BILL ANALYSIS �
AB 2636
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: AB 2636
AUTHOR: Gatto and Skinner
AMENDED: May 23, 2014
FISCAL: Yes HEARING DATE: June 18, 2014
URGENCY: No CONSULTANT: Rebecca Newhouse
SUBJECT : CALCONSERVE WATER USE EFFICIENCY REVOLVING FUND
SUMMARY :
Existing law :
1) Under the California Global Warming Solutions Act of 2006
(commonly referred to as AB 32), requires the Air Resources
Board (ARB) to determine the 1990 statewide greenhouse gas
(GHG) emissions level and approve a statewide GHG emissions
limit that is equivalent to that level, to be achieved by
2020, and to adopt GHG emissions reductions measures by
regulation. ARB is authorized to include the use of
market-based mechanisms to comply with these regulations.
(Health and Safety Code �38500 et seq.).
2) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the
State Treasury and requires all moneys, except for fines and
penalties, collected pursuant to a market-based mechanism be
deposited in the fund and requires the Department of
Finance, in consultation with the state board and any other
relevant state agency, to develop, as specified, a
three-year investment plan for the moneys deposited in GGRF.
(Government Code �16428.8).
3) Requires moneys from GGRF be used to facilitate the
achievement of reductions of greenhouse gas emissions in
this state consistent with the California Global Warming
Solutions Act of 2006, and authorizes those funds to be
allocated for the purpose of reducing GHG emissions in this
state through investments that may include, among other
specified categories, funding to reduce greenhouse gas
emissions associated with water use and supply. (Health and
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Safety Code �39712).
4) Requires the state to achieve a 20% reduction in urban per
capita water use in California by December 31, 2020. (Water
Code �10608.20).
This bill :
1)Creates the CalConserve Water Use Efficiency Revolving Loan
Program and declares that it is the Legislative intent that
this loan program be a sustainable source of funding for
water use efficiency projects and that CalConserve funds
provided to investor-owned utilities (IOUs) should benefit
ratepayers and not investors.
2)Makes CalConserve funds available to the Department of Water
Resources (DWR) upon appropriation by the Legislature.
3)Authorizes the appropriation of Greenhouse Gas Reduction Fund
for CalConserve projects that reduce greenhouse gas emissions
through water use efficiency improvements or improved water
use efficiency.
4)Transfers remaining Costa-Machado Water Act of 2000 bond
funds for agricultural water use efficiency loans and grants
to CalConserve to acquire and construct agricultural
conservation projects.
5)Authorizes DWR to:
a) Deposit any available and necessary moneys into
CalConserve;
b) Enter into agreements with local governments or
investor-owned utilities that provide water or recycled
water service to provide loans for the purposes of the
fund;
c) Provide appropriate auditing and administration of the
CalConserve and take actions necessary to secure federal
funds for CalConserve.
d) Make requests on behalf of the state for deposit into
the fund of available federal moneys and enter into
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agreements with the federal government for federal
contributions, as specified, and accept federal
contributions to the fund.
e) Provide technical assistance to local agencies
6)Specifies that CalConserve funds shall be used for loans that
are at or below market interest rates and for a maximum
repayment of 20 years or up to 25 for disadvantaged
communities.
7)Allows CalConserve funds to earn interest and be used for
multiple purposes including, but not limited to, technical
assistance, bond repayment for bond funds deposited in
CalConserve; and, federal capitalization grant purposes if
those grant funds are deposited.
8)Limits administrative costs to 4% of the fund.
9)Allows implementation of water use efficiency loan programs
through on-bill financing.
10)Prohibits CalConserve funds from being expended by a local
agency for administrative costs.
11)Requires projects funded through the program have one or
more of the following benefits:
a) Measurably reduce urban per capita potable water
use.
b) Measurably reduce agricultural water use.
c) Increase the use or availability of recycled water
supply.
d) Reduce greenhouse gas emissions and water and
energy use.
COMMENTS :
1)Purpose of Bill . The author states that while the Department
of Public Health and the State Water Resources Control Board
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both administer grant programs which offer low-cost loans for
public entities to finance high water-use efficiency
retrofits, there are no similar low-cost loan programs
available to private entities, including homeowners, to
finance retrofits. The author also points out that a
revolving fund would provide a self-renewing source of
funding for water-use efficiency, which would continue to be
available to the public between water bonds while also
leveraging private investment in water-use efficiency.
2)Cap-and-trade auction revenue . ARB has conducted seven
auctions of GHG emission allowances so far. These auctions
have resulted in approximately $734 million in proceeds to
the state. Several bills in 2012 provided legislative
direction for the expenditure of auction proceeds including
the following:
a) SB 535 (de Le�n), Chapter 830, Statutes of 2012,
requires that 25% of auction revenue be used to benefit
disadvantaged communities and requires that 10% of auction
revenue be invested in disadvantaged communities.
b) AB 1532 (J. Perez), Chapter 807, Statutes of 2012,
directs the Department of Finance to develop and
periodically update a three-year investment plan that
identifies feasible and cost-effective GHG emission
reduction investments to be funded with cap-and-trade
auction revenues. AB 1532 specifies that reduction of GHG
emissions through strategic planning and development of
sustainable infrastructure projects, are eligible
investments of GGRF.
c) SB 1018 (Budget Committee), Chapter 39, Statutes of
2012, created the GGRF, into which all auction revenue is
to be deposited, and requires that departments prepare a
record that species how they will use expenditures form
the GGRF and how those expenditures will result in GHG
emission reductions.
3)Legal consideration of cap-and-trade auction revenues . The
2012-13 budget analysis of cap-and-trade auction revenue by
the Legislative Analyst's Office noted that, based on an
opinion from the Office of Legislative Counsel, the auction
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revenues should be considered mitigation fee revenues, and
their use requires that a clear nexus exist between an
activity for which a mitigation fee is used and the adverse
effects related to the activity on which that fee is levied.
Therefore, in order for their use to be valid as mitigation
fees, revenues from the cap-and-trade auction must be used to
mitigate GHG emissions or the harms caused by GHG emissions.
4)AB 32 auction revenue investment plan . The first three-year
investment plan for cap-and-trade auction proceeds, submitted
by Department of Finance, in consultation with ARB and other
state agencies in May of last year, identified sustainable
communities and clean transportation as one of the key
sectors that provide the best opportunities for achieving the
legislative goals and supporting the purposes of AB 32. The
plan recommended the aforementioned sector receive the
largest allocation of funds from the GGRF. The other two
areas recommended for auction revenue allocation in the
investment plan are energy efficiency and clean energy, and
natural resources and waste diversion.
5)Governor's budget proposal . The Governor's 2014-15 budget
proposal appropriates $850 million dollars in cap-and-trade
revenue to fund projects including rail modernization,
sustainable communities, low carbon transportation, water and
energy efficiency, watershed and wetlands restoration and
waste diversion. For the water and energy efficiency
category, the initial budget proposed $20 million for DWR to
support a Water-Energy Grant Program to disadvantaged
communities and several repairs of a hydroelectric facility.
The Senate Budget Committee rejected the Governor's proposal,
while the Assembly Budget Committee adopted a spending plan
for the budget year that provides $400 million for allocation
to State departments that are undertaking Greenhouse Gas
Reduction Activities though a competitive process
administered by the Strategic Growth Council, $400 million
for sustainable communities grants, and the same proposal as
the Governor's budget for $200 million for low-emission
vehicle rebates and $40 million for water efficiency
projects.
The Budget Act of 2014, SB 852, passed both houses on June
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15, 2014. Expenditure categories of cap-and-trade funds
include transit, affordable housing and sustainable
communities, high speed rail, low carbon transportation,
energy efficiency and renewable energy, and natural resources
and waste diversion.
6)Drought legislation . The Governor signed SB 103, Chapter 11,
on March 1, 2014, appropriating $19M from the GGRF to the
Department of Water Resources to develop a Water-Energy Grant
Program, a grant program for local agencies, joint powers
authorities, or nonprofit organizations to implement
residential, commercial, or institutional water efficiency
programs or projects that reduce greenhouse gas emissions,
and also reduce water and energy use.
DWR will be holding two workshops to gather input for the
development of this grant program. DWR intends to allow
sufficient time to gather public input at the workshops for
its consideration in drafting guidelines and a proposal
solicitation package (PSP). The draft Guidelines and PSP are
anticipated to be released for public comment July 1, 2014.
SB 103 also appropriated $10 million to the Department of
Food and Agriculture (DFA) to establish and implement a
program, in consultation and coordination with the Department
of Water Resources and the State Water Resources Control
Board, on or before July 1, 2014, to provide financial
incentives to agricultural operations to invest in water
irrigation treatment and distribution systems that will
reduce greenhouse gas emissions, and will also reduce water
and energy use, augment supply, and increase water and energy
efficiency in agricultural applications. SB 103 requires the
incentives to be ranked and distributed based on financial
need, immediacy of water supply increased and efficiency
gained to address water shortages, and reduction in water
pumping or treatment that uses energy causing greenhouse gas
emissions.
7)Working within the framework . As mentioned in a previous
comment, monies were appropriated this year for DWR and DFA
to administer a grant and incentive program, respectively,
that will reduce greenhouse gas emissions and water use. It
may be prudent, before the establishment of a brand new
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revolving fund, to monitor the development of these programs
this year, and, if necessary in the next year, design a
policy to complement current efforts at DWR and DFA and fill
in any funding gaps in the area of water efficiency.
8)Using GHG funds . Several concerns arise with the use of
cap-and-trade monies as the funding source for this water
efficiency revolving program. Specifically:
a) The primary purpose of the bill is to provide
sustainable water efficiency funding. AB 2636 requires
that projects funded through this program shall have one
of more of the following benefits:
i) Reductions in urban per capita water use.
ii) Improvements in agricultural water use efficiency
and reductions in agricultural water use.
iii) Increased use of recycled water.
iv) Reduce greenhouse gas emissions and water and
energy use.
The first benefits may not necessarily result in significant
greenhouse gas reductions, but are eligible for funding through
the program with cap-and-trade monies. For instance, an entity
requesting a loan to improve water efficiency may be supplied
by hydroelectric, nuclear, or renewable energy and therefore,
have very few emissions associated with electricity used to
supply water. This is contrary to current law that requires
that cap-and-trade funds facilitate the achievement of
greenhouse gas reductions.
b) AB 2636 does not specify any criteria for determining
eligibility of projects, how greenhouse gas emission
reductions will be quantified, and how projects will be
prioritized in the program, including whether project
selection will be primarily based on water efficiency
potential, greenhouse gas emission reduction potential, or
other factors. In addition, it is unclear in the bill
whether loans are provided to local agencies for projects,
or whether monies are provided to local agencies in order
to provide loans to other entities, including private
entities. This results in concerns that, even if some
projects may result in greenhouse gas emissions reduction,
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there is a high degree of uncertainty as to whether these
represent the best investments from the fund to achieve
the goals of AB 32.
Because of these issues, an amendment is needed to either
remove the Greenhouse Gas Reduction Fund as an allowable
funding source for this bill, or to require ARB, in
consultation with DWR, to publish findings, and report those
findings to the Legislature, on how all operational aspects
of this program result in GHG emissions reductions, prior to
the encumbrance of GGRF funds.
9)Double Referral to Senate Natural Resources and Water
Committee . If this measure is approved by the Senate
Environmental Quality Committee, the do pass motion must
include the action to re-refer the bill to the Senate Natural
Resources and Water Committee.
SOURCE : Author
SUPPORT : Association of California Water Agencies
Burbank Water and Power
California Landscape Contractors Association
California Municipal Utilities Association
East Bay Municipal Utility District
Metropolitan Water District of Southern
California
Nexus eWater
San Diego County Water Authority
Sierra Club California
Sonoma County Water Agency
OPPOSITION : None on file