BILL ANALYSIS �
SB 679
Page 1
Date of Hearing: June 27, 2011
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
SB 679 (Pavley) - As Amended: May 31, 2011
SENATE VOTE : 39-0
SUBJECT : Energy: energy conservation projects: financial
assistance: local governments and public institutions
SUMMARY : Appropriates $25 million to the Energy Conservation
Assistance Account (ECAA) from $50 million previously
appropriated from the Renewable Resource Trust Fund (RRTF) to
the California Alternative Energy and Advanced Transportation
Financing Authority (Authority) to support Property Assessed
Clean Energy (PACE) programs.
EXISTING LAW :
1)Creates the 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) 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.
FISCAL EFFECT : Appropriates $25 million from the RRTF to the
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ECAA
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 Chair
of the CEC, 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,
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 2010, SB 77 (Pavley) sought to lower the
costs to local governments and property owners 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
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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. 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.
4)Reason for this bill. Given that implementation of SB 77 has
been frustrated by the FHFA action, this bill directs half
($25 million) of the SB 77 funds back to the CEC to support
low-interest loans up to $3 million and other assistance to
local governments and other public institutions to finance
energy efficiency projects through the ECAA.
According to the CEC, the ECAA program (established in1979)
has made loans to more than 800 entities totaling more than
$208 million, with about 58 percent of the total loan amount
going to local governments, 12 percent to K-12 public schools,
10 percent to public colleges, 10 percent to hospitals and
public care facilities, and 2 percent to special districts.
Since 2000, the program has provided $130 million in loan
funds for lighting (32%), LED traffic signals (6%), HVAC
(27%), renewables (18%), self-generation (13%) and other
miscellaneous improvements (4%). Funding for ECAA loans has
been from a variety of sources over the years, including the
General Fund, the Petroleum Violation Escrow Account, and
tax-exempt revenue bonds. Funding generally has been adequate
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to meet demand for loans. More recently, the American
Recovery and Reinvestment Act of 2009 (ARRA) provided $25
million for ECAA loans and about $34 million for CEC to award
as grants to 279 small cities and counties for energy
efficiency projects. According to CEC staff, cities and
counties seeking to leverage the grant awards have applied for
ECAA loans, leading to overall demand for ECAA loans far
exceeding available funds.
It should be noted that the ECAA sunsets January 1, 2013 and,
by law, any remaining funds will revert to the General Fund.
By appropriating RRTF funds to the ECAA without extending the
program's sunset or changing the General Fund reversion
provision, this bill creates new pressure to spend all the
funds within the remaining year of the ECAA and increases the
risk that these renewable energy funds collected from electric
utility ratepayers could be lost to the General Fund.
5)Related legislation. ABX1 14 (Skinner) was approved by this
committee on February 24, 2011 and is currently in the Senate
Appropriations Committee. ABX1 14 creates an alternative to
the PACE Reserve Program, requiring the Authority to also
administer a Clean Energy Upgrade Program (CEUP). The purpose
of the CEUP 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.
The provisions of this bill and ABX1 14 conflict in that the
two bills amend the same section and appropriate the same
funds for different purposes.
6)Double referral. This bill has been double-referred to the
Utilities and Commerce Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
School Energy Coalition
Opposition
SB 679
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None on file
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092