BILL ANALYSIS �
AB 2045
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 2045 (Rendon) - As Amended: April 23, 2014
SUBJECT : Energy Improvements: Financing
SUMMARY : This bill would enact the Nonresidential Real
Property Energy Retrofit Financing Act of 2014 and would require
the California Energy Commission (CEC) to establish the
Nonresidential Real Property Energy Retrofit Financing Program.
Specifically, 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)Specifies that the Program shall provide financial assistance
for water and energy efficiency and renewable energy
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 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
improve public health.
3)Requires CEC, by July 1, 2014, to develop a request for
proposal to establish an automated, asset-based underwriting
system for all eligible buildings in the state. The
third-party administrator shall provide consultation to the
CEC in developing guidelines for the program.
4)Specifies that 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.
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5)Authorizes the California Alternative Energy and
Transportation Financing Authority (CAEATFA) to issue bonds
for this program.
6)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
California Public Utilities Commission (PUC), at a publicly
noticed meeting. Exempts the calculation method from Office
of Administrative Law review.
7)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 building, as specified.
8)Requires CEC to consider the creditworthiness of the applicant
and the effectiveness of the improvements.
9)Beginning June 30, 2016, 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.
10)Authorizes CAEATFA 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 unless the
Legislature authorizes additional bonds.
11)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.
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,
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the 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. (Public Resources
Code 25943)
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. (Public Utilities Code 739)
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
million in subsidies for solar thermal and solar water heating
devices. (Public Utilities Code 2851)
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. (Public Utilities Code 2860)
5)Establishes the Self-Generation Incentive Program (SGIP)
within the PUC to incentivize clean, renewable distributed
generation resources. (Public Utilities Code 379.6)
6)Requires the CEC to adopt an integrated energy policy report
(IEPR) every two years 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." (Public
Resources Code 25300)
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.
(Public Utilities Code 381)
8)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.
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(Public Utilities Code 454.5(b)(9)(C))
9)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 the Senate and the Assembly. These bonds only become
enacted if they are 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. (Government Code 16720)
10)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. (Public
Resources Code 26011)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement . "California needs a statewide program to
finance energy retrofits for non-residential buildings.
Setting statewide standards, aggregating loans, and backing
the financing with State revenue bonds will help minimize the
interest rates paid by building owners, thereby promoting more
widespread adoption of energy efficiency and renewable energy
facilities connected to buildings."
1)State Energy Efficiency Program History . In response to a
directive in the 2012-13 Budget Package the Legislative
Analyst's Office (LAO) released a report in December 2012
titled "Energy Efficiency and Alternative Energy Programs."
The report explored over a dozen major programs that are
intended to support the development of energy efficiency and
alternative energy in the state. It found that over the past
10 to 15 years, the state has spent a combined total of
approximately $15 billion on such efforts, the majority of
which has been funded by utility ratepayers.
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In November 2012, the PUC adopted 2013-2014 budgets for
ratepayer-funded energy efficiency programs at $1 billion per
year over the two year program.
It is unclear whether and how much actual demand reduction
occurred as a result of these investment.
In addition, the State has some of the most aggressive energy
efficiency and appliance standards. Building owners replacing
obsolete or broken equipment will automatically acquire high
efficiency improvements when replacing this equipment.
1)Characterizing Commercial Building Energy Use . According to
the CEC report (August 2012) on Comprehensive Energy
Efficiency Retrofits for Existing Buildings, energy
consumption is greatest in the miscellaneous building
category, the retail sector is the next largest, both in
number of buildings and their aggregate electricity
consumption, and the electricity use in the retail sector is
more than five times larger than the next largest electricity
consuming sectors, large offices and healthcare.
The report goes on to state that:
"the nonresidential sector is dominated by buildings that
predate Californias energy code for new construction; CEC
projections indicate that, by 2022, nearly 50 percent of
buildings will be pre1970 and 74 percent pre1990. Within the
nonresidential sector, there is a great variety of building
types, and each contains a different profile of energy
consumption.
Since the late 1970s the CEC has adopted and implemented the
state's energy efficiency standards for buildings and
appliances. As older equipment (such as heating and air
conditioning systems) is replaced some of the older building
inventory may already have made energy efficiency
improvements, particularly, if they took advantage of prior
energy efficiency incentives.
According to the CEC:
"?existing state [energy efficiency] targets are not
consistent. Some appear unrealistically aggressive, such as
achieving zero net energy levels of energy efficiency in half
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of all commercial buildings by 2030, while others seem overly
conservative, like the current estimates of economic potential
for savings from IOU efficiency programs. One target, 25
percent of buildings decreasing electricity use by 75 percent
by 2030, assumes deep reductions can be accomplished in a
smaller portion of the total building stock. This projection
would rely upon achieving deep savings in fewer buildings.
This can be compared to the effect of achieving 30 percent
energy reductions in 75 percent of the total building stock by
2030.
"Designing a program for the commercial sector that targets
improvements in these categories could accomplish something
close to the 30 percent reduction in 75 percent buildings
goal; such a program may focus on small offices, retail, and
the miscellaneous sector, which account for the greatest
number of commercial buildings. However, such a program design
would largely rely on improvements in plug load, which are
hard to guarantee from one building occupant to the next, or
even over time."
2)Commercial Building Energy Usage . According to the PUC's
January 2011 Energy Efficiency Strategic Plan, "The sector's 5
billion-plus square feet of space is very diverse-not only
office buildings but stores, restaurants, warehouses, schools,
hospitals, public buildings and facilities, and others-in
aggregate accounting for 38 percent of the state's power use
and over 25 percent of natural gas consumption." The PUC
established a goal to achieve "250 million square feet (1/20th
of existing space) per year through 2030 reach deep levels of
energy efficiency improvements and clean, distributed
generation through whole building approaches."
According to the CEC report on Comprehensive Energy Efficiency
Retrofits for Existing Buildings, it distinguishes between
electricity use from equipment and systems that can transfer
with commercial property versus electricity use that is
related to specific operation of a particular building.
Movable equipment, such as refrigerators, monitors, and
machinery related to the operations of the occupant could have
a major impact on the building energy use if the movable
equipment is not kept in place upon change in occupancy over
the 20 year life of the loan.
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This bill limits loans to the energy use that is permanent to
the building.
This bill requires that any on site renewable energy
generation be sized to meet the customer's load as well as
requiring building owners to provide "evidence of intent" to
make feasible energy efficiency improvements. The bill
requires that the building owner also acquire all
cost-effective energy efficiency improvements prior to or in
conjunction with any improvements that would provide on-site
renewable generation. This bill allows that preference by
requiring renewable energy generation could be sized as if all
cost effective energy efficiency measures were installed to
prevent oversizing the system.
The bill requires applicants to provide information on whether
the building owner has applied for incentives, if available,
from an electrical or gas corporation. This program would be
available statewide, including in areas served by publicly
owned utilities. This bill also requires that loans be
reduced by the amount of any incentives received.
3)Are Energy Efficiency Loans Risky ? According to the CEC, "One
of the biggest challenges for private lenders who are
interested in creating loan products for energy efficiency
upgrades is that there are no established underwriting
standards, which has two effects: First, risk analysis is
challenging due to a lack of statistical data on the
performance of energy efficiency upgrades, and second, the
lack of standardization makes it difficult for the primary
lender to package multiple loans to sell onto a secondary
market."
This issue also impacts the viability of these loans to be
repaid from the expected bill savings that accrue from the
energy efficiency improvements. This is made more challenging
due to the great variety of building types and different
profiles of energy consumption.
According to the PUC's report on energy efficiency financing:
"The non-residential sector has long been challenging to serve
with financing products. Small, medium and large businesses
that occupy commercial buildings are often leveraged with
debt, and taking on additional debt is often difficult or
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impossible. In addition, many businesses are unwilling to take
on new debt for activities that are not central to their
business."
Currently, PG&E offers a zero interest on bill financing
program for business and government customers. PG&E business
customers may qualify for loans between $5,000 and $100,000,
with loan periods of up to 60 months. Government agencies may
qualify for loans between $5,000 and $250,000 per PG&E meter,
with loan periods of up to 120 months. This bill provides that
the CEC will establish loan limits for each type of eligible
improvement.
Over the life of the building it is likely that the customer's
electricity or natural gas rates will change. In order to
create a consistent baseline assumption for estimating savings
over the life of a particular measure, it may be necessary to
establish standard assumptions regarding average electricity
and gas rates and projected increases in those rates.
Currently, these assumptions are developed by sellers of these
services and can be used to either inform or mislead building
owners with regard to how much an improvement will cost or
save the building owner. This bill includes a provision that
the CEC develop standard assumptions for future electricity
rates and rate escalation to be used in calculating estimated
savings for projects financed through these loans and that the
CEC establish standard metrics for estimating performance of
eligible improvements for different building types and
different profiles of energy consumption to be used in
underwriting these loans.
4)Are more energy efficiency loans needed? In 2013 the PUC
launched a $70 million pilot program designed to test market
incentives for attracting private capital. Once the pilot
program is complete the PUC will evaluate its effectiveness.
Many cities across California property-assessed clean energy
(PACE) loan programs are becoming available. Sonoma County and
the Western Riverside Council of Governments have launched
these programs. The Western Riverside Council of Governments
has created a Joint Powers Authority and is offering this to
other cities throughout California. Dozens are enrolling and
making both residential and commercial business loans to
businesses to support energy efficiency and renewable energy
improvements. These program include consumer protection and
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quality assurance elements.
5)Model Energy Aligned Lease . The bill allows the CEC to develop
a "model energy aligned lease" if it deems it is necessary to
do so. A model energy aligned lease creates a pass-through
structure where the lessor and lease share the costs and
benefits of energy retrofits by agreeing on a predicted amount
of annual savings and having the tenant pay the owner recovery
costs based on the predicted savings. There is risk that the
tenant could be asked to pay more than the actual energy
savings from the efficiency improvements. In New York City,
this type of lease has been developed and includes a buffer to
ensure that as the expenses are passed through to tenants it
includes a buffer to ensure that the tenants do not pay more
than the measures can provide in bill savings. It is unclear
if the CEC has the requisite expertise to develop such as
lease. This bill requires the CEC to consult with commercial
real estate experts and the Department of Real Estate on the
model energy aligned lease.
6)Complex Program, Complex Assumptions and Targeting Areas of
Need. The loan program contemplated by this bill creates an
opportunity to achieve important state energy policy goals.
However, the building owner may not have the requisite
expertise to evaluate various proposals to determine which of
the many possible energy upgrades are the most appropriate for
a particular building's situation. As pointed out by the CEC's
report - commercial buildings have a great degree of variation
in energy use and different patterns of energy consumption.
Currently this bill does not provide an independent third
party resource to those building owners to assist those who
may need help in analyzing the various proposals. In the City
of Boulder Colorado, it used American Recovery and
Reinvestment Act (ARRA) funds to establish an Energy Smart
program that included energy advising services that provided
advisory services to businesses. The City hired an independent
contractor to perform these services for businesses. The City
of Boulder found that this assistance created a better success
rate, increased the chances of implementation, and ensured
that outcomes were achieved. This bill requires the CEC's 3rd
party administrator to provide an Independent Energy Advisor
to assist businesses in evaluating energy upgrade proposals
and to help identify available incentive programs for various
energy efficiency measures.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Bankers Association (CBA)
California Municipal Utilities Association (CMUA)
Coalition for Clean Air
East Bay Municipal Utility District (EBMUD
Pacific Gas and Electric Company (PG&E) (if amended)
San Diego Gas & Electric Company (SDG&E)
Southern California Edison (SCE) (if amended)
Southern California Gas Company (SoCalGas)
Opposition
None on file.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083