BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 792
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          Date of Hearing:   September 11, 2013

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                           K.H. "Katcho" Achadjian, Chair
                    AB 792 (Mullin) - As Amended:  August 29, 2013
           
          SUBJECT  :   Utility user tax: exemption: distributed generation  
          systems.

           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 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  







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                 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 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:








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             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  :  

          1)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 counties impose a UUT  
            on electricity.  

            In most jurisdictions, UUTs provide vital funding for  
            municipal or county services.  Reduced funding by the state  







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            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.  

          2)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.  

          3)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 with little or  







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            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.  

          4)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."  

          5)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.  

          6)The Legislature has passed previous legislation to accommodate  
            this business model.  AB 15 X1 (Hill), Chapter 3, Statutes of  







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

          7)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."  
             

          8)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 Committee 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.  

          9)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  







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            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.  

          10)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,  
            Statutes of 2012 expanded the exemption beyond counties to  
            include any UUT imposed by a local jurisdiction.  
                
            11)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.  
           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support                             Opposition
           
          Advanced Energy Economy            California Municipal  
          Utilities Association
          Bloom Energy                       California Police Chiefs  
          Association
          California Solar Energy Industries AssociationCalifornia State  
          Association of Counties
          Clean Coalition                    City of Glendale
          Environment California        City of Lakewood
          Silicon Valley Leadership Group    City of Long Beach
          Solar Energy Industries AssociationCity of Pasadena
          SunEdison                          City of Sacramento
          Sunrun                             City of Santa Rosa
          TechNet                       City of Torrance
          Vote Solar Initiative              League of California Cities
                                             Town of Fairfax

           







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