BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 792 HEARING: 7/3/13
AUTHOR: Mullin FISCAL: No
VERSION: 6/25/13 TAX LEVY: No
CONSULTANT: Weinberger
UTILITY USERS TAXES
Exempts, from a utility users tax, the consumption of
electricity generated through renewable distributed
generation for use by a single consumer.
Background and Existing Law
Utility users taxes (UUTs) are excise taxes imposed by
cities and counties on the consumption of utility services,
including electricity, gas, water, sewer, telephone,
sanitation, and cable television. In jurisdictions that
impose a UUT, a utility company collects the tax through
the bills it sends to utility customers and remits the
revenues to the local government that imposed the tax.
Although a city or county can impose a UUT as a special
tax, generating revenues that must be used for a specific
purpose, nearly all UUTs are imposed as general taxes,
which allow revenues to be used for any purpose. In the
2010-11 fiscal year, cities and counties reported
collecting more than $1.8 billion in UUT revenues.
The California Constitution allows a city, with the consent
of the local voters, to govern its "municipal affairs" by
adopting a charter. The constitutional municipal affairs
doctrine allows charter cities to levy taxes which are not
preempted by the state or federal governments. 66 charter
cities levy a UUT.
A general law city can impose only those taxes that are
allowed by state statutes. However, the Government Code
allows all general law cities to levy any tax which may be
levied by any charter city unless a different general law
limits or prohibits such a tax (SB 1326, Alquist, 1982).
87 general law cities levy a UUT.
Counties can levy only those taxes that are allowed by
AB 792 -- 6/25/13 -- Page 2
state statutes. A county board of supervisors can levy a
UUT on the consumption of electricity, gas, water, sewer,
telephone, telegraph, and cable television services in the
unincorporated area of the county (SB 2557, Maddy, 1990).
Alameda, Los Angeles, and Sacramento counties are the only
counties to levy a UUT using this statute.
A small number of cities' ordinances specify that the
consumption of electricity generated from renewable sources
on the consumer's property for the consumer's use is exempt
from a UUT. Although nearly all UUT ordinances do not
contain any exemption for self-generated renewable
electricity, it does not appear that any cities or counties
currently collect UUT revenues from electricity generated
by solar or wind distributed-generation systems.
Some renewable energy firms sell renewable electricity
generation systems, like solar panels, directly to property
owners who must finance the cost of those systems
themselves and recover their initial investments over time
through reduced energy bills. As an alternative, several
solar energy firms have developed sophisticated financing
transactions in which the renewable energy system is owned
by a third-party and the property owner is responsible only
for paying for the power generated by the system. For
example, under a sale-leaseback financing structure, a
solar energy firm installs, operates, and maintains a solar
generation system at no cost to the property owner. The
property owner contracts for the power generated by the
system through a power purchase agreement. The solar firm
then sells the system to a third-party, which can claim tax
credits and depreciation as the system owner and leases the
system back to the solar firm. Using third-party ownership
and power purchase agreements to finance distributed
generation renewable systems expands the renewable energy
market by allowing property owners to self-supply
electricity from renewable sources with little or no
up-front cost.
Solar firms that use this type of third-party ownership
business model anticipate that some cities and counties may
decide to apply a UUT to the payments that a property owner
makes under the terms of a power purchase agreement. They
worry that the added costs of a UUT would make their
business model less competitive with the alternative of
purchasing a solar system and would be an obstacle that
AB 792 -- 6/25/13 -- Page 3
prevents some property owners from installing renewable
electricity generation systems. They want the Legislature
to exempt electricity generated by renewable distributed
generation systems for a single property owner's use from
any locally imposed UUT.
Proposed Law
Assembly Bill 792 exempts, from any utility user tax
imposed by a local jurisdiction, a customer's consumption
of electricity generated by a renewable distributed
generation system that is installed for the exclusive use
of a single customer.
AB 792 defines "local jurisdiction" as any city, county,
city and county, including any charter city, county, or
city and county, district, or public or municipal
corporation.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Access to solar electricity is
critical to California's achieving its clean energy and
greenhouse gas emission goals, while also enabling more
homeowners to reduce their electricity bills. Solar
distributed generation is one of the fastest-growing
markets in California. Industry participants estimate that
more than 150,000 customers in California self-supply some
or all of their electricity using solar distributed
generation, and that more than 43,000 Californians are
employed by firms that are involved in the market for solar
distributed generation. Uncertainty about the potential
application of UUTs to electricity from distributed
generation systems poses a threat to continued growth of
this dynamic distributed solar generation market. Applying
a UUT to third-party power purchase agreement financing
would greatly disadvantage this business model. An
internal analysis conducted by SunEdison found that
applying a 7.5% UUT to would make 15% of solar projects
financially unviable for SunEdison's customers. By
eliminating uncertainty about the application of local UUT
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ordinances to renewable distributed generation and ensuring
consistent treatment for all customers, AB 792 will enable
the renewable distributed generation industry to continue
to grow throughout California.
2. Local control . Local voters elect county supervisors
and city council members to make public policy in response
to local needs. Deciding how to apply local taxes to
generate local revenues is exactly what county supervisors
and city council members are elected to do. Exempting all
renewable distributed generation electricity from UUTs
erodes local officials' ability to manage local affairs by
making it harder for them to raise scarce general fund
revenues. Local elected officials, and the voters to whom
they are accountable, are well-positioned to judge the
merits of imposing a UUT on renewable
distributed-generation systems. The Committee may wish to
consider whether SB 792 unnecessarily substitutes a
one-size-fits-all standard for local officials' informed
judgment about their communities.
3. Winners and losers . Because most UUTs apply to the
consumption of electricity, regardless of the source, the
tax functions as a broad-based source of general revenue
for local governments without favoring any particular
utility's business model. By contrast, the statewide
exemption proposed by AB 792 would function like so-called
"sin taxes" on cigarettes and alcohol, which influence
consumer behavior by imposing higher taxes on disfavored
products. The exemption would, for example, favor the
consumption of solar electricity produced on-site over
utility programs that allow customers to consume solar
electricity that is transmitted through the grid.
Proponents of the exemption could argue that
distributed-generation systems produce economic and
environmental benefits that justify this favorable
treatment. However, some observes may see the exemption as
regressive, allowing property owners to avoid paying UUTs
for electricity from renewable sources while requiring
renters, who can't install on-site renewable generation, to
pay the tax. The Committee may wish to consider whether
state law should be changed to grant a UUT exemption that
favors specific kinds of renewable electricity generation.
4. Equity . One argument for AB 792 is that cities and
counties should not impose a UUT only on monthly bills sent
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to consumers under the terms of power purchase agreements
without also taxing the consumption of electricity
generated on-site through renewable systems owned by other
consumers. In other words, the application of a UUT to
distributed generation renewable energy should not vary
based on the ownership of the renewable generation system.
The bill responds to this concern by uniformly exempting
all on-site renewable systems from the UUT. An alternative
approach, that would maintain some local discretion while
ensuring uniformity, would be to require that any local
government that collects a UUT on electricity from
distributed generation renewable systems must collect the
tax on electricity from all comparable distributed
generation renewable energy systems within its
jurisdiction. The Committee may wish to consider amending
AB 792 to require that local UUTs must apply uniformly to
similar types of on-site renewable generation systems.
5. Short-term alternative ? The exemption granted by AB
792 is similar to the support that state law provides to
active solar energy systems by excluding those systems from
the definition of "new construction" for the purpose of
reappraising property values (AB 1451, Leno, 2008). Unlike
AB 792, the property tax exclusion does not provide a
permanent incentive for active solar systems; it is
scheduled to expire in 2016. As an alternative to the
indefinite UUT exemption granted by AB 792, the exemption
could be enacted in a manner that mirrors other temporary
state incentives for renewable energy systems. The
Committee may wish to consider amending AB 792 to exempt,
from a UUT, electricity from renewable distributed
generation systems installed before July 1, 2016, a date
that is concurrent with the expiration date for other major
state solar incentive programs.
6. Charter cities . The California Constitution allows
cities that adopt charters to control their own "municipal
affairs." In all other matters, charter cities must follow
the general, statewide laws. Because the Constitution
doesn't define "municipal affairs," the courts determine
whether a topic is a municipal affair or whether it's an
issue of statewide concern. AB 792 says that it applies to
all cities, including charter cities. To support this
assertion, the bill includes a legislative finding and
declaration that the bill's exemption is a matter of
statewide concern because of the need to ensure statewide
AB 792 -- 6/25/13 -- Page 6
uniformity and fairness in the overall imposition of the
utility user tax. Ultimately, the courts may decide
whether AB 792 applies to charter cities.
7. Gut-and-amend . As introduced, AB 792 made changes to
state laws governing the posting of notices and agendas for
local governments' meetings. The Committee never heard
that version of the bill. The June 25 amendments deleted
the bill's contents and inserted the language relating to
UUTs.
Assembly Actions
Not relevant to the June 25, 2013 version of the bill.
Support and Opposition (6/27/13)
Support : SunEdison; Environment California; Solar Energy
Industries Association; Sunrun; Vote Solar.
Opposition : Unknown.