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)
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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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