Legislature(2017 - 2018)BARNES 124
02/07/2017 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB80 | |
| HB85 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 80 | TELECONFERENCED | |
| *+ | HB 85 | TELECONFERENCED | |
HB 80-MUNI ENERGY IMPROVEMNT:ASSESSMNTS/BONDS
8:01:19 AM
CO-CHAIR PARISH announced that the first order of business would
be HOUSE BILL NO. 80, "An Act adopting the Municipal Property
Assessed Clean Energy Act; authorizing municipalities to
establish programs to impose assessments for energy improvements
in regions designated by municipalities; imposing fees; and
providing for an effective date." [Before the committee was
CSHB 80(ENE).]
8:01:42 AM
CO-CHAIR FANSLER moved to adopt CSHB 80(ENE) [as clarification
that the committee would work from CSHB 80(ENE) rather than the
original bill version]. No objection was stated.
8:02:16 AM
REPRESENTATIVE ADAM WOOL, Alaska State Legislature, presented HB
80, as prime sponsor. He noted there are two related acronyms:
commercial property assessed clean energy (C-PACE) and property
assessed clean energy (PACE). He stated that under HB 80,
individuals who own commercial property would be allowed to get
a loan to improve the energy efficiency of a building or to make
the exhaust cleaner. The funding could then be paid back
through an assessed property tax. The borough or municipality
in which the building is located would also have to agree to
this funding mechanism. By allowing the building owner to pay
back the interest over a longer period of time, the interest on
the payments would be lower, he indicated; therefore, there
would be a low default rate. Representative Wool noted that if
the building is sold, then the loan would stay with the
building. He said this factor would incentivize people to make
improvements, "even if they don't plan on being at this location
indefinitely." He summarized that the proposed legislation
would incentivize low interest loans to improve energy
efficiency in commercial buildings, using a borough or
municipality with a tax system already in place as a way to pay
back the loans. He said the proposed provision under HB 80
would be voluntary; HB 80 would put the mechanism in place that
is currently in place in 33 other states.
8:04:59 AM
REPRESENTATIVE TALERICO asked for confirmation that the program
would be voluntary for municipalities.
REPRESENTATIVE WOOL confirmed that is correct. He added that
[HB 80] is supported by the Alaska Municipal League (AML) and
several boroughs.
8:05:27 AM
CO-CHAIR PARISH offered his understanding that a previous
iteration of this legislation had passed the House.
REPRESENTATIVE WOOL confirmed that in 2016, [during the Twenty-
Ninth Alaska State Legislature], similar legislation had passed
the House with a vote of 38-0 but did not get through the
Senate. He indicated that HB 80 included the addition of
language regarding clean energy.
8:06:12 AM
SEAN SKALING, Assistant Executive Director/Energy Policy
Director, Alaska Energy Authority (AEA), Department of Commerce,
Community & Economic Development (DCCED), gave a PowerPoint
presentation, titled "Commercial Property Assessed Clean Energy
(C-PACE)." He directed attention to slide 2, which he said
shows that C-PACE is a tool to take down barriers to commercial
property owners in financing energy improvements to their
buildings. He said, "The key is it's a voluntary repayment on
the property tax bill." He directed attention to slide 3 and
said he would walk the committee through a scenario of how the
program would work for a particular building. He noted that
Gene Therriault had wished to impart information prior to the
PowerPoint.
8:07:50 AM
GENE THERRIAULT, Energy Policy Assistant, Alaska Energy
Authority/Alaska Industrial Development and Export Authority
(AEA/AIDEA), Department of Commerce, Community & Economic
Development (DCCED), indicated that the proposed repayment
mechanism could give municipalities and utilities better access
to funding sources. He relayed that in the past he served on a
national board of energy officials across the nation, where he
researched programs and funding sources other states used in
relation to energy efficiency. He said he discovered a couple
loan programs offered by the Rural Utility Service (RUS) - a
subset of the United States Department of Agriculture and Rural
Development (USDA). The first program is called the Energy
Efficiency and Conservation Loan Program (EECLP), which he said
gets about $250 million annually that is available nationwide
for areas of the population that are RUS eligible. Those funds
are underutilized, and RUS is interested in working with states
to get more of those funds deployed. He said he checked the RUS
Internet homepage in January 2017 to find out the current
interest rate. He stated that under the EECLP program, for a
municipality or utility that wants to access these funds and
loan money out to a consumer for a 10-year period of time, the
current interest rate is 2.07 percent, which he said is a
relatively low-cost capital that can be accessed from RUS via a
municipality or utility and made available to an end consumer.
The municipality or utility could then add to that cost in order
to cover administrative costs.
8:10:49 AM
MR. THERRIAULT indicated that within EECLP regulation is an
expressed interest in finding the means of helping to ensure
that the default rates on the loans are low. He said the PACE
mechanism is one that helps to lower the default rate, because
the repayment is being done through an existing relationship
between the borough or city and the property owner. Each year,
if the municipality levies a property tax, it sends a bill to
the commercial property owner, who in turns pays the taxes and
any assessments on the property. The way the PACE mechanism
works is that the property owner is deciding to pay back the
loan through a voluntary assessment that appears on the tax
bill. The local government has all the collection powers that
it has to collect its general taxes and any assessments to make
sure the PACE loan repayment gets made. He said because of the
strength of that repayment mechanism, the default rates on PACE
loans nationwide are relatively low at less than 1 percent,
which means they are low-risk. He added, "And that is what
helps you get access to the low-cost capital."
MR. THERRIAULT stated that in the regulations for EECLP there is
specific reference to an "on-bill repayment mechanism" or other
financial recruitment mechanisms as may be approved by RUS. He
said when AEA began to look at what it would need to do to
implement PACE in the state of Alaska, it corresponded with RUS
and got a letter in response saying [RUS] understood the PACE
mechanism deployed in many other states as one that would lower
the rates of default and be "attractive to access the EECLP
funds."
8:13:02 AM
MR. THERRIAULT stated that the second program is called the
Rural Energy Savings Program (RESP). It is one that was on the
federal books for quite a while but did not receive federal
funding until 2016, when the total amount available was about
$50 million nationwide. He indicated that there are attractive
components to the RESP fund. For example, for the borrowing
entity - a utility or municipality working with a utility - the
interest rate that comes with these funds is zero. The
borrowing entity can then add on up to a 3 percent interest rate
to cover the local administrative cost. He said the regulations
for RESP also speak to mechanisms that ensure that default rates
on the loans are low. He indicated the use of "on bill"
financing is allowed, as long as the requirement does not
prohibit the use of any additional repayment mechanism that has
been demonstrated to have appropriate risk mitigation features.
He said the PACE mechanism helps to reduce the rates of default.
MR. THERRIAULT said, "If the state of Alaska actually puts the
PACE mechanism into place, it doesn't guarantee that utilities
will have access to it, but these pools of money - when you look
into the regulations - specifically point out that they're
looking for mechanisms that help to lower the rate of default;
and that PACE mechanism is one such mechanism." He stated that
he wanted the committee to be aware that there are some
potential non-general fund (GF) sources of money that may be
accessed with certain mechanisms in place.
8:15:41 AM
REPRESENTATIVE SADDLER asked Mr. Therriault to clarify his
working relationship with AIDEA and AEA.
MR. THERRIAULT answered that he is a temporary employee with
AIDEA, but because of the sister relationship between AIDEA and
AEA, he is able to work on issues for both entities.
8:16:35 AM
MR. SKALING returned to the PowerPoint presentation, to slide 3,
titled "C-PACE Scenario." The slide shows a commercial building
that went through AEA's commercial energy audit program some
years ago. He described a typical example: there is a building
with high energy bills, which is hurting the profitability of
the business housed therein; the building owner is interested in
becoming more energy efficient; and the owner hires an energy
auditor, whose audit shows line by line what can be done to make
the building more efficient, possibly including the use of
renewable energy sources. He said in general the improvement
recommendations related to PACE are ones that "can pay for
themselves over their lifetime, at least." An audit may show a
possible savings of 30 percent annually, with an average six-
year pay-back period. The improvement will last between 8 to
20-plus years. Mr. Skaling said the building owner would then
go to a bank for a loan, and the bank may offer a four-year
payback term with an interest rate that the building owner may
not like. Another factor in the scenario is that the building
owner has been thinking about selling his/her building in a
couple years and moving to a larger space. He said ultimately
the hypothesized building owner decides not to go forward with
the energy improvement, because the bank term and six-year
payback period are not in alignment with each other; therefore,
on day one, when the owner starts saving 30 percent, he/she will
be paying back more than the energy savings, when he/she wants
to start reaping the energy savings. Also, because of the
possible move, the building owner is not sure he/she will get
back the value from the building. The building will be more
appealing because of the energy improvements, but other factors
are in play, such as what the market is like and whether a new
buyer will recognize the value of those improvements. He said
it may be years before these cost effective improvements are
implemented. Mr. Skaling summarized, "So, the main sticking
points here are that short loan term and that they might be
moving soon and they might not make their money back. So, PACE
addresses those two things in particular, and they also impact
the interest rate."
8:20:15 AM
MR. SKALING directed attention to slide 4, titled "How C-PACE
Works." He said PACE is a voluntary program that has built in
protections. For example, if a building owner decides to use
the program, the bank that holds the lien on the building has to
approve the loan. He related that 79 percent of the respondents
that went through the commercial energy audit program several
years ago reported that the main reason for not moving forward
with the improvements was because of a lack of financing. He
said there were approximately 180 commercial energy audits
conducted, and quite a bit of work did result from them. He
emphasized that banks and other lending institutions are now
more comfortable with [loans relating to] energy savings,
because there is a structure in place: a real energy audit will
be conducted; there will be real energy savings; so there is
less risk, which helps the banks spread out the terms to a
longer period of time. He further explained that because [a
building owner] pays back the loan voluntarily on his/her tax
assessment, "the payment sticks with the building." He
explained, "So, if you do move out of the building, the benefits
that you've built into the building stay with the building, and
the payments for those stay in the building." He offered a
scenario describing the takeover of payments from the exiting
building owner to the incoming one.
8:22:52 AM
REPRESENTATIVE SADDLER asked what qualifications or standards
may exist in relation to the auditors.
MR. SKALING answered that typically there are standards applied.
He said Alaska has used energy raters at various levels; for
commercial buildings, the state typically specifies [the
American Society of Heating, Refrigerating and Air-Conditioning
Engineers] (ASHRAE) Level II, which comes with a set of
requirements. In response to follow-up questions from
Representative Saddler, he said there is a pool of qualified
auditors in the state, and he surmised they may have more work
if the proposed legislation is passed. He estimated there may
be 5 to 10 [auditors] for the entire state.
8:25:15 AM
MR. SKALING returned to the PowerPoint presentation, to slides 5
and 6, titled "C-PACE Eligible Improvements." Slide 5 lists
items eligible for energy efficiency improvements, including
heating, air conditioning, lights, pumps, controls, and
"anything that will end up saving money" by modernizing
buildings to more current standards. He said AEA has discovered
that energy efficiency improvements are "some of the lowest
hanging fruit" and "most available improvements that can be
made," thus, there is a lot of opportunity in terms of both
heating and electric energy efficiency. Slide 6 lists
alternative energy improvements that could be made under C-PACE:
air-source heat pumps; solar, if economical; biomass, such as
wood heat; and fuel switching to improve efficiency and air
quality.
8:26:48 AM
CO-CHAIR FANSLER asked if "wind and any other winterization
projects" would be included as eligible energy improvements.
MR. SKALING answered, "Yes and no." He indicated that in terms
of weather efficiency, [eligible improvements] would include air
sealing and traditional insulation, such as for windows and
doors. He said "wind" could be eligible, but he said it is not
AEA's experience that "wind, on a building scale, which would
have to be attached to the building, would be economical." He
added, "You'd typically want to have a larger scale wind, and in
a windy place - not necessarily just wherever the building is
situated - so, it's conceivable, although highly, highly
unlikely, I would say, because of the economics."
8:27:53 AM
REPRESENTATIVE SADDLER asked if fuel switching may include folks
in the Interior switching from heating oil to natural gas as a
fuel source.
MR. SKALING responded that's correct, particularly where there
is either air quality improvement or cost savings or reduction
in fuel use - "any of those are written into the bill as
potentially qualifying." In response to follow-up questions, he
said the energy auditors typically will itemize each action they
could envision for the building in question, including the cost
of the measure, the energy savings, the dollar savings, and even
the air emission savings, which he said is not difficult to
calculate once the fuel savings is known.
REPRESENTATIVE SADDLER referred to the phrase "operating as
intended" [found on page 8, line 3, of CSHB 80(ENE)], and he
asked, "Does that include achieving the projected emission
reduction?"
MR. SKALING offered his understanding that it is the intent of
that language to ensure that measures are installed that
actually achieve that which is intended in the original energy
audit that recommended them.
8:29:47 AM
MR. SKALING directed attention to slide 7, titled "Cash Floor
from Energy Improvements." He noted that the green portion of
the graph on slide 7 shows the [post-improvement energy] cost -
both electric and heat. He said at a certain point in time
there is a drop in that cost, which reflects where the energy
efficiency and other improvements were made, and that represents
an approximate, average 30 percent decline seen with commercial
energy audits. He continued, "And now, since this loan has PACE
legislation, the financial institutions are able to offer a
longer loan repayment period, such that the loan repayment is
less than the energy cost savings; so, ... the building owner is
cash flow positive from day one, when the energy efficiency
improvements are made." He said that is one of the keys to the
proposed legislation.
8:30:51 AM
REPRESENTATIVE RAUSCHER asked if it is the intent of the energy
auditor to help design or just approve the type of energy that
would be used to achieve the desired savings.
MR. SKALING answered that a typical energy audit will include a
recommendation of the type of replacement energy equipment to
use and a range of savings that could be achieved by the
building owner. If the building owner chose to install
equipment that is less efficient, a follow-up audit would detect
that and update the cost savings. He said municipalities would
be able to set their own programs, and "this sets the ...
guidelines and the process so that an energy audit does have to
happen." He mentioned the comfort level of the bank and
indicated that [that comfort level] results from the specifics
of what [energy efficient measures will be made].
REPRESENTATIVE RAUSCHER said he was trying to understand the 30
percent and how the assurances are made that "the loan is worth
their time" and "the program is worth ... what we're trying to
accomplish here."
8:33:44 AM
REPRESENTATIVE SADDLER asked for confirmation that under HB 80
the property owner would be responsible for paying for the
audit; there is no intent to "fold in the cost of that audit
into the financing."
MR. SKALING answered that the financing - "any of the fees
associated with doing this work" - may be folded into that loan.
8:34:22 AM
MR. SKALING continued to slide 8, titled "PACE: How Loan is
Repaid." He directed attention to the box in the middle of the
flow chart that represents the property owner. He said the
property owner gets the loan from the investor and pays back the
loan through a voluntary assessment on the property tax, which
is paid to the city or local government, which then pays back
the investor. This method provides extra assurance to the
investors that the investment will be paid back and the default
rates will be lower than typical default rates.
MR. SKALING turned to slide 9, titled "33 States Enabled PACE."
He said the slide shows which states have enabled PACE
legislation. He commented on the rapid development of the
program. He said the program in Alaska is modeled after that in
Texas, a state with over one dozen communities running PACE
programs.
8:35:54 AM
REPRESENTATIVE RAUSCHER asked whether statistics are available
showing a success rate of the program or any [failures].
MR. SKALING answered that there are statistics, and the main one
of which he is aware is the default rate of less than 1 percent,
which he described as "one of the greatest successes of the
program overall." He deferred to Mr. Therriault for further
statistics.
8:36:57 AM
MR. THERRIAULT offered that "PACE Nation" would have examples of
the various buildings that have been upgraded under its program
and the savings that were achieved. He echoed that the default
rate is low, specifically for the C-PACE programs. He noted
that C-PACE did not get started until 2008 and did not gain
momentum until the last four to five years; therefore, the
information pertaining to success rates is relatively new.
8:37:57 AM
MR. SKALING, in response to a follow-up question from
Representative Rauscher, related that public, residential, and
commercial buildings that utilize the PACE program all tend to
gravitate to a 30 percent savings.
8:39:11 AM
MR. SKALING returned to the PowerPoint presentation, to slide
10, titled "Time to Add Alaska to the Map." He said the slide
simply purports that it is time to add Alaska to the map,
because there is no cost to the state and the program is
voluntary. He directed attention to slide 11, titled, "C-PACE
is a Win-Win-Win." He said property owners would pay lower
utility bills; their properties would be improved; and their
work environment could result in increased productivity from
employees. Lenders would be making new loans, with less risk
and a consistent, statewide process. Contractors and vendors
would be busier, as they are hired to make the improvements, and
there would be more local hire, with contractors keeping up with
new technology and advancements in energy efficiency. He added
that there would also be other benefits, including to tenants of
the buildings, to communities, and to the quality of air.
MR. SKALING drew attention to slide 12, titled "Easy Win for
Alaska." He reminded committee members that similar legislation
had been fully vetted during a previous legislature and had
gained strong support. Further, he reiterated that the program
would be voluntary, with no cost to the state, and would help
local economies. He explained that rather than spending money
on fuel "that quickly leaves the community," hiring people
locally would save money in the long term, and "that money from
that business can be circulating in the community for much
longer."
8:41:25 AM
REPRESENTATIVE SADDLER asked for clarification regarding the
flow chart on slide 8.
MR. SKALING responded that the ECLA and REST programs would
provide the capital typically to the city or local government
for those entities to "re-loan as a pool." He said it is
conceivable that investors could use that money, too, depending
on the rules of the program; however, the money would have to go
to an eligible borrower, which he said he does not think could
include a commercial lending institution. In response to a
follow-up question, he said another option could be for a local
government to amass its own pool of money through bonding or
through "this federal source," and then the relationship
essentially would be between the property owner and the city,
which would be both lending the money and receiving money back
through taxed bills. The other investment option, he said,
would be "any sort of financial institution that's separate from
the [municipality]." He concluded, "A [municipality] may also
use an investor or some sort of financial institution to manage
that cash; these are all things that the ... city and investors
could figure out as the ... money pool became available."
8:43:40 AM
REPRESENTATIVE RAUSCHER asked for the definition of a home rule
municipality.
MR. THERRIAULT answered it is one that is given the power to
establish its own rules. In response to a follow-up question,
he said, "In the front part of the bill here, I think we're
giving this power to first -- well, home rule boroughs, first-
and second-class." He suggested there were other members of the
committee who could offer more details.
8:44:32 AM
REPRESENTATIVE TALERICO proffered that a home rule borough can
do anything that is not prohibited by law under Alaska statute.
8:44:51 AM
REPRESENTATIVE WESTLAKE said, "The implications for at least one
municipality are good and the implications for the state are
even better should this come through."
8:45:25 AM
CO-CHAIR PARISH opened public testimony on HB 80.
8:45:53 AM
BRITTANY SMART, Special Assistant, Mayor's Office, Fairbanks
North Star Borough, testified in support of HB 80. She said
while the Mayor's Office understands that the proposed financing
measure can be used by commercial entities to provide energy
efficiency to their facilities, it is most interested in the
implications of HB 80 in improving natural gas conversions and
air quality.
8:46:52 AM
CO-CHAIR PARISH, after ascertaining that there was no one else
who wished to testify, closed public testimony on HB 80.
8:47:15 AM
The committee took an at-ease from 8:47 a.m. to 8:50 a.m.
8:50:15 AM
REPRESENTATIVE TALERICO augmented his prior remark concerning
home rule authority by offering his understanding that the
proposed legislation would add a tool in the Title 29 tool box
that would apply to first- and second-class boroughs; it would
add to the existing taxing and planning authority "the ability
to participate in these programs." He said he is not an expert,
but was a home rule mayor for ten years; therefore, he indicated
he is not as familiar with first- and second-class borough
systems.
8:51:40 AM
REPRESENTATIVE SADDLER said he understands the goal is "making
sure a municipality cannot hold somebody hostage by not issuing
a permit, license, or other authorization" if [that individual]
"has not chosen to take part in this process." Notwithstanding
that, he said the aforementioned language on page 10, lines 7-
13, of CSHB 80(ENE) "sounds like it's making a specific
reference to a person entering a written contract." He asked
for clarification for the record that the language is specifying
that a municipality could not "make issuance of any permit
contingent on any person participating in the program." He
added, "It's not just a written contract aspect; it's
participate in the PACE program at all."
8:52:32 AM
REPRESENTATIVE WOOL offered that his understanding of lines 7-
13, on page 7, is that a person could not be compelled to enter
a written contract. In response to a follow-up comment by
Representative Saddler, Representative Wool confirmed, "It's
voluntary on both ends."
8:54:05 AM
CO-CHAIR FANSLER moved to report CSHB 80(ENE) out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, CSHB 80(ENE) was reported out
of the House Community and Regional Affairs Standing Committee.
8:54:32 AM
The committee took an at-ease from 8:54 a.m. to 9:01 a.m.
9:01:34 AM
CO-CHAIR PARISH noted that CSHB 80(ENE) had been reported out of
committee with an attached zero fiscal note.