BILL ANALYSIS �
AB 2045
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2045 (Rendon) - As Amended: April 23, 2014
Policy Committee: Banking &
FinanceVote: 8-3
Utilities & Commerce 10-3
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill establishes the Nonresidential Real Property Energy
Retrofit Financing Act of 2014, which creates a financing
program administered by the California Energy Commission (CEC)
that uses revenue bonds to facilitate private financial
assistance to owners of nonresidential property to implement
energy efficient improvements and renewable energy generation.
Specifically, this bill:
1)Requires the CEC to develop by July 1, 2015 a request for
proposal to create the program by a third part administrator,
and requires that administrator to establish an automated,
asset-based underwriting system for all eligible real
properties in the state.
2)Requires the third party administrator to consult with CEC in
developing program and loan underwriting guidelines, provide a
loan servicer, provide an independent energy advisor to assist
owners of nonresidential properties in evaluating projects,
and make recommendations to the CEC regarding approval of
applications.
3)Requires an applicant to agree to the recording of an energy
remittance repayment agreement lien (with priority equivalent
to a judgment lien) on the eligible property.
4)Requires the loan servicer to collect payments on the loan and
remit to the CEC, as well as notify the Board of Equalization
(BOE) of any delinquency. Requires the BOE to collect any
delinquent payments and remit to the CEC.
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5)Authorizes the California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA), on behalf of
CEC, to incur indebtedness and issue and renew specified forms
of debt. Specifies that all indebtedness shall be payable
solely from moneys received pursuant to the Act, and limits
the total indebtedness to $2 billion.
6)Requires the CEC to issue a report on the efficacy of the
program and recommendations to enhance the program within six
months after the first two years of implementation or the
incurrence of the first $250,000,000 in bonds, whichever
occurs earlier.
FISCAL EFFECT
One-time special fund costs of $9 million to CEC to initiate the
program; ongoing special fund costs of $4.5 million to run the
program thereafter. Additional administrative special fund
costs, potentially greater than $1 million, to the BOE and
CAEATFA.
This bill requires that the program not include General Fund
costs or liabilities, but does not specify a source of funds for
the costs highlighted above.
COMMENTS
1) Purpose. According to the author, AB 2045 is needed to scale
up energy retrofits on commercial buildings. The bill creates
statewide standards for energy retrofits, provides a financing
mechanism that attracts lower interest rates, and gives
investors assurances that the state will support the financing
and collection. The author argues retrofitting a commercial
building has the potential to lower an owner's energy costs,
increase the property's value, and reduce its overall carbon
footprint.
The author contends capital markets have a robust appetite for
secure mortgage-backed securities, similar to those
contemplated in this bill, but that investors require
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sufficient financing scale to offer the pricing terms that
would lower borrowing costs and incentivize building owners to
invest in energy improvements.
2) Background. The Legislative Analyst's Office (LAO) released a
report in December 2012 titled "Energy Efficiency and
Alternative Energy Programs" that explored over a dozen major
programs intended to support the development of energy
efficiency and alternative energy in California. The LAO
found that over the past 10 to 15 years, the state spent
approximately $15 billion in aggregate on such efforts, the
majority of which was funded by utility ratepayers.
In addition, California has some of the most aggressive energy
efficiency and appliance standards. Building owners will
automatically acquire high efficiency improvements when
replacing obsolete or broken equipment because of these
standards.
3) Commercial Building Energy Usage. According to the Public
Utility Commission (PUC), the commercial sector accounts for
38% of the state's power use and over 25% of natural gas
consumption. The PUC established a goal to achieve energy
efficiency improvements and clean, distributed generation
throughout commercial buildings by 2030.
4) Current Financing Challenges. According to the CEC, one of
the biggest challenges for private lenders interested in
creating loan products for energy efficiency upgrades is that
there are no established underwriting standards. The lack of
standards makes risk analysis difficult because there are no
data on the performance of energy efficiency upgrades, making
it difficult for the primary lender to package loans and sell
in the secondary market.
5) CAEATFA Financing. CAEATFA provides financing for facilities
that use alternative energy sources and technologies. CAEATFA
can issue bonds, loans, guarantees, and other financial
instruments to develop and commercialize advanced
transportation technologies that conserve energy, reduce air
emissions and promote economic development and jobs. Current
law limits CAEATFA's total debt to $1 billion.
6) PACE Program. The Property Assessed Clean Energy (PACE)
program also finances energy efficiency and renewable energy
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upgrades to buildings. Eligible property owners may receive
100% financing for measures that achieve energy savings, with
the funds repaid through a property tax assessment for up to
20 years. PACE provides alternative low-cost, long-term
capital to finance improvements to private property that meet
a public purpose, and is available for residential and
commercial buildings.
7) Proposition 39. Titled the "California Clean Energy Jobs Act
of 2012," Proposition 39 was approved by voters in November
2012. It requires most multistate businesses to determine
their California taxable income using a single sales factor
method, a change that increased state corporate tax revenue.
For a five-year period (2013-14 through 2017-18), Proposition
39 requires that half of the annual revenue raised from the
measure, up to $550 million, be transferred to a new Clean
Energy Job Creation Fund to support projects intended to
improve energy efficiency and expand the use of alternative
energy. Proposition 39 specifically requires that the funds
maximize energy and job benefits by supporting:
a) Energy efficiency retrofits and alternative energy
projects in public schools, colleges, universities, and
other public facilities;
b) Financial and technical assistance for energy retrofits;
and
c) Job training and workforce development programs related
to energy efficiency and alternative energy.
Proposition 39 also requires that funded programs be
coordinated with the CEC and California Public Utilities
Commission in order to avoid duplication and leverage existing
energy efficiency and alternative energy efforts.
8) Previous Legislation. SB 1130 (De Leon) of 2012 was similar
to this bill, and AB 122 (Rendon) of 2013 was the predecessor
to this bill. SB 1130 was held on the Suspense File of this
Committee, and AB 122 had its Suspense hearing canceled at the
author's request.
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Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081