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HomeMy WebLinkAbout1984-01-10; City Council; 7604; SANDAG Energy Finance Advisory CommitteeCl'i OF CARLSBAD - AGEND- BILL 46#- TITLE: DEPT. H 1 SANDAG ENERGY FINANCE ADVISORY CITY Am& COMMITTEE RECOMMENDATIONS CITY MOR.&, MTG.~ IEPT..A&L- RECOMMENDED ACTION: Approve recommendations of the SANDAG Energy Finance Advisory Committee by minute motion. ITEM EXPLANATION: The SANDAG Energy Finance Advisory Committee has been meeting over the last sixteen (16) months to develop a way to finance conservation and energy supply technologies for the region. Mayor and was appointed as a member of this committee to represent the senior citizen community of interest. Mr. Harkins and Steve Sachs, SANDAG staff member will discuss the recommendations of the committee and will respond to Council questions concerning the matter. Mr Bill Harkins was nominated by the FISCAL IMPACT: No immediate impact. EXHIBITS : 1. Report to the SANDAG Board by the Energy Finance Advisory Committee. BOARD OF DIRECTORS October 28,1983 I AGENDA REPORT No.: R-74 ENERGY FINANCE ADVISORY COMMITTEE RECOMMENDATIONS Introduction The Board appointed the Energy Finance Advisory Committee in August of 1982 to investigate and recommend the best ways to finance the implementation of the cost-saving energy conservation and supply technologies recommended in the Regional Energy Plan Update. The Committee has met at least monthly over the past year. Committee activi- ties have included: workshops with energy finance experts from SDG&E, the State Public Utilities Commission, local governments in the region, and the private sector; review and development of reports on seven energy financing mechanisms ranging from utility financing for large capital projects to the financing of small, independent private sector or municipal power generation projects and conserva- tion equipment for residences; sponsorship of a full-day conference on Energy Financing Issues involving state, local government and private sector experts and policy makers, and publication of a conference transcript; recommendations to the SANDAG Board that it support the continuation of conservation and solar tax credits (adopted by Board) and the payment of a larger portion of the costs of extending electric and natural gas connections by new customers rather than all ratepayers (no position taken by Board). Attached to this agenda report are a list of the Energy Finance Committee Mem- bers and the Recommendations of the Committee. It is my RECOMMENDATION that the Board accept the Recommendations of the Energy Finance Advisory Committee for distribution and review by member agencies and all other inter- ested parties. Discussion Review, Adoption and Implementation If accepted for distribution by the Board, the Committee's recommendations would be sent to all local governments, state agencies and public and private groups in the region with an interest in energy finance matters. Presentations would be made to local jurisdictions, groups represented on the Energy Finance Committee, and others, on request. The Energy Finance Committee would review comments received and make appropriate revisions to the Recommendations. _- After preparation of final recommendations by the Committee, the Board will be asked to adopt them. As a result of adoption, the recommendations would be forwarded to groups responsible for implementation, such as the State Public Utilities Commission and SDG&E. SANDAG staff would monitor implementation of the recommendations, carry out the specific tasks identified for SANDAG, and assist others in carrying out their responsibilities, if sufficient funding were obtained. The Energy Finance Advisory Committee would reconvene a year after Board adoption of the recommendations to review implementation progress. Any further recommendations the Committee felt necessary could be made to the Board at that time. Background According to the Regional Energy Plan (REP) Update, adopted by the Board in July 1982, energy consumers in the region can save over $8.5 billion (1982 dollars) between now and the year 2000 by redirecting energy investments from purchases of oil, natural gas and other conventional fuels and technologies, to conservation equipment and renewable technologies. Examples of the technologies recom- mended in the REP Update include: weatherization of houses, efficiency im- provements in commercial building heating and cooling systems, passive solar space heating, cogeneration, solid waste resource recovery, wind turbines, and methane recovery from wastewater treatment and land fills. The REP Update concluded that cost-effective applications of these technologies have the poten- - tial to provide a majority of the non-transportation energy needed to accommo- date demand increases in the region over the next 10 to 20 years. The job of the Committee was, therefore, to identify barriers to the investment of capital in cost-effective conservation and supply alternatives; to suggest ways to remove these barriers; and to recommend innovative ways to finance these new technologies. Major Actions Recommended The Energy Finance Advisory Committee is recommending that some very basic actions be taken that will have far-reaching and beneficial effects on the area's cost of energy and economy. These include: o Local independent (non-u tility) energy producers (e.g., cogeneration, munici- pal projects to use sewage and solid waste to generate power) make applica- tion for, and the Public Utilities Commission (PUC) expedite, public access and use of the utility's electricity and gas transmission systems by all quali- fying producers and consumers of energy. The opening of the transmission system to use by independent producers and users at a fair price will help create a competitive energy marketplace in the San Diego area, encourage energy efficiency and reduce costs. o SDG&E and the PUC should separate utility bills into "fixed" and "variable" components after careful identification of fixed energy costs (costs which do not change with the amount of energy consumed, such as billing costs) and variable energy costs (costs which change with the amount of energy con- sumed, such as fuel). Currently, utility bills include both fixed and variable costs in one rate per kilowatt hour or therm. When one customer conserves energy, SDG8tE and the PUC transfer the fixed cost portion of the energy not 3 purchased to all customers through a rate increase. Creation of fixed and variable rates would eliminate the need for such a transfer and the anomaly that now exists: The rate structure creates a built-in economic bias for each ratepayer against anyone else reducing energy consumption. o The Public Utilities Commission should revise the concept of "return on rate base" so that the utility earns a rate of return (profit) baaed on criteria such as efficiency and quality of service rather than solely on the amount of capital investment it has made, as is now the case. This would allow the utility a means of maintaining its financial strength in the face of economic conditions which dictate against large capital expenditurs. It would also reduce a built-in bias for the utility to oppose capital investments by inde- pendent energy producers which could reduce its potential rate base and profits. In addition, several supportive, informational activities have been recommended for implementation by SANDAG. These include: o Workshop and energy information services for the financial community to assist them in identifying reduced operational costs, tax benefits and other factors related to energy efficiency equipment when evaluating loans. o Workshop and energy information services for local governments regarding energy efficiency and energy generation opportunities and financing pro- grams. o An annual conference and continuing information services to provide updated information to the private and public sectors on technological development and financial issues related to conservation and alternative energy tech- nologies. Report Summarx The Committee's Recommendations are organized into four parts, as follows: Part I - Energy Financinn Needs and Mechanisms. This is actually a summary of the economic implications of the'overall Energy Strategy" for the region recom- mended in the Regional Energy Plan Update. The potential capital investment between now and the year 2000 is identified by technology (e.g., conservation, electric generation) and responsible economic sector (e.g., residential, public, utility). Appropriate financing mechanisms for the various technologies and sectors are also identified, based on the Committee's review. Part II - Recommended Actions on Energy Finance. These are the Committee recommendations for implementation as proposed in Part IV below. The recom- mendations are divided into sections which address the financing mechanisms which the Committee has reviewed. o Conventional Real Estate and Bank Financing o Utility Operations and Procedures. o Private Sector "Energy Service/Finance Companies" o Public Sector "Energy Service/Finance Companies" (e.g., Municipal Solar Utilities) o Financing of Independent Power (Non-utility) Production Projects (for both the Private and Public Sectors) Part XU - Recommended Actions on Utility Rates and Fees. The section of the recommendations concerning utility rates and feea har been reparated out because it is ao basic and important to addrersing the hues of energy finance. Virtually all aspects of energy financing, from the oucceu of utility bond iaaues in support of construction projects to decbions by lender8 on the financial feasibility and rkk of small, independently owned energy projects (for example, an industrial co- generation system) to deckiona by homeownera to purchase ceiling insulation, are affected by the way in which SDGdtE and the State Public Utilities Commission set the rates and fees that atomerr must pay. The Committee has recom- mended four basic utility rate and fee objectirea and reveral principles for imple- menting each objective. Part IV - Implementation Stratem After recommendations are adopted by the Board and forwarded to the appropriate implementing entity (for example, State Public Utilities Commiaaion and Energy Commirsion, SDGdlE, local governments) SANDAG staff would work with SDGdrE urd tha other responsible agencies to implement them and monitor implementation progresr. The Energy Finance Advisory Committee would reconvene after one year to redew implementation actions and make any further recornmendations to the Board. -* RICHARD J. HUFF Executive Director I SANDAG ENERGY FINANCE ADVISORY COMMITTEE RECOMMENDATIONS OCTOBER 28,1983 1 TABLE OF CONTENTS Energy Finance Advisory Committee Member~hip. ..................... 3 PART I San Diego Region: Potential Energy Financing Needs andMechanisms .............................................. 4 PART II Energy Finance Recommendations.. ............................. 6 PART IlI Recommendations on Utility Rates and Fees ..................... 8 PART IV Implementation Strategy ...................................... 12 ATTACHMENT A Description of Energy Financing Mechanisms.. .................... 13 2 7 SAN DIEGO ASSOCIATION OF GOVERNMENTS ENERGY FINANCE ADVISORY COMMITTEE SANDAG Board of Directors Hon. Gregory R. Cox, Mayor, City of Chula Vista, Chairman, Hon. Robert Emery, Councilman, City of Poway, Vice Chairman, SDG&E Mr. Richard Korpan, Group Vice President arid Chief Financial Officer Mr. Gary D. Cotton, Vice President, Engineering Greater San Diego Chamber of Commerce Mr. Mack Buck, King, Buck & Associates, Consulting Energy Engineers Mr. Chris Lane, WESTEC, Engineering, Economic and Planning Consultants Universities Dr. R. Ramanathan, U.C.S.D. Energy Center/Department of Economics Dr. Allen R. Sweedler, Director, S.D.S.U. Center for Energy Studies Financial Representatives Mr. Dennis Campbell, Home Federal Savings and Loan Co. Mr. Jeffrey Wiegand, Financial and Technical Consultant for Alternative Energy Aojects Citizen/Ratepayer Representatives Mr. Bill Harkins, Senior Citizen Representative Ms. Myrna Pascual-Pena, Attorney, Member - California Public Interest Research Group (CalmRG) Ms. Marjorie Moss, County League of Women Voters 3 PART I San Diego Region: Potential Enerm Financing Needs and Financing Mechanisms The Energy Finance Advisory Committee was appointed by the SANDAG Board in August 1982 to explore and develop a financing strategy for implementing the recommendations of the Regional Energy Plan Update, adopted by the Board in July 1982. The chart following this page, describes the potential capital investment the San Diego Region faces over the next 18 years to meet forecast energy needs as recommended by the Regional Energy Plan Update. The chart identifies techno- logies to be implemented, the responible economic sector (e.g., residental, public, utility) and financing mechanisms available to implement the technologies in each sector. The Regional Energy Plan Update, showed that this investment strategy has the potential to: 1. 2. 3. Eliminate the need for conventional oil and gas burning electric power plants for the region (although some oil and gas generation will probably be desirable from an operational standpoint). Substitute locally produced energy supply from conservation and renewable resources for natural gas and oil purchased by the utility from outside San Diego, with positive impacts on local employment and the local economy. It was estimated that by 1990 the equivalent of 250 million therms of natural gas (39% of total forecast consumption) and 700 MW of electric generation capacity (24% of total forecast need) could be supplied in this way. Save consumers over $8.5 billion over the 18 year period, about 6% of their natural gas and electricity costs. e In the past, conventional utility financing has supported the major portion of the region's electrical and natural gas energy investments. However, the energy investment strategy contained in the Regional Energy Plan Update indicates that the majority of new capital investment for non-transportation energy supply will be the direct responsibility of the regions citizens, businesses and public agencies through implementation of cost-effective energy conservation and supply tech- nologies. The Energy Finance Committee has developed a set of recommendations designed to .remove barriers and provide information on the use of financing mechanisms which will support the implementation of the Regional Energy Plan Update. 4 San Diego Region: Potential Energy Firrancinn Needs and Financing Mechanisms Technology Conservatio and Solar Energy ?I Economic Sector Residential Conservation and Commercial/ Solar Energy Industrial Conservation and Solar Energy Conservation (Street) Light Conversions) Electric Generation (San Onofre, Blythe site development, other unspecified) Electric Generation (A1 t ernative Generating So~rces)~ Public Sector Utility utility Commercial, Industrial, Public Agency 1982-2000 Potential Capital Investment (Millions of 1982 $)' $4,180 $1,350 $125 $15 $2,760 $2,240 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Most Appropriate - Financing Mechanismi! Conventional Real Estate and Bank Financing Utility Energy Service Financing Public Energy Service Organizations Conventional Real Estate and Bank Financing Private Energy Service Co. Local Government Industrial Development Bonds Public Energy Service Organizations Utility Energy Service Financing Public Agency Revenue Bonds and Innovative Public/Private Financing (e.g., Certificates of Participation) Private Energy Service Co. Conventional Utility Financing Conventional Utility Financing Conventional Real Estate and Bank Financing Local Government Industrial Development Bonds Private Energy Service Co. Total $10,6705 1. 2. 3. 4. 5. From the Regional Energy Energy Plan Update, adopted by the SANDAG Board July 1982. See Attachment A for a description of each financing mechanism and related financing sources. Retrofit weatherization, retrofit water conservation, 1982 State New Building Standards, retrofit solar space & water heating. Cogeneration, wind, small hydroelectric, solid waste, other biomass, photovoltaic cells. This is about 2% of the Regional Disposable Income during 1982-2000, or about $260 per year per capita (1982 $1. Note: Transportation financing needs are not included. 5 /o PART II Enerm Finance Recommendations General o SANDAG should support atate and federal tax credits on an equal basis for all technologies with a long-range goal of eliminating all government subsidies to the energy system. Utility Rates and Fees o SeePartIII Conventional Real Estate and Bank Financinq SANDAG should request the financial community to have evaluations for residential mortgage loans, recognize reduced operating costs, tax credits, and other incentives related to energy equipment. SANDAG should hold a workshop with representatives of banks and savings and loans to discuss this issue and develop a process whereby the financial community can be apprised of up-to-date forecasts of utility energy costs and the energy and cost saving potential of conservation measures. SANDAG should sponsor an annual conference to bring local business, inde- pendent power producers, and financial institutions together to increase knowledge of the technological development, financial risk, and financing needs related to alternative energy technologies. Utility Operations and Procedures o SANDAG should support the following changes in state policy which will result in lower utility rates: - Permit burning of medium sulfur fuel oil under conditions that will result in no significant air pollution impacts compared with burning low sulfur fuel oil (underway in San Diego). - Exempt fuel oil exchanges from sales/use/personal property taxes. - Reduce the number of or eliminate fuel cost adjustment rate proceed- ings and have changes in fuel costs reflected in customers rates, subject to reasonableness review, to minimize expenses and ratepayer anti- pathy. Private Sector Energy Service Companies o SANDAG or SourcePoint should compile information on current and fore- casted energy prices and potential energy and cost savings of conservation measures to assist public agencies and private businesses. 6 Public Energy Service OrRanization o SANDAG should provide information to and sponsor workshops for local governments on Municipal Conservation and Solar Utility (MSCU's) and Com- munity Energy Authorities or other municipal energy organizations that may be authorized in state law. SANDAG should identify innovative financing and funding sources and assist local jurisdictions interested in participating in a public service energy organization in securing these funds. Public Agency Energy Facilities Independent Private Power Producers and SANDAG should request SDG&E and the PUC to adopt the following policies and programs which reduce costs to small power producers and to the utility: o Standard grid interconnection requirements to promote mass production of interconnection equipment, thereby reducing unit costs, particularly for small projects. o Information on grid interconnection equipment and promotion of stan- dardized equipment design. o Information on obtaining permits. 7 PART lU Recommendations on Utility Rates and Fees BACKGROUND Sn September 1982, the SANDAG Board appointed the Energy Finance Advisory Committee (EFAC) to explore and develop a financing strategy for implementing the recommendations of the Regional Energy Plan Update, adopted by the Board in July 1982. During its monthly meetings, the Committee heard many conflicting points of view. It was generally agreed by the Committee that problems with the existing Utility Rate Setting System were due to the fact that it was developed in a time of stable fuel costs and utility rates, prior to the dramatic increases exper- ienced over the past 15 years. High prices have resulted in problems for the existing rate setting system in dealing with increased conservation and inde- pendent power production and utility finances in the face of these new methods of energy supply. When it came to finding solutions for the problems, opinions varied widely. As a means of reconciling the different view points, the Committee felt that it would be desirable first to identify certain basic objectives any financing mechanism ought to meet and then attempt to formulate implementation proced-ures to achieve those objectives. Although the focus in this document is on financing through the utility rate structure, any other method of financing can be put to test using the same objectives. The Committee recommends that the SANDAG Board adopt the basic objectives and Implementation Principles that follow. Although some of the implementation principles are already approved by various Federal, State and Local agencies, the Committee felt that they ought to be re- stated. BASIC OBJECTIVES FOR ENERGY FINANCING FROM UTILITY RATES 1. 2. 3. 4. The supply of energy should be reliable and adequate to meet San Diego's needs now and in the future. The residential, commercial (including government) and industrial rates should be the lowest possible, subject to the reliability constraint and prudent long-range management. The energy price setting mechanism should be such as to encourage self-help and competition among energy producers, distributors and usersI and place utilities and independent energy suppliers on equitable footing, after allowing for any differences in reliability, obligations and risks between a utility and alternative energy suppliers. The system of rates and tariffs should be such as to avoid the following types of distortions and adverse incentives: a. Rate setting processes that discourage cost-effective conservation; 13 b. A utility being biased towards increasing its own capital base at the expense .of independent power producers; c. Subsidizing a technology that has no potential of producing low-cost energy (without subsidies) in the foreseeable future; that is, subsidizing "infant industries" that remain so forever; d. Setting up rates that do not reflect the cost of providing service at a particular time of day or to a group of customers or to a given area. If the rates cause undue financial burdens and/or discourage economic development, adjustments should be made by legislatives measures rather than through the rate setting process. PRINCIPLES FOR IMPLEMENTING THE BASIC OBJECTIVES 1. Reliability and Adequacy This issue depends mostly on the technologies that are available and the ability to forecast the future energy needs of the area. However, the greater the reliability and efficiency of the independent power producer's supply and its ability to sub- stitute for generation of power by a utility, the higher the buy-back rate ought to be. 2. Minimizing Costs a. b. C* In simple terms, this principle means that, given two or more alter- native technologies, we should choose the one with the "lowest cost". However, technologies differ in the initial capital expenditure, the operating cost and the life of the equipment. Any cost comparison should, therefore, be on a discounted present value basis over the life- time of the investment, and include the efficiency and reliability of the systems. If a utility is earning the approved rate of return, then it may not have the incentive to reduce administrative and other costs. The Committee therefore recommends that a rate setting mechanism be developed which provides incentives to utilities to reduce costs, by letting utilities and ratepayers share in the resu ting cost savings. The financing of expenditures actually incurred in construction work in progress should be recoverable from current rates rather than from borrowing, because deferring the ongoing costs until plant completion by borrowing money at high interest rates will generally increase over- all costs to the ratepayer. This should not be done, however, without appropriate measures to monitor and control costs. 3. Encouradng: Competition a. Competition encourages more efficient use of resources and keeps costs to the minimum. This should mean that, in the long run, subsidies to particular types of technologies should end and each method of generat- ing power should stand on its own merit in terms of reliability, ef- ficiency, and cost. In the interim, however, subsidies may be appro- 9 priate to encourage potentially viable "infant industries" and to remedy differentials in paat subsidies, provided such subsidies come from gen- eral tax revenue/credits and not from an increase in utility rates. b. The economic, technical and legal aspects of making a utility's trans- mission network readily accessible by all qualifying producers and users within the utility service area, are not fully resolved at this time. Currently, many Federal, State and local jurisdictions are attempting to change the status of the present energy transmission systems to allow broader access. It is the Committee's recommendation that these developments be followed closely to see if the concepts can by applied to energy transmission and distribution in the San Diego County area. The California Public Utility Code permits any independent energy producer to file an application with the PUC to determine the require- ments and charges for interconnection, transmission services and stand- by generation (Ref: Section 2801 et seq. of the Public Utilities Code). The Committee strongly recommends that, as a further step to en- courage competition, SANDAG promote the filing, with the htblic Utilities Commission, of applications for the expedited determination of the requirements and charges. The Committee further recommends that initial projects authorized by the Public Utilities Commission be carefully monitored with a view to obtaining data on all aspects of the projects, especially the effects on other customers' rates. These costs must be explained in detail and be open to public scrutiny. C. If the cost of energy produced by a proposed utilitpoperated project is more than that of an independent producer, after making equitable allowances for supply reliabilfity and any standby generation, then the utility's project ought not be approved for construction until a careful and objective comparison has been made of all potential utility- operated and independent projects. d. The Committee also recommends changing the reghations so as to permit utilities to compete equitably in the non-regdated energy market. 4. Avoiding Distortions and Adverse Incentives a. Currently, fixed and variable costs are combined in a single rate per kilwatt hour or therm. If a user cuts back his purchases, by either conservation of independent generation of part of his demand, the fixed cost portion of the energy unit he does not purchase is typically tras- ferred to ell customers by SDG&E and the Public Utilities Commission through rate proceedings. Separating rates into fixed and variable components would eliminate this anomaly. The Committee recommends that fixed costs be carefully identified and that rates be separated into fixed and variable cost components for each customer class. 10 b. The Committee recommends a critical examination of the concept of "rate of return on rate base" with a view to eliminating any built-in bias in favor of unnecessary expansion by a utility, while at the same time rewarding the utility for increased efficiency in energy management. c. Rates should not contain inter-customer subsidies. In particular, new customers should pay an equitable portion of the incremental cost of line extension and hookup. Any adjustments made to these costs in order to encourage development and/or help hardship cases, should be out of general taxes/uedits and not through rate adjustments. This provision should not, however, bar cost-justified incentive rates. d. The Committee recommends that the method of calculating "avoided costs" be spelled out in full detail and be made available for public scrutiny in a timely fashion. 11 .’ _- PART IV Smplementation Strategy The Committee evaluated several possible ways that implementation of its rec- ommendations could be pursued by SANDAG and others. The implementation choices discussed included the following major alternatives: a. A 20-30 member advisory committee which would work extensively with SDG&E, the Public Utilities Commission (PUC) and California Energy Commission (CEC) in developing information for formal energy decision making at the CEC and PUC. The Committee would also make recom- mendations to the SANDAG Board regarding policy and SANDAG par- ticipation in PUC rate cases and CEC energy forcasting and policy decisions. b. A smaller SANDAG committee, similar in constitution to the existing Energy Finance Committee, could provide SDG&E with review and input for its planning, forecasting and rate related submittals to the CEC and the PUG, and report to the SANDAG Board from time to time on pro- gress in implementing the Energy Finance recommendations. c. SANDAG staff would perform the same functions as discussed for the small committee. The Committee adopted alternative C. with the following addition: The Energy Advisory Committee, or a similar group, should be convened one year after adoption of the Energy Finance Advisory Committee recommendations by the SANDAG Board to review implementation progress and report to the Board any further recommendations. 12 I7 ATTACHMENT A DESCRIPTION OF ENERGY FINANCING MECHANISMS FINANCING MECHANISM Private Enerm Service Companr RELATED FINANCING SOURCES Provides energy services to a private and installation of energy conserva- tion or supply equipment which ia financed by the energy service fixed fee, contracts to ahare utility bill savings with the energy service company or arranges to lease or lease/purchase the equipment . The energy service company may also design, equipment pdkchase and installation, maintenance and repair, and energy use monitoring. or public client including purchase 0 ' company. The client b charged a 0 provide energy audits, equipment 0 0 0 Private debt (bank and commer- cial finance Ioanr, bond des to inrtitutional bond buyers) Private equity(8tock des, partnerahips to invertom which can include other private firmr, individuals, venture capital companies urd syndicationr) State and federal tax credits (for buahess investment, capital depreciation and purchas6 of conservation and alternative energy aourcc equipment) Publicly-assisted debt (federal, rtate urd local usiatance pro- grams to private firms, includ- ing: SBA loam (fed), dar bank (fed), synthetic fueb corp. (fed), institutional conservtion pro- gram grants (fed), inatitutional conservation loam (state), California alternative energy finajace authority (rtate), SAFE- BlDCO (state) industrial devel- opment bonds (local), other revenue bonds Oocal), general obligation bonds (local) Public equity (state and .federal grants, contracta or cost sharing arrangements financed through taxes or sale of bonds) 13 Public Energy Service Oraanizatian Can provide any of a wide range of energy rcrvices which directly or indirectly affect the financing of energy comervation and apply for households, businesses, hduatrier and public institutions. Activities ccan include direct financing, loan guar- antees or interest rate reductions, direct leasing programs or consumer protection and brokerage functiom which aid third party financing such M in Municipal Solar and Conserva- tion Utilities (MSCU's). Utility Energy Service Financinq Financing in which a utility is kr volved in financing energy conserva- tion and supply equipment for house- holds, businesses, industries aad public institutions. Activities can include loans, loan guarantees or interest rate reductions, rebates, lease of equipment, utility operated energy service companies and direct capital investment and installation in buildhgs. o Mvate &bt o Private equity o o Publicly UsirtA debt o Publicequity state and federi tax &ti o Utility equity (rater or otock riled o Utility debt (bank urd cornmar dal loam, utility bond sal-) o Privatedcbt o Rirate equity o State urd federal tu credits o Public urirted debt o Publicequity Independent Power Producers Private firms tha construct facilities o Private debt and generate small amounts of electricity, generally under 50 o Private equity megawatts, and sell power to the utility or 'wheel" it to specific users over the utility grid. This type of activity relies on the provisions of o Publicly misted debts the Federal Public Utilities Regula= tory Policy Act (PURPA) which sets o Public equity guidelines for utility purchase of power from qualifying small pro- ducers and interconnection to the utility grid. In California, the guide- lines are implemented by utilities through directives from the State Public Utility Commission. o State md federal tu credit6 14 .- I. Public Aaencf Energy Fadlities Public agencier have the opportunity to take advantage of federal md facilities to private corporat~onr who can use the tu benefit8 and then leasing back the facilities. Thlr 'third party" financing could be used to conrtruct .ad install energy conservation md apply equipment for local governmentr and other public agencier. Revenue Bonds d Certificates of Participation ue other way8 to rabe capital for public agency energy invertments. 8t.k t8X credit8 by K- Capital Iaternal Utility Financing This coverr the means by which the utility finmcer its om projects and construction programs d its put- chase of fuel to apply energy for its cutomerr. ' o Prir.tedebt 0 Mvate equity o o Publicly urirted debt o Publicoquity State md federal tu credits 0 utilityequity o Utilitydebt o Publicly urLtd debt o Publicequity Conventional Real Estate md Bank Financing Mortgage financing and commercial bsrJt lo-. Industrial Development Bonds hdurtrial Development Bonds are a hybrid form of low-interert finupdng for burineuer. In rhort, a rnunici- businem to borrow money through a blind issuance, utilizing the mdd- pality'r tax-exempt rtatur. The municipality floats bonds on behalf of a firm. The purchaser of the bonds receives the income exempt from federal d rtate fncome taxer. Comequently, the bond purchaser ir willing to accept a lower rate of intereat on the bonds. This interest rate upkrgr b passed pdity acts ab 8 Conduit to dOW 8 o Privatedebt 0 state md f*d tu -dit8 o Publicly usbted debt o Privatedebt o o Publicly usirted debt State d federal tu credits 15 . along to the firm in the form of low- interest financing. In addition, the local issuing ruthority doer not guarantee the repayment of the bonds; rather, the bonds are mecured wlely by the financial strength of the firm receiving the proceeds of the bond sale. The firm, however, is required to pay local property and sales taxes. The legislation enables a California municipality, estab- lished aa an industrial authority, to float small issue Industrial Develop- ment Bonds ~B's) up to $10 million. 16