BILL ANALYSIS �
AB 14 X1
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Date of Hearing: February 24, 2011
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 14 X1 (Skinner) - As Introduced: February 16, 2011
SUBJECT : Energy upgrade financing
SUMMARY : Expands the purpose of the California Alternative �
Energy and Advanced Transportation Financing Authority's �
Property Assessed Clean Energy (PACE) program to permit the �
Authority to offer financial assistance to financial �
institutions for privately-issued loans for real property �
projects including energy and water efficiency improvements, �
renewable distribution generation, and electric vehicle charging �
infrastructure.
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 �
projects.
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.
3)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.
4)Appropriates up to $50 million from the California Energy �
Commission (CEC) Renewable Resource Trust Fund (RRTF) to be �
used by the Authority for purposes of the PACE Reserve �
Program, and authorizes the Authority to spend up to $300,000 �
for its administrative costs.
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THIS BILL :
1)Creates an alternative to the PACE Reserve Program, requiring �
the Authority to also administer a Clean Energy Reserve �
Program (CERP). The purpose of the CERP 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, electric vehicle charging �
infrastructure, 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 CEC and the �
Authority.
2)Increases the cap on administrative costs from $300,000 to �
$550,000.
FISCAL EFFECT : Expands the authorized uses of the existing $50 �
million RRTF appropriation and increases allowable �
administrative costs by $150,000.
COMMENTS :
1)The Authority. The Authority was created in 1980 with an �
authorization of $200 million in revenue bonds to finance �
projects utilizing alternative sources of energy, such as �
cogeneration, wind and geothermal power. In 1994 its charge �
was expanded to include the financing of "advanced �
transportation" technologies. During the energy crisis of �
2001, its authority was again expanded, this time to provide �
financial assistance to public power entities, independent �
generators, and others for new and renewable energy sources, �
and to develop clean distributed generation. The Authority �
consists of five members: the Director of Finance, the �
Chairman of the California Energy Commission, the President of �
the Public Utilities Commission, the Controller, and the �
Treasurer. Its current mission is to provide financing for �
facilities that use alternative energy sources and �
technologies. The Authority also provides financing for �
facilities needed to develop and commercialize advanced �
transportation technologies that conserve energy, reduce air �
pollution, and promote economic development and jobs.
2)On PACE. Under the PACE program, local governments provide �
funds to participating homeowners to install energy upgrades, �
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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 through a special property �
tax assessment. In 2008, AB 811 (Levine) authorized general �
law cities to provide up-front financing to property owners to �
install solar or other renewable energy-generating devices or �
make specified energy efficiency improvements to their �
properties through a system of contractual assessments. In �
2009, AB 474 (Blumenfield) added water efficiency improvements �
to the list of improvements that can be paid for through a �
contractual assessment. In 2010, SB 77 (Pavley) sought to �
lower the costs to local governments and property o2wners 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 percent or less) are devoted to production �
incentives for a handful of existing biomass and solar thermal �
power plants.
3)Off PACE. Last year, 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. The California Attorney General, and several �
local governments, are pursuing court action to overturn the �
FHFA directives. The U.S. District Court for the Northern �
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District of California is currently considering whether to �
require FHFA to initiate public notice and comment procedures. �
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. This bill would �
repurpose the Authority's program along the same lines.
4)Should project size and loan amount be limited? This bill �
contains no limits on the size of a project or the amount of a �
loan. Last year, SB 77 was limited to residential projects of �
three units or fewer and commercial projects costing less than �
$25,000. These limits were a compromise that followed a �
disagreement over whether larger projects receiving support �
from the RRTF should be considered public work subject to �
prevailing wage standards. The author and the committee may �
wish to consider whether similar limits should apply in this �
bill.
5)Should EVs be included? This bill introduces a new concept of �
placing electric vehicle charging infrastructure on par with �
energy efficiency for support by the CERP. Neither the �
previous PACE bills nor the CEC's Energy Upgrade California �
program include electric vehicle charging. Financing electric �
vehicle charging seems both inconsistent with the underlying �
purpose of these programs (financing permanent property �
improvements that reduce electricity demand) and an �
inappropriate use of RRTF funds, which are collected from �
electric utility ratepayers to support renewable energy �
investments that achieve a public benefit.
REGISTERED SUPPORT / OPPOSITION :
Support
State Treasurer Bill Lockyer
Ecology Action
Union of Concerned Scientists
Opposition
None on file
AB 14 X1
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Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916) �
319-2092