BILL ANALYSIS Ó SB 1207 Page 1 Date of Hearing: June 29, 2016 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Mike Gatto, Chair SB 1207 (Hueso) - As Amended June 15, 2016 SENATE VOTE: 38-0 SUBJECT: Energy: conservation: financial assistance SUMMARY: Extends the sunset on the Energy Conservation Assistance Account (ECAA) program, and makes other technical and clarifying changes to the Public Resources Code relating to the California Energy Commission (CEC) and the California Infrastructure and Economic Development Bank (IBank). Specifically, this bill: 1)Extends the sunset date on the ECAA program from January 1, 2018, to January 1, 2028. 2)Clarifies the authority of the CEC to pledge collateral to secure the repayment of moneys borrowed, or of bonds or other borrowings, by IBank. 3)Clarifies, in connection with the pledging of loans, or of the principal and interest payment on loans, the CEC's authority to enter into pledge agreements setting forth the terms and SB 1207 Page 2 conditions pursuant to which the CEC is pledging loans, or the principal and interest payment on loans, including the pledging of loans, or the principal and interest payment on loans, as collateral to secure the repayment of bonds or other borrowings by IBank, and may also agree to have the loans held by bond trustees or by independent collateral or escrow agents and to direct that payments received on those loans be paid to those trustee, collateral, or escrow agents. EXISTING LAW: 1)Establishes the ECAA, administered by the CEC, to provide grants and loans to local governments and public institutions to maximize energy use savings, including, but not limited to, technical assistance, demonstrations, and identification and implementation of cost-effective energy efficiency measures and programs in existing and planned buildings or facilities. (Public Resources Code Section 25410 et seq.) 2)Sunsets the ECAA on January 1, 2018, and thereafter revert the remaining unexpended funds to the General Fund. (Public Resources Code Section 25421) 3)Authorizes the CEC to borrow money, for the purpose of obtaining funds to make specified loans, from the California Economic Development Financing Authority, IBank, and the California Consumer Power and Conservation Financing Authority from the proceeds of revenue bonds issued by any of those agencies. (Public Resources Code Section 25417.5) 4)Authorizes the CEC to pledge, to provide collateral in connection with the borrowing of money, loans, or the SB 1207 Page 3 principal and interest payments on loans, as specified. (Public Resources Code Section 25417.5) 5)Establishes the IBank to finance public infrastructure and economic development in California. (Government Code Section 63021 et seq.) 6)Requires IBank, following consultation with appropriate state and local agencies, to establish criteria, priorities, and guidelines for the selection of projects to receive assistance from the bank. (Government Code Section 63040) 7)Authorizes IBank to issue specified taxable and tax-exempted revenue bonds to provide financing for specified projects. (Government Code Section 63045) FISCAL EFFECT: Unknown. COMMENTS: 1)Author's Statement: "SB 1207 ensures low cost financial assistance is available for clean energy and energy efficiency projects in the State of California. This bill accomplishes this by: (1) extending the existing ECAA program, which is an energy efficiency loan program administered by the CEC, and (2) authorizing the CEC to pledge its loans to secure the bonds issued by the IBank for its [California Lending for Energy and Environmental Needs Center] Center, which finances energy efficiency and clean energy projects." 2)Background: In 2003, the CPUC and CEC established the "loading order" to help guide the state's energy policies and decisions. The loading order consist of decreasing energy demand by increasing energy efficiency and demand response, SB 1207 Page 4 and meeting new energy generation needs with distributed generation and renewable resources. In addition, consistent with the loading order, statute requires both electrical and gas Investor Owned Utilities (IOUs) to meet unmet resource needs with all available energy efficiency and demand reduction that is cost-effective, reliable and feasible. To achieve these targets, the IOUs administer energy efficiency programs with ratepayer funds approved by the CPUC. Furthermore, under SB 350 (De León, Chapter 547, Statutes of 2015), California increased its Renewable Portfolio Standard from 33% of electricity retail sales be served by renewable energy to 50%, and doubled the energy efficiency savings in electricity and natural gas end users by 2030. 3)IBank: The IBank was established in 1994 to finance public infrastructure and private development that promote economic growth, protect and sustain the environment, support clean energy and efficiency, revitalize communities and enhance the quality of life for the people in California. The IBank has board authority to issue bonds, make loans, and provide guarantees and other credit enhancements, provide financing to public agencies, acquire or lease facilities, and leverage State and Federal funds on a wide variety of projects related to environmental mitigation measures. In 2014, IBank established the California Lending for Energy and Environmental Needs (CLEEN) Center to focus on energy efficiency projects and retrofits. The CLEEN Center utilizes IBank's access to capital markets to help drive energy related projects through the Statewide Energy Efficiency Program (SWEEP). SWEEP provides financing to State and local governments, via a combination of a direct loan from IBank or public market tax-exempt bonds, for approved clean energy projects such as generation, distribution, transmission and storage of electrical energy, energy conservation measures, environmental mitigation measures, and water treatment and distribution. SB 1207 Page 5 4)CEC's Energy Conservation Assistance Account: The CEC operates the ECAA program which provides loans to cities, counties, public school districts, special districts, public hospitals and care facilities, and public colleges and universities at low rates, to reduce statewide energy consumption through energy efficiency measures. From its inception in 1979 to March 2016, the ECAA Program has issued over $392 million in loans to 851 applicants, including 339 loans to local government agencies, 432 loans to schools and colleges, 64 loans to public hospitals and public care facilities, and 16 loans to special districts. According to the CEC, from March 2000 to March 2016, the energy efficiency improvements saved through ECAA loan recipients is estimated at $37 million per year in energy cost savings and have reduce greenhouse gas emission by approximately 122,000 tons per year. 5)CEC and IBank: The IBank and CLEEN Center do not have a dedicated source of funding specifically for clean energy projects. The IBank is currently collaborating with the CEC to securitize an unleveraged CEC loan program portfolio to raise funds for the CLEEN Center at the lowest possible cost. Securitizing the loan will result in $50 to $75 million in new funding for the CLEEN Center so that it can continue to finance energy efficiency and clean energy projects. In order to secure the lowest possible interest rate, there must be public confidence that the CLEEN Center will be appropriately capitalized and funded to repay its loans. By using an existing CEC loan portfolio as pledged collateral, the IBank would be able to secure a higher credit rating on its bonds to fund CLEEN Center projects. Obtaining a higher credit rating will result in lower interest rates and cost for IBank, which would lower the cost of loans for prospective IBank borrowers, therefore increasing the accessibility for more borrowers to obtain financing for energy efficiency projects through the IBank. SB 1207 Page 6 This bill clarifies the CECs authority to pledge collateral to secure the repayment of moneys borrowed, or of bonds or other borrowings, by IBank. Furthermore, the ECAA program is set to sunset on January 1, 2018. This bill would extend the sunset to January 1, 2028. This will allow the CEC to continue to provide energy efficiency financing, including to the IBank, to reach the state's energy efficiency and greenhouse gas reduce emission goals. 6)Prior Legislation: SB 1268 (Pavley), Chapter 615, Statutes of 2012: Extended the sunset on the ECAA program from January 1, 2013, to January 1, 2018. 7)Double Referred: This bill is double referred to the Assembly Natural Resources Committee. REGISTERED SUPPORT / OPPOSITION: Support California School Board Association East Bay Municipal Utility District SB 1207 Page 7 School Energy Coalition Opposition None on file. Analysis Prepared by:Edmond Cheung / U. & C. / (916) 319-2083