BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Dave Cox, Chair
BILL NO: AB 44 HEARING: 6/30/10
AUTHOR: Blakeslee FISCAL: No
VERSION: 6/3/10 CONSULTANT:
Weinberger
BENEFIT ASSESSMENTS FOR ELECTRICITY PURCHASE AGREEMENTS
Background and Existing Law
A benefit assessment is an involuntary charge that property
owners pay for a public improvement or service that
provides a special benefit to their property. The amount
of the assessment must be directly related to the amount of
the benefit that the property receives. Benefit
assessments can finance public projects like flood control,
street improvement, streetlights, and public landscaping.
As an alternative to benefit assessments, and only with the
free and willing consent of affected property owners,
public agencies can use "voluntary contractual assessments"
to finance:
Public improvements to developed parcels (SB 837,
McQuorquodale, 1987).
Renewable energy sources or energy efficiency
improvements that are permanently fixed to real
property (AB 811, Levine, 2008).
Water efficiency improvements that are permanently
fixed to real property (AB 474, Blumenfield, 2009).
To use voluntary contractual assessments, a public agency's
legislative body must adopt a resolution, which:
Determines that it would be convenient, advantageous,
and in the public interest to designate an area within
which officials and property owners may enter into
contractual assessments and make related financing
arrangements.
Identifies the kinds of public works which may be
financed.
Describes the area where contractual assessments may
be used.
Describes the proposed financing arrangements,
including criteria for determining the creditworthiness
of a property owner.
States the time and place for a public hearing.
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Directs an official to prepare a detailed report
about the contractual assessment program and consult
with the county auditor and county controller regarding
fees.
The report on the proposed assessment program must contain:
A map of the area where contractual assessments will
be offered.
A draft contract specifying the terms and conditions.
A list of the types of facilities and improvements
which may be financed.
The official authorized to enter into contractual
assessments on behalf of the county or city.
The maximum aggregate dollar amount of contractual
assessments.
A method for prioritizing requests from property
owners for financing.
A plan for raising a capital amount required to pay
for work performed pursuant to contractual assessments.
Information about the county auditor's and county
controller's fees.
The legislative body must give written notice to all water
or electricity providers within a proposed area where
voluntary contractual assessments will be offered. After
holding a public hearing, the legislative body may adopt a
resolution confirming the program as detailed in the
report, may confirm a modified version of the report, or
may abandon the proceedings.
The legislative body must designate an office to:
Prepare the annual roll of assessment obligations on
property subject to a voluntary contractual assessment.
Establish procedures for responding to inquiries
concerning estimated voluntary contractual assessment
liabilities.
The legislative body must provide for documents to be
recorded with the county recorder, providing notice of a
contractual assessment on real property.
A solar electricity purchase agreement is a contractual
arrangement in which a customer purchases electricity, for
a specified time-period, from a photovoltaic system that a
third-party installs, owns, insures, operates, and
AB 44 -- 6/3/10 -- Page 3
maintains on the customer's property. Also called a "solar
power purchase agreement" or a "solar services agreement,"
this business model gives consumers an alternative to
buying and maintaining their own solar systems.
Electricity purchase agreements can reduce solar energy
costs because third-party service-providers benefit from
federal incentives and economies of scale that are not
available to most individual consumers.
Local officials want to use voluntary contractual
assessments to help property owners pay for distributed
generation renewable energy systems that are installed
under electricity purchase agreements.
Proposed Law
Assembly bill expands the use of voluntary contractual
assessments to include financing electricity purchase
agreements by expanding the definition of "permanently
fixed to real property" to include systems attached to a
residential, commercial, industrial, agricultural, or other
real property pursuant to an electricity purchase agreement
between the owner of the system and the owner of the
assessed property. The electricity purchase agreement must
contain these provisions:
The attached system is an eligible renewable energy
resource pursuant to the California Renewables
Portfolio Standard Program
The term of the electricity purchase agreement is
at least as long as the term of the related assessment
contract.
The owner of the attached system agrees to install,
maintain, and monitor the system for the entire term
of the electricity purchase agreement.
The owner of the attached system cannot remove the
system before the end of the term of the contractual
assessment lien.
After installation, the electricity is purchased by
a single payment using the funds from the contractual
assessment program.
The right to receive the electricity from the
system is tied to the ownership of the assessed real
property and must be automatically transferred with
the title to the real property whether the title is
transferred by voluntary sale or judicial or
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nonjudicial foreclosure or by any other means.
The system must provide electricity to the assessed
property and to no other property or location.
The property owner must not use the electricity
generated from the system for any location other than
the assessed property.
The electricity purchase agreement identifies the
public agency that is a party to the assessment
contract on the real property as a third-party
beneficiary of the electricity purchase agreement
until the assessment lien is fully paid and, only
until then, prohibits amendments to the electricity
purchase agreement without the public agency's
consent.
The property owner is guaranteed the electric power
from the system, under the public agency criteria.
AB 44 requires a public agency's legislative body to
establish criteria to ensure that a real property owner is
guaranteed the electricity from a distributed generation
renewable energy source if the owner of the system files
for bankruptcy, to the extent permitted by federal law,
prior to authorizing public agency officials and property
owners to enter into voluntary contractual assessments for
financing the installation of distributed generation
renewable energy sources attached to a residential,
commercial, industrial, agricultural, or other real
property pursuant to an electricity purchase agreement.
AB 44 requires a public agency's legislative body to find
that any electricity purchase agreement funded with a
contractual assessment is structured, to the extent
permitted by federal law, to provide protections to the
property owner in the event of a bankruptcy of the system's
owner. The protections may include the use of a special
purpose entity or other adequate security.
Comments
1. Improving a successful program . Since the 2008 Levine
bill took effect, communities throughout California have
developed financing programs to help property owners pay
for renewable energy improvements. Financing solar power
through electricity purchase agreements offers significant
advantages over financing individually-owned solar systems.
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Electricity purchase agreements alleviate the property
owner's responsibility for maintaining the system and
provide incentives for the third-party service-provider to
operate systems at maximum efficiency. Third-party
providers can also take full advantage of federal tax
credits and accelerated depreciation schedules,
significantly reducing the costs of solar systems.
Economies of scale also allow third-party providers to
deliver solar power at lower costs. AB 44 improves on the
Levine bill's success and benefits property owners by
combining voluntary contractual assessment programs'
low-cost financing with electricity purchase agreements'
advantages over individually-owned solar systems.
2. Lien on me . Some federal housing finance regulators
worry that voluntary contractual assessment programs may
overburden property owners with debt, raising risks of
default. Mortgage lenders and regulators are concerned
because voluntary contractual assessment financing is
secured with a tax lien that has superior priority over
first mortgages. Advocates for electricity purchase
agreements argue that their business model lowers property
owners' energy costs even more than individually-owned
solar systems, which reduces the risk of default by
offsetting the property owner's financing costs with lower
utility bills. The Committee may wish to consider whether,
by expanding voluntary contractual assessment financing, AB
44 invites greater scrutiny by federal regulators and
mortgage lenders.
3. Setting limits . To address concerns about property
owners' ability to pay for financed improvements, current
law requires public agencies that offer voluntary
contractual assessment programs to establish criteria for
determining a property owner's creditworthiness.
Additionally, many local voluntary contractual benefit
assessment programs impose caps on the total amount of
assessments that are imposed on parcels. The Committee may
wish to consider amending AB 44 to limit the total amount
of debt that may be imposed on any parcel with voluntary
contractual assessments to no more than 10% of the
property's market value.
4. It's not your business . Despite the Legislature's
approval of the Levine and Blumenfield bills, some critics
still say that local governments should not be in the
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business of providing public financing for seismic projects
on private property. If private property owners want to
finance the large up-front costs of structural
improvements, they ought to rely on private sector lenders,
just as they would finance roofs, decks, other types of
property improvements. Tax-exempt financing, backed by
priority government liens, to pay for seismic improvements
that primarily benefit private property, is inconsistent
with the fundamental purpose of issuing government debt.
5. Too much, too soon ? Many communities are just
beginning to use voluntary contractual assessments for the
energy and water improvements authorized by the Levine and
Blumenfield bills. Legislators can anticipate additional
proposals to expand voluntary contractual assessment
financing in the future. Fire safety improvements or
improvements to access for people with disabilities, for
example, could also provide sufficient public benefits to
justify financing using voluntary contractual assessments.
The Committee may wish to consider waiting to evaluate
local governments' experience financing energy and water
improvements before further expanding the list of
improvements that property owners can finance with
voluntary contractual assessments.
6. Not so different . Local officials commonly use
land-secured revenues, including assessments, to pay for
public infrastructure or other tangible, permanent
improvements that benefit real property. Using assessments
to finance a private property owner's purchase of
electricity, which is neither tangible nor permanent,
departs from this common practice. However, state law
already lets local officials use assessments to finance
some intangible or impermanent improvements. For example,
Landscaping and Lighting Act of 1972 assessments can pay
for electric current or energy for public lighting (AB
1268, Beverly, 1972). Similarly, under the Property and
Business Improvement District Law of 1994, assessments can
pay for activities that benefit businesses and real
property, including music, security, marketing, and tourism
promotion (AB 3754, Caldera, 1994). Using assessments to
finance electricity purchase agreements may not be very
different from what other state laws already allow.
7. Related legislation . At its June 30 hearing, the
Committee will also consider:
AB 44 -- 6/3/10 -- Page 7
AB 2182 (Huffman), which lets local officials use
contractual assessments to finance sewer and septic
improvements.
AB 1755 (Swanson), which lets local officials use
contractual assessments to finance seismic
strengthening improvements.
Because AB 44, AB 1755, and AB 2182 amend the same code
sections in different ways, the Committee may wish to
consider adopting triple-jointing amendments that prevent
one bill from chaptering-out the others. If all three
bills are chaptered without triple-jointing amendments, the
changes made by the bills that are chaptered first will get
wiped out by the changes made by the bill that's chaptered
last. Further, recent amendments to SB 1340 (Kehoe) let
local officials use contractual assessments to finance
electric vehicle charging infrastructure. SB 1340 is in
the Assembly Transportation Committee.
8. Gut and amend . As introduced, AB 44 authorized the
California Public Utilities Commission to approve an
increase in the rate-of-return allowed for investment in
energy storage systems. The Committee never heard that
version of the bill. The June 3 amendments deleted the
bill's contents and inserted the language relating to
voluntary contractual assessments.
Assembly Actions
Not relevant to the June 3, 2010 version of the bill.
Support and Opposition (6/24/10)
Support : SunRun.
Opposition : Unkown.