BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 792
                                                                  Page  1

          CONCURRENCE IN SENATE AMENDMENTS
          AB 792 (Mullin)
          As Amended  August 29, 2013
          Majority vote
           
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          |ASSEMBLY:  |     |(May 9, 2013)   |SENATE: |39-0 |(September 9,  |
          |           |     |                |        |     |2013)          |
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               (vote not relevant)

          Original Committee Reference:   L. GOV.  

           SUMMARY  :  Prohibits a local jurisdiction, until January 1, 2020,  
          from levying a utility user tax (UUT) on the consumption of  
          electricity generated by a clean energy resource.   

           The Senate amendments  :  

          1)Prohibit a local jurisdiction, until January 1, 2020, from  
            levying a UUT on the consumption of electricity generated by a  
            clean energy resource that is located on the customer's  
            premises and used solely by the customer or the customer's  
            tenants.  

          2)Define "clean energy resource" to mean either of the  
            following:

             a)   A device or technology used for a renewable electrical  
               generation facility which uses biomass, solar thermal,  
               photovoltaic, wind, geothermal, fuel cells using renewable  
               fuels, small hydroelectric generation of 30 megawatts or  
               less, digester gas, municipal solid waste conversion,  
               landfill gas, ocean wave, ocean thermal, or tidal current;  
               or,  

             b)   Any technology that meets all of the following  
               requirements:

               i)     The emissions standards adopted by the State Air  
                 Resources Board pursuant to the distributed generation  
                 certification program requirements, as specified;

               ii)    Produces de minimis emissions of sulfur oxides and  
                 nitrogen oxides; 








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               iii)   The greenhouse gases emission performance standard  
                 established by the Public Utilities Commission (PUC), as  
                 specified;

               iv)    Has a total electrical efficiency of not less than  
                 45%;  

               v)     Is sized to meet the generator's onsite electrical  
                 demand; 

               vi)    Has parallel operation to the electrical  
                 distribution grid;

               vii)   Utilizes renewable or nonrenewable fuel; and, 

               viii)  Pays any applicable UUT for nonrenewable fuels used  
                 in electricity generation.  

          3)Clarify this bill does not exempt from any UUT imposed by any  
            local jurisdiction any electricity or gas, not described in 2)  
            above, that is provided to a customer by an electrical  
            corporation, publicly owned utility, electrical cooperative,  
            or irrigation district.
          4)Define "local jurisdiction" to mean "any city, county, city  
            and county, including any chartered city, county, or city and  
            county, district, or public or municipal corporation."

          5)Find and declare that exempting the consumption of  
            electricity, generated by a renewable distributed generation  
            system that is installed for the exclusive use of a single  
            customer from local UUTs will ensure statewide uniformity and  
            fairness in the overall imposition of the UUT.

          6)Declare that this matter is of statewide concern and therefore  
            not a municipal affair.

           EXISTING LAW  :

          1)Authorizes a city or county to levy a utility user tax on the  
            consumption of electricity, gas, water, sewer, telephone,  
            telegraph, and cable television services.

          2)Defines "advanced electrical distributed generation  
            technology" to mean any electric distributed generation  








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            technology that generates useful electricity and meets all of  
            the following conditions:

             a)   The emissions standards adopted by the State Air  
               Resources Board pursuant to the distributed generation  
               certification program requirements, as specified;

             b)   Produces de minimis emissions of sulfur oxides and  
               nitrogen oxides;

             c)   Meets the greenhouse gases emission performance standard  
               established by the commission, as specified;

             d)   Has a total electrical efficiency of not less than 45%;

             e)   Is sized to meet the generator's onsite electrical  
               demand;

             f)   Has parallel operation to the electrical distribution  
               grid; and,

             g)   Utilizes renewable or nonrenewable fuel.

           AS PASSED BY THE ASSEMBLY  , this bill clarified that legislative  
          bodies of local agencies may conduct regular and special  
          meetings and take official actions even if technical barriers  
          have prevented pre-meeting posting of agendas and notices on  
          their Web sites.
           
          FISCAL EFFECT  :  None

           COMMENTS  :  A city may impose a UUT on the consumption of utility  
          services, including, but not limited to, electricity, gas,  
          water, sewer, telephone, sanitation and cable television.  The  
          city determines the rate of the tax and the use of its proceeds.  
           UUTs can be imposed as a special tax and are therefore  
          dedicated for a specific purpose, or a general tax to be used  
          for whatever purpose the city council decides.  UUTs are levied  
          by the city, collected by the utility as part of its regular  
          billing, and then remitted to the city.  A county may levy a UUT  
          on the consumption of electricity, gas, water, sewer, telephone,  
          telegraph and cable television services in the unincorporated  
          area.  In California 153 cities and four counties impose a UUT  
          on electricity.  
          In most jurisdictions, UUTs provide vital funding for municipal  








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          or county services.  Reduced funding by the state and other  
          sources of funding for local governments over the last several  
          decades have increased the popularity of UUTs, which are most  
          commonly used to fund police, fire, parks, and libraries.

          A small number of municipal 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.  It is currently unclear to the how many cities or counties  
          collect UUT revenues from electricity generated by a clean  
          energy resource.

          This bill exempts, until January 1, 2020, a customer's  
          consumption of electricity generated by a clean energy resource  
          that is located on the customer's premises and used solely for  
          the customer or the customer's tenants from any UUT imposed by a  
          local jurisdiction.  This bill defines "local jurisdiction" to  
          mean "any city, county, city and county, including any charter  
          city, county, or city and county, district, or public or  
          municipal corporation."

          This bill defines clean energy resource to mean either a device  
          or technology used for a renewable electrical generation  
          facility, pursuant to the Public Resources Code, or a technology  
          that meets specified conditions, pursuant to the PUC, to define  
          "advanced electrical distributed generation technology."  This  
          definition includes electricity generated by an advanced  
          electrical distributed generation technology which uses  
          non-renewable resources, but meets specified criteria.  This  
          bill provides the same UUT exemption to a single homeowner with  
          solar panels as it does to a business such as Walmart utilizing  
          fuel cells, which use an electrochemical reaction to produce  
          electricity from fuels.

          Some renewable energy firms sell renewable electricity  
          generation facilities, like solar panels, directly to property  
          owners to finance the cost of the system and recover their  
          initial investments over time through reduced energy bills.  As  
          an alternative, several energy firms have developed a new way to  
          finance distributed generation systems 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.  Using third-party ownership and power purchase  
          agreements (PPA) to finance distributed generation renewable  
          systems expands the renewable energy market by allowing property  








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          owners to self-supply electricity from renewable sources with  
          little or no up-front cost.

          SunEdison uses this type of third-party ownership business model  
          and has concerns over the lack of clarity in current law and the  
          potential application of a UUT to the payments that a property  
          owner makes under the terms of a PPA.  According to SunEdison,  
          the application of a UUT would significantly enhance the  
          downward pressure on project economics already under way from  
          declining residential solar incentives.  They estimate that the  
          application of a 7.5% UUT would lower average solar project  
          internal rates of return and would make 15% of solar projects  
          uneconomical for customers.

          According to the author, "Significant issues about the  
          practicality of collecting taxes from [electricity generated by  
          a clean energy resource] raise fairness and equity issues  
          regarding who gets taxed and how.  Cities and counties should  
          not impose a UUT only on monthly bills sent to consumers under  
          the terms of a PPA without also taxing the consumption of  
          electricity generated on-site [by a clean energy resource] owned  
          by other consumers.  However, there are currently no known  
          accurate or even feasible means of collecting taxes on a  
          renewable electricity generation facility owned (rather than  
          leased) by the energy consumer.  In other words, the application  
          of a UUT to [electricity generated by a clean energy resource]  
          would effectively vary based on the ownership of the renewable  
          generation system - only those who receive a monthly bill could  
          easily be taxed and those who can afford all of the upfront  
          costs of a system can't realistically be taxed."

          This bill exempts all on-site electricity generated by a clean  
          energy resource from UUTs and incentivizes on-site production  
          versus the use of electricity from renewable sources that are  
          transmitted through the grid.  While proponents argue that  
          property owners who cannot afford upfront costs should not be  
          treated differently because of economic disadvantages, the  
          Legislature may also wish to consider the other parties that  
          will benefit from the exemption created by this bill.  Further,  
          the Legislature may wish to consider if a blanket exemption  
          should be granted in a response to a specific business model.

          The revenue generated by UUTs varies in each local jurisdiction.  
           The Legislature may wish to consider if maintaining local  
          discretion, but providing some statewide standards instead of an  








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          all-out exemption to achieve uniformity is more appropriate.
          
          The Legislature previously granted UUT exemptions in AB 2009  
          (Hernandez), Chapter 221, Statutes of 2008, which exempted  
          compressed natural gas used as a motor vehicle fuel by a local  
          agency or public transit operator for the purposes of a  
          county-imposed UUT.  AB 1257 (Hernandez), Chapter 213, Statues  
          of 2012 expanded the exemption beyond counties to include any  
          UUT imposed by a local jurisdiction.

           Support arguments  :  Supporters argue that this bill will provide  
          consistent treatment of UUT for all customers self-supplying  
          electric from clean distributed generation, irrespective of  
          financing model.

           Opposition arguments  :  Opposition argues that exempting  
          electricity generated by a clean energy resource from UUTs  
          erodes local officials' ability to manage local affairs by  
          making it more difficult for them to raise general fund  
          revenues, and that numerous state and federal incentives are in  
          place to promote the use of renewable energy, making this bill  
          unnecessary.

          This bill was substantially amended in the Senate and the  
          Assembly-approved provisions of this bill were deleted.  The  
          subject matter of this bill, as amended in the Senate, has not  
          been heard in any Assembly policy committee this legislative  
          session.
           

          Analysis Prepared by  :    Misa Yokoi-Shelton / L. GOV. / (916)  
          319-3958 


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