BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 653
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          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  








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          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  








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          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  









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