1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 31, 2016 10 11 12 13 14 15 FINAL ACTION 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chair 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief Board Proceedings 16 Division 17 For Staff: Jeff Angeja 18 Tax Counsel IV Legal Department 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 31, 2016 4 ---oOo--- 5 MS. MA: Okay. The State Board of 6 Equalization is back from recess. And we -- 7 Madam clerk, maybe you can announce the 8 item, the next item, or the item we're going to vote 9 on. 10 MS. RICHMOND: So that concludes our 11 hearings for today. 12 We do have one item that was submitted for 13 decision, and that is Item C4 Solarcity 14 Corporation. 15 MR. RUNNER: I'm going to move for the 16 taxpayer. 17 MS. HARKEY: I'll second. 18 MS. MA: Any discussion? 19 MS. STOWERS: Discussion. 20 To Appeals, is there -- what -- I think Mr. 21 Horton asked a question earlier. But were you able 22 to find any statute that enacted this provision. 23 And, if so, what does it say? 24 MR. ANGEJA: The legislation refers to it, 25 did not enact it. This is -- hold on, I'm 26 scrolling -- SB number 1. And it's in 2011. It 27 refers to this program and expressly says: The 28 Legislature finds and declares that the PUC adopted 3 1 the California Solar Initiative in that public 2 decision six -- 06-01-024 subdivision (b). Nothing 3 in this act shall be construed to codify that 4 decision. 5 I'm still not aware of legislation that 6 gives us any additional definition or enlightenment. 7 We still have -- and Appeals doesn't see a conflict 8 between the handbook or the decision; neither one of 9 them come out with an express definition. And then 10 there's what the parties interpret them as. 11 MS. STOWERS: Okay. Still stuck. 12 MS. HARKEY: I would be happy to explain 13 why I am supporting it in this instance and why -- 14 MS. MA: Ms. Harkey. 15 MS. Harkey: -- I don't know that this 16 would be anything that we could support for anyone 17 else depending. 18 I mean this was -- this was very 19 document-specific to me. I went through it with a 20 fine-tooth comb. And the lease was very specific as 21 to who owned the rebate in this instance. The other 22 lease that I looked at for the other customer was 23 not that way. It just merely said that, you know, 24 if we don't get these rebates from the state, this 25 lease is cancelled. 26 Solarcity never said that, never said that 27 anywhere that I could find. The CSI rebate was not 28 mentioned on the schedule as one of the rebates that 4 1 they had to procure. 2 While I do believe it was probably factored 3 in somehow into the lease, I mean I think they even 4 mention that, I don't find -- I did not find 5 anywhere where if they did not get a CSI rebate the 6 lease was cancelled. 7 And my question was, did it reduce -- I was 8 thinking it reduced the cost of installation, but it 9 actually reduced the cost of the electricity. And 10 the host is the reservation holder and always had 11 the ability to transfer that reservation. But 12 without a system, the host could not get a rebate. 13 So that's where I broke down on this. And 14 I -- I do believe that the CPUC decision didn't 15 really reference a lease or a third party. It 16 did -- it did for the -- for the commercial or the 17 nonprofit or the government. And so I don't really 18 know that the CPUC was considering leases at the 19 time. I think they were just merely saying that the 20 government entity might have a third party, and in 21 that case we'd have to look at this differently. 22 But I -- I think that when I read -- 23 everything that I read about the incentive is it's 24 based on the production of the system. So, in my 25 opinion, you could not have an incentive just 26 because you have the project on your -- on your 27 property. It's based on the production of that 28 system. In both the PBI and the EPBB. 5 1 And I -- I'm not a big solar fan, so this 2 was real hard. But I did do -- I did do a lot of 3 homework on this and I did study everything. 4 The reservation holder, rather than the 5 reservation -- or rather than the owner of the 6 rebate is kind of what got me to look at it in a 7 different light. And also, like I said, the lease; 8 the lease was very different than one that we -- 9 that this Board may have to refer to at a later 10 Board hearing. 11 MR. HORTON: Yeah. Madam Chair. 12 MS. MA: Mr. Horton. 13 MR. HORTON: My concern with this is more 14 of concern that existed during the time that we were 15 in the Legislature and that process of determining 16 who's going to pay for this. And the folks who are 17 paying for the incentive is the ratepayers. 18 We think that this is a magical number 19 that's coming from the State of California somehow, 20 but the ratepayers are actually paying for it. And 21 the ratepayers, theoretically, through their 22 legislators, get together and say they want to give 23 an incentive to incentivize this industry so the 24 industry would go forth and blossom in the State of 25 California. That cannot happen unless the customers 26 actually participate in the process. So clearly, 27 the intent was for the customers to have -- to be 28 participating in this process and be somewhat of the 6 1 determining factor for the industry if that does 2 happen. 3 Given that this is ratepayer's money, 4 intended to be the benefit of the ratepayer, it -- 5 it's consistent with the legislative intent that the 6 incentive be that of the ratepayer and not that -- 7 the incentive is not for folks to build solar 8 equipment or to install solar equipment. The 9 incentive is for the ratepayer to actually allow it 10 to happen and to allow -- which is the reason that 11 the CPUC requires the ratepayer to participate, to 12 verify that this is a site, that it's being 13 installed at the site, that you want it there 14 basically. That extensive involvement gives me 15 pause in interpreting the ruling different than what 16 it's been interpreted in the past in these 17 situations. 18 However, you know, the third-party lease 19 also gives me pause in that it wasn't necessarily 20 considered; that's why I brought -- came up with the 21 analogy. 22 So, but even so, it goes back to the 23 essence of, and the intent, of the legislation when 24 we did it in 2006. And the source of the revenue 25 when it occurred in 2006 was to incentivize the 26 actual customer participating in this process, not 27 the -- not the manufacturing, not the installation, 28 because the Legislature knew that if the customer 7 1 didn't participate, the industry wouldn't be able to 2 survive. 3 MS. MA: So I have a little different twist 4 on it. 5 I was on the U & C Committee at the time 6 and we talked about having, you know, more solar on 7 roofs, but to buy a system would have been 20 or 8 $30,000 for home owners and, therefore, this kind of 9 lease option became popular. But it would be the 10 system owners who would subsidize to have -- to 11 be -- to make these solar panels available to 12 ratepayers. 13 And when we talk about ratepayers, 14 ratepayers are the people who take out their PG&E 15 bill, for example customers. But in the situation 16 we talked about if you own a building and you're the 17 landlord yet all of your tenants are the ratepayers, 18 who gets the rebates? Is it all of the tenants or 19 would it be the landlord who actually owns the 20 building? 21 So, you know, similar to, I think, an auto 22 lease situation, if I rent a car from Toyota and 23 they recall the car, they're going to give back the 24 rebate or recall refund to Toyota and not 25 necessarily me who's just leasing the car. 26 So I really think that the system owner 27 should be the one that gets the rebate, the person 28 who actually puts out the money to -- to make the 8 1 system happen and not just the ratepayer or the 2 customer per se who's on a PG&E bill. 3 The CSI handbook also said that the lessor 4 is classified as a system owner. And so I think the 5 contracts also were very clear. I don't believe 6 there's been any problems where someone has sued the 7 company saying, "That rebate is really mine." I 8 think people who sign up for the system and read the 9 contract do believe that that rebate is not theirs 10 and it actually does belong to Solarcity. So I 11 don't believe there's been any disputes on who is 12 the rightful owner for these rebates. 13 So I'm going to be voting for. 14 MR. HORTON: Madam Chair, the legislation 15 was in 2006, but I think you bring up a good point 16 though. You know, because it wasn't necessarily 17 considered in the legislation, I think it gives us 18 some latitude. I mean -- I mean it was my last year 19 in the Legislature when we did this and the whole 20 notion of a lease and the leasepayer and so forth. 21 So, you bring up a good point that without 22 this lease arrangement, the intent of the 23 Legislature would be the same where we wouldn't have 24 the industry growing and blossoming. So, if that 25 was a matter under consideration in the legislation, 26 I probably would have agreed with you. 27 Such that it wasn't in 2006 -- I don't know 28 if there was subsequent legislation passed after I 9 1 left -- but the one that I'm referring to is the one 2 authored by Kevin Murray, brought forth to the 3 Legislature. And I, too, served on that committee 4 at the time the legislation was considered. 5 But given the absence of this discussion in 6 the legislation, I mean I think it's incumbent upon 7 us to -- to encourage such activities that 8 stimulates the market. 9 So, you got a good point. 10 MS. MA: Okay. So, motion and a second. 11 Motion by Mr. Runner, second by Ms. Harkey. 12 MR. HORTON: I'm good. 13 MS. MA: Do you want to take a roll call? 14 Roll call vote? 15 Okay. Let's do roll call. 16 MS. RICHMOND: Ms. Ma. 17 MS. MA: Aye. 18 MS. RICHMOND: Ms. Harkey. 19 MS. HARKEY: Aye. 20 MS. RICHMOND: Mr. Horton. 21 MR. HORTON: Aye. 22 MS. RICHMOND: Mr. Runner. 23 MR. RUNNER: Aye. 24 MS. RICHMOND: Ms. Stowers. 25 MS. STOWERS: Aye. 26 MS. RICHMOND: Motion carries. 27 ---oOo--- 28 10 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on August 31, 2016 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 10 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: September 2, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 11