BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 653 - Nunez Hearing Date: June 24, 2003 A As Amended: March 24, 2003 FISCAL B 6 5 3 DESCRIPTION Current law authorizes the State Public Works Board (SPWB), until January 1, 2005, to issue revenue bonds, notes, and bond anticipation notes to finance cogeneration equipment, alternative energy equipment, and conservation measures in public buildings. This bill extends the sunset date of the SPWB's bonding authority by five years to January 1, 2010. Current law doesn't specify whether the bonds can be used for projects that combine conservation measures with alternative energy equipment purchases. This bill permits the bonds to be used for projects that combine conservation measures with alternative energy equipment purchases. Current law requires energy efficiency and conservation projects to save enough money in operational costs to cover the expense of financing the project. Generally, the Department of General Services (DGS) requires projects to pay for themselves within ten years. This bill requires the SPWB to evaluate each project based on the costs and savings over the life of the project, rather than over a ten-year timeframe. BACKGROUND In 1982, the Legislature passed SB 701 (Dills), Chapter 1523, Statutes of 1982, to create the state's "Energy Conservation in Public Buildings" program. It gave SPWB the authority to issue bonds in $50 million increments beginning with the 1982-83 fiscal year to finance energy and water conservation projects in state buildings that would eventually save the state money, and allowed whatever money wasn't spent to be rolled over to subsequent years. AB 1551 (Pescetti), Chapter 981, Statutes of 1999, extended the program from January 1, 2000, to January 1, 2005, and capped the bonding authority at $500 million. According to SPWB, there's an estimated $215 million worth of bonding authority available. COMMENTS 1.The Beginning of the End . In anticipation of the 2005 sunset and because of the long lead time necessary to develop projects and issue bonds to finance them, the SPWB will begin scaling back its work on future projects during this calendar year if the sunset isn't extended. By extending the sunset of the program a year early, the hope is the SPWB won't have to slow down or interrupt projects due to any uncertainty over whether the program will continue. 2.If The Money Is Capped, Why Is There A Sunset ? Since the total bonding authority is capped at $500 million ($285 million of which has already been spent), it's not clear what purpose is served by sunsetting the program before the money may run out. As such, the author and committee may wish to consider simply removing the sunset provision of the bill. 3.Ten Years to Life . This moves away from the DGS requirement that projects pay for themselves within ten years and replaces it with one that allows projects to receive financing as long as they pay for themselves over their lifetime. The goal of this change is to allow more types of conservation and alternative energy projects to be eligible for funding through the program. For example, while the cost of photovoltaic (PV) equipment may not be recoverable in the first ten years of installation, it may be recoverable over a longer period of time, but under current law, bonds issued under this program can't be used to pay for anything where the payback time exceeds ten years. While the change affected by this bill may promote more investment in projects that will eventually save the state more money, it also makes it more difficult to determine the true cost-effectiveness of a project since "life of the project" is relatively open-ended. The author and committee may wish to consider whether the bill should be amended to, in cases where the project involves the purchase of energy-efficient equipment, require the project to pay for itself over the life of the product warranty. 4.Bundle Up . This bill allows groups of energy projects to be "bundled" and evaluated as to their long-term energy and costs savings as a package, rather than individually. This change will also permit more solar projects to be funded through the program by allowing them to be coupled with other conservation and efficiency projects for a total cost savings that's greater than the cost of financing the projects. ASSEMBLY VOTES Assembly Floor (78-0) Assembly Appropriations Committee (24-0) Assembly Natural Resources Committee (12-0) Assembly Business and Professions Committee (13-0) POSITIONS Sponsor: Planning and Conservation League Support: City of San Diego Clean Power Campaign Sierra Club California Vote Solar Initiative Oppose: None on file. Jennie Bretschneider AB 653 Analysis Hearing Date: June 24, 2003