BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 1801 HEARING: 6/13/12 AUTHOR: Campos FISCAL: No VERSION: 4/23/12 TAX LEVY: No CONSULTANT: Phan SOLAR ENERGY SYSTEM FEES Prohibits cities and counties from charging solar energy system permit fees based on the valuation method. Background and Existing Law California historically has promoted solar energy projects. In 1978, the Legislature enacted the Solar Rights Act to make it easier for people to install solar energy systems (AB 3250, Levine, 1978). To further promote solar installations, AB 1407 (Wolk, 2003) prohibits state-sponsored solar energy grants or loans to public entities that restrict solar energy installations, and AB 2473 (Wolk, 2004) declares that the implementation of statewide standards for solar energy systems is not a municipal affair but a matter of statewide concern. "A solar energy system" is any solar collector, solar energy device, or structural design feature of a building whose primary purpose is to collect, store, or distribute solar energy for heating, cooling, electric generation, or water heating. Although exact procedures vary by location, the approval procedure for a solar permit is similar to the procedure for approving a building permit. Typically, the solar installation company or customer submits an electrical diagram and roof layout plan to the city or county planning department. The installer or customer pays a permit fee to get the plan approved in order to start the installation project. When a local agency charges fees for building permits, those fees may not exceed the estimated reasonable cost of providing the service for which the fee is charged. Fees charged in excess of the estimated reasonable cost of providing the services are taxes and must be approved by a 2/3-vote of the electors. Building permit fees generally AB 1801 -- 4/23/12 -- Page 2 pay for the cost of the project plan examination and on-site inspection. Most building permit fees are based on the "valuation method" created by the International Conference of Building Officials (ICBO). The ICBO periodically publishes industry-wide building standards and valuation tables for different kinds of projects. The construction valuation measures the complexity of the project and suggests a reasonable permit fee. The other permit fee method, called a "fixed method," calculates fees independent of the project's valuation. It typically charges fees based on the cost of the labor required to issue the permit and inspect the project, and flat fees for certain administrative processes, such as record storage or planning department reviews. Currently, each local authority that has jurisdiction over solar installations determines its fee structure. Fees vary widely by location, with the City of Lawndale charging the highest fee at $1,471 for a 3kW system, while 31 cities have no permit fees at all. The average solar permit fee across all cities and counties is $343. In 2009, the Sierra Club, Angeles Chapter, surveyed 250 Southern Californian cities and counties and found that 83% of jurisdictions that used a valuation method charged above the maximum reasonable recovery fee, while only 8% of jurisdictions that used a fixed method charged above the maximum reasonable recovery fee. Proposed Law Assembly Bill 1801 prohibits cities and counties from using the valuation method to calculate their fees, such as charging fees based on the solar energy system's valuation, the value of the property, materials, labor, or any other factor not directly associated with the cost to review and inspect the installation of the solar energy system. AB 1801 also requires cities and counties to separately identify each application fee assessed on the invoice provided to the installer. Last, AB 1801 restates current law, which prohibits cities and counties from charging fees to install solar energy systems that exceed the cost of providing the service for which the fees are charged. AB 1801 -- 4/23/12 -- Page 3 State Revenue Impact No estimate. Comments 1. Purpose of the bill . Excessive fees discourage the installation of renewable energy systems by increasing costs. The Sierra Club's report indicates that jurisdictions that use a valuation method tend to charge higher fees than jurisdictions that use a fixed method. The valuation method has no nexus with the labor cost to issue the permit and tends to generate higher fees than the actual costs incurred to issue the permit. Since the Sierra Club's report in 2009, many jurisdictions have switched from the valuation method to the fixed method and decreased their fees substantially. Some jurisdictions, like the City of Roseville, continue to use the traditional valuation method. AB 1801 furthers the state's goal of promoting solar system installation by prohibiting cities and counties from using the valuation method to calculate permit fees. It will also make the fee structure more understandable by requiring cities and counties to itemize the different components and costs of the fee. More solar energy consumption will reduce consumption of electricity from traditional, environmentally harmful sources and reduce consumers' electricity bill. AB 1801 helps California realize its ambitious solar energy goals by making fee structures more transparent, consistent, and certain for solar installers. 2. Necessary ? The California Constitution and statutes clearly prohibit local governments from charging a fee that exceeds the reasonable cost of providing the service for which the fee is charged. If local governments aren't limiting their fees for solar permits to comply with state law, prohibiting them from using the valuation method may reduce fees, but local governments could still overcharge with the fixed system. The practice of overcharging for permits may be a regulatory problem, not a legislative problem. Additionally, many jurisdictions that used the valuation method in the past no longer use it for solar installations. The Committee may wish to consider whether amendments that will help fee payers dispute fees they AB 1801 -- 4/23/12 -- Page 4 consider too high may be more effective in achieving its goals. 3. Special treatment . The solar industry has already received numerous subsidies and special programs from the state government. AB 1801 is another effort to help the solar industry. Some critics argue the benefits have not outweighed the costs to the state, especially since solar energy has not reached price parity with grid electricity. Further, almost all other building permits are issued based on the project's valuation. Does the issue of excessive fees exist for building permits other than solar? The Committee may wish to consider whether solar rooftop installation permits merit a different treatment than other building permits, and whether regulating the permitting system for solar necessitates regulating the permitting system for other kinds of building permits as well. 4. State-mandated fees based on valuation . In addition to charging local fees to issue a solar permit, local governments are required to charge some state fees that use the valuation method. The Strong Motion Instrument Program (SMIP) (AB 1747, Committee on Budget, 2003) charges either a $10 or $21 fee for each $100,000 of the project's valuation, depending on the building type. The Building Standards Administration Special Revolving Fund, known locally as the Green Building Standards Fee (SB 1373, Calderon, 2008), imposes a $4 fee for each $100,000 of the project's valuation. Prohibiting cities and counties from using the valuation method to calculate all fees may create confusion about how to calculate state fees that are based on the valuation method. The Committee may wish to consider clarifying that cities and counties may use the valuation method to calculate state fees but not local fees. 5. Related legislation . SB 1222 (Leno, 2011) tries to ease the solar permitting process by placing a cap on permit fees that cities and counties can charge for residential and commercial solar rooftop installations. It passed out of the Senate Governance and Finance Committee on a 6-2 vote. It will next be heard in the Assembly Local Government Committee. 6. Technical amendment . To clarify AB 1801's language, the Committee may wish to consider amending the bill: AB 1801 -- 4/23/12 -- Page 5 On page 2, lines 3-4, strikeout "Oversight of local agency fees is a matter of statewide interest and concern. Therefore, the" and insert: The Assembly Actions Assembly Local Government 8-0 Assembly Floor 74-0 Support and Opposition (6/7/12) Support : Solar Energy Industries Association; Renewable Energy Accountability Project. Opposition : Unknown.