BILL ANALYSIS AB 653 Page 1 Date of Hearing: April 8, 2003 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Lou Correa, Chair AB 653 (Nunez) - As Amended: March 24, 2003 SUBJECT : Energy efficiency: public buildings. SUMMARY : Extends the sunset date and eligibility requirements for bonding authority related to a State Public Works Board (PWB) "Energy Conservation in Public Buildings" program (Program). Specifically, this bill : 1)Expands the Program's eligibility to include projects that combine conservation and alternative energy equipment. 2)Requires PWB, in determining whether to issue funding, to evaluate each proposed project in its entirety and analyze the costs and financial and energy savings over the life of the project. 3)Extends the sunset date of the Program's bonding authority by 5 years to January 1, 2010. 4)Makes related definitional clarifications. EXISTING LAW authorizes the State Public Works Board, until January 1, 2005, to issue revenue bonds, notes, and bond anticipation notes to finance the cost of cogeneration equipment, alternative energy equipment, and conservation measures in public buildings. Existing law also states that "it is the policy of the state to use available resources at state facilities which can substitute for traditional energy and water supplies or produce electricity or water at its facilities when use or production will reduce long-term energy or water expenditures." FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . This bill is intended to extend the life of the "Energy Conservation in Public Buildings" program by AB 653 Page 2 expanding its eligibility requirements and adding another 5 years to its sunset date. The original Program was created in 1982 and provided bonding authority to PWB for up to $500 million to finance the cost of conservation or alternative energy projects in state buildings. According to the sponsor, the Program still has approximately $235 million available for projects. This bill would expand Program eligibility and extend the sunset date so that it is easier to use the remaining bonding authority for environmentally friendly projects on state property. Without extension of the sunset date, DGS will stop approving future projects under the Program this year because of "the significant lead time for development and bond sales" required. Changes in Eligibility . This bill attempts to make a larger number of projects viable under this Program by making two eligibility changes: "bundling" of projects and expanding the scope of evaluation to the "life of the project." Under current law, any project must pay for the service of its bond costs and interest - meaning that all projects must be revenue positive in order to be approved. However, a second administrative requirement held that projects must pay for themselves within 10 years, regardless of the life span or usefulness of the project. By extending the evaluation period to the full span of the project, longer-term investments that pay off more slowly but are still revenue positive can be approved. Furthermore, by "bundling" cogeneration and conservation projects together, some projects like solar cogeneration (which, according to DGS, can be more difficult to make cost-effective) are more likely to be approved as well. The 'Energy Conservation In Public Buildings' Program . In 1982, the Legislature enacted the Program to assist PWB in developing "energy and water conservation and cogeneration and alternative energy and water supply sources at state facilities." The Program was to "provide a mix of financing options [generally, bonds, notes and commercial paper] for the development of cost saving state energy and water conservation projects." Financing was to be provided in $50 million increments, up to a total of $500 million for the life of the Program. According to the sponsor, only $265 million has been appropriated to date. The bonding authority for the remaining funds was last extended in AB 653 Page 3 1999. The Program's eligibility criteria were focused on cost-saving proposals, requiring all project expenditures to have costs lower than the anticipated marginal cost of the energy or water that would have otherwise been purchased. In practice, all projects must create enough savings to pay for the service of their revenue bond. Arguments in favor . According to the sponsor, the Planning and Conservation League, "AB 653 will ensure that funding already available for energy efficiency and alternative power projects will continue to flow to those projects." The sponsor further argues that extension of the sunset date will allow the state to "continue saving money by saving energy and investing in clean, renewable power? [Specifying] that full lifecycle costs should be used to evaluate energy improvements, [will ensure] that the State does not leave savings on the table when it comes to both energy efficiency and alternative generation." Finally, supporters argue that "AB 653 will also allow the State to fund programs using a design-build contract system, allowing more flexibility when beginning new projects." The design-build contract system is one that bundles the initial "design" portion of a construction project (typically done by architecture firms) with the subsequent "building" portion (typically done by construction firms or contractors). Double-referral to Natural Resources . This bill is double referred, with secondary jurisdiction going to the Committee on Natural Resources. REGISTERED SUPPORT / OPPOSITION : Support Planning and Conservation League (sponsor) Vote Solar Opposition None on file. Analysis Prepared by : Hank Dempsey / B. & P. / (916) 319-3301 AB 653 Page 4