BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 653
                                                                  Page  1

          Date of Hearing:   May 7, 2003

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                              Darrell Steinberg, Chair

                    AB 653 (Nunez) - As Amended:  March 24, 2003 

          Policy Committee:                              Business and  
          Professions  Vote:                            13-0
                        Natural Resources                     12-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:               

           SUMMARY  

          This bill extends the sunset date and revises eligibility  
          requirements for bond funding through the "Energy Conservation  
          in Public Buildings" program.  Specifically, this bill: 

          1)Extends the program sunset date from January 1, 2005 to  
            January 1, 2010.  

          2)Expands program eligibility to projects that combine  
            conservation measures and alternative energy equipment.

          3)Requires each project be evaluated based on its costs and  
            finance and energy savings over the project life.

           FISCAL EFFECT  

          Extends annual program administration costs of about $2 million  
          within the Department of General Services for another five  
          years.  (All program and project costs are financed with revenue  
          bonds issued by the State Public Works Board (PWB) that are  
          retired with energy cost savings resulting from the projects.)

           COMMENTS  

           Purpose  .  This bill, sponsored by the Planning and Conservation  
          League, is intended to extend the life of the state's energy  
          revenue bond program and expand eligibility requirements so that  
          more projects might be feasible.  

          The Energy Conservation in Public Buildings program was created  








                                                                  AB 653
                                                                  Page  2

          in 1982 and provided the PWB with authority to issue up to $500  
          million in revenue bonds to finance conservation or alternative  
          energy projects in state buildings. Legislation enacted in 1993  
          made public school buildings eligible for this financing. Under  
          this program, the PWB issues bonds to finance all  
          project-related costs, and the bond principal and interest  
          payments are made from the energy cost savings generated by the  
          project.  According to the sponsor, there is still about $235  
          million in available bonding authority for the program. Without  
          extending the sunset date, DGS will stop approving future  
          projects this year because of lead time needed for development  
          and bond sales. 

          The bill also attempts to make a larger number of projects  
          feasible under the program by making two eligibility changes:  
          "bundling" of projects and expanding the scope of evaluation to  
          the "life of the project."  A program administrative requirement  
          is that projects must pay for themselves within 10 years,  
          regardless of the project's life span.  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 are more likely to be feasible.  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) may become feasible.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081