BILL ANALYSIS
AB 2589
Page 1
Date of Hearing: May 3, 2010
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2589 (Tran) - As Amended: April 8, 2010
SUBJECT : Income taxes: renewable energy credits.
SUMMARY : Allows personal and corporate income tax credits of
1.8 cents per kilowatt hour (kWh) for electricity produced by a
dual renewable energy device by qualified producers at
facilities located in the state or within three miles offshore.
Specifically, this bill :
1)For each taxable year beginning on or after January 1, 2011,
allows a personal income tax credit and/or a corporate tax
credit against the "net tax" in an amount equal to $0.018 per
kWh for electricity produced by a dual renewable energy device
during the taxable year by a qualified producer at a facility
located in this state or within three miles off the shore of
this state (the limit of the state's jurisdiction).
2)Specifies, in the case of any passthrough entity, that the
determination of whether a taxpayer is a qualified producer
under the bill must be made at the entity level and any credit
under the bill must be allowed to the passthrough entity and
passed through to the partners or shareholders in accordance
with applicable provisions of state Personal Income Tax Law
and Corporation Tax Law.
3)Defines "passthrough entity" as any partnership, limited
liability company, or "S" corporation.
4)Defines "dual renewable energy device" as a device that
utilizes two different renewable energy generating
technologies in the same device where neither renewable
generating technology produces less than 20 percent of the
total energy production by the device.
5)Defines "facility" by referencing the definition of "in-state
renewable electricity generation facility" in statutes
governing the state's Renewable Energy Resources Program.
6)Defines "qualified producer" as any taxpayer who owns a
facility and who is engaged in the production of electricity
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using dual renewable energy devices.
7)Not later than 25 days after the end of each calendar quarter,
requires a qualified producer to submit to the Franchise Tax
Board (FTB) any information that the FTB or the Treasurer
requires to substantiate the total amount of kWh produced.
8)If the credit allowed by the bill exceeds the taxpayer's
liability, requires the excess to be credited against other
amounts due from the qualified producer and the balance to be
refunded to the qualified producer on an annual basis.
9)Requires the FTB to submit to the Treasurer an annual list of
qualified producers that are eligible to receive a refund
under the bill in a form agreed upon by the FTB and the
Treasurer.
10)Upon legislative appropriation, requires the amounts that are
determined by the Treasurer to be necessary to make the
refunds required by the bill to be transferred from the
General Fund to the Treasurer for the purpose of making those
refunds.
11)Contains an urgency clause.
12)Sunsets on January 1, 2016.
EXISTING LAW
1)Allows a variety of credits against the taxes imposed by the
Personal Income Tax Law and the Corporation Tax Law.
2)Requires investor-owned utilities (IOUs) and certain other
retail sellers to achieve a 20% renewable portfolio standard
(RPS) by 2010, and requires publicly-owned utilities (POUs) to
implement and enforce their own RPS programs.
3)Establishes the Renewable Energy Resources Program (Renewables
Program) to complement the RPS by increasing the quantity of
electricity generated by in-state renewable electricity
generation facilities and identifying and supporting specified
emerging renewable technologies.
4)Defines eligible renewable technologies under the Renewables
Program to include: biomass, solar thermal, photovoltaic,
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wind, geothermal, fuel cells using renewable fuels, small
hydroelectric generation of 30 megawatts (MW) or less,
digester gas, municipal solid waste conversion, landfill gas,
ocean wave, ocean thermal, or tidal current, and any additions
or enhancements to the facility using that technology.
5)Creates the California Solar Initiative (CSI), which provides
$3.3 billion in ratepayer-funded incentives with the goal of
installing 3,000 MW equivalent generation capacity of solar
photovoltaic (PV) panels.
6)Requires electric corporations to offer customers with
renewable energy and combined heat and power (CHP) units, a
feed-in tariff where the utility must purchase the excess
electricity produced from the renewable or CHP facility that
exceeds that customer's demand at that moment in time, at a
CPUC-determined price that reflects the cost of fossil fuel
generation in the state and the value of environmental
compliance costs.
7)Creates the Self Generation Incentive Program (SGIP) and
authorizes the California Public Utilities Commission (CPUC)
to provide rebates for fuel cells and wind distributed
generation in addition to all technologies that the CPUC
determines will support the state's goals for the reduction of
emissions of greenhouse gases (around $83 million annually).
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to promote renewable energy and provide incentives for business
to locate in California. "To produce wave and wind energy, the
initial cost outweighs the long term benefits to the state of
California. Current law allows for 'Machinery and machinery
parts used for the production of renewable energy resources' a
tax credit against the 'net tax' in an amount equal to the sales
or use tax. However, no current law fiscally encourages
renewable energy in the form of wave and wind conversion."
According to a supporter, STS Venture Consulting - a start-up
business development and venture-capital firm - this bill is
intended to create market incentives for green technology
manufacturers to build more efficient and productive devices to
meet the growing demand for green energy.
1) Background: California offers a variety of incentives for
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renewable energy. The CSI provides $3.3 billion over a 10-year
period to remit rebates for the installation of solar energy
systems. Various net-metering programs require utilities to
"buy back" electricity generated by a customer-owned wind or
solar generator in the form of a bill credit. A feed-in tariff
provides a bill credit for a renewable energy generation unit
that is sized to offset the meter's peak load, and is not more
than 3 MW. The Self Generation Incentive Program (SGIP)
provides $83 million annually for the installation of
commercial-sized renewable energy and CHP systems. The
Renewables Program at the CEC provides about $65 million
annually for consumer rebates for on-site renewable energy
systems, and consumer information on the purchase and
installation of renewable energy generation. There are also
federal tax credits available for solar energy systems.
State law also provides for a variety of tax credits.
Energy-related credits include the sales and use tax credit for
renewable energy equipment referenced by the author, which is
limited to enterprise zones and targeted tax areas of the state
(which meet specified criteria on income levels, unemployment
and AFDC caseload) and to specified industries within those
areas. There is also a 5-cent per gallon credit for ultra low
sulfur diesel fuel produced by small refiners. Existing state
and federal law allows a depreciation deduction for certain
property used in the production of income or in a trade or
business. The amount of the deduction is determined, in part,
by the cost (or basis) of the property. Examples of depreciable
property include equipment, machinery, vehicles, and buildings.
This bill would allow a homeowner, business owner, or industrial
customer who receives a CSI rebate for its solar energy system,
a federal tax credit for the system's cost, state and federal
tax depreciation deductions, and state net-metering or feed-in
tariff benefits, to also qualify for this state tax credit
allowed by this bill.
California requires all utilities to purchase 20% of its
electricity from renewable energy generating facilities. The
CPUC ensures IOUs procure the renewable resources, and the CEC
oversees the POU programs. The CPUC oversees IOUs' RPS
compliance. POUs must adopt and enforce comparable renewable
programs, with oversight by the California Energy Commission
(CEC). The CEC guide book states that the generator can count
as renewable any output that is associated with renewable input.
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If the generator uses 20% wind and 80% solar, it is considered
100% renewable. If the generator uses a fuel cell that runs on
20% biogas and 80% natural gas, only 20% of the output is
considered renewable for RPS compliance.
2) It's debatable : This bill would define a dual renewable
energy device where neither renewable generating technology
produces less than 20% of the total energy production by the
device. The author states that such devices could include: wind
turbines atop wave generators; photovoltaic panels and/or wind
turbines affixed to wave machines; wind turbines affixed to
exhaust vents from biomass generators; or, any other combination
of renewable energy devices that increases net energy
generation.
If each of the two technologies produces at least 20%, it is
unclear whether this bill would intend to allow 100% of the
energy generated from that facility to be counted as renewable,
or just the 40% that's actually from renewable inputs. Although
the CEC has already ruled that the percentage of inputs dictates
the percentage of generation output, the definition of dual
renewable energy device in the bill creates ambiguity.
This bill references the definition of "in-state renewable
electricity generation facility" in the statutes that govern the
Renewables Program, even though the bill does not use the term
in the sections of the Revenue and Taxation Code that the bill
attempts to amend. It may cause debate over whether a dual
renewable energy device that could only generate just 40% of its
output from renewable resources is "implied" to be included in
the Renewables Program, or whether a 40% renewable device is
eligible for the full tax credit for 100% of its output. This
committee may wish to amend the bill's definition of dual
renewable energy device to require the device to generate 100%
of its output from eligible renewable resources as defined by
Public Resources Code Section 25741 or only allow a proportional
level of tax credits based on the same proportion of renewable
generation inputs .
If the proportionality of inputs to generation output is not
clarified, this bill could allow an oil company that adds a dual
renewable energy device (one that might only produce 40% of its
energy using renewable technology) to one of its offshore oil
platforms in state waters and qualify for the tax credit and
apply it toward its tax liability.
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3) Are the FTB or the Treasurer energy experts : This bill
requires the qualified producer to submit "any information that
the FTB or the Treasurer requires to the FTB to substantiate the
total amount of kWh produced." Neither the FTB nor Treasurer
possesses expertise or resources to verify the validity of
information provided by the producer. This committee may wish
to require the producer to provide information to the CEC and
require the CEC to ensure the appropriate amount of renewable
inputs reflect the renewable outputs. In addition, this
committee may wish to require the CEC to report that information
to the FTB.
4) How effective is an incentive with a low probability of ever
being funded : The intent of this bill is to provide incentives
to increase investment in the state and promote renewable
electricity generation. This bill is permissive and allows the
Legislature to determine when or if it chooses to appropriate
funds to the State Treasury in each budget year for this
purpose. During economic times of decreased revenues, coupled
with formula-driven program costs, constitutionally mandated
state costs, and other mandated General Fund obligations, it is
unclear when or if the Legislature would ever appropriate
over-prescribed General Fund dollars. Uncertainty and low
probability would not provide the reliability and stability that
the business and investment community frequently argues are
crucial to their decisions on where to locate.
According to the CEC, in 2007, the total electricity usage by
industrial customers in PG&E's service territory totaled 11.7
billion kWh (it is unlikely a residential customer would invest
in a dual renewable energy device at this time due to
significant costs). If 100% of this industrial sector
electricity qualified for the tax credit of 1.8 cents per kWh,
this would cost about $210 million annually-if the Legislature
appropriates the funds.
5) Consistency : Current rebates, feed-in tariffs, and
net-metering subsidies require the electric generation facility
to be sized to offset part or all of the consumer's own
electricity demand. In addition, the energy generation facility
must be located on the same premises of the end-use consumer
where the consumer's own electricity demand is located. These
requirements minimize the amount of "premium" power the utility
must purchase (whether they need it or not) when ratepayers are
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footing the bill. If customers wish to over-build their
electric generating facilities, they become merchant generators
and should bid into the utilities' procurement solicitations
which are intended to ensure that ratepayers receive reliable
electricity at just and reasonable costs. This committee may
wish to require an eligible facility to be sized to offset part
or all of its own electricity demand, and be located on the same
premises of the end-use customer. This committee may also wish
to, in order to balance out the other subsidies with the tax
credit, have the excess amount of electricity generated be
purchased by the utility at the wholesale rate, apply the tax
credit to the net annual amount, and have the utility own the
renewable energy credit associated with the amount consumed
on-site and any excess provided back to the grid.
RELATED LEGISLATION :
AB 2378 (Tran) includes the same definition of "dual renewable
energy device" in the Public Resources Code as it pertains to
the Renewables Program.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083