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