BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 792
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        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)


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        |COMMITTEE VOTE:  |8-0  |(September 11,      |RECOMMENDATION: |concur    |
        |(L. GOV.)        |     |2013)               |                |          |
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        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  delete the Assembly version of the bill, and  
        instead:  

        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 (ARB) pursuant to the distributed generation  








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               certification program requirements, as specified;

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

             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 that 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)Make findings and declarations 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 UUT on the consumption of  








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          electricity, gas, water, sewer, telephone, telegraph, and cable  
          television services.

        2)Defines "advanced electrical distributed generation technology"  
          to mean any electric distributed generation technology that  
          generates useful electricity and meets all of the following  
          conditions:

           a)   The emissions standards adopted by the ARB 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 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  








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        counties impose a UUT on electricity.  

        In most jurisdictions, UUTs provide vital funding for municipal 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 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 or a  
        technology that meets specified conditions, as specified in the  
        definition of "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 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 market by allowing  
        property owners to self-supply electricity from renewable sources  








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        with little or no up-front cost.  

        SunEdison, the sponsor of this bill, 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 Committee may  
        also wish to consider the other parties that will benefit from the  
        exemption created by this bill.  Further, the Committee may wish to  
        consider if a blanket exemption should be granted in a response to  
        a specific business model.  

        The Legislature has passed previous legislation to accommodate this  
        business model.  AB 15 X1 (Hill), Chapter 3, Statutes of 2011,  
        First Extraordinary Session, added uncodified intent language to  
        ensure that Revenue and Tax Code Section 73, which excludes certain  
        solar technologies from property tax reassessment, also applies to  








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        companies, like the sponsor of this bill, that use PPAs to finance  
        solar projects.  The Legislature may wish to consider if this bill  
        is appropriate given the incentives and exemptions currently in  
        place.  

        The California Municipal Utilities Association, in opposition  
        argues, "The truth is third party solar power is the fastest  
        growing segment of residential distributed generation in  
        California.  This industry in the past two years is realizing  
        growth at over 50% a year.  Solar panels are cheaper today than  
        they were last year and the Legislature continues to place a  
        premium on renewable power.  The few non-renewable distributed  
        generation fuel cell manufactures who benefit under this bill have  
        already received over $250 million in state incentives under the  
        Self Generation Inventive Program."  

        Also in opposition to the bill, the League of California Cities  
        argues that "A proposal of this type - in essence, a state-mandated  
        exemption on local utility user taxes levied not by the state, but  
        by cities - should instead be locally negotiated by the companies  
        desiring the tax break with the city councils whose cities will  
        feel the pinch of the lost or forgone revenue.  This bill  
        undertakes a different approach, a state restriction on municipal  
        sovereignty, and on the authority of local governing bodies to make  
        such critical budgetary decisions about their own revenue streams  
        without external influence."  

        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  
        all-out exemption to achieve uniformity is more appropriate.  

        Governor Jerry Brown, earlier this year called for 12,000 MW of  
        renewable power generated within the local power distribution grid  
        and stated that implementing this effort will provide important  
        advantages in California's drive for clean power - development of  
        local resources, avoided costs of new intercity transmission or  
        remote generation, and additional consumer autonomy.  If the  
        Governor's goal is reached and the renewable power generation  
        produced on-site increases, then it is likely that local  
        governments will have significantly reduced UUT revenues simply  
        from this shift, and this bill could exacerbate this revenue loss.   

        The Legislature previously granted UUT exemptions in AB 2009  
        (Hernandez), Chapter 221, Statutes of 2008, which exempted  








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        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, Statutes 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  
        electricity from clean distributed generation, irrespective of  
        financing model.  

        Opposition arguments:  Opponents argue 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 already in place to  
        promote the use of renewable energy, making this bill unnecessary.   

         

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


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