BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 679|
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                                 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 
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            (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.  








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          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  








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          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 







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          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)








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          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

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