BILL ANALYSIS Ó AB 792 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 792 (Mullin) As Amended August 29, 2013 Majority vote ----------------------------------------------------------------- |ASSEMBLY: | |(May 9, 2013) |SENATE: |39-0 |(September 9, | | | | | | |2013) | ----------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |8-0 |(September 11, |RECOMMENDATION: |concur | |(L. GOV.) | |2013) | | | ------------------------------------------------------------------------ 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 AB 792 Page 2 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 AB 792 Page 3 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 AB 792 Page 4 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 AB 792 Page 5 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 AB 792 Page 6 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 AB 792 Page 7 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 FN: 0002818