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AB 811 Update - Report from Stakeholders Meeting

On Monday, December 7, a stakeholders' meeting was held at MTA headquarters to discuss the status of LA County's AB 811 energy improvements financing program. The meeting was modestly attended and the MTA Boardroom was less than half full. That was too bad because it is clear that more people need to hear about this important program - and the folks in charge need to hear more from the public this program is intended to serve.

Participation

Let's start with the cities that were represented. Here's the list, based on reviewing the sign-in sheet:

Burbank, Claremont, Culver City, Diamond Bar, Glendale, La Canada Flintridge, La Puente, Lancaster, Long Beach, Los Angeles, Manhattan Beach, Monrovia, Norwalk, Palmdale, Pasadena (?), Rancho Palos Verdes, Redondo Beach, Santa Clarita, Santa Monica, Sierra Madre, and West Covina.

That is 21 of the 88 incorporated cities in LA County. (To be sure, some of the missing cities are participating indirectly through regional government entities like the San Gabriel Valley Council of Governments - check out the SGV Energy Wise Partnership website - but direct participation is critical as this program progresses.) So again, if your city is not on that list, you should contact your City Manager's office to find out why not.

Program Timeline

As to the program itself, the County appears to have done a good job at seeking grant money from the State and the Feds to help offset program costs. This is crucial since any administration costs that have to be borne by borrowers will make the program less affordable, and ultimately less successful.

Several key events must take place before the program can start funding projects - which hopefully will begin by July 2010. Here are the major items upcoming:

Consenting Resolution

By next month, the County expects to circulate for comment a draft of the Consenting Resolution that will need to be adopted by the City Council of every city that desires to participate in the program. Of course, we will post the draft to the Founder's Blog as soon as it is available.

This is a key milestone since once the document is finalized, the cities will likely need to adopt it as presented without substantive amendments. This is an important reason why the individual cities need to be on board now.

Board Hearing

The program is expected to come up for a vote by the LA County Board of Supervisors in the Spring. At this time it is not known whether there will be any formal opposition to the program but a strong showing of public support is always helpful in getting any program approved.

Validation Action

Once the Board approves the program, the County intends to file what is known as a validation action. Sonoma county, which has already started its program, filed such an action, and here is their rationale:

Under state law, a public entity that issues bonds has a mechanism to file a 'validation action' to prevent later challenges to those bonds. The public entity files a complaint in the local superior court; and notice of the action is published so that all members of the public are informed of the action. The public entity files a brief in support of its position that the bonds were lawfully authorized and issued. If there is no response to the action, a default judgment is entered. Whether or not a response is filed, the court will conduct a hearing to determine whether the public entity is entitled to judgment in its favor. A typical validation action takes approximately four months to complete.

LA County hopes to file their action by March (assuming Board approval in February), which, allowing for the four months that it took Sonoma, would put the County in a position to begin selling bonds in July.

Program Issues

Various committees that are working on the program gave reports and in so doing revealed some issues that could be troublesome.

Residential Only?

At least at the outset, it appears that this program will only be available to residential property owners. There are some conflicting policy issues here. On the one hand, there is little doubt that credit for home improvement projects is very tight and this program should make solar affordable for a much broader universe of home owners. On the other hand, commercial solar power projects are much more cost effective due to the attendant economies of scale and thus more power would be produced per dollar of bonds sold. While it may make sense for the project to start with residential properties only, it would be a mistake if it were not eventually expanded to the commercial market as well.

Credit Features

To make the bonds attractive to the market, certain credit features were identified as being necessary to the program's design. While there is no personal credit worthiness requirement, home owners must satisfy a variety of conditions, including: they must be current with their mortgage, the mortgage to property value ratio must be no greater than 80%, and the cost of the project cannot exceed 10% of the property's value. Collectively, it is hoped that these conditions will limit the risk of non-payment of the property tax assessments and minimize the administrative nightmare of foreclosure.

Cost

There is concern that the cost of the loans may be higher than anticipated (and certainly higher than hoped). The costs for running the program must be paid for by a combination of grant monies (see above) and the interest spread between the rate charged to the home owner and the rate that must be paid to the bond holder. The County believes that the current market rate for these bonds is approximately 7%, with a spread of 1-2%. That means that the cost to the homeowner is likely to be in the 8-9% range - nowhere near the 5% that people were hoping to see.

One thing that could change this would be if the bonds could be sold as tax-exempt bonds. Apparently there is legislation moving in Congress to allow for this - we will report on that when we learn more.

Payment Process

Perhaps the most troubling issue to arise during the meeting was the question of when payments would be disbursed. According to the committee that reported on the issue, the present plan is to withhold all funds until the project is complete and fully approved. That means that either the homeowner would need to front the payment to their installer (which pretty much defeats the entire purpose of the program) or more likely, the installer would need to front the entire cost of the project until some unspecified time after the project was completed. This would put a substantial financial strain on small businesses that provide solar installation services - at a time when loans to small businesses are almost as hard to get as home improvement loans.

Fortunately, County staff were not as dismissive of this concern as was the committee member who presented the report. We were informed that this issue will be addressed as the program moves forward.

The Solar Bill of Rights - Rights 2—6

Continuing our series on the recently promulgated Solar Bill of Rights, here are some thoughts on Rights 2—6. Here they are:

2. Americans have the right to connect their solar energy system to the grid with uniform national standards.

3. Americans have the right to Net Meter and be compensated at the very least with full retail electricity rates.

4. The solar industry has the right to a fair competitive environment.

5. The solar industry has the right to equal access to public lands.

6. The solar industry has the right to interconnect and build new transmission lines.

Let's take these one at a time...

The good news is that at least here in California, #2 has already been secured. All of the utilities in our service area (the greater Los Angeles region) allow grid-tied systems to be connected to the grid with a minimum amount of hassle and red-tape.

The news is not quite so good for Right #3. Under existing California law, there is a cap on the number of net metering agreements that utilities are obligated to offer - presently at 2.5% of the utilities peak load. Such a cap makes no sense, and could work to seriously limit the growth of solar in California. Fortunately, there is legislation in the works, authored by Assembly Member Nancy Skinner (D-AD14) that would raise the cap to 5%. Skinner's bill, AB560, will be reintroduced next year.

We made real progress on the fair compensation portion of Right #3 with the signing into law of AB920. For the first time, solar customers in California will no longer be "donating" their surplus energy to their utility. Instead, utilities must pay solar customers who are net energy producers using the same rate structure by which that customer would normally be billed.

Turning to Right #4 - what does it mean for the solar industry to have a "fair competitive environment" in which to operate? After all, isn't solar already heavily subsidized through rebates and tax credits? It is true that over the past few years, particularly in California, we have seen more favorable treatment for solar than in the past. And yet, these subsidies are but a tiny fraction of the billions of dollars that the fossil fuel industries have received for decades.

According to Scientific American (citing a study by the Environmental Law Institute and the Woodrow Wilson International Center for Scholars), between 2002 and 2008, the fossil fuel industry received approximately $72 billion. In contrast, all renewables received just $29 billion, but more than half of that - $16.8 billion - went to pay for ethanol from corn, a poor environmental choice. Solar's share? Less than $1 billion.

A similar concern arises over access to public lands. For years, fossil fuel producers have had nearly unfettered access to federal lands with the government getting a very poor return on its investment. (For example, see this listing of Bush-era actions to open up public lands to the fossil fuel industry.) For utility scale solar to succeed, access to public lands in an environmentally sensitive way is crucial.

Likewise, to get clean solar energy to the demand centers around the country that need it, the solar industry and others will need to construct, and interconnect into, new, smarter transmission systems. These too will need access to public lands to make them affordable.

These rights will go a long way to leveling the playing field for the solar industry and hasten the day when a substantial percentage of the nation's energy can be supplied by clean solar power systems.

AB 920 Notices Due January 31

Under the recently passed modifications to California's net metering law
(AB 920, Huffman, D-San Rafael), utilities have until the end of this month to send notices to all customers receiving service under a net metering agreement (i.e., solar PV customers) advising them of their options under the law.

In particular, the law provides that customers who produce more energy than they consume in a year now have the option to have the utility cut them a check for the surplus at the end of the year!

As of this writing, we are informed that the utilities are in the process of drafting their notices and we have requested to receive copies as soon as they are approved. Of course, we will make those available on our website as soon as we receive them.