BILL ANALYSIS �
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Date of Hearing: April 22, 2013
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 122 (Rendon) - As Amended: April 1, 2013
SUBJECT : Energy: energy assessment: nonresidential buildings:
financing
SUMMARY : This bill requires the California Energy Commission
(CEC) to create a financing program for energy efficiency
improvements in nonresidential buildings. Specifically, this
bill :
1)Establishes the Act and states that its purpose is to
facilitate private financing to enable private, nonresidential
building owners and eligible public entities to invest in
clean energy improvements, renewable energy, and conservation
to incentivize private equity managers to invest in clean
energy improvements, integrate the smart energy economy, and
to stimulate the state economy by directly creating jobs.
2)Specifies that the Program shall provide financial assistance
for energy efficiency and renewable energy improvements when
the total energy and water cost savings realized by the
property owner and any successor(s) during the useful life of
the improvements are expected to equal or exceed the total
costs incurred by the owner under the program. Authorizes CEC
to waive this requirement if it adopts a finding that
additional improvements may be undertaken that significantly
increase energy efficiency and improve public health.
3)Requires CEC, by July 1, 2014, to develop a request for
proposal to establish an automated, asset-based underwriting
system for all eligible buildings in the state. The
third-party administrator shall provide consultation to the
CEC in developing guidelines for the program.
4)Specifies that upon mutual agreement of the participant and
the administrator, requires the administrator to establish an
annualized schedule for the repayment required by the
agreement, including the interest charged administrative cost
fee, and loan loss fee. Requires the Board of Equalization
(BOE) to collect the repayment installments.
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5)Requires the BOE to establish guidelines for remitting energy
loan payments.
6)Authorizes the California Alternative Energy and
Transportation Financing Authority (CAEATFA) to issue $2
billion in bonds for this program.
7)Establishes requirements for the application and related
information and requires the administrator to recommend to the
CEC on the approval or disapproval of the application.
Requires CEC to approve the application when both of the
following conditions are met:
a) The applicant is qualified; and,
b) Prior to receiving funding the applicant shall
demonstrate evidence of intent to make feasible energy
efficiency upgrades recommended and evidence of intent to
enroll in eligible demand response programs.
8)Requires CEC to determine the appropriate guarantees to ensure
cost neutrality of the improvements and may require the owner
to obtain insurance issued by an "A.M. Best or 'A' or better
rated insurance carrier" or a similar product approved by CEC.
9)Specifies that the period for repayment shall not exceed the
effective useful life of the improvements or 20 years,
whichever is shorter. The effective useful life of the energy
efficiency improvements shall be calculated using
methodologies adopted by CEC, in consultation with the
California Public Utilities Commission (PUC), at a publicly
noticed meeting. Exempts the calculation method from Office
of Administrative Law review.
10)Upon the failure of a participant to pay any installment of
the energy remittance payment, requires the BOE to assess a
penalty of 10 percent of the unpaid installment. Within 60
days of a failure to pay the scheduled payment, requires the
Board to issue a demand letter to the participant with notice
to the CEC. If the participant fails to "cure" the default
within the time allotted, the BOE may declare the entire
outstanding amount, including any interest due, penalties
assessed, and costs of collection incurred, immediately due
and owing and foreclose on the building by either judicial or
non-judicial foreclosure. Requires that revenue generated
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from the sale of an eligible building be distributed to
satisfy liens on the building in accordance with the priority
of the liens.
11)Upon the full repayment of the balance of the agreement,
including any interest and penalties, the BOE shall notify the
CEC and record a release of the agreement with the county.
12)Prior to approving an application or a modification of an
approved application, requires CEC to conduct a public
hearing, as specified. Specifies that the CEC approve an
application by adopting a resolution and recording the
agreement on the deed of the building, as specified.
13)Requires CEC to consider the creditworthiness of the
applicant and the effectiveness of the improvements using the
following criteria:
a) Whether the applicants are legal owners of the
underlying building;
b) Whether the applicants are current on any outstanding
mortgage and property tax payments;
c) Whether the applicants are in default or in bankruptcy
proceedings;
d) Whether the applicants have applied for incentives
available through the energy efficiency programs offered by
an electrical or gas corporation; and,
e) Whether improvements financed by the program follow
applicable standards, including any guidelines adopted by
CEC.
14)Specifies that the agreement lien that is secured by a lien
recorded, shall have a prominent header on the document that
reads "Energy Remittance Repayment Agreement Lien" in 14-point
type and contains all of the following information related to
the affected real property:
a) The assessor's parcel number;
b) The owners of record;
c) The legal description; and,
d) The street address.
15)Specifies that, except as otherwise required by law, the
agreement is superior in priority to all subsequent liens
recorded on the deed, except where the first mortgage is
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refinanced, in which case the agreement shall remain secondary
to the primary mortgage.
16)Specifies that the sale of the building to enforce the
payment of general ad valorem taxes shall not extinguish the
agreement. Specifies that in the event of foreclosure, the
agreement shall not be "due and owing" during the time when
the building is owned by a financial institution taking title
by way of foreclosure. The amount owing does continue to
accrue and becomes due 60 days after a new, nonfinancial owner
takes title. States that notwithstanding any other law, in
the event of a foreclosure, the agreement shall not be
extinguished, unless the outstanding balance is fully paid
through the foreclosure proceeding.
17)Sixty days after the notice of recording of the agreement,
requires CEC to include the application in a portfolio posted
on its website.
18)Requires the BOE to deposit any moneys collected pursuant to
this Act into the Nonresidential Building Energy Retrofit Debt
Servicing Fund (Fund), which the bill establishes in the State
Treasury and continuously appropriates to pay the principal
and interest on bonds issued under the Act.
19)Authorizes the BOE to charge a program administration cost
fee on the owner of an eligible building to cover its costs,
as well as CAEATFA's and the CEC's costs, in implementing the
Act.
20)Specifies that a local government that has issued revenue
bonds for renewable energy, water efficiency, or energy
efficiency retrofit projects for nonresidential buildings may
apply to the CEC for participation in the Program.
21)As deemed necessary by the CEC, requires the CEC to:
a) Analyze and evaluate standards for nonresidential energy
building retrofits previously developed by various national
and international organizations to provide uniformity and
transparency for financial institutions evaluating loan
proposals for energy improvements, by January 1, 2015.
b) Establish standards, guidelines, and procedures
necessary to ensure the financial stability of the program
and prevent fraud and abuse.
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c) Establish measurement and verification standards
necessary to ensure that the energy efficiency improvements
financed pursuant to the Act are realized at a level
specified by CEC.
d) Consider reliance on existing trade certifications or
licensing requirements applicable to occupations that
perform the work funded by the agreement.
e) Establish qualifications for the certification of
contractors to construct or install energy efficiency
improvements.
f) Establish standards necessary to ensure that the
building energy efficiency improvements financed pursuant
to this chapter are realized at a level specified by the
commission.
g) Contract with a public or private party to provide
various monitoring and verification activities.
h) Monitor the number of participants.
i) Determine the average amount paid by contractor.
j) Calculate jobs created.
aa) Develop a model "energy aligned lease provision" that
modifies, upon the agreement of the owner and tenants of an
eligible building, a commercial lease agreement to allow
the owners to recover the costs of the renewable energy,
water efficiency, or energy efficiency retrofit
improvements that result in operational savings.
bb) Develop a request for proposal to contract with one or
more financial institutions to secure a short-term,
revolving credit facility (warehouse line of credit) for
the purpose of creating an interim financing mechanism for
the loans that would be aggregated to issue a revenue bond.
cc) Adopt a standard notice and disclosure form.
22)Requires CEC to do all of the following:
a) Consult with the PUC, representatives of Investor Owned
Utilities (IOUs) and Publicly Owned Utilities (POUs), local
governments, real estate licensees, commercial builders,
commercial property owners, small businesses, financial
institutions, commercial property appraisers, energy rating
organizations, and other entities the CEC deems
appropriate;
b) Hold at least one public hearing; and,
c) Adopt regulations and standards to implement the Act at
a public hearing.
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23)Beginning June 30, 2015, and every fifth year thereafter,
requires the State Auditor to conduct a performance audit of
the Program and to report the results and recommendations to
the Legislature.
24)Authorizes CAEATFA, on behalf of CEC, to "incur indebtedness
and issue and renew negotiable bonds, notes, debentures, or
other securities of any kind or class" (bonds). Specifies
that all indebtedness shall be payable solely from moneys
received pursuant to the Act. Limits total indebtedness to $2
billion unless the Legislature authorizes additional bonds.
25)Requires CAEATFA to conduct a semiannual meeting to authorize
the issuance of bonds and establishes related requirements.
Specifies that every issue of bonds shall be general
obligations of CAEATFA or CEC payable from revenues or moneys
received pursuant to the Act. Establishes various
requirements and limitations relating to the management of the
bonds.
26)Specifies that bonds issued pursuant to the Act shall not be
deemed to constitute a debt or liability of the state or of
any political subdivision thereof, other than CAEATFA, or a
pledge of the faith and credit of the state or of any such
political subdivision. States that all bonds be payable
solely from funds obtained pursuant to the Act.
27)Authorizes CAEATFA to provide for the issuance of bonds for
the purpose of refunding any bonds, notes, or other securities
of [CAEATFA] then outstanding, including the payment of any
redemption premium thereon and any interest accrued or to
accrue to the earliest or subsequent date of redemption,
purchase, or maturity of such bonds. Specifies that any such
bonds may be applied to refund other bonds may be used at
maturity or placed in escrow.
28)Pending this use, specifies that any such escrowed proceeds
may be invested and reinvested by CAEATFA in obligations of,
or guaranteed by, the federal government, or in certificates
of deposit or time deposits secured by obligations of, or
guaranteed by, the federal government, maturing at such time
to ensure the prompt payment of the outstanding bonds.
29)Specifies that bonds issued by CAEATFA are legal investments
for all trust funds, the funds of all insurance companies,
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commercial and savings banks, trust companies, savings and
loan associations, and investment companies, for executors,
administrators, trustees, and other fiduciaries, for state
school funds, and for any funds that may be invested in
county, municipal, or school district bonds, as specified.
30)Exempts bonds issued under the Act from all taxation and
assessments imposed under state law.
31)By February 1, 2014, requires CEC to apply to the US
Department of Treasury under the Energy Tax Incentives Act of
2005 for CAEATFA to issue tax advantage bonds under the
federal Clean Renewable Energy Bonds program or any other
applicable program.
32)Establishes the Loan Loss Reserve Account in the Fund, into
which the Board is required to deposit the loan loss reserve
fee. Continuously appropriates the Account to CAEATFA to pay
outstanding balances due under an agreement on a building that
has been foreclosed if the proceeds from the foreclosure are
insufficient to pay any past due payments.
33)Establishes the Administration Account in the Fund, into
which CAEATFA is required to deposit the administration fee
and any penalties collected. Continuously appropriates these
funds to CAEATFA, CEC, and the BOE for the costs of
implementing the Act.
34)Allocates a loan from the General Fund of $1 million to the
Board and allocates a loan of up to $7 million from the
General Fund to CEC to implement the Act. Requires these
loans to be repaid by January 1, 2024 with interest at the
pooled money investment rate. If there are insufficient funds
to repay the loan by this date, requires the Director of
Finance to "discuss alternative repayment terms" with the
borrowing agencies.
35)Authorizes CEC, the BOE, and CAEATFA to promulgate
regulations to implement the Act.
36)Makes finding and declarations.
EXISTING LAW
1)Requires the CEC to establish criteria for adopting a
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statewide home energy rating program for residential
buildings, and requires the CEC to adopt the program in
consultation with representatives of the Department of Real
Estate, the Department of Housing and Community Development,
the PUC, investor-owned and municipal utilities, cities and
counties, real estate licensees, home builders, mortgage
lenders, home appraisers and inspectors, home energy rating
organizations, contractors who provide home energy services,
consumer groups, and environmental groups. (Public Resources
Code 25943)
2)Establishes several natural gas public purpose programs,
including a low-income rate assistance program, a research and
development program, and energy efficiency programs, which are
funded by a surcharge on natural gas bills of customers of
pipelines regulated by the PUC. (Public Utilities Code 739)
3)Establishes subsidy programs for the installation of solar
photovoltaic systems administered by the PUC and CEC. These
programs, known collectively as the California Solar
Initiative (CSI), are to provide $3.2 billion in subsidies
over 10 years in the form of rebates for the installation of
photovoltaic projects. CSI authorizes the PUC to award $101
million in subsidies for solar thermal and solar water heating
devices. (Public Utilities Code 2851)
4)Establishes the Solar Hot Water and Efficiency Act of 2007 to
fund the installation of 200,000 solar hot water systems in
California by 2017. (Public Utilities Code 2860)
5)Establishes the Self-Generation Incentive Program (SGIP)
within the PUC to incentivize clean, renewable distributed
generation resources. (Public Utilities Code 379.6)
6)Requires the CEC to adopt an integrated energy policy report
(IEPR) every two years to evaluate market trends and develop
energy policies that will "conserve resources, protect the
environment, ensure energy reliability, enhance the state's
economy, and protect public health and safety." (Public
Resources Code 25300)
7)Requires the PUC to have each electrical corporation identify
a separate rate component to collect revenue to fund
cost-effective energy efficiency and conservation activities.
(Public Utilities Code 381)
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8)Requires all electric utilities, in procuring energy, to first
acquire all available energy efficiency and demand reduction
resources that are cost effective, reliable, and feasible.
(Public Utilities Code 454.5(b)(9)(C))
9)Under the California Constitution and the General Obligation
Bond Law, authorizes the Legislature to issue general
obligation bonds for specified purposes with a two-thirds vote
of both the Senate and the Assembly. These bonds only become
enacted if they are approved by a majority vote of the state's
electorate. State law authorizes specified state agencies to
issue revenue bonds and other credit instruments without voter
approval. (Government Code 16720)
10)Authorizes the California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) to provide
financing for facilities that use alternative energy sources
and technologies. CAEATFA can issue revenue bonds (without
voter approval), make loans, loan loss reserves, and loan
guarantees to develop and commercialize advanced
transportation technologies that conserve energy, reduce air
pollution, and promote economic development and jobs. State
law limits CAEATFA's total debt to $1 billion. (Public
Resources Code 26011)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement . "California needs a statewide program to
finance energy retrofits for non-residential buildings.
Setting statewide standards, aggregating loans, and backing
the financing with State revenue bonds will help minimize the
interest rates paid by building owners, thereby promoting more
widespread adoption of energy efficiency and renewable energy
facilities connected to buildings."
1)State Energy Efficiency Program History . In response to a
directive in the 2012-13 Budget Package the Legislative
Analyst's Office (LAO) released a report in December 2012
titled "Energy Efficiency and Alternative Energy Programs."
The report explored over a dozen major programs that are
intended to support the development of energy efficiency and
alternative energy in the state. It found that over the past
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10 to 15 years, the state has spent a combined total of
approximately $15 billion on such efforts, the majority of
which has been funded by utility ratepayers.
In November 2012, the PUC adopted 2013-2014 budgets for
ratepayer-funded energy efficiency programs at $1 billion per
year over the two year program.
It is unclear whether and how much actual demand reduction
occurred as a result of these investment.
In addition, the State has some of the most aggressive energy
efficiency and appliance standards. Building owners replacing
obsolete or broken equipment will automatically acquire high
efficiency improvements when replacing this equipment.
1)Does Financing Solve Barriers to Energy Efficiency? According
to a study published by Lawrence Berkeley Laboratory,
financing is one of many important tools for scaling
efficiency and should be employed thoughtfully.
This "financing is the solution" view is reinforced by the
negative cost bars for many efficiency improvements on the
McKinsey cost of carbon abatement curve, and the refrain that
efficiency is the "low hanging fruit" or even the "fruit on
the ground". The narrative is attractive to program
administrators and state regulators concerned about the
potential short-term impact on utility rates of meeting
aggressive energy efficiency targets. It is also attractive to
policymakers struggling with the reality that program budgets
are a small fraction of the overall efficiency investment
needed to achieve our public policy goals (e.g. reducing the
cost of serving energy consumers, easing congestion on the
grid, minimizing environmental impacts, equitable access to
efficiency opportunities). While this idea - that financing
can deliver the long-heralded low hanging fruit of energy
efficiency in buildings - is intellectually appealing,
financing as the most important element of program design
strategy has not been widely substantiated in over 25 years of
experience with financing programs."
The PUC analysis of this bill raises the following concerns:
"From the point of view of a potential borrower, this program
may appear to be quite complex and time consuming. For
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example, it appears that a building owner would need to apply
to a bank for a loan, apply to CAEATFA for funding and go
through a hearing, have a lien put on his property, and make
payments to a fourth entity - the BOE. Given these steps, it
is uncertain whether many borrowers would want to access this
program.
"From the point of view of a bank, it is unclear what the
value proposition will/could be. For example, the loan loss
reserve details are not yet established. Without these, it is
questionable if banks would want to take part.
"Transferring a debt obligation to the next owner/tenant is
not commonly done beyond the limited scope of government
assessments, and is therefore complicated by legal questions,
notification issues, and practical considerations of whether
buyers will negotiate"
The author may wish to remove the Legislative finding
regarding lack of financing as a principle barrier to energy
efficiency retrofits.
25987.3. (b) The lack of accessible and affordable financing
for energy efficiency retrofits results in energy-inefficient
buildings that are estimated to consume up to 50 percent more
energy than required to achieve the same level of comfort.
Energy use in the building sector accounts for approximately
20 percent of global emissions of carbon dioxide, or 10
billion tons, annually.
2)Characterizing Commercial Building Energy Use . According to
the CEC report (August 2012) on Comprehensive Energy
Efficiency Retrofits for Existing Buildings, energy
consumption is greatest in the miscellaneous building
category, the retail sector is the next largest, both in
number of buildings and their aggregate electricity
consumption, and the electricity use in the retail sector is
more than five times larger than the next largest electricity
consuming sectors, large offices and healthcare.
The report goes on to state that:
"the nonresidential sector is dominated by buildings that
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predate California's energy code for new construction; CEC
projections indicate that, by 2022, nearly 50 percent of
buildings will be pre1970 and 74 percent pre1990. Within the
nonresidential sector, there is a great variety of building
types, and each contains a different profile of energy
consumption.
Since the late 1970s the CEC has adopted and implemented the
state's energy efficiency standards for buildings and
appliances. As older equipment (such as heating and air
conditioning systems) is replaced some of the older building
inventory may already have made energy efficiency
improvements, particularly, if they took advantage of prior
energy efficiency incentives.
According to the CEC:
"?existing state [energy efficiency] targets are not
consistent. Some appear unrealistically aggressive, such as
achieving zero net energy levels of energy efficiency in half
of all commercial buildings by 2030, while others seem overly
conservative, like the current estimates of economic potential
for savings from IOU efficiency programs. One target, 25
percent of buildings decreasing electricity use by 75 percent
by 2030, assumes deep reductions can be accomplished in a
smaller portion of the total building stock. This projection
would rely upon achieving deep savings in fewer buildings.
This can be compared to the effect of achieving 30 percent
energy reductions in 75 percent of the total building stock by
2030.
"Designing a program for the commercial sector that targets
improvements in these categories could accomplish something
close to the 30 percent reduction in 75 percent buildings
goal; such a program may focus on small offices, retail, and
the miscellaneous sector, which account for the greatest
number of commercial buildings. However, such a program design
would largely rely on improvements in plug load, which are
hard to guarantee from one building occupant to the next, or
even over time."
The author may wish to modify the Legislative intent to remove
reference to building performance estimates that may not be
applicable to California.
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25987.3. (c) It is possible to retrofit the California
nonresidential building stock to use, on average, at least 50
percent less energy by 2050 through the wide adoption of deep
energy retrofits that save more energy and increase profits
for building owners.
3)Commercial Building Energy Usage. According to the PUC's
January 2011 Energy Efficiency Strategic Plan, "The sector's 5
billion-plus square feet of space is very diverse-not only
office buildings but stores, restaurants, warehouses, schools,
hospitals, public buildings and facilities, and others-in
aggregate accounting for 38 percent of the state's power use
and over 25 percent of natural gas consumption." The PUC
established a goal to achieve "250 million square feet (1/20th
of existing space) per year through 2030 reach deep levels of
energy efficiency improvements and clean, distributed
generation through whole building approaches."
According to the CEC report on Comprehensive Energy Efficiency
Retrofits for Existing Buildings, it distinguishes between
electricity use from equipment and systems that can transfer
with commercial property versus electricity use that is
related to specific operation of a particular building.
Movable equipment, such as refrigerators, monitors, and
machinery related to the operations of the occupant could have
a major impact on the building energy use if the movable
equipment is not kept in place upon change in occupancy over
the 20 year life of the loan.
The author may wish to amend the bill to clarify that these
loans should be based on energy consumption estimates of fixed
equipment and that the loans are limited to fund energy
efficiency upgrades that remain with the building, even when
ownership changes.
In addition, the definition of building energy efficiency
improvement includes two vague provisions: "a modification,
installation, or remodeling approved as a utility cost-savings
measure by the commission or the PUC and utilized by IOUS and
energy efficiency specialists participating in their Energy
Efficiency programs" and "plug load devices." The first
provision lacks any specificity and does not require that
whatever is being authorized needs to meet any kind of
cost-effectiveness criteria. The second provision is also
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vague and could be a device that would not remain with the
building if ownership or occupancy changed.
The author may wish to strike the vague provisions in the
definition of energy efficiency improvements.
This bill requires that any on site renewable energy
generation be sized to meet the customer's load as well as
requiring building owners to provide "evidence of intent" to
make feasible energy efficiency improvements. The bill does
not require that the building owner also acquire all
cost-effective energy efficiency improvements prior to or in
conjunction with any improvements that would provide on-site
renewable generation. If this is not a requirement as part of
this program building owners could end up with a loan for a
renewable energy generation technology that produces more than
the site actually needs and spend more than is necessary for
the over-sized technology. However, building owners are
sometimes not interested in the less expensive options. In
order to accommodate that preference, the renewable energy
generation could be sized as if all cost effective energy
efficiency measures were installed to prevent oversizing the
system.
The author may wish to clarify that the size of on-site
renewable energy generation shall be limited to the size
needed to meet the on-site load resulting from permanent
fixtures, after taking into account the change in usage that
would occur if energy efficiency measures were present.
The bill requires applicants to provide information on whether
the building owner has applied for all available incentives
from an electrical or gas corporation. The PUC would prefer
that this provision be removed because it is not known if
incentives will be available in the future. This program
should be available statewide, including in areas served by
publicly owned utilities.
The author may wish to clarify the provision regarding whether
applicants have applied for incentives, if they are available
through the energy efficiency programs offered by an
electrical or gas corporation to include incentives if they
are available through energy efficiency programs offered by
publicly owned utilities.
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It is unclear why there are two definitions for similar
improvements in this bill: "Alternative sources of energy" and
"Renewable energy."
The author may wish to amend the definition of renewable
energy to reference alternative sources of energy.
25987.4.(a)(2)The system shall be sized appropriately to
offset part or all of the applicant's own electricity energy
demand for the permanent fixtures that consume energy, as if
all cost effective energy efficiency measures have been
installed, and shall be located on the same property where
the applicant's own electrical energy demand is located.
25987.4. (e) "Building energy efficiency improvement" means
one or more installations or modifications, which are
permanently affixed to the building or located on the premises
of the building site, for which a building permit is issued
after January 1, 2014, to an eligible building that either
qualifies for an investor-owned utility or publicly owned
utility energy efficiency program or is designed to reduce the
energy consumption of the building, and that may include, but
is not limited to, all of the following to the extent they
qualify:
25987.4 (e) (13) A modification, installation, or remodeling
approved as a utility cost-savings measure by the commission
or the Public Utilities Commission and utilized by
investor-owned utilities and energy efficiency specialists
participating in their Energy Efficiency programs.
25987.4 (e) (14) Plug load solutions.
25987.4. (v) "Renewable energy improvement" means one or more
fixtures, products, systems, or devices, or an interacting
group of fixtures, products, systems, or devices, using an
a lternative source of energy that are permanently affixed to
the building or located on the premises of the building site
and that directly benefit an eligible building or that are
installed on the customer side of a meter of an eligible
building and that produce renewable energy from renewable
resources, including, but not limited to, photovoltaic, solar
thermal, small wind, biomass, fuel cells, or geothermal
systems such as ground source heat pumps, as may be approved
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by the commission.
25987.19(d) Whether applicants have applied for incentives, if
they are available through the energy efficiency programs
offered by an electrical or gas corporation or a publicly
owned utility .
4)Are Energy Efficiency Loans Risky ? According to the CEC, "One
of the biggest challenges for private lenders who are
interested in creating loan products for energy efficiency
upgrades is that there are no established underwriting
standards, which has two effects: First, risk analysis is
challenging due to a lack of statistical data on the
performance of energy efficiency upgrades, and second, the
lack of standardization makes it difficult for the primary
lender to package multiple loans to sell onto a secondary
market."
This issue also impacts the viability of these loans to be
repaid from the expected bill savings that accrue from the
energy efficiency improvements. This is made more challenging
due to the great variety of building types and different
profiles of energy consumption.
According to the PUC's report on energy efficiency financing:
"The non-residential sector has long been challenging to serve
with financing products. Small, medium and large businesses
that occupy commercial buildings are often leveraged with
debt, and taking on additional debt is often difficult or
impossible. In addition, many businesses are unwilling to take
on new debt for activities that are not central to their
business."
They recommend two pilot programs: a credit enhancement loan
program and an insurance pilot for third party performance
guarantees.
The author may wish to direct the CEC to assess this program
identify any modifications needed, if any, after the first two
years of this or the first $250 million in loans, whichever
comes first and , prior to expanding it to the full $2
billion bond indebtedness.
Currently PG&E offers a zero interest on bill financing
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program for business and government customers. PG&E business
customers may qualify for loans between $5,000 and $100,000,
with loan periods of up to 60 months. Government agencies may
qualify for loans between $5,000 and $250,000 per PG&E meter,
with loan periods of up to 120 months.
The author may wish to direct the CEC to establish loan limits
for each type of eligible improvement.
Over the life of the building it is likely that the customer's
electricity or natural gas rates will change. In order to
create a consistent baseline assumption for estimating savings
over the life of a particular measure, it may be necessary to
establish standard assumptions regarding average electricity
and gas rates and projected increases in those rates.
Currently, these assumptions are developed by sellers of these
services and can be used to either inform or mislead building
owners with regard to how much an improvement will cost or
save the building owner.
The author may wish to include a provision that the CEC
develop standard assumptions for future electricity rates and
rate escalation to be used in calculating estimated savings
for projects financed through these loans.
The author may wish to include a provision that the CEC
establish standard metrics for estimating performance of
eligible improvements for different building types and
different profiles of energy consumption to be used in
underwriting these loans.
Insert new 25987.7 (d):
(1) Within six month after the implementation of the program
established pursuant to subdivision (a) or after the
expenditure of the first two hundred fifty million dollars
($250,000,000) of proceeds authorized pursuant to Section
25987.29, whichever occurs earlier, the commission shall
prepare and make publicly available a report on the
efficacy of the program in achieving the purposes of the
program as specified in Section 25987.5 and recommendations
that would enhance the ability of the program to achieve
those purposes.
(2) The commission shall post the report on its Internet Web
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site.
(3) Prior to the authorizing additional expenditure of the
proceed authorized pursuant to Section 25987.29, the
commission shall hold at least one public hearing and take
public comments of the report.
Insert in 25987.25(b) the following provisions:
The commission shall establish loan limits for each type of
eligible improvements for commercial or public building.
The commission shall establish standard metrics for estimating
performance of eligible improvements for different building
types and different profiles of energy consumption to be used
in underwriting loans made pursuant to this program.
The commission shall establish standard assumptions to be used
for estimating energy benefits of improvements that shall
include a reasonable assumption for the cost of kilowatt-hours
and therms and a reasonable assumption of future expectations
of the rate these costs will increase.
1)Waiver for Significant Energy Efficiency Increases and Public
Health? This bill provides that the CEC can waive the
requirements that energy water savings are expected to equal
or exceed the total costs incurred by the owner pursuant to
the program by adopting a specific finding that "additional
improvements may be undertaken that significantly increase
energy efficiency and improve public health."
As written this provision is vague and overly broad. It is
unclear what is meant by significantly increasing energy
efficiency or improving public health.
The author may wish to strike this provision.
25987.7. (a) (2) The commission may waive the requirements of
paragraph (1) by adopting a specific finding that additional
improvements may be undertaken that significantly increase
energy efficiency and improve public health.
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2)Effective Useful Life of Energy Efficiency and Renewable
Energy Measures. This bill provides that the CEC will
establish the useful life of the building efficiency
improvements and that the CEC's determination is exempt from
review by the Office of Administrative Law.
The range of possible equipment, both commercially available
and new technology, is extensive. In order to establish the
useful life of the technologies the CEC should hold at least
one public workshop to take comments from the public,
manufacturers, and interested parties. In addition, the CEC
should update the assumptions on useful life as new
information becomes available and when new technologies become
available. This information is useful to the public and
consumers so it should also be made publicly available.
In addition, a technology may not meet its effective life
expectations if the technology is improperly installed or has
manufacturing defects. The CEC should have the authority to
make ineligible for loans those companies that do not properly
install technologies or those technologies that have known
manufacturing defects. This information is useful to the
public and consumers so it should also be made publicly
available.
The author may wish to amend the bill to provide that the CEC
must hold at least one public meeting on the useful life of
eligible technologies and shall update the assumptions on
useful life as new information becomes available and when new
technologies become available and that the CEC should make
this information publicly available on its Internet website.
In addition, the author may wish to amend the bill to provide
the CEC with authority to make technologies ineligible for
loans if the improvement is no longer manufactured or if the
those improvements have known manufacturing defects.
25987.16.(a) (2) The calculated effective useful life of the
alternative sources of energy, building energy efficiency, and
renewable energy improvements shall be calculated using
methodologies adopted by the commission, in consultation with
the Public Utilities Commission.
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a) The commission shall hold at least one public hearing on
the useful of life of improvements to take public and
industry comment on the commission's determinations.
b) The commission shall update the useful life of
improvements as new information becomes available and when
new technologies become available and make this information
publicly available on its Internet website.
c) The commission shall remove any improvements from its
information on improvements if the improvement is no longer
available or if the commission determines that manufacturer
defects disqualify the improvement from loan eligibility.
3)Treatment of State, Local, and Ratepayer-funded Incentives.
California ratepayers fund a variety of incentive and other
programs to induce commercial building owners to make energy
efficiency improvements. Some of these incentives may be
available for the measures to be installed as a result of
these loans. The incentives may be useful in achieving
cost-effectiveness and also reducing the total loan amount. In
addition, federal tax benefits and new funding from proceeds
collected via the Cap-and-Trade auction may be available to
assist in reducing the cost of these projects.
The author may wish to specify that any and all federal,
state, local, and ratepayer-funded incentives shall be used to
reduce the amount of the loan.
25987.13.(l) The total amount of the loan requested showing
any and all adjustments to reduce the loan amount after all
federal, state, local, and ratepayer-funded incentives have
been applied.
4)Standards, guidelines, procedures, and Transparency. This bill
permits the CEC to determine whether it is necessary to
establish standards, guidelines, and procedures necessary to
ensure the financial stability of the program and prevent
fraud and abuse, establish standards to ensure that the energy
efficiency improvements financed are realized at a level
specified by CEC, consider reliance on existing trade
certifications or licensing requirements applicable to
occupations that perform the work funded by the agreement,
establish qualifications for the certification of contractors
to construct or install energy efficiency improvements,
establish standards necessary to ensure that the building
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energy efficiency improvements financed pursuant to this
chapter are realized at a level specified by the commission,
determine the average amount paid by contractor, and adopt a
standard notice and disclosure form. If the CEC determines
these provisions are necessary then it is required to do them.
A recent report provided by the Contractors State License
Board, shows that in 2012 it received approximately 2000
complaints against Heating and Air Conditioning, Glaziers,
Insulation, and Solar Contractors. The majority of these
complaints were for failure to meet trade standards,
permitting violations, failure to comply with regulations, and
contract violations.
These particular items relate to quality control and are
critical to ensuring a successful outcome.
The author may wish to require the CEC, rather than make
optional, those provisions that will ensure quality control
and prevent fraud and abuse and make technical amendments in
the disclosure language as shown.
This bill states that the CEC can make a determination "that
the public interest is served by not disclosing information
clearly outweighs the public interest served by disclosing
information, the commission shall not disclose payments made
by an applicant or a program participant to individual
contractors or financial institutions."
Transparency is critical in order to determine whether this
program is achieving its expected benefits of energy use
reductions at a cost that is expected "to equal or exceed the
total costs incurred by the owner."
State policy to reduce energy consumption and greenhouse gas
emissions necessitate having information to ensure that the
State's goals, as well as the need for this program are
achieved.
The author may wish to strike this provision and add a
provision that the CEC create a publicly available database on
its Internet website to provide information on program
participation, location of projects, loan amount, estimated
energy savings, actual demand reduction, and measures
installed.
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Modify 25987.13 as follows:
25987.13. The owner of an eligible building shall include all
of the following information in the application:
(a) The name, business address, and email address of the
owners of the eligible building.
(b) The names of all entities that hold a secured lien on the
eligible building and their contact information.
(c) The total dollar amount of liens that have been recorded
on the eligible building.
(d) An appraisal of the value of the eligible building that
has been conducted within the past six months or during an
appropriate timeframe consistent with industry practices for
underwriting of nonresidential buildings.
(e) A detailed description of the alternative sources of
energy, building energy efficiency, and renewable energy
improvements being funded.
(f) The name of the financial institution providing interim
financing for the improvements or the warehouse line of credit
developed pursuant to Section 25987.26.
(g) The structure of the loan financing the alternative
sources of energy, building energy efficiency, and renewable
energy improvements.
(h) Any information that the commission or third-party
administrator requires to verify that the owner will complete
the project.
(i) An analysis performed by an energy efficiency specialist
to quantify the costs of the alternative sources of energy,
building energy efficiency, and renewable energy and water
efficiency improvements, and total energy and water cost
savings realized by the owner, or his or her successor during
the effective useful life of, and estimated carbon impacts of,
the improvements, including an annual cashflow analysis.
(j) Copies of an application that have been made for energy
efficiency incentives identified pursuant to subdivision (d)
of line 27 Section 25987.19 for any applicable retrofits.
(k) Other information deemed necessary by the commission or
the third-party administrator.
Move and renumber the following provisions in 25987.25(a) to
25987.25(b) and modify the disclosure requirements in (C) as
shown:
(2) Establish those standards, guidelines, and procedures,
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through regulation, including, but not limited to, standards
of credit worthiness for qualification of program applicants,
that are necessary to ensure the financial stability of the
program and otherwise prevent fraud and abuse.
3) Establish those measurement and verification standards
necessary to ensure that the building energy efficiency
improvements financed pursuant to this chapter are realized at
a level specified by the commission.
(4) Consider reliance on existing trade certifications or
licensing requirements applicable to occupations that perform
the work contemplated under this chapter.
(5) Establish qualifications for the certification of
contractors to construct or install building energy efficiency
improvements.
(6) Contract with a party, public or private, to do any of the
following:
(A) Ensure that appropriate and reasonable steps are taken to
monitor and verify the quality and longevity of building
energy efficiency improvements financed pursuant to this
division and measure the total energy savings achieved by the
program.
(C) Determine the average amount, in aggregate, paid to
contractors and financial institutions pursuant to the
program. Notwithstanding the California Public Records Act
(Chapter 3.5 (commencing with Section 6250) of Division 7 of
Title 1 of the Government Code), upon a finding pursuant to
Section 6255 of the Government Code that the public interest
is served by not disclosing information clearly outweighs the
public interest served by disclosing information, the
commission shall not disclose payments made by an applicant or
a program participant to individual contractors or financial
institutions. Make data on program participation publicly
available in a timely manner and in an aggregate format that
would not provide identifying information about individual
customers of the electrical and gas corporations and include,
at a minimum, the types of energy efficiency measures
installed, the location of each customer receiving
ratepayer-funded energy efficiency assistance, the amount of
funds expended at each site, the expected annual energy
savings and reduced energy usage expected in kilowatthours or
therms. Unless the affected person, customer, or entity
consents, the information, data, and reports required to be
provided pursuant to this section shall not include any of the
following:
(1) Personal information as defined in subdivision (e) of
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Section 1798.80 of the Civil Code.
(2) A customer's electrical or gas consumption data as defined
in subdivision (a) of Section 8380.
(3) Other information excluded from public disclosure pursuant
to the California Public Records Act (Chapter 3.5 (commencing
with Section 6250) of Division 7 of Part 1 of the Government
Code).
(9) Adopt a standard notice and disclosure form for the
purposes of Section 25987.27.
5)Model Energy Aligned Lease . In addition, the bill allows the
CEC to develop a "model energy aligned lease" if it deems it
is necessary to do so. A model energy aligned lease creates
a pass-through structure where the lessor and lease share the
costs and benefits of energy retrofits by agreeing on a
predicted amount of annual savings and having the tenant pay
the owner recovery costs based on the predicted savings. There
is risk that the tenant could be asked to pay more than the
actual energy savings from the efficiency improvements. In New
York City, this type of lease has been developed and includes
a buffer to ensure that as the expenses are passed through to
tenants it includes a buffer to ensure that the tenants do not
pay more than the measures can provide in bill savings. It is
unclear if the CEC has the requisite expertise to develop such
as lease.
The author may wish to amend the bill to require the CEC to
consult with commercial real estate experts and the Department
of Real Estate on the model energy aligned lease.
25987.25. (a) (7) Develop a model energy aligned lease
provision, in consultation with the Department of Real Estate
and commercial real estate industry representatives, that
modifies, upon the agreement between the owner and tenants of
an eligible building, a commercial lease agreement allowing
the owners to recover the costs of the renewable energy, water
efficiency, or energy efficiency retrofit improvements that
result in operational savings based on the useful life of the
retrofit while protecting tenants from underperformance of the
building energy efficiency improvements.
6)Complex Program, Complex Assumptions and Targeting Areas of
Need. The loan program contemplated by this bill creates an
opportunity to achieve important state energy policy goals.
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However, the building owner may not have the requisite
expertise to evaluate various proposals to determine which of
the many possible energy upgrades are the most appropriate for
a particular building's situation. As pointed out by the CEC's
report - commercial buildings have a great degree of variation
in energy use and different patterns of energy consumption.
Currently this bill does not provide an independent third
party resource to those building owners to assist those who
may need help in analyzing the various proposals. In the City
of Boulder Colorado, it used American Recovery and
Reinvestment Act (ARRA) funds to establish an Energy Smart
program that included energy advising services that provided
advisory services to businesses. The City hired an independent
contractor to perform these services for businesses. The City
of Boulder found that this assistance created a better success
rate, increased the chances of implementation, and ensured
that outcomes were achieved.
The author may wish to require the CEC's 3rd party
administrator to provide an Independent Energy Advisor to
assist businesses in evaluating energy upgrade proposals and
to help identify available incentive programs for various
energy efficiency measures.
25987.9. By July 1, 2014, the commission shall develop a
request for proposal to develop the program by a third-party
administrator. The third-party administrator shall administer
the program and establish an automated, asset-based
underwriting system for all eligible buildings in the state.
The third-party administrator shall provide consultation to
the commission in developing guidelines for the program. The
third-party administrator shall provide an independent energy
advisor to assist building owners in evaluating proposals for
alternate energy, energy efficiency, and renewable energy
improvements . The party selected as the third-party
administrator shall only be selected if the program proposal
submitted by the party requires all costs, including startup
costs of the program, to be covered by the loan recipients,
the administrator, the bond purchasers, or some combination
thereof. The program selected shall not include General Fund
costs or liabilities, with the exception of loans from the
General Fund pursuant to Section 25987.41 utilized for startup
costs.
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One of the principle benefits of energy efficiency can be
lower monthly energy bills. For businesses located in
disadvantaged communities or in areas of the state where
climate conditions are more extreme (hotter in the summer,
cooler in the winter) energy efficiency improvements can
provide substantial benefits to the business and to the local
community. AB 122 does not currently provide prioritization as
to where in California these loans should target.
Insert a provision in 25987.27(b) as follows:
The CEC or its third party administrator shall report
periodically, but no less often than once annually, on the
number and amount of loans are made available in areas of the
state where climate conditions are more extreme and in
disadvantaged communities.
7)Pending Amendments to Address Bank and BOE Concerns. The
author is working with the banking industry to address loan
subordination and the BOE to address loan servicer default.
The author plans to address these issues in subsequent
hearings.
8)Related Legislation .
AB 29 (Williams, 2013) requires the CEC to administer, in
coordination with University of California, California State
University and California Community College, grants, loans or
other financial assistance for energy demand and consumption
reducing projects at these institutions, consistent with Prop
39.
AB 39 (Skinner, 2013) requires the CEC to administer grants,
loans, or other financial assistance to K-12 public schools
and community colleges to reduce energy demand.
AB 239 (Hagman, 2013) requires the Office of Public School
Construction, in consultation with the CEC and PUC, to fund a
zero-interest revolving loan program (60 percent) and a grant
program (40 percent) for energy efficiency retrofit or clean
energy installation projects at public schools.
AB 270 (Bradford, 2013) order Investor-Owned Utilities (IOUs)
to establish, by June 1, 2014, a publicly available Internet
Web site containing specified information regarding
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ratepayer-funded energy efficiency programs while maintaining
customer confidentiality.
AB 416 (Gordon, 2013) requires the Air Resources Board to
establish a Local Emission Reduction Program to provide grants
and other financial assistance to eligible local government
recipients for the purposes of developing and implementing
greenhouse gas emissions reduction projects
SB 37 (De Leon, 2013) authorizes the CPUC to require IOUs to
develop and implement residential on-bill repayment (OBR)
programs for eligible energy efficiency, renewable energy,
distributed generation, energy storage, or demand response
improvements under which a customer pays down a loan from a
third-party lender with payments that are listed as a separate
line item on the customer's utility bill.
SB 39 (De Leon & Steinberg, 2013) On November 6, 2012,
California voters passed Proposition 39, this bill establishes
the Clean Energy Job Creation Fund and requires moneys in the
fund to be available for appropriation during specified fiscal
years for, among other things, the purposes of funding energy
efficiency projects in school facilities.
SB 1130 (De Leon, 2011-2012) would have established the
Nonresidential Building Energy Retrofit Financing Act of 2012
(Act) and required the CEC to establish the Nonresidential
Building Energy Retrofit Financing Program to provide
financial assistance through revenue bonds for owners of
eligible buildings to implement energy efficiency improvements
and renewable energy generation. Died in the Assembly
Appropriations Committee.
AB 811 (Levine & Beall, Chapter 159, Statutes of 2008)
authorizes all cities and counties in California to designate
areas within which city officials and willing property owners
may enter into contractual assessments to finance the
installation of distributed generation renewable energy
sources and energy efficiency improvements.
REGISTERED SUPPORT / OPPOSITION :
Support
California Energy Efficiency Industry Council
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California Public Utilities Commission (CPUC) (if amended)
East Bay Municipal Utility District (EBMUD)
John Chiang, California State Controller
OSRAM SYLVANIA, Inc.
Pacific Gas and Electric Company (PG&E)
Sierra Club California
SolarCity (if amended)
South Coast Air Quality Management District (SCAQMD)
Opposition
None on file.
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083