Existing law generally provides that the legislative body of any city and any charter city may make and enforce all ordinances and regulations with respect to municipal affairs, as provided, including, but not limited to, a utility user tax on the consumption of gas and electricity. Existing law provides that the board of supervisors of any county may levy a utility user tax on the consumption of, among other things, gas and electricity in the unincorporated area of the county.

Existing law, until January 1, 2020, exempts from any utility user tax on the consumption of electricity imposed by a local jurisdiction, as defined, the consumption of electricity generated by a clean energy resource for the use of a customer or the customers tenants.

This bill would extend the repeal date of the above-described exemption from January 1, 2020, to January 1, 2027. The bill would include findings that the changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities, including charter cities.

 THIRD READING  

Bill No: AB 1208

Author: Ting (D), et al.

Amended: 5/6/19 in Assembly

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 6/19/19

AYES: McGuire, Moorlach, Beall, Hurtado, Nielsen, Wiener

NO VOTE RECORDED: Hertzberg

ASSEMBLY FLOOR: 76-0, 5/13/19 - See last page for vote

SUBJECT: Utility user taxes: exemption: clean energy resource

SOURCE: California Solar and Storage Association

DIGEST:

This bill extends the sunset on the exemption from local utility user taxes for electricity generated by a clean energy resource located solely on the customer’s premises for use only by that customer until January 1, 2027.

ANALYSIS:

Existing law:

1. Allows a city, with the consent of the local voters, to govern its "municipal affairs" by adopting a charter (California Constitution, Article XI, Section 5).
2. Permits, as part of this charter authority, charter cities to levy taxes not preempted by the state or federal governments.
3. Limits a general law city’s taxing powers to only those taxes allowed by state statutes, but includes an exception from this limitation to allow a general law city to levy any tax that a charter city can unless a different general law limits or prohibits such a tax.
4. Allows counties to impose utility users taxes (UUTs), which are excise taxes on the consumption of utility services, including electricity, gas, water, sewer, telephone, sanitation, and cable television.
5. Exempts electricity generated by a clean energy resource located solely on the customer’s premises for use only by that customer from any locally imposed UUT until January 1, 2020 (AB 792, Mullin, Chapter 534, Statutes of 2013). The exemption applies to both charter and general law cities, as well as counties.
6. Defines, for purposes of the exemption, “clean energy resource” to mean a technology that:
   1. Meets the emissions standards adopted by the State Air Resources Board for its distributed generation certification program.
   2. Produces de minimis emissions of sulfur and nitrogen oxides.
   3. Complies with emission performance standard established by the California Public Utilities Commission.
   4. Has a total electrical efficiency of no less than 45 percent.
   5. Is sized to meet the generator’s onsite electrical demand.
   6. Has parallel operation to the electrical distribution grid.
   7. Utilizes renewable or nonrenewable fuel.
   8. Pays any applicable utility users tax for nonrenewable fuels used in electricity generation.

This bill extends the sunset on the exemption from local UUTs for electricity generated by a clean energy resource located solely on the customer’s premises for use only by that customer until January 1, 2027.

Background

In jurisdictions that impose a UUT, a utility company collects the tax through the bills it sends to utility customers, and remits the revenues to the local government that imposed the tax. As of January 1, 2017, 156 cities, 3 counties (Alameda, Los Angeles, and Sacramento), and the City and County of San Francisco impose a UUT, which results in annual revenues of approximately $2 billion statewide.

Some renewable energy firms sell renewable electricity generation systems, like solar panels, directly to property owners who must finance the cost of those systems themselves and recover their initial investments over time through reduced energy bills. As an alternative, several solar energy firms have developed sophisticated financing transactions in which the renewable energy system is owned by a third-party and the property owner is responsible only for paying for the power generated by the system. For example, under a sale-leaseback financing structure, a solar energy firm installs, operates, and maintains a solar generation system at no cost to the property owner. The property owner contracts for the power generated by the system through a power purchase agreement. The solar firm then sells the system to a third-party, which can claim tax credits and depreciation as the system’s owner, and leases the system back to the solar firm. Additionally, some users procure their own on-site renewable electricity generation solely to serve its own needs.

Some cities’ UUT ordinances specify that the consumption of electricity generated from renewable sources on the consumer’s property for the consumer’s use is exempt from a UUT. Few UUT ordinances contain any exemption for self-generated renewable electricity, but no evidence exists to indicate cities or counties currently collect UUT revenues from electricity generated from renewable electricity systems located on the user’s premises solely for their use.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/26/19)

California Solar and Storage Association (source)

Borrego Solar Systems
California Energy Storage Alliance
Engie Services U.S., Inc.
Solar Energy Industry Association
Solar Right Alliance
Sunrun, Inc.
Tesla
Vivint Solar

OPPOSITION: (Verified 6/26/19)

City of Lakewood
City of Pasadena
League of California Cities

ARGUMENTS IN SUPPORT: According to the author, “California needs to keep aggressively pushing renewable clean energy generation. This bill simply extends the sunset date on the prohibition on local jurisdictions to impose a utility users tax (UUT) on clean electricity.”

ARGUMENTS IN OPPOSITION: According to the City of Pasadena, “Local voters elect city council members to make public policy in response to local needs. Deciding how to impose local taxes to generate local revenues is precisely what councilmembers are elected to do. Exempting all renewable distributed generation electricity from UUTs, erodes local officials’ ability to manage local affairs by making it more difficult for them to raise general fund revenues. Local elected officials, and the voters to whom they are accountable, are in the best position to judge the merits of imposing a UUT on renewable distributed generation systems. AB 792 from 2013 unnecessarily substituted one-size-fits all standard for local officials’ informed judgment about what is best for their communities.”

ASSEMBLY FLOOR: 76-0, 5/13/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Brough, Burke, Frazier

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

6/26/19 15:55:45

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Utility user taxes: exemption: clean energy resource

Extends a current exemption from local utility user taxes for electricity generated from a clean energy resource located solely on the user’s premises until January 1, 2027.

Background

The California Constitution allows a city, with the consent of the local voters, to govern its "municipal affairs" by adopting a charter. The constitutional municipal affairs doctrine allows charter cities to levy taxes not preempted by the state or federal governments. A general law city can impose only those taxes allowed by state statutes. However, the Government Code allows all general law cities to levy any tax that a charter city can unless a different general law limits or prohibits such a tax (SB 1326, Alquist, 1982). Counties can only levy those taxes authorized by state statutes.

Utility users taxes (UUTs) are excise taxes imposed by cities and counties on the consumption of utility services, including electricity, gas, water, sewer, telephone, sanitation, and cable television. In jurisdictions that impose a UUT, a utility company collects the tax through the bills it sends to utility customers, and remits the revenues to the local government that imposed the tax. As of January 1, 2017, 156 cities, 3 counties (Alameda, Los Angeles, and Sacramento), and the City and County of San Francisco impose a UUT, which results in annual revenues of approximately $2 billion statewide.

Some renewable energy firms sell renewable electricity generation systems, like solar panels, directly to property owners who must finance the cost of those systems themselves and recover their initial investments over time through reduced energy bills. As an alternative, several solar energy firms have developed sophisticated financing transactions in which the renewable energy system is owned by a third-party and the property owner is responsible only for paying for the power generated by the system. For example, under a sale-leaseback financing structure, a solar energy firm installs, operates, and maintains a solar generation system at no cost to the property owner. The property owner contracts for the power generated by the system through a power purchase agreement. The solar firm then sells the system to a third-party, which can claim tax credits and depreciation as the system’s owner, and leases the system back to the solar firm. Additionally, some users procure their own on-site renewable electricity generation solely to serve its own needs.

Some cities’ UUT ordinances specify that the consumption of electricity generated from renewable sources on the consumer’s property for the consumer’s use is exempt from a UUT. Few UUT ordinances contain any exemption for self-generated renewable electricity, but no evidence exists to indicate cities or counties currently collect UUT revenues from electricity generated from renewable electricity systems located on the user’s premises solely for their use. In 2013, the Legislature exempted electricity generated by a clean energy resource located solely on the customer’s premises for use only by that customer from any locally imposed UUT until January 1, 2020 (AB 792, Ting). AB 792 applied to counties as well as general law and charter cities.

AB 792 defined “clean energy resource” as a technology that:

• Meets the emissions standards adopted by the State Air Resources Board for its distributed generation certification program.
• Produces de minimis emissions of sulfur and nitrogen oxides.
• Complies with emission performance standard established by the California Public Utilities Commission.
• Has a total electrical efficiency of no less than 45 percent.
• Is sized to meet the generator’s onsite electrical demand.
• Has parallel operation to the electrical distribution grid.
• Utilizes renewable or nonrenewable fuel.
• Pays any applicable utility users tax for nonrenewable fuels used in electricity generation.

With the AB 792 set to expire at the end of the year, renewable energy companies want to extend the sunset until January 1, 2027.

Proposed Law

Assembly Bill 1208 extends a current exemption from local utility user taxes for electricity generated from a clean energy resource located solely on the user’s premises until January 1, 2027.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “California needs to keep aggressively pushing renewable clean energy generation. This bill simply extends the sunset date on the prohibition on local jurisdictions to impose a utility users tax (UUT) on clean electricity.”

2. Local control. Local voters elect county supervisors and city council members to make public policy in response to local needs. Deciding how to apply local taxes to generate local revenues is exactly what county supervisors and city council members are elected to do. Exempting all renewable distributed generation electricity on the users’ premises from UUTs erodes local officials' ability to manage local affairs by making it harder for them to raise scarce general fund revenues. Local elected officials, and the voters to whom they are accountable, are well-positioned to judge the merits of imposing a UUT on these systems. The Committee may wish to consider whether AB 1208 continues a one-size-fits-all standard at the cost of local officials’ informed judgment about their communities.

3. Winners and losers. Because most UUTs apply to the consumption of electricity, regardless of the source, the tax functions as a broad-based source of general revenue for local agencies without favoring any particular utility’s business model. By contrast, the exemption that AB 1208 would extend favors the consumption of renewable electricity produced on-site over utility programs that allow customers to consume renewable energy transmitted through the grid. As a result, property owners with the means to deploy their own renewable energy generation could avoid paying UUTs for electricity from renewable sources but renters, who can’t install on-site renewable generation, must pay the tax.

4. Charters too. The California Constitution allows cities that adopt charters to control their own “municipal affairs.” In all other matters, charter cities must follow the general, statewide laws. Because the Constitution doesn’t define “municipal affairs,” the courts determine whether a topic is a municipal affair or whether it’s an issue of statewide concern. AB 1208 says that it applies to all cities, including charter cites. To support this assertion, the bill includes a legislative finding and declaration that the bill's exemption is a matter of statewide concern because of the need to ensure statewide uniformity and fairness in the overall imposition of the utility user tax. Ultimately, the courts may decide whether AB 1208 applies to charter cities.

Assembly Actions

Assembly Local Government Committee: 8-0
Assembly Floor: 76-0

Support and Opposition

(6/14/19)

Support: Borrego Solar Systems, California Energy Storage Alliance, California Solar and Storage Association, Engie Services U.S. Inc., Solar Energy Industry Association, Sunrun Inc., Tesla, Vivint Solar.

Opposition: Cities of Lakewood and Pasadena; League of California Cities.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1208

Author:(Ting)

As Amended Ver:May 6, 2019

Majority vote

SUMMARY:

Extends, until January 1, 2027, a utility user's tax (UUT) exemption for the consumption of electricity generated by a clean energy resource located on a customer's premises and used solely for the customer or the customer's tenants.

Major Provisions

COMMENTS:

A city may impose a UUT on the consumption of utility services, including, but not limited to, electricity, gas, water, sewer, telephone, sanitation and cable television. The city determines the rate of the tax and the use of its proceeds. UUTs can be imposed as a special tax dedicated for a specific purpose, or a general tax to be used for whatever purpose the city council decides. UUTs are levied by the city, collected by the utility as part of its regular billing, and then remitted to the city. A county may levy a UUT on the consumption of electricity, gas, water, sewer, telephone, telegraph and cable television services in the unincorporated area.

In most jurisdictions, UUTs provide vital funding for municipal or county services. Reduced funding by the state and other sources of funding for local governments over the last several decades have increased the popularity of UUTs, which are most commonly used to fund police, fire, parks, and libraries.

AB 792 (Mullin), Chapter 534, Statutes of 2013, exempted from any UUT imposed by a local jurisdiction a customer's consumption of electricity generated by a clean energy resource that is located on the customer's premises and used solely for the customer or the customer's tenants.

The argument for this UUT exemption was made by energy firms that use third-party ownership and power purchase agreements (PPA) to finance distributed generation (DG) renewable systems. These are financing arrangements in which the renewable energy system is owned by a third party and the property owner is responsible only for paying for the power generated by the system. Companies using these business models were concerned over the lack of clarity in the law at the time and the potential application of a UUT to the payments that a property owner makes under such terms.

The provisions of AB 792 sunset on January 1, 2020. This bill would extend this sunset date to January 1, 2027.

According to the Author:

"California needs to keep aggressively pushing renewable clean energy generation, including integration of storage capacity. This bill simply extends the sunset date on the prohibition on local jurisdictions to impose a UUT on clean electricity."

Arguments in Support:

The California Solar and Storage Association, sponsor of this bill, states, "The extension of UUT to DG would be very difficult to implement as it could be very time consuming and challenging for a local government to accurately account for energy that is used by a customer behind their own meter. This could lead to certain customers being disadvantaged over others given the ambiguity and complexity of application to different financing models. Simply the potential for this tax to be implemented would also cause uncertainty to potential customers looking to install solar.

"In addition, this new tax on unsuspecting existing solar owners could be jarring. Lastly, this UUT exemption has been in statute since 2013 pursuant to AB 792 (Mullin). At that time, no local governments were applying the UUT to DG. This bill, AB 1208, would simply extend the existing exemption. This bill will provide consistent treatment of UUT for all customers self-supplying electricity from clean distributed generation."

Arguments in Opposition:

The League of California Cities, in opposition, states, "This bill violates a core principle of tax policy that those who enjoy a benefit should also bear a burden. Local voter-approved UUT's are a critical source of revenue for many cities, so it is inappropriate for the state to eliminate local revenue streams at the behest of a renewable energy industry that has certainly become mainstream and already enjoys many state subsidies. Local UUT revenues benefit all residents and businesses in a community and support police, fire, parks, water, sewer, street and road repair and other public services. This legislation exempts certain businesses and residents from paying their share of local UUT's simply because they choose to consume energy created by a clean energy resource located on the customer's premises.

"UUT's are levied for the good of the entire community through services that also benefit individuals carved out by this legislation. This is inequitable. Such carve-outs diminish local revenues and exacerbate community inequities. Why should residents and consumers who cannot afford the additional luxury of on-site clean energy bear a tax burden that supports local services for their more affluent neighbors who have the resources to purchase clean energy systems? It is not the Legislature's place to grant exemptions to local voter-approved taxes; rather the local voters themselves should decide what exemptions, if any, should be provided. Furthermore, the state's renewable energy sector is robust and growing and if the state chooses to further subsidize this industry, it should do so with its own revenues."

FISCAL COMMENTS:

None

VOTES:

ASM LOCAL GOVERNMENT: 8-0-0

YES: Aguiar-Curry, Lackey, Bloom, Boerner Horvath, Ramos, Luz Rivas, Robert Rivas, Voepel

UPDATED:

VERSION: May 6, 2019

CONSULTANT: Angela Mapp / L. GOV. / (916) 319-3958 FN: 0000372

Date of Hearing: May 1, 2019

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 1208 (

Author:Ting) – As Amended Ver:March 25, 2019

SUBJECT: Utility user taxes: exemption: clean energy resource.

SUMMARY: Extends, until January 1, 2027, a utility user’s tax (UUT) exemption for the consumption of electricity generated by a clean energy resource located on a customer’s premises and used solely for the customer or the customer’s tenants, and adds to the definition of “clean energy resource” a device or technology used for a renewable electrical storage facility.

FISCAL EFFECT: None

COMMENTS:

1. Background. A city may impose a UUT on the consumption of utility services, including, but not limited to, electricity, gas, water, sewer, telephone, sanitation and cable television. The city determines the rate of the tax and the use of its proceeds. UUTs can be imposed as a special tax dedicated for a specific purpose, or a general tax to be used for whatever purpose the city council decides. UUTs are levied by the city, collected by the utility as part of its regular billing, and then remitted to the city. A county may levy a UUT on the consumption of electricity, gas, water, sewer, telephone, telegraph and cable television services in the unincorporated area.

In most jurisdictions, UUTs provide vital funding for municipal or county services. Reduced funding by the state and other sources of funding for local governments over the last several decades have increased the popularity of UUTs, which are most commonly used to fund police, fire, parks, and libraries.

1. UUT Exemption. AB 792 (Mullin), Chapter 534, Statutes of 2013, exempted from any UUT imposed by a local jurisdiction a customer’s consumption of electricity generated by a clean energy resource that is located on the customer’s premises and used solely for the customer or the customer’s tenants. The argument for this UUT exemption was made by energy firms that use third-party ownership and power purchase agreements (PPA) to finance distributed generation (DG) renewable systems. These are financing arrangements in which the renewable energy system is owned by a third party and the property owner is responsible only for paying for the power generated by the system. Companies using these business models were concerned over the lack of clarity in the law at the time and the potential application of a UUT to the payments that a property owner makes under such terms.

AB 792 defined “clean energy resource” to mean either of the following:

• 1. A device or technology used for a renewable electrical generation facility that uses biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuels, small hydroelectric generation of 30 megawatts or less, digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal, or tidal current, and any additions or enhancements to the facility using that technology; or,
  2. Any technology that meets all of the following requirements:
     1. The emissions standards adopted by the State Air Resources Board pursuant to the distributed generation certification program requirements, as specified;
     2. Produces de minimis emissions of sulfur oxides and nitrogen oxides;
     3. The greenhouse gases emission performance standard established by the Public Utilities Commission, as specified;
     4. Has a total electrical efficiency of not less than 45%;
     5. Is sized to meet the generator’s onsite electrical demand;
     6. Has parallel operation to the electrical distribution grid;
     7. Utilizes renewable or nonrenewable fuel; and,
     8. Pays any applicable UUT for nonrenewable fuels used in electricity generation.

The provisions of AB 792 sunset on January 1, 2020.

1. Bill Summary and Author’s Statement. This bill extends, until January 1, 2027, the sunset date on the UUT exemption authorized by AB 792, and adds to the definition of “clean energy resource” a device or technology used for a renewable electrical storage facility. According to the author, “California needs to keep aggressively pushing renewable clean energy generation, including integration of storage capacity. This bill simply extends the sunset date on the prohibition on local jurisdictions to impose a UUT on clean electricity.”

This bill is sponsored by the California Solar and Storage Association.

1. Committee Amendment. The definition of a “renewable electrical generation facility” under existing law that this bill seeks to amend is as follows:

The facility uses biomass, solar thermal, photovoltaic, wind, geothermal, fuel cells using renewable fuels, small hydroelectric generation of 30 megawatts or less, digester gas, municipal solid waste conversion, landfill gas, ocean wave, ocean thermal, or tidal current, and any additions or enhancements to the facility using that technology.

It is not clear why this bill’s addition of “storage” is necessary. The Committee may wish to remove this language from the bill.

1. Arguments in Support. The California Solar and Storage Association, sponsor of this bill, states, “The extension of UUT to DG would be very difficult to implement as it could be very time consuming and challenging for a local government to accurately account for energy that is used by a customer behind their own meter. This could lead to certain customers being disadvantaged over others given the ambiguity and complexity of application to different financing models. Simply the potential for this tax to be implemented would also cause uncertainty to potential customers looking to install solar. In addition, this new tax on unsuspecting existing solar owners could be jarring. Lastly, this UUT exemption has been in statute since 2013 pursuant to AB 792 (Mullin). At that time, no local governments were applying the UUT to DG. This bill, AB 1208, would simply extend the existing exemption. This bill will provide consistent treatment of UUT for all customers self-supplying electricity from clean distributed generation.”
2. Arguments in Opposition. The City of Pasadena, in opposition, writes, “The City’s voters approved the UUT in 2008. Local voters elect city council members to make public policy in response to local needs. Deciding how to apply local taxes to generate local revenues is precisely what council members are elected to do. Exempting all renewable DG electricity from UUTs, particularly on a permanent basis, erodes local officials’ ability to manage local affairs by making it more difficult for them to raise general fund revenues. Local elected officials, and the voters to whom they are accountable, are in the best position to judge the merits of imposing a UUT on renewable DG systems. AB 792 from 2013 unnecessarily substituted a one-size-fits-all standard for local officials’ informed judgement about what is best for their communities. While this bill has a noble stated goal, it has far-reaching revenue implications that is expected to be severely damaging for cities.”

REGISTERED SUPPORT / OPPOSITION:

Support

California Solar and Storage Association [SPONSOR]

Borrego Solar

ENGIE Services

Solar Energy Industries Association

Sunrun Inc.

Tesla

Vivint Solar

Opposition

City of Pasadena

Analysis Prepared by: Angela Mapp / L. GOV. / (916) 319-3958