BILL ANALYSIS �
AB 2017
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2017 (Muratsuchi) - As Amended: April 22, 2014
SUBJECT : Energy financing: rental properties
SUMMARY : This bill authorizes the California Public Utilities
Commission (PUC) to require electrical or gas corporations to
implement an on bill repayment (OBR) program to improve energy
efficiency for rental properties. Specifically, this bill :
(1)Authorizes the PUC to require electrical or gas corporations
with more than 250,000 service connections (customers) to
implement an OBR program.
(2)Establishes definitions for OBR
(3)Requires express approval of an OBR from the PUC.
(4)Provides that OBR be implemented incrementally beginning with
specified low income housing.
(5)Specifies rules and criteria that the PUC must for include
OBR:
a) Criteria for energy efficiency improvements
b) Authorizes non-energy improvements, as appropriate
c) Rules to prevent removal of OBR improvements from rental
property
d) Rules for inspection and verification to ensure economic
benefits for tenants
e) Consumer protections to prevent increases in customer
terminations, a loan loss reserve, bill neutrality, dispute
resolution
f) Other mechanisms deemed appropriate by the PUC
g) Criteria for determining program success, including
mechanisms for reducing ratepayer support
h) Mechanisms to ensure energy savings (based on an energy
audit, limited to 90 percent of the savings recommended by
the audit, verification of correct installation of the
improvement, monitored energy savings performance, and
annual reporting)
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(1)Permits the PUC to include nonenergy reducing improvements as
eligible improvements for financing if it deems appropriate.
(2)Specifically authorizes that solar water heating improvements
be eligible for energy rebate and financing programs offered
by gas corporations in order to reduce demand for natural gas.
(3)States that OBR repayment charges shall be subject to section
779.2 of the Public Utilities Code.
EXISTING LAW
a)Requires that all charges demanded or received by any public
utility for any product or commodity furnished or any service
rendered to be just and reasonable and that every unjust or
unreasonable charge demanded or received for such product or
commodity or service is unlawful. (Public Utilities Code 451)
b)Forbids termination of residential electric or gas service for
nonpayment of any delinquent account or other indebtedness
owed by the customer when the obligation represented by the
delinquent account or other indebtedness was incurred with a
person or corporation other than the electrical or gas
corporation. (Public Utilities Code 779.2)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement . Currently, tenants in rental housing have
few options to increase energy efficiency in their homes to
reduce energy usage and lower utility bills. In contrast,
landlords lack the incentive to invest in energy efficiency
upgrades. This bill will address the "split incentive" by
directing the CPUC to create an on bill repayment program for
multifamily rental housing units with individual electricity
meters.
The author also provided the following background: Recently,
the PUC launched a new program to help landlords of rental
property pay for energy savings using "on bill repayment" for
buildings where the property owner pays the electricity bill
for the entire building. On bill repayment enables these
property owners to finance the upgrades and then repay the
costs over time through their utility bill. However, the
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program is limited to these "master metered" properties and
will not address the majority of properties where the tenants
are on individual meters. This leaves many property owners
without the opportunity to achieve energy savings, reduce
costs for their tenants, and reduce greenhouse gas emissions.
2)On bill repayment - OBR . OBR is a concept that would allow
collection of loan payments monthly payment via a utility
bill. For example, a homeowner with a monthly utility bill of
$175 might borrow $7,200 for duct sealing, a programmable
thermostat, new windows, and a new refrigerator, which
together could reduce the monthly utility bill by $70.
Assuming a 15-year loan at 5 percent interest, the monthly
loan payment would be $57 (not including any loan fees or
other financing charges). The homeowner's total monthly
payment would be $162 ($105 for utility service plus $57 OBR
payment), for a monthly savings of $13.
Lenders might provide more favorable loan terms on the theory
that the borrower may be more likely to repay the loan when
repayment is part of a utility bill subject to utility
collection procedures and the threat of service disconnection
for nonpayment.
In the situation involving rental housing, the loan obligation
would stay with the rental unit and the future tenant would be
automatically billed for the loan repayment.
AB 2017 does not require favorable loan terms.
The author may wish to amend the bill to require participating
lenders to provide favorable loan terms.
3)A case study of energy efficiency retrofits in multifamily
affordable housing. In November 2013 the California Housing
Partnership Corporation (CHPC) on energy efficiency retrofits
on multifamily affordable housing. The study examined a
project to increase the efficiency of the City Gardens
apartment complex in Santa Ana owned by LINC Housing (LINC
housing owns a housing project for active seniors on limited
incomes in Redondo Beach, in the author's district).
City Gardens is comprised of 274 rental units with a mix of
studio-, single-, and two bedroom-apartments serving low
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income households. The study found that of the 274 units, 201
qualified for the existing Energy Savings Assistance Program
(ESAP). ESAP provides free installation of energy efficient
refrigerators, furnace control upgrades, weather stripping,
low-flow shower heads, and door and building envelope repairs.
In addition, they qualified under a pilot program offered
through Southern California Gas for gas wall heater
replacements and on-demand hot water recirculation pumps. City
Gardens also qualified for gas and electric energy efficiency
rebates and incentives for photovoltaic and solar water
heating. The study states that the City Gardens received
$397,000 in ratepayer-funded incentives, more than $1,000 per
unit.
According to the study, to cover the gap between the costs of
retrofits and the ratepayer-funded programs the owner of City
Gardens obtained a Fannie Mae "Green Finance" loan for
$218,019. The Fannie Mae loans are available for multifamily
affordable housing transactions that reduce energy or water
costs at a highly competitive rate.
According to LINC Housing,<1> they also received a grant from
the U.S. Housing and Urban Development Agency's Energy
Innovation Fund, part of which was used at City Gardens.
The ratepayer funded incentives covered about 65% of the cost
of the energy efficiency improvements.
The case study estimates that the 274 rental units will result
in 23% annual energy savings with tenant cost savings of
$17,026 per year. This is about $62 per year per apartment.
According to the PUC data on residential electricity
consumption, the average residential household in Santa Ana's
electricity bill is $61.07 and around 433 kilowatt-hours per
month. If the savings is $62 per year, according to the data
in the CHPC study, then the bill reduction equates to around a
9% savings.
According to LINC Housing, the Fannie Mae Green Finance Plus
loan in the amount of "$19.4 million loan enabled LINC to
retire tax exempt bonds, buyout the Low Income Housing Tax
Credit equity partner, and finance property improvements."
--------------------------
<1> http://www.linchousing.org/media/05-14-12.html
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According to FannieMae<2> the $19.4 million loan included $1.5
million for energy improvements (replacing older, less
efficient gas-fired furnaces with efficient furnaces, low-flow
plumbing fixtures, energy efficient lighting, and a passive
solar hot water heating system)
It isn't clear why there is a different dollar amount financed
for energy efficiency improvements in the CHCP study and the
FannieMae summary.
It is unclear why existing loan programs, like the Fannie Mae
Green Finance program, are unable to address funding gap that
exists between the total amount of ratepayer funded support
and the total cost of the improvements, as shown in the City
Garden case study.
It goes without saying that for a low income household, the
cost of any loan will be hard for their budget to absorb. The
significant discrepancies related to the savings estimate
(both in dollars and in kilowatt-hours) and the amount
financed could significantly affect whether these households
can actually repay these loans.
AB 2017 does require the amount of the loan payment be less
than or equal to the current or future tenant's monthly bill
savings. Instead, it requires that the energy savings
performance estimate is limited to 90% of what is recommended
by a performance-based energy audit. But this might not be
sufficient. Both anecdotal evidence and controlled studies
have raised concerns about the accuracy of energy analysis
software.<3> Generally, it has been observed that
software-based energy analysis of inefficient existing homes
tends to over-predict pre-retrofit energy use and retrofit
energy savings. For example, a recent report found that
modeling software consistently overestimated the energy use of
--------------------------
<2>
http://www.fanniemae.com/portal/about-us/media/commentary/082812-
pagitsas.html
<3> National Renewable Energy Laboratory. Assessing and
Improving the Accuracy of Energy Analysis for Residential
Buildings http://www.nrel.gov/docs/fy11osti/50865.pdf
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each home.<4> Modeled pre-retrofit annual energy use was
compared with actual billing data for 30 jobs, showing:
mean modeled total annual use was 40% greater than
billed use
mean modeled annual kWh use was 56-68% greater than
billed use
mean modeled annual gas use was 39-43% greater than
billed use
To ensure that low income households are not affected by these
inaccuracies, the author may wish to amend the bill to require
loan payment be less than or equal to the current and future
tenant's monthly bill savings.
1)CPUC OBR Pilot . In its September 2013 the PUC adopted Decision
13-09-044 implementing energy efficiency financing pilot
programs the PUC. Within that decision it provides for a pilot
project to establish an OBR program or multifamily low income
housing using $2.9 million in ratepayer funds. According to
the PUC's decision:
"The primary goals of the MMMFP [Master Metered Multifamily
Financing Program] are to test the value of OBR in the
affordable master-metered MF segment, improve delivery of
services across IOUs, building auditors, contractors, and
lenders, and to gather performance data in a multifamily
setting."
This pilot will target reaching 5,000 units through properties
of 20 units or more. The decision also authorizes, in addition
to the investor-owned utilities (IOU), one of the energy
efficiency program administrators, the Bay Area Regional
Energy Network, to offer a complementary finding program
targeting market rate housing.
The PUC pilot authorizes bill neutrality as an objective but
not a requirement and found it reasonable to authorize this
program without shut off for non-payment of financing charges.
--------------------------
<4> 2010-2012 PG&E and SCE Whole House Retrofit Program Process
Evaluation Study.
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The pilot program include credit enhancement, such as a loan
loss reserve, to provide incentives to lenders to extend or
improve credit terms for EE projects. A key objective is to
test whether transitional ratepayer support for CEs can lead
to self-supporting EE finance programs in the future.
The pilot will also develop additional important provisions,
including:
Specification of the terms and conditions that would be
incorporated into a lease or rental agreement if the
property owner decides to lease/rent the property,
including:
o Specification of a notice requirement to
ensure subsequent owners are notified (e.g., recording
the financing agreement and OBR tariff obligation at
the Recorder's/Assessor's Office)
o Language for lease provision or separate
consent from tenant.
o Language for agreement from current tenants
(in the form of, e.g., supplement or amendment to
lease agreement, or separate consent form)
o A bill impact illustration, so that current or
prospective subsequent tenants can see estimated
monthly utility bills and repayment amounts.
o Translation of the notice, written consent, or
OBR into in a reasonable range of languages spoken by
non-English speaking customers of IOUs.
The PUC will evaluate this financing program and its other
financing pilot programs, including whether to modify, extend,
or defund them, in conjunction with the next Commission
proceeding to consider energy efficiency programs and budgets.
1)Ratepayers' Risk and Landlord benefits . AB 2107 creates a
financing mechanism for property owners to make building
improvements that is likely to increase the property value.
The loan would be paid by the tenant (AB 2017 does not require
the tenant to agree to the loan) until they choose not to pay
the loan, then loan loss reserve created using ratepayer funds
would be used to pay the loan. The bill provides that if the
tenant does not pay that portion of their energy bill that is
the loan amount the utility cannot disconnect service. If the
tenant moves away and the housing is rented to another tenant,
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the loan would be transferred to that new tenant's energy bill
(whether they agree to it or not).
If a tenant elected to not pay the loan then it is likely the
loan will be paid by ratepayers through the loan loss reserve.
The author may wish to amend the bill to specify that:
a) A tenant must agree to the loan repayment.
b) If a tenant defaults on an energy efficiency loan the
property owner will assume the debt and allow the lender to
place a lien on the property to ensure repayment.
c) This program cannot be implemented until after the PUC
has completed its evaluation of on bill financing programs
authorized through D. 13-09-044 and made a determination of
whether these financing programs should be used in
non-master metered rental properties.
1)A "nonenergy improvement financed by ratepayers ? AB 2107 also
allows financing of nonenergy improvements. This is not
defined.
The author may wish to amend the bill to remove this
provision.
2)Fair Dispute resolution. AB 2017 provides that the PUC
establish rules for a 'fair dispute resolution. It is unclear
what is intended by this provision or whether it expand the
jurisdiction of the PUC to address disputes between property
owners and their tenants.
The author may wish to remove this provision.
3)Additional technical amendments.
The author may wish to clarify the intent that this bill apply
only to multifamily housing by substituting stating that low
income housing means "multifamily rental properties of four or
more units."
4)Support and Opposition.
Several owners of multifamily properties that rent to low
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income households argue that AB 2017 helps renters who are
denied meaningful energy savings benefits because property
owners have no incentive to invest in reducing energy bills.
Other supporters state that AB 2017 will increase private
capital investment in energy efficiency.
Opponents raise concerns about how this program could obligate
a future tenant to pay a loan that they may or may not benefit
from or whether it is legal for a property owner to negotiate
a debt for its tenants. They also state that the PUC does not
have jurisdiction over the removal of energy efficiency
improvements. In addition they raise concern over whether or
not the tenant would be paying more on the loan than their
energy bill is reduced by the measures installed.
5)Related Legislation.
SB 37 (de Leon, 2013). Failed passage in the Senate.
6)Summary of proposed amendments.
a) Require participating lenders to provide favorable loan
terms.
b) Require loan payment be less than or equal to the
current and future tenant's monthly bill savings.
c) Require that tenants must agree to the loan repayment
prior to the improvement and be provided with an
explanation of the improvements and the loan terms and
conditions in their language.
d) Require that if a tenant defaults on an energy
efficiency loan, the property owner will assume the debt
and allow the lender to place a lien on the property to
ensure repayment.
e) Specify that this program cannot be implemented until
after the PUC has completed its evaluation of on bill
financing programs authorized through D. 13-09-044 and made
a determination of whether these financing programs should
be used in non-master metered rental properties.
f) Remove the provision allowing non-energy improvements.
g) Clarify the intent that bill apply only to multifamily
housing by substituting stating that low income housing
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means "multifamily rental properties of four or more
units."
h) Remove dispute resolution language
REGISTERED SUPPORT / OPPOSITION :
Support
Breathe California
Bridge Housing Corporation
California Housing Partnership Corporation
California Rural Legal Assistance Foundation
Community HousingWorks (CHW)
EAH Housing
Environmental Defense Fund (EDF)
Global Green USA
LINC Housing Corporation
Marin Clean Energy (MCE)
Mercy Housing
National Housing Law Project (NHLP)
Natural Resources Defense Council (NRDC)
Sierra Club California
Tenderloin Neighborhood Development Corporation (TNDC)
The Utility Reform Network (TURN)
Western Center on Law & Poverty
Opposition
Pacific Gas and Electric Company (PG&E)
San Diego Gas & Electric (SGD&E)
Sempra Energy utilities (SEu)
Southern California Edison (SCE)
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083