BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 679| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 679 Author: Pavley (D) Amended: 5/31/11 Vote: 27 SENATE ENERGY, UTIL. & COMM. COMMITTEE : 10-0, 4/28/11 AYES: Padilla, Fuller, Berryhill, Corbett, De León, DeSaulnier, Pavley, Rubio, Simitian, Wright NO VOTE RECORDED: Strickland SENATE APPROPRIATIONS COMMITTEE : 8-0, 5/26/11 AYES: Kehoe, Walters, Alquist, Lieu, Pavley, Price, Runner, Steinberg NO VOTE RECORDED: Emmerson SUBJECT : Energy: energy conservation projects: financial assistance: local governments and public institutions. SOURCE : Author DIGEST : This bill reappropriates up to $25 million for energy conservation projects, from funds originally appropriated in SB 77 (Pavley, 2010). ANALYSIS : Existing law 1.Establishes the Energy Conservation Assistance Account CONTINUED SB 679 Page 2 (ECCA) program and requires the State Energy Resources Conservation and Development Commission (CEC) to administer the program and provide grants and loans for local governments, public schools, hospitals, government buildings and non-profit organizations to finance energy efficiency projects. 2.Establishes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) within the State Treasurer's Office and authorizes it to issue revenue or prepayment bonds to industry for the purpose of promoting the development and utilization of alternative energy sources and the development and commercialization of advanced transportation technologies. 3.Establishes the Renewable Resources Trust Fund (RRTF) with up to $65.5 million per year collected from a customer surcharge to support renewable energy programs administered by the CEC. 4.Appropriates $50 million from the RRTF to the CAEATFA to implement the Property Assessed Clean Energy (PACE) Reserve program to help lower the cost to local governments for issuing bonds secured by voluntary contractual assessments on property to finance the installation of distributed generation renewable energy sources, electric vehicle charging infrastructure, or energy or water efficiency improvements. Background ECCA Loan Demand Exceeds Fund Supply ECCA, established more than 30 years ago by the Energy Conservation Assistance Act of 1979, is one of the oldest of California's many programs designed to reduce statewide energy consumption through energy efficiency measures. The program makes low-interest loans (currently 3%) to cover up to 100 percent of a project with a maximum loan amount of $3 million and maximum repayment term of 15 years. A loan repayment amount cannot exceed the estimated energy savings from a funded project. SB 679 Page 3 According to the CEC, the ECAA program has made loans to more than 800 entities totaling more than $208 million, with about 58 percent of the total loan amount going to local governments, 12 percent to K-12 public schools, 10 percent to public colleges, 10 percent to hospitals and public care facilities, and 2 percent to special districts. Since 2000, the program has provided $130 million in loan funds for lighting (32%), LED traffic signals (6%), HVAC (27%), renewables (18%), self-generation (13%) and other miscellaneous improvements (4%). Funding for ECAA loans has been from a variety of sources over the years, including the General Fund, the Petroleum Violation Escrow Account, and tax-exempt revenue bonds. Funding generally has been adequate to meet demand for loans. More recently, the American Recovery and Reinvestment Act of 2009 (ARRA) provided $25 million for ECAA loans and about $34 million for CEC to award as grants to 279 small cities and counties for energy efficiency projects. According to CEC staff, cities and counties seeking to leverage the grant awards have applied for ECAA loans, leading to overall demand for ECAA loans far exceeding available funds. ECAA Loans Currently are Administered Under Three Separate Programs Energy Partnership Program for local governments, Bright Schools Program for public schools, and the ECAA/ARRA program for any loan using ARRA funds. The ECAA program sunsets on January 1, 2013. According to CEC staff, ECAA currently has about $1.6 million in unrestricted accounts, significantly under the $3 million limit for any one loan. The Energy Partnership and Bright Schools bond fund balance is at $2.2 million, and the ARRA balance is $78,000. Loan repayments generate about $1 million to $1.2 million per year. CEC staff predicts that, given pent up demand, it would take only about 2 to 3 years to award an additional $50 million in loans for approved projects under the ECAA program. CEAA Program Quality Controls SB 679 Page 4 Current law authorizes the CEC to contract and provide grants for performing services for eligible institutions, including feasibility analysis, project design, field assistance, and operation and training. According to CEC staff, each project applicant gets a technical evaluation and feasibility study to ensure that the project is realistic and has baseline information to monitor energy savings. Inspections are conducted during project construction, prior to payment of the final 10 percent of the loan, and after project completion to verify energy savings. PACE Programs Halted PACE programs provide up-front financing for renewable and energy efficiency-related upgrades to properties. Property owners can borrow funds from participating local governments, which are then repaid over 20 years through an annual assessment on the owner's property tax bill. The assessment remains on the property when sold or transferred. This repayment feature makes PACE loans acquire a priority lien over existing mortgages, which may pose unusual and difficult risk management challenges for lenders and mortgage security investors. As a result, in July 2010, the Federal Housing Financing Agency (FHFA) issued a directive to the federal residential lending agencies that has effectively halted the operation of residential PACE programs across the country. SB 77 (Pavley, 2010) appropriated $50 million from the RRTF to the CAEATFA for local PACE programs. That bill was chaptered prior to the FHFA directive that froze PACE programs. Although that directive is being challenged in court, the legal uncertainty about the program led the Legislative Analyst to recommend that the $50 million not be transferred from the RRTF to the CAEATRA. Comments According to the author's office, this bill simply appropriates $25 million of the $50 million originally intended for PACE financing from CAEATFA to ECAA. This will ensure that the state continues to fund quality energy efficiency projects that save local governments money and SB 679 Page 5 provide good jobs and lower energy use and greenhouse gas emissions." ECCA Program Outcomes . The ECAA program appears to be an effective program for providing eligible institutions with low-interest financing for energy efficiency projects and technical assistance to ensure project success in achieving energy savings. CEC data on loans approved since 2000 identifies the following savings: Total number of approved loans 232 Total approved loan amount $196,810,765 Total annual energy cost savings $25,650,100 Total annual electric savings (kWh) 264,759,662 Total annual demand savings (kWh) 38, 703 Total annual CO2 reductions (tons) 90,450 Related Legislation . AB 1X 14 (Skinner) would require CAEATFA to administer a "Clean Energy Upgrade" program to be developed by CEC and CAEATFA to help finance energy efficiency and water efficiency improvements and the installation of renewable energy generation technologies and electric vehicle charging equipment on residential and commercial properties authorize the $50 million appropriated for the PACE program for this purpose. FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes Local: No According to Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Energy efficiency loans Up to $50,000 General * * Renewable Resources Trust Fund SUPPORT : (Verified 5/26/11) SB 679 Page 6 CA League of Cities Environment CA Regional Council of Rural Counties Southern California Edison RM:rm 5/31/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****