BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
AB 796 - Blumenfield Hearing Date:
July 3, 2012 A
As Amended: June 26, 2012 FISCAL B
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DESCRIPTION
Current law creates the California Alternative Energy and
Advanced Transportation Financing Authority (CAEATFA) for the
purpose of promoting the development and utilization of
alternative energy sources and the development and
commercialization of advanced transportation technologies and
authorizes up to $1 billion in revenue or prepayment bonds to
fund projects.
Current law authorizes CAEATFA to utilize a sale/lease-back
mechanism with manufacturers which results in a sales and use
tax exemption on tangible personal property utilized for the
design, manufacture, production, or assembly of advanced
transportation technologies or alternative energy source
products, components or systems. The sales and use tax
exemption sunsets on January 1, 2021.
This bill creates a duplicate program under CAEATFA, limited to
clean energy technologies to provide financial assistance to
eligible California-based entities for the manufacturing of
eligible technologies. Financial assistance is defined as
loans, loan loss reserves, interest rate reductions, insurance,
guarantees, credit enhancements, and contributions of money,
property, and labor but is effectively limited to programs that
can only be provided in association with a financial
institution.
Decisions of the CPUC established the Electric Program
Investment Charge (EPIC) to continue funding for the expiring
public goods charge (PGC). EPIC funds, $162 million annually
from 2013-2020, will be administered 80 percent by the CEC for
applied research, technology development and demonstration, and
market facilitation. The investor-owned utilities (IOUs) would
administer the remaining 20% for technology demonstration and
deployment. All funds will be administered under CPUC
oversight, with a proceeding at least every three years to
consider more detailed investment plans presented by the
administrators.
This bill is operationally contingent on the availability of
funding under the EPIC program and private and federal funds.
This bill will sunset on January 1, 2018.
BACKGROUND
California Alternative Energy Source Financing Authority -
CAEATFA 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. It was renamed in 1994 as the CAEATFA and its
charge 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. CAEATFA's board, composed of the Treasurer,
Controller, Director of Finance, Chairperson of the Energy
Commission and President of the California Public Utilities
Commission (CPUC), decides which projects to assist.
In 2010 its authority was expanded by SB 71 (Padilla) which
allows CAEATFA to grant a sales and use tax exemption to an
eligible firm that purchases property necessary to design,
produce, manufacture, or assemble advanced transportation
technologies or alternative energy source products, components,
or systems. Selected firms purchase equipment without paying the
sales and use tax that would normally apply, lowering their cost
of capital. Neither CAEATFA nor the state is a creditor to the
selected firm in any way under the SB 71 program. Instead,
CAEATFA calculates whether the exemption will yield a net
environmental and economic benefit for the state. Thus far,
CAEATFA has approved $104 million to 33 firms that applied for
the SB 71 benefit, of which 33 firms have monetized $31.6
million in exemptions. Some of the firms have purchased the
property and deployed it in the manufacturing process, while
others have won the award, but not yet purchased the equipment.
To date, CAEATFA has approved financial assistance for private
entities in the following fields: electric vehicle
manufacturing, solar photovoltaic manufacturing, landfill gas
capture and production, biogas capture and production (dairies
and waste water treatment plants), demonstration hydrogen fuel
production, electric vehicle battery manufacturing, biomass
processing and fuel production, and others.
Electric Program Investment Charge - In December 2011, funding
for the state's PGC on electricity ratepayers expired. Efforts
to continue the surcharge, which requires a two-thirds vote of
the Legislature, failed. The PGC funded research and
development, energy efficiency, and renewable energy programs.
The benefits of these programs were then distributed generally,
thus the surcharge was considered a tax for voting purposes.
In September 2011, the Governor sent a letter to the CPUC
requesting that it take action to ensure that programs funded
like those funded under the PGC would be continued, but with
respect to modifications legislators discussed during the PGC
renewal deliberations. The CPUC initiated a rulemaking to
consider continuing the programs of the PGC with a sole focus on
the IOUs. Its first decision in December of 2011 directed the
IOUs to continue to collect what had formerly been known as the
PGC and which would in 2012 become the Electric Program
Investment Charge or EPIC.
The CPUC issued a second decision in May which considered the
use of the EPIC funds and called for the CEC to administer 80%
of the funds and 20% by the IOUs. The use of funds was directed
to the following categories and purposes:
Applied Research - activities supporting pre-commercial
technologies and approaches that are designed to solve
specific problems in the electricity sector;
Technology Demonstration and Deployment - installation
and operation of pre-commercial technologies or strategies
at a scale sufficiently large and in conditions
sufficiently reflective of anticipated actual operating
environments to enable appraisal of the operational and
performance characteristics and the financial risks. 20%
is specifically set aside in the first three-year cycle for
bioenergy projects or activities; and
Market Facilitation - a range of activities including
program tracking, market research, education and outreach,
regulatory assistance and streamlining and workforce
development to support clean energy technology and strategy
deployment.
The CPUC considered another funding category - market support -
for programs that seek to enhance the competitive position of
certain preferred, commercially-proven technologies and
approaches relative to incumbent technologies and approaches.
These programs are essentially rebate programs such as the
Emerging Renewables Program and New Solar Homes Partnership.
The commission rejected funding for market support "finding that
they are either too technology-specific and/or not sufficiently
well developed to be a program that we could easily adopt
immediately."
The final allocation of EPIC dollars by the CPUC:
Annual EPIC Funding Collections and Allocation
Beginning January 1, 2013 (in $ Millions)
-----------------------------------------------------------------
| Funding Element | CEC |Utilitie| CPUC | Total |
| | | s | | |
|----------------------------+--------+--------+--------+---------|
|Applied Research | $55.0| --| --| $55.0|
|----------------------------+--------+--------+--------+---------|
|Technology Demonstration | $45.0| $30.0| --| $75.0|
|and Deployment | | | | |
|----------------------------+--------+--------+--------+---------|
|Market Facilitation | $15.0| --| --| $15.0|
|----------------------------+--------+--------+--------+---------|
|Program Administration | $12.8| $3.3| --| $16.2|
|----------------------------+--------+--------+--------+---------|
|Program Oversight | --| --| $0.8| - $0.8|
|----------------------------+--------+--------+--------+---------|
|Total | $127.8| $33.3| $0.8|$162.0 |
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COMMENTS
1. Author's Purpose . The author reports that two problems
face clean energy technology companies in California. The
first is the cost of doing business in the state; the
second is finding the financial tools for expansion,
whether that expansion is from research and development to
manufacturing, or expanding their existing manufacturing to
a full retail customer scale.
California is home to the most innovative, advanced, clean
technology in the country. Unfortunately, the cost of
operating a business in the State can be prohibitive,
especially when other states and countries are aggressively
courting these companies in order to benefit their
economies with more jobs and taxes. In order to preserve
California's legacy as the home for clean energy and
technology; in order for California to continue to
successfully persevere AB 32 implementation, and in order
to preserve the jobs that come with this new technology, we
need to provide incentive for these companies to stay in
California; AB 796 would provide that incentive by offering
cutting edge, low-risk financial tools.
In order for California clean technology companies to
graduate from research and development to implementation,
or to expand their current manufacturing, they need to
raise a significant amount of money (usually around
$5M-$20M). Most companies go to a bank for a loan to
finance their expansion, but this new technology has a
limited track record so the banks are unwilling to take the
risk, they will not approve a loan.
AB 796 will create a program in which the State will
provide various financial tools that will incentivize the
banks to lend to California based companies. CAEATFA will
evaluate projects based on need, job development potential,
environmental benefit, and financial risk. This program
will be capped at $5 million per applicant.
2. Duplication of Existing Authority . The language of this
bill is merely a subset of CAEATFA's current statutory
authority and it can already provide the financial
assistance to clean energy technologies that AB 796
re-authorizes. AB 796 merely provides CAEATFA with a more
structured plan for financing clean energy projects.
However, by restating CAEATFA's current authority in a more
defined way, AB 796 narrows CAEATFA's powers and
flexibility. Under AB 796, all projects that fall under
the Clean Energy Program, which is defined to include many
of CAEATFA's current allowable projects, can only be
financed by CAEATFA if it is in conjunction with a
financial institution. Unlike existing law, this bill
would prevent CAEATFA from cooperating with a local
government, for example, to provide financial assistance to
a clean energy firm.
Proponents of this bill argue that CAEATFA's current
authority is too broad, and that although CAEATFA can
currently provide financial assistance to many different
projects, it is not using its powers because it has no
clear guidance on what it should do. Proponents of this
bill hope to imitate the effects of SB 71 (Padilla, 2011)
by providing CAEATFA with more focus and guidance so that
it more proactively assists the clean energy technology
industry. The committee may wish to consider whether
CAEATFA will become a more effective program with more
guidance and more constraints or if this bill mitigates the
existing authority the Treasurer has to enter into flexible
loan guarantee programs.
3. Funding Source = Ratepayers . Implementation of this
bill is contingent on the availability of funds from the
CPUC's EPIC program and federal and private funds. The use
of EPIC funds, which are derived from charges on electric
ratepayers, is not appropriate for manufacturing.
Investing ratepayer funds in a for-profit company is risky,
unprecedented, and sets a disturbing precedent. There is
tremendous support for the development of manufacturing in
California but these manufacturers are not and do not limit
their markets to the territories of the investor-owned
utilities from which the ratepayer funds are derived.
Although California's energy policies have attracted
manufacturers including microturbines and fuel cells, those
companies are selling their products around the country and
the world. These companies are an asset to the state but
the nexus to electric ratepayers is attenuated.
Second, the CPUC considered a market support program within
the EPIC program, but its examples of market support are
rebate programs which can offset the costs to ratepayers
for installing technologies such as rooftop solar and fuel
cells, not manufacturing. The CPUC restricted the
allocation of funds to research, technology development and
deployment and market facilitation (such as removing
regulatory barriers). The committee may wish to consider
amendments which strike the use of electric ratepayer
dollars collected through nonbypassable charges. The
result would be that the bill would be contingent on the
availability of private or federal funding.
4. Clarifying Amendments . To ensure that the technologies
eligible for support under this bill are aligned with
technologies that can be manufactured technologies and the
clean energy technologies of other programs such as the
Renewables Portfolio Standard and Self Generation Incentive
Program, the committee should consider the following
amendments:
a) Page 5, strike lines 11 through 31 which would
strike biomass feedstock from the bill. Inclusion of
biomass feedstock in a manufacturing incentive program is
illogical. Biomass feedstock harvesting literally
involves gathering and transportation and is not a
manufacturing process.
b) Page 5, lines 32-40 and page 6, lines 1-20 which
defines eligible clean energy technology should be
stricken and replaced with the following language which
will make this bill consistent with the definition
proposed by SB 1128 (Padilla) for the broader CAEATFA
program.
Devices or technologies used for a renewable electrical
generation facility, as defined in paragraph (1) of
subdivision (a) of Section 25741, a combined heat and
power system, as defined in Section 2840.2 of the Public
Utilities Code, distributed generation and energy storage
technologies eligible under Public Utilities Code Section
379.6 as determined by the California Public Utilities
Commission, or a facility designed for the production of
renewable fuels, the efficient use of which reduce the
use of fossil or nuclear fuels, and energy efficiency
devices or technologies that reduce the need for new
electric generation and reduce emissions of toxic and
criteria pollutants and greenhouse gases.
ASSEMBLY VOTES
Senate Governance and Finance Committee
(9-0)
Assembly Floor (62-14)
Assembly Appropriations Committee (17-0)
Assembly Natural Resources Committee
(6-3)
POSITIONS
Sponsor:
Author
Support:
CALSTART
Environmental Defense Fund
Mohr-Davidow Ventures
Nanosolar
Simbol Materials
Solaria
Oppose:
None on file
Kellie Smith
AB 796 Analysis
Hearing Date: July 3, 2012