BILL ANALYSIS Ó
SB 1130
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
SB 1130 (De León) - As Amended: June 27, 2012
SENATE VOTE : Not relevant
SUBJECT : Energy: energy assessment: nonresidential buildings:
financing
SUMMARY : Establishes the Nonresidential Building Energy
Retrofit Financing Act of 2012 (Act) and requires the California
Energy Commission (CEC) to establish the Nonresidential Building
Energy Retrofit Financing Program (Program) by July 1, 2013 to
provide financial assistance through revenue bonds for owners of
eligible buildings to implement energy efficiency improvements
and renewable energy generation.
EXISTING LAW :
1)Requires the CEC to establish criteria for adopting a
statewide home energy rating program for residential
buildings, and requires the CEC to adopt the program in
consultation with representatives of the Department of Real
Estate, the Department of Housing and Community Development,
the California Public Utilities Commission (PUC),
investor-owned and municipal utilities, cities and counties,
real estate licensees, home builders, mortgage lenders, home
appraisers and inspectors, home energy rating organizations,
contractors who provide home energy services, consumer groups,
and environmental groups.
2)Establishes several natural gas public purpose programs,
including a low-income rate assistance program, a research and
development program, and energy efficiency programs, which are
funded by a surcharge on natural gas bills of customers of
pipelines regulated by the PUC.
3)Establishes subsidy programs for the installation of solar
photovoltaic systems administered by the PUC and CEC. These
programs, known collectively as the California Solar
Initiative (CSI), are to provide $3.2 billion in subsidies
over 10 years in the form of rebates for the installation of
photovoltaic projects. CSI authorizes the PUC to award $101
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million in subsidies for solar thermal and solar water heating
devices.
4)Establishes the Solar Hot Water and Efficiency Act of 2007 to
fund the installation of 200,000 solar hot water systems in
California by 2017.
5)Establishes the Self Generation Incentive Program (SGIP)
within the PUC to incentivize clean, renewable distributed
generation resources.
6)Requires the CEC to adopt an integrated energy policy report
(IEPR) every two years. The objective of the IEPR is to
evaluate market trends and develop energy policies that will
"conserve resources, protect the environment, ensure energy
reliability, enhance the state's economy, and protect public
health and safety." The IEPR includes "progress toward
statewide renewable energy targets and issues facing future
renewable development; efforts to increase energy efficiency
in existing and new buildings; progress by utilities in
achieving energy efficiency targets and potential; improving
coordination among the state's energy agencies; streamlining
power plant licensing processes; results of preliminary
forecasts of electricity, natural gas, and transportation fuel
supply and demand; future energy infrastructure needs; the
need for research and development efforts to support statewide
energy policies; and, issues facing California's nuclear power
plants."
7)Requires the PUC to have each electrical corporation identify
a separate rate component to collect revenue to fund
cost-effective energy efficiency and conservation activities.
8)Requires all electric and natural gas utilities to meet energy
efficiency savings targets established by the CEC and the PUC.
9)Requires all electric utilities, in procuring energy, to first
acquire all available energy efficiency and demand reduction
resources that are cost effective, reliable, and feasible.
10)Under the California Constitution and the General Obligation
Bond Law, authorizes the Legislature to issue general
obligation bonds for specified purposes with a two-thirds vote
of both houses. These bonds only become enacted if they are
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approved by a majority vote of the state's electorate. State
law authorizes specified state agencies to issue revenue bonds
and other credit instruments without voter approval.
11)Authorizes the California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) to provide
financing for facilities that use alternative energy sources
and technologies. CAEATFA can issue revenue bonds (without
voter approval), make loans, loan loss reserves, and loan
guarantees to develop and commercialize advanced
transportation technologies that conserve energy, reduce air
pollution, and promote economic development and jobs. State
law limits CAEATFA's total debt to $1 billion.
THIS BILL :
1)Establishes the Act and states that its purpose is to
facilitate private financing to enable private, nonresidential
building owners and eligible public entities to invest in
clean energy improvements, renewable energy, and conservation
to incentivize private equity managers to invest in clean
energy improvements, integrate the smart energy economy, and
to stimulate the state economy by directly creating jobs.
2)Defines terms used in the Act, including in part:
a) "Alternative sources of energy" as energy from renewable
cogeneration or gas-fired cogeneration technology that
meets the greenhouse gas (GHG) emissions and efficiency
standards in SGIP, energy storage technologies, or energy
from solar, biomass, wind or geothermal systems, fuel
cells, or any other source of energy that reduces GHG
emissions. Specifies that alternative energy systems shall
be sized appropriately to offset part or all of the
applicant's electricity demand and shall be located
on-site.
b) "Conventional energy fuel" as any of the following:
i) A fuel derived from petroleum deposits, as
specified;
ii) Natural gas, including liquefied natural gas; and,
iii) Nuclear fissionable materials.
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c) "Eligible building" as a nonresidential building that
completed construction on or before January 1, 2013 and
located within the state.
d) "Energy efficiency improvement" as one or more
installations or modifications to an eligible building for
which a building permit was not obtained before January 1,
2013 and that is designed to reduce the energy consumption
of the building that qualifies for investor-owned utility
(IOU) or publicly-owned utility (POU) energy efficiency
programs, as specified.
e) "Energy remittance repayment agreement" (agreement) as a
contractual agreement between an eligible building owner
and the CEC, secured by a lien, that establishes the
repayment schedule, as specified.
f) "Energy efficiency specialist" as an individual or
business certified by the CEC to analyze, evaluate, or
install a renewable energy source, energy efficiency
improvement, or water efficiency improvement for an
eligible property.
g) "Financial assistance" as loans, loan loss reserves,
interest rate reductions, secondary loan purchase,
insurance, guarantees or other credit enhancements or
liquidity facilities, contributions of money, property,
labor, or other items of value, or any combination thereof,
as determined by CEC, and other types of assistance
determined by the CEC.
h) "Nonresidential Building Energy Retrofit Bond" as a bond
issued pursuant to the Act that is secured by an agreement.
i) "Program administration cost fee" as a fee imposed for
the costs incurred by CEC, CAEATFA, and the State Board of
Equalization (Board) to administer the Act.
j) "Qualified applicant" as a person or business entity
that:
i) Owns an eligible building that has a ratio of loan
balance to appraised value not to exceed 85 percent and
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subject to adjustment by the Program administrator at the
time the application is approved, unless the holder of
the deed of trust or mortgage recorded against the
eligible property "that has priority over all other deeds
of trust or mortgages recorded against the eligible
property has consented in writing to the recording of an
agreement pursuant to Ýthe Act] against the eligible
property."
ii) Timely submits a complete application to CEC, which
notes the existence of any first priority mortgage or
deed of trust on the eligible property and the identity
of the holder of the mortgage or deed of trust, and
consents to the special assessment.
iii) Meets standards of credit worthiness as established
by CEC.
aa) "Renewable energy" as heat, processed heat, space
heating, water heating, steam, space cooling,
refrigeration, mechanical energy, electricity, fuel cells,
or energy in any form convertible to these uses, including
energy storage technologies, and that uses biomass, solar
thermal, photovoltaic, wind, or geothermal technologies.
3)Specifies that the Program shall provide financial assistance
for improvements when the total energy and water cost savings
realized by the property owner and any successor(s) during the
useful life of the improvements, as specified, are expected to
equal or exceed the total costs incurred by the owner under
the Program. Authorizes CEC to waive this requirement if it
adopts a finding that additional improvements may be
undertaken that significantly increase energy efficiency and
increase public health.
4)By July 1, 2013, requires CEC to develop a request for
proposal to develop the Program by a third-party administrator
(administrator) to administer the Program and establish an
automated, asset-based underwriting system for all eligible
buildings. The administrator shall only be selected if the
Program requires all costs, including start-up costs, to be
covered by the loan recipients, the administrator, the bond
purchasers, or some combination thereof. States that the
Program shall not include General Fund costs or liabilities,
except start-up costs as specified by the bill.
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5)Requires the administrator to establish underwriting
guidelines that consider an applicant's qualificationÝs] and
other appropriate factors, as specified. Requires the
administrator to disclose to an owner all fees imposed under
the Act prior to the submission of an application by the
owner. Requires any owner who wishes to participate in the
Program to submit an application to the administrator.
Specifies that the submission of an application is a voluntary
agreement by the owner for the CEC to record the agreement on
the deed of the eligible building upon approval of the
application.
6)Establishes requirements for the application and related
information and requires the administrator to recommend to the
CEC on the approval or disapproval of the application.
Requires CEC to approve the application when both of the
following conditions are met:
a) The applicant is qualified; and,
b) Prior to receiving funding the applicant shall
demonstrate evidence of intent to make feasible energy
efficiency upgrades recommended and evidence of intent to
enroll in eligible demand response programs.
7)Requires CEC to determine the appropriate guarantees to ensure
cost neutrality of the improvements and may require the owner
to obtain insurance issued by an "A.M. Best or 'A' or better
rated insurance carrier" or a similar product approved by CEC.
8)Upon mutual agreement of the participant and the
administrator, requires the administrator to establish an
annualized schedule for the repayment required by the
agreement, including the interest charged administrative cost
fee, and loan loss fee. Requires the Board to collect the
repayment installments.
9)Specifies that the period for repayment shall not exceed the
effective useful life of the improvements or 20 years,
whichever is shorter. The effective useful life of the energy
efficiency improvements shall be calculated using
methodologies adopted by CEC, in consultation with the PUC, at
a publicly noticed meeting. Exempts the calculation method
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from Office of Administrative Law review.
10)Upon the failure of a participant to pay any installment of
the energy remittance payment, requires the Board to assess a
penalty of 10 percent of the unpaid installment. Within 60
days of a failure to pay the scheduled payment, requires the
Board to issue a demand letter to the participant with notice
to the CEC. If the participant fails to "cure" the default
within the time allotted, the Board may declare the entire
outstanding amount, including any interest due, penalties
assessed, and costs of collection incurred, immediately due
and owing and foreclose on the property by either judicial or
nonjudicial foreclosure. Requires that revenue generated from
the sale of an eligible building be distributed to satisfy
liens on the property in accordance with the priority of the
liens.
11)Upon the full repayment of the balance of the agreement,
including any interest and penalties, the Board shall notify
the CEC and record a release of the agreement with the county.
12)Prior to approving an application or a modification of an
approved application, requires CEC to conduct a public
hearing, as specified. Specifies that the CEC approve an
application by adopting a resolution and recording the
agreement on the deed of the property, as specified.
13)Requires CEC to consider the creditworthiness of the
applicant and the effectiveness of the improvements using the
following criteria:
a) Whether the applicants are legal owners of the
underlying property;
b) Whether the applicants are current on any outstanding
mortgage and property tax payments;
c) Whether the applicants are in default or in bankruptcy
proceedings;
d) Whether the applicants have applied for incentives
available through the energy efficiency programs offered by
an electrical or gas corporation; and,
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e) Whether improvements financed by the program follow
applicable standards, including any guidelines adopted by
CEC.
14)Specifies that the agreement that is secured by a lien
pursuant to the Program shall have the force, effect, and
priority of a judgment lien, and shall be subordinate to any
and all secured mortgage liens recorded against the deed of
the property at the time of the recording of the agreement.
Specifies that, except as otherwise required by law, the
agreement is superior in priority to all subsequent liens
recorded on the deed, except where the first mortgage is
refinanced, in which case the agreement shall remain secondary
to the primary mortgage.
15)Specifies that the sale of the property to enforce the
payment of general ad valorem taxes shall not extinguish the
agreement. Specifies that in the event of foreclosure, the
agreement shall not be "due and owing" during the time when
the property is owned by a financial institution taking title
by way of foreclosure. The amount owing does continue to
accrue and becomes due 60 days after a new, nonfinancial owner
takes title. States that notwithstanding any other law, in
the event of a foreclosure, the agreement shall not be
extinguished, unless the outstanding balance is fully paid
through the foreclosure proceeding.
16)Sixty days after the notice of recording of the agreement,
requires CEC to include the application in a portfolio posted
on its website.
17)Requires the Board to deposit any moneys collected pursuant
to this Act into the Nonresidential Building Energy Retrofit
Debt Servicing Fund (Fund), which the bill establishes in the
State Treasury and continuously appropriates to pay the
principal and interest on bonds issued under the Act.
18)Authorizes the Board to charge a program administration cost
fee on the owner of an eligible building to cover its costs,
as well as CAEATFA's and the CEC's costs, in implementing the
Act.
19)Specifies that a local government that has issued revenue
bonds for renewable energy, water efficiency, or energy
efficiency retrofit projects for nonresidential buildings may
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apply to the CEC for participation in the Program.
20)Authorizes CEC to:
a) On or before July 1, 2013, analyze and evaluate
standards for nonresidential energy building retrofits
previously developed by various national and international
organizations to provide uniformity and transparency for
financial institutions evaluating loan proposals for energy
improvements, as specified.
b) Establish standards, guidelines, and procedures that are
necessary to ensure the financial stability of the program
and otherwise prevent fraud and abuse.
c) Establish measurement and verification standards
necessary to ensure that the energy efficiency improvements
financed pursuant to the Act are realized at a level
specified by CEC.
d) Consider reliance on existing trade certifications or
licensing requirements applicable to occupations that
perform the work funded by the agreement.
e) Establish qualifications for the certification of
contractors to construct or install energy efficiency
improvements.
f) Contract with a public or private party to provide
various monitoring and verification activities.
g) Develop a model "energy aligned lease provision" that
modifies, upon the agreement of the owner and tenants of an
eligible building, a commercial lease agreement to allow
the owners to recover the costs of the renewable energy,
water efficiency, or energy efficiency retrofit
improvements that result in operational savings.
h) Develop a request for proposal to contract with one or
more financial institutions to secure a short-term,
revolving credit facility (warehouse line of credit) for
the purpose of creating an interim financing mechanism for
the loans that would be aggregated to issue a revenue bond.
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i) Adopt a standard notice and disclosure form.
21)Requires CEC to do all of the following:
a) Consult with the PUC, representatives of IOUs and POUs,
local governments, real estate licensees, commercial
builders, commercial property owners, small businesses,
financial institutions, commercial property appraisers,
energy rating organizations, and other entities the CEC
deems appropriate;
b) Hold at least one public hearing; and,
c) Adopt regulations and standards to implement the Act at
a public hearing.
22)Beginning June 30, 2014, and every fifth year thereafter,
requires the State Auditor to conduct a performance audit of
the Program and to report the results and recommendations to
the Legislature.
23)Authorizes CAEATFA, on behalf of CEC, to "incur indebtedness
and issue and renew negotiable bonds, notes, debentures, or
other securities of any kind or class" (bonds). Specifies
that all indebtedness shall be payable solely from moneys
received pursuant to the Act. Limits total indebtedness to $2
billion.
24)Requires CAEATFA to conduct a semiannual meeting to authorize
the issuance of bonds and establishes related requirements.
Specifies that every issue of bonds shall be general
obligations of CAEATFA or CEC payable from revenues or moneys
received pursuant to the Act. Establishes various
requirements and limitations relating to the management of the
bonds.
25)Specifies that bonds issued pursuant to the Act shall not be
deemed to constitute a debt or liability of the state or of
any political subdivision thereof, other than CAEATFA, or a
pledge of the faith and credit of the state or of any such
political subdivision. States that all bonds be payable
solely from funds obtained pursuant to the Act.
26)Authorizes CAEATFA to provide for the issuance of bonds for
the purpose of refunding any bonds, notes, or other securities
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"of ÝCAEATFA] then outstanding, including the payment of any
redemption premium thereon and any interest accrued or to
accrue to the earliest or subsequent date of redemption,
purchase, or maturity of such bonds." Specifies that any such
bonds may be applied to refund other bonds may be used at
maturity or placed in escrow.
27)Pending this use, specifies that any such escrowed proceeds
may be invested and reinvested by CAEATFA in obligations of,
or guaranteed by, the federal government, or in certificates
of deposit or time deposits secured by obligations of, or
guaranteed by, the federal government, maturing at such time
to ensure the prompt payment of the outstanding bonds.
28)Specifies that bonds issued by CAEATFA are legal investments
for all trust funds, the funds of all insurance companies,
commercial and savings banks, trust companies, savings and
loan associations, and investment companies, for executors,
administrators, trustees, and other fiduciaries, for state
school funds, and for any funds that may be invested in
county, municipal, or school district bonds, as specified.
29)Exempts bonds issued under the Act from all taxation and
assessments imposed under state law.
30)By February 1, 2013, requires CEC to apply to the US
Department of Treasury under the Energy Tax Incentives Act of
2005 for CAEATFA to issue tax advantage bonds under the
federal Clean Renewable Energy Bonds program or any other
applicable program.
31)Establishes the Loan Loss Reserve Account in the Fund, into
which the Board is required to deposit the loan loss reserve
fee. Continuously appropriates the Account to CAEATFA to pay
outstanding balances due under an agreement on a building that
has been foreclosed if the proceeds from the foreclosure are
insufficient to pay any past due payments.
32)Establishes the Administration Account in the Fund, into
which CAEATFA is required to deposit the administration fee
and any penalties collected. Continuously appropriates these
funds to CAEATFA, CEC, and the Board for the costs of
implementing the Act.
33)Allocates a loan from the General Fund of $1 million to the
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Board and allocates a loan of up to $7 million from the
General Fund to CEC to implement the Act. Requires these
loans to be repaid by January 1, 2023 with interest at the
pooled money investment rate. If there are insufficient funds
to repay the loan by this date, requires the Director of
Finance to "discuss alternative repayment terms" with the
borrowing agencies.
34)Authorizes CEC, the Board, and CAEATFA to promulgate
regulations to implement the Act.
FISCAL EFFECT : Unknown.
COMMENTS :
Background : When public agencies issue bonds, they borrow money
from investors, who provide cash in exchange for the agencies'
commitment to replay the principal amount plus interest in the
future. There are two categories of bonds: revenue bonds,
which pay investors out of revenue generated from the project
the agency funds with bond proceeds; and, general obligation
bonds, which the state pays out of general revenues and is
guaranteed by the agency's full faith and credit.
CAEATFA provides financing for facilities that use alternative
energy sources and technologies. CAEATFA can issue revenue
bonds, make loans, loan loss reserves, loan guarantees, and
other financial instruments to develop and commercialize
advanced transportation technologies that conserve energy,
reduce air emissions, and promote economic development and jobs.
CAEATFA's board consists of the Treasurer, Controller, Director
of Finance, Chair of the CEC, and President of the PUC, which
determines which projects receive funding. Current law limits
CAEATFA's total debt to $1 billion.
In July of last year, the PUC released Energy Efficiency
Financing in California: Needs and Gaps, which identified the
significant gaps in current financing options and made
recommendations for energy efficiency financing options for
California. SB 1130 is consistent with the financing
recommendations in the report.
This bill : SB 1130 directs CEC to develop and operate the
Program to provide financial assistance for building owners to
use energy efficiency specialists to retrofit eligible buildings
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with renewable energy sources, energy efficiency improvements,
or water efficiency improvements that are expected to equal or
exceed their costs. This bill requires CEC to hold a public
hearing to approve an application or to modify an existing
application. CEC is required to contract with a third-party
administrator to implement the Program.
Any lien recorded to secure repayment under this bill is
subordinate to all existing liens and superior to all liens
recorded thereafter. Under the bill, a tax sale or foreclosure
does not extinguish the repayment obligation.
This bill establishes two funding mechanisms to fund energy
efficiency improvements and alternative energy cogeneration at
existing nonresidential buildings. The bill authorizes CAEATFA
to contract with financial institutions to secure a short-term,
revolving credit facility (warehouse line of credit) for interim
financing of the loans that will be aggregated for revenue
bonds. This bill also authorizes CAEATFA to issue revenue
bonds. The bonds will be paid using the funds repaid by
building owners pursuant to the energy remittance repayment
agreement.
Funding can be used for energy efficiency and water efficiency
"improvements" and alternative energy cogeneration. Under the
bill, alternative energy cogeneration includes technologies that
meet the GHG emissions and efficiency standards applicable to
SGIP, energy storage technologies, or energy from solar,
biomass, wind or geothermal systems, or fuel cells. The bill
requires that an alternative energy system must be sized
appropriately to offset all or part of the building's
electricity demand and located onsite.
According to the author:
It is widely concluded in studies that investment in energy
efficiency retrofits provides the most financial, employment,
and environmental benefits compared to equivalent investment
in any other clean energy resource, but this work is not
occurring on any scale. The bill is attempting to address the
significant dearth of primary market capital to fund
commercial energy efficiency retrofits in California. The
secondary market - investment banks - have large pools of
funds to invest in mortgage-related securities, but there is
little to no origination occurring. There isn't a deficiency
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in current law, per se, but the market lacks appropriate
incentives to drive private capital.
California's economy continues to suffer from long-term
unemployment. The most hard-hit sector is construction.
Driving private capital to spur retrofit activity at no cost
to taxpayers would help alleviate this problem and achieve
significant CO2 reductions.
Suggested amendments :
1)This bill establishes funding for "alternative sources of
energy" located at nonresidential buildings, and specifies the
types of energy sources that are eligible. The current
language includes "any other source of energy that reduces GHG
emissions." The committee may wish to amend the bill to
strike this phrase, which will ensure funding is used for
specified alternative energy sources.
2)This bill defines "conventional energy fuel" to include fuel
derived from petroleum, natural gas, and nuclear materials.
The committee may wish to amend the bill to include "coal" on
this list.
3)The bill specifies that in the event of foreclosure the energy
remittance repayment agreement shall not be due and owing
while the property is owned by the financial institution. The
committee may wish to amend the bill to clarify that the
energy remittance repayment agreement installments shall not
be due and owing at this time.
4)This bill defines "eligible building" as a building that
completed construction on or before January 1, 2013. However,
the definition of "energy efficiency improvement" states that
it applies to "an eligible building for which a building
permit was not obtained before January 1, 2013." For
clarity, the committee may wish to amend the bill to clarify
that eligibility is limited to existing buildings.
5)On page 11, line 15, the committee may wish to replace
"increase" public health with "improve" public health to be
consistent with other statutes relating to public health.
6)On page 12, line 2, the committee may wish to correct a
drafting error by replacing "qualification" with
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"qualifications."
REGISTERED SUPPORT / OPPOSITION :
Support
John Chiang, State Controller (sponsor)
Building Owners and Managers Association of California
California Association of Sheet Metal and Air Conditioning
Contractors' National Association
California Business Properties Association
California Energy Efficiency Industry Council
Commercial Real Estate Development Association
California State Association of Electrical Workers
California State Pipe Trades Council
Clark Strategic Partners
NAIOP of California
National Council of Shopping Centers
OSRAM SYLVANIA, Inc.
San Diego Gas and Electric Company
Southern California Edison
Southern California Gas and Electric Company
United States Green Building Council, California Chapter
Western States Council of Sheet Metal Workers
Opposition
None on file
Analysis Prepared by : Elizabeth MacMillan / NAT. RES. / (916)
319-2092