BILL ANALYSIS �
SB 679
Page 1
Date of Hearing: July 5, 2011
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 679 (Pavley) - As Amended: June 29, 2011
SENATE VOTE : 29-8
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 (CAEATFA) to support Property Assessed Clean
Energy (PACE) programs.
EXISTING LAW :
1)Creates CAEATFA 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.
CAEATFA is authorized to issue up to $1 billion in revenue or
prepayment bonds to fund projects.
2)Requires CAEATFA 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.
5)Provides authority to the CEC to administer a low-interest
SB 679
Page 2
loan program for schools and colleges to improve energy
efficiency and install self-generation through the Energy
Conservation Assistance Act (ECAA). ECAA sunsets January 1,
2013 and, by law, any remaining funds will revert to the
General Fund.
FISCAL EFFECT : Unknown
1)COMMENTS : 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. 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. CAEATFA consists of five members: the Director
of Finance, the Chair of the CEC, the President of the
California Public Utilities Commission (PUC), the Controller,
and the Treasurer. Its current mission is to provide
financing for facilities that use alternative energy sources
and technologies. CAEATFA 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)Renewable Resource Trust Fund (RRTF). Beginning with the
enactment of AB1890 (Brulte, Chapter 854, Statutes of 1996)
and continuing through legislation passed in 2006, the state
authorized the collection of funds from utility ratepayers
through a nonbypassable system benefit charge to support
existing, new, and emerging renewable resources, among other
public goods. These funds have been used in a variety of
incentives programs to expand the use of renewables including
qualified agricultural biomass; solar electric (photovoltaic)
systems on new homes and affordable housing; wind and solar
thermal electric generation; to operate the Western Regional
renewable tracking system (which also provides basis for the
value of Renewable Energy Certificates, RECs); and consumer
education. Of these, the new home solar incentive program has
been adversely impacted by a slow-down in the new home market
and a cumbersome program participation process.
3)PACE. Under the PACE program, local governments provide funds
SB 679
Page 3
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.
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. More than half of the
applicants to the Berkeley PACE program withdrew from the
program because the monthly additional costs of PACE were too
high, they decided to install solar through a different
funding scheme, the cost of required energy efficiency
retrofits were too high, the program was too complicated, or
for personal reasons. From the evaluation report: "At nearly
twice the rate for a home equity loan, the interest rate for
the pilot (including one point for financed administrative
costs) steered many applicants to other sources of money but
also deterred some from proceeding with installation."
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.
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 residential home loans, because in the
event of a default, FHFA could incur higher mortgage loan
losses. This caused some 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 widespread
implementation of PACE programs, including the CAEATFA 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.
SB 679
Page 4
Energy Conservation Assistance Act (ECAA). ECAA was
established in 1979 through a variety of funding sources
including the General Fund, the Petroleum Violation Escrow
Account, and tax exempt revenue bonds. ECAA was augmented by
an infusion of federal funds from the American Reinvestment
and Recovery Act (ARRA). ARRA is a federal program intended to
stimulate the U.S. economy. ARRA provided $25 million for
ECAA loans and about $34 million for grant for schools,
colleges, hospitals, public care facilities, and special
districts. Grant recipients have used the grant award in
combination with the ECAA loans, leading to demand for loans
that has far exceeded available funds. The CEC is currently
accepting applications from schools and colleges for energy
efficiency and self-generation upgrades. Currently, $3.6
million is available at 3% interest rate. The maximum loan
amount is $3 million.
4)Reason for this bill. Given that funds allocated by SB 77
have not been used for PACE programs because of FHFA's 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
ECCA. This will help continue the program despite dwindling
ARRA funds.
This bill would revert all unexpended of these redirected
funds back to the RRFT fund if they are unexpended as of
January 2013.
RELATED LEGISLATION
AB 1303 (Williams) reauthorizes the Renewable Trust Fund. This
bill is currently awaiting hearing in Senate Energy, Utilities
and Communications Committee.
ABX1 14 (Skinner) creates an alternative to the PACE Reserve
Program, requiring the CAEATFA 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
SB 679
Page 5
CAEATFA. 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. ABX1 14 is currently in
Senate Appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Association of Counties (CSAC)
Natural Resources Defense Council (NRDC)
Union of Concerned Scientist
Opposition
None on file.
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083