government can finance through contractual assessments; the Legislature may wish to consider whether it is prudent to continue to authorize local governments to become a glorified bank to help pay for on-site property improvements. The Legislature may also wish to consider if it would be wise to place some type of cap on the amount of contractual assessments a local government may enter into at any one time in order to reduce the financial risk for the local agency. REGISTERED SUPPORT / OPPOSITION : Support SunRun [SPONSOR] County of San Luis Obispo Natural Resources Defense Council Solar Alliance Opposition None on file Analysis Prepared by : Katie Kolitsos / L. GOV. / (916) 319-3958