BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1131
                                                                  Page 1

          Date of Hearing:  April 29, 2013

                                Wesley Chesbro, Chair
                   AB 1131 (Skinner) - As Amended:  April 22, 2013
          SUBJECT  :  Renewable energy and energy efficiency projects:   
          financial assistance

           SUMMARY  :  Revises and extends the Clean Energy Upgrade Program  
          (CEUP) administered by the California Alternative Energy and  
          Advanced Transportation Financing Authority (Authority), which  
          offers assistance to financial institutions for privately-issued  
          loans for real property projects, including energy and water  
          efficiency improvements and renewable distributed generation.

           EXISTING LAW  :

          1)Creates the California Alternative Energy and Advanced  
            Transportation Financing Authority (Authority) within the  
            State Treasurer's Office for the purpose of promoting the  
            development and utilization of alternative energy sources and  
            the development and commercialization of advanced  
            transportation technologies.  The Authority is authorized to  
            issue up to $1 billion in revenue or prepayment bonds to fund  

          2)Requires the Authority to develop and administer a PACE  
            Reserve program, to be used to reduce the overall costs to  
            property owners of PACE bonds issued by a local jurisdiction,  
            by providing a reserve of no more than 10 percent of the  
            initial principal amount of the PACE bond.  Defines PACE bond  
            as a bond that is secured by voluntary contractual assessment  
            on a property or through a voluntary special tax for the  
            purposes of financing the installation of renewable energy  
            sources, or energy or water efficiency improvements.

          3)Requires the Authority to administer a Clean Energy Upgrade  
            Program (CEUP) as an alternative to the PACE Reserve Program.   
            The purpose of the CEUP is to reduce overall costs to property  
            owners of a loan provided by a financial institution to  
            finance the installation of distributed generation renewable  
            energy sources or energy or water efficiency improvements on  
            real property by providing a reserve or other financial  
            assistance at a level to be determined by the California  


                                                                  AB 1131
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            Energy Commission (CEC) and the Authority.

          4)Appropriates up to $50 million, until January 1, 2015, from  
            the CEC's Renewable Resource Trust Fund (RRTF) to be used by  
            the Authority for purposes of the PACE Reserve and CEUP  
            Programs, and authorizes the Authority to spend up to $550,000  
            for its administrative costs.

           THIS BILL  :

          1)Extends the RRTF appropriation for two years, until January 1,  

          2)Repeals a limit on loans of 10 percent of property value.

          3)Expands eligible residential properties to include residential  
            projects four units or fewer and mobilehomes.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :  

           1)Background.   The Authority consists of five members:  the  
            Director of Finance, the Chairman of the CEC, the President of  
            the Public Utilities Commission, the State Controller, and the  
            State Treasurer.  Its current mission is to provide financing  
            for facilities that use alternative energy sources and  
            technologies, and develop and commercialize advanced  
            transportation technologies that conserve energy, reduce air  
            pollution, and promote economic development and jobs.

            Under the PACE program, local governments provide funds to  
            participating homeowners to install energy upgrades, which are  
            paid back over time in the form of a special assessment on the  
            property tax.  Payments are typically secured by a lien on the  
            property that gives local governments priority of repayment if  
            the home goes into foreclosure.  PACE removes many of the  
            barriers of energy efficiency and renewable energy retrofits  
            that otherwise exist for residential homeowners and  
            businesses, particularly the high upfront cost of making such  
            an investment and the long-term ability to reap the benefits  
            of cost savings.  Berkeley was the first city in the nation to  
            launch a PACE program, using a special assessment district to  
            establish a financing mechanism in which individual property  
            owners can voluntarily participate and repay improvements  


                                                                  AB 1131
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            through a special property tax assessment.  

            SB 77 (Pavley), Chapter 15, Statutes of 2010, sought to lower  
            the costs to local governments and property owners in the  
            financing of PACE bonds by authorizing the Authority to tap up  
            to $50 million from the RRTF to fund the PACE Reserve Program.  
             Prior to SB 77, the primary purpose of the RRTF had been to  
            fund a new solar home rebate program pursuant to the  
            California Solar Initiative.  However, given the steep decline  
            in new home construction in California, the RRTF accumulated a  
            balance (approximately $170 million) that exceeded the near  
            term demand for solar rebates.  A smaller proportion of RRTF  
            monies (20% or less) are devoted to production incentives for  
            a handful of existing biomass and solar thermal power plants.

            In 2010, PACE programs were dealt a setback when the Federal  
            Housing Finance Agency (FHFA), which oversees the nation's  
            largest mortgage finance companies Fannie Mae and Freddie Mac,  
            issued a statement objecting to local governments holding the  
            first lien on PACE homes, calling it a significant risk to the  
            mortgage financier.  This caused the mortgage lenders to stop  
            underwriting loans on properties with PACE assessments and  
            tighten lending standards in communities with PACE programs.   
            Efforts by the California Attorney General and others to  
            overturn the FHFA directives have been unsuccessful.   
            Meanwhile, the FHFA's action has sidetracked implementation of  
            PACE programs, including the Authority's PACE Reserve Program.  
             In the wake of the FHFA action, the CEC adopted Energy  
            Upgrade California using federal stimulus funds to support  
            residential and commercial energy improvements, without  
            relying on the PACE mechanism.  ABX1 14 (Skinner), Chapter 9,  
            Statutes of 2011-12 First Extraordinary Session, repurposed  
            the Authority's program along the same lines.

           2)Author's statement  :

               In the initial phase of implementing ABX1 14, the Authority  
               has established a program to provide financial assistance  
               to participating financial institutions making loans to  
               property owners for energy efficiency and renewable energy  
               improvements to their homes.  The program is set to expire  
               on January 1, 2015.  Extending the program may encourage  
               additional financial institutions to participate in the  


                                                                  AB 1131
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               program, thereby providing more loans to homeowners and  
               furthering the state's energy efficiency goals.  This bill  
               extends the program expiration date to January 1, 2017.

               Currently, when considering the amounts of loans, the law  
               says that loans cannot be for more than 10 percent of the  
               value of the property.  In California, property valuations  
               are based on the value of the property when it was  
               purchased.  But for people who bought their homes before  
               1975, the value of their home is the 1975 value plus a  
               small annual increase.  Given that housing prices have  
               risen dramatically in the last couple of decades, the  
               requirement for loans to be less than 10 percent of the  
               property value excludes many homeowners who would otherwise  
               be eligible for energy retrofit loans.  This bill removes  
               the requirement that loan amounts be less than 10 percent  
               of the property value.

          California Energy Efficiency Industry Council
          California Municipal Utilities Association
          Union of Concerned Scientists
          Renewable Funding
          Sierra Club California
          State Treasurer Bill Lockyer

          None on file

          Analysis Prepared by  :  Lawrence Lingbloom / NAT. RES. / (916)