Proposition 87 00.00
10/05
 
  Summary  
 
  Submitted as: "The Clean Alternative Energy Act."  
 
  Type:  Amendment to the California Constitution, Public Resources Code, and Revenue and Taxation Code  
  Subject:  Special tax on California oil producers, to reduce oil and gasoline usage.  
  Submitters:  James C. Harrison, Thomas A. Willis  
 
  Supporting Organization:  
  Name: Californians for Clean Energy
P.O. Box 67205
Los Angeles, CA 90067 		 
    Email:info at yeson87.com  
    Web Site: www.yeson87.org  
    Phone: 323.782.1045  
 
  Opposing Organization:  
  Name: Californians Against Higher Taxes
111 Anza Boulevard #406
Burlingame, CA 94010		  
    Email: info at NoOilTax.com  
    Web Site: www.nooiltax.com  
    Phone: 650.340.0470  
 
  Proposition 87 attempts to shift California toward a clean environmentally sound energy economy by spending money to be raised by a tax on companies which produce oil in the state.  
 
  The Clean Alternative Energy Program is established, to be administered by the California Energy Alternatives Program Authority, which is also created by this Measure.  The Program will be funded by the California Energy Independence Fund Assessment, paid into the California Energy Independence Fund and its accounts, from which money may be continuously appropriated.  The Authority, Assessment, and Fund are discussed below.  
 
  Under this Measure, the Authority will have the power, contrary to the State Constitution, to use the money produced by the Assessment to provide incentives of all types to any useful participant or to repay bonds, bond anticipation notes, and other obligations and indebtedness of the Authority. provided these costs go to fund such incentives.  The Authority is expressly authorized to expend $4 billion from the Fund.  Money in the fund may not used for any other purposes than those described by this Measure.  
 
  The Measure renames an existing organization, the California Alternative Energy and Advanced  Transportation Financing Authority, to make it the California Energy Alternatives Program Authority, vested with the powers mentioned above.  
 
  The old Authority had 5 members, the new one has 9.  Carried forward are the Secretary of the California Environmental Protection Agency, the Chairperson of the State Energy Resources Conservation and Development Commission, and the State Treasurer.  Gone are the Director of Finance and the President of the Public Utilities Commission.  The remaining six members are appointed by the Governor (2), Controller, Speaker of the Assembly, Senate Rules Committee, and the Attorney General.  These appointees must be experts in various fields, as stated precisely at 26004 (b) in the Extract.
The first three in this list may designate a deputy who, contrary to the Government Code, may not only attend but also act in the place of the actual member.
The first three serve without compensation; the other 6 receive a per diem for each day spent on Authority work.		  
 
  The Authority must appoint a Chief Executive Officer.  This person's primary responsibilities will be, among others, to:
hire, direct, and manage the Authority's staff;
develop the Authority's two-year and ten-year plans as described below;
develop and recommend standards and procedures governing the Authority's award of incentives;
develop and recommend procedures and standards to monitor recipients of incentives; and
execute and manage contracts on behalf of the Authority.		  
 
  The Authority shall determine its total number of authorized employees, and despite various Government Code Sections to the contrary, decide the rate of pay for the Chief Executive Officer and other staff of the Authority, with some deference to standard salary ranges.  
 
  The Authority may incur indebtedness and issue and renew negotiable bonds, notes, debentures, or other securities of any kind or class to carry out its corporate purposes.  All indebtedness, however evidenced, shall be payable solely from revenues of the Authority and the proceeds of its negotiable bonds, notes, debentures, or other securities. The former limit of $1 billion of "total debt withstanding" is removed.  A former limit of 6% on the discount rate is removed.  Contrary to usual practice, the Authority may pledge all the money deposited in the Debt Service Account of the California Energy Independence Fund to the payment of the principal or interest on any bonds or other obligations of the Authority.  
 
  The Authority may be terminated at any time by the Legislature. but no sooner than January 1, 2027 or after the assets of the Authority have been fully expended, whichever is later.  When the Authority is dissolved, the title to all properties it owns vests in and becomes the property of the State of California.  Regardless of this, so long as any bonds secured by the California Energy Independence Fund Assessment [created by this Measure] are still owed, neither the Legislature nor the people may reduce or eliminate the assessment, and this pledge may be included as part of the definition of the bonds.  
 
  The Authority has certain specific functions:
a) Within nine months of the Measure's passage, and every two years thereafter, it must create or modify two-year and ten-year strategic plans to guide the Authority's funding decisions with the goal of meeting the goals of this Act within ten years of the adoption of the Authority's initial strategic plans;
b) adopt procedures and standards regarding consideration and award of incentives;
c) award incentives through a competitive selection process designed to achieve the objectives of this Act within the same ten years;
d) spend $4 billion within ten years of adoption of the Authority's initial strategic plans, not including debt service expenses;
e) adopt procedures and standards to monitor recipients of incentives;
f) adopt objective standards to measure the Authority's success in meeting its goals;
g) ensure that an annual independent financial audit is done, and that public reports are issued;
h) if needed, appoint an advisory committee for each sub-account in the Fund; and
i) adopt regulations consistent with the Government Code.		  
 
  Actions by the Authority require a majority vote of a quorum of the Authority, except for certain matters as discussed below.  
 
  A Debt Service Account is created in the California Energy Independence Assessment Fund.  This account has first claim on the money generated by the California Energy Independence Fund Assessment, each month, for an amount the Authority considers necessary to pay the debt service and other costs for bonds and other obligations.  This money may be continuously appropriated to the Authority without regard to fiscal year.  
 
  Once payment has been made to the Debt Service Account, all additional money must be allocated by percentage as follows:  
 
  57.50 To the Gasoline and Diesel Use Reduction Account, which the initiative creates  
  26.75  Research and Innovation Acceleration Account, created  
    9.75  Commercialization Acceleration Account, created  
    2.50  Vocational Training Account, created  
    3.50  Public Education and Administration Account, created  
 
  Money allocated to these accounts that is not spent in any fiscal year must remain in the same account for the next fiscal year, except after 10 years it may be allocated as discussed below.  Money deposited to these accounts must be used to supplement, and not to supplant, existing state funding.  
 
  Following the gasoline and diesel use reduction standards described below, the Authority is expected to use the Gasoline and Diesel Use Reduction Account money for the following expenditures:  
 
  Market-based incentives for the purchase of clean alternative fuel vehicles sold in California.  
  Production incentives for clean alternative fuel production in California, excluding the production of electricity, except clean fuel cell based electricity production.  
  Incentives for the construction of publicly accessible clean alternative fuel refueling stations.  
  Incentives for the installation of publicly accessible clean alternative fuel infrastructure.  
  Grants and loans to private enterprises for research involving clean alternative fuels and clean alternative fuel vehicles in California.  
 
  Following the research and innovation standards described below, the Authority must use the funds in the Research and Innovation Acceleration Account to make grants to California universities to improve the economic viability and accelerate the commercialization of renewable energy technologies and energy efficiency technologies.  
 
  Following the commercialization acceleration standards described below, the Authority must use the funds in the Commercialization Acceleration Account to provide incentives to fund one-time or start-up costs that will accelerate the production and distribution of commercially viable products and technologies to the market.  
 
  Following the Vocational Training standards described below, the Authority must use the funds in the Vocational Training Account to:  
 
  Make grants through the Office of the Chancellor of Community Colleges to California community colleges for staff development and facilities to train students to work with renewable energy technologies, energy efficiency technologies, and clean alternative fuels.  
  Make grants through the Office of the Chancellor of Community Colleges to California community colleges for tuition assistance for low-income students and former fossil fuel energy workers and certified vehicle mechanics to obtain training to work with renewable energy technologies and energy efficiency technologies.  
 
  Following the Public Education and Administration standards described below, the Authority must use the funds in the Public Education and Administration Account to:  
 
  Educate the California public regarding the importance of energy efficiency technologies, renewable energy technologies, and full fuel-cycle petroleum reduction.  
  Administer the Authority.  
  Monitor the implementation of the California Energy Independence Fund Assessment and, in the case of price gouging, inform the Board of Equalization to allow investigation.  [price-gouging is not defined]  
 
  The Authority must establish the following general standards:  
 
  Intellectual Property Rights  All research grants made with funds controlled by this Act must be subject to intellectual property agreements that "balance the opportunity of the State of California to benefit from the patents, royalties, and licenses that result from the research with the need to assure that such research is not unreasonably hindered by those intellectual property agreements."  
  Oversight of Awards  The Authority must establish standards for the oversight of all incentives to ensure compliance with all applicable terms and requirements.  The standards must include periodic reporting, including financial and performance audits, by all recipients of incentives, and must permit the Authority to discontinue funding or to take other action to ensure the purposes of this Act are being met.  
 
  The Authority must take the following actions and establish the following Standards for Gasoline and Diesel Use Reduction Account Expenditures:  
 
  By 2017, reduce the rate of petroleum consumption in California by 25% (a reduction of roughly 4 billion gallons), and cause permanent and long-term reductions in petroleum consumption in California.  The total reduction goal shall be ten billion gallons of petroleum transportation fuels over ten years.  Before making any expenditure, the Authority must adopt a strategic plan, as follows:  
 
  Within nine months of the effective date of this Act, the Authority must adopt an Integrated Resource Plan for petroleum reduction [sic].  The Plan must be based on the best estimates of the potential for unsubsidized market acceptance of technologies, products, or services within ten years of the date of the adoption of the initial Plan.  
  The Plan must allocate funds to programs with the highest return opportunities, using the financing powers provided to the Authority by this division.  It must maximize the petroleum use reduction while considering the greenhouse gas reduction benefits of clean alternative fuels and clean alternative fuel vehicles.  It must also evaluate the expenditure of funds for clean alternative fuel vehicles and must consider allocating funds necessary to balance the deployment of clean alternative fuel vehicles with accessibility to clean alternative fuels.  
  The Plan must be developed at scheduled public hearings led by the Chief Executive Officer of the Authority.  The Plan will be updated every two years and amended to ensure that it remains consistent with California Air Resources Board regulations and consistent with the priorities and goals of this Act.  
  The Plan must contain an assessment of those expenditures that are likely to meet or exceed the goal of reducing petroleum consumption by ten billion gallons over ten years.  All expenditures must be consistent with meeting or exceeding this goal.  Expenditures must also be consistent with, and prioritized according to their potential to meet or exceed, the emissions targets and goals set forth in published Executive Order S-3-05 and the emissions targets and goals set forth in the Motor Vehicle area of the California Code of Regulations.  lf these are replaced by more stringent requirements prior to dissolution of the Authority, the more stringent requirements must be used.  
  All expenditures made by the Authority under this section must be consistent with the strategy outlined in the Integrated Resource Plan.  
 
  All expenditures on clean alternative fuel infrastructure and electric vehicle chargers must be restricted to those that support clean alternative fuel vehicles that are available for sale and are producible in substantial volumes.  
  Expenditures for buydowns must be limited to 25% of the total amount deposited in the Gasoline and Diesel Use Reduction Account, unless the Authority determines, by a two-thirds vote, that additional expenditures are warranted in order to most cost-effectively achieve the goals of this Act.  [A buydown is "a payment to cover up to 100 percent of the difference in the purchase price between a clean alternative fuel vehicle and a comparable dedicated gasoline or diesel vehicle."]  
  All expenditures made from the Gasoline and Diesel Use Reduction Account  must be based upon a competitive selection process.  The Authority must, at a minimum:  
 
  Ensure that the expenditure does not replace existing state funding for the reduction of petroleum consumption in California.  
  Consider the quality of the proposal in the area of funding, including the availability of private matching funds, and the potential for achieving significant results.  
  Consider the unit cost of petroleum reduction suggested by the proposal and the potential of the proposal to achieve unsubsidized market competitiveness and pervasive acceptance, adjusted for the risk and time value of money.  
  Evaluate the probability that the proposal will result in a sustained, unsubsidized market-competitive technology or technologies that can achieve substantial consumer or business acceptance beyond the subsidy or incentive period.  
  Ensure that the expenditure is consistent with the two-year and ten-year Strategic Plan adopted by the Authority..  
 
  The Authority must take the following actions and establish the following Standards for Research and Innovation Acceleration Account Expenditures  
 
  All expenditures on Research and Innovation Acceleration must be consistent with the goal of improving the economic viability, and accelerating the commercialization, of renewable energy technologies and energy efficiency technologies.  Prior to making any expenditures for this, the Authority must adopt a strategic plan.  
  All expenditures made for Research and Innovation Acceleration must be based upon a competitive selection process. The Authority must, at a minimum:  
 
  Ensure that the expenditure is for research in renewable energy technologies or energy efficiency technologies.  
  Ensure that the expenditure does not replace existing state funding for research in renewable energy technologies or energy efficiency technologies and that the Authority coordinates its expenditures with other state agencies to maximize the effectiveness of the expenditures and to avoid duplication of effort.  
  Evaluate the quality of the research proposal, the potential for achieving significant results, and the time frame for achieving that goal.  
  Give funding priority to research proposals that utilize more abundant renewable energy resources and that offer the greatest potential for technological breakthroughs.  Priority must additionally be given to research proposals that offer the greatest potential to meet or exceed the goals set forth in: (a) Executive Order S-3-05; (b) Title 13 of the California Code of Regulations, Sections 1900, 1961 and 19611, in effect as of December 1, 2005; or (c) the California Renewables Portfolio Standard Program, as defined starting with Section 399.11 of the Public Utilities Code, in effect as of December 1, 2005.  [This sets a target of 20 percent renewable energy for the State of California.]  
  Ensure that all funds to support buildings and permanent facilities per 26051 are committed during the first two years of the program, and that such expenditures do not exceed $100 million.  Workers employed on the construction or modification of the facility must be paid the prevailing wage.  
  Ensure that the expenditure is consistent with the two-year and ten-year strategic plan adopted by the Authority.  
 
  The Authority must take the following actions and establish the following Standards for Commercialization Acceleration Account Expenditures  
 
  All expenditures for Commercialization Acceleration must be consistent with the goal of accelerating the commercialization of economically viable, innovative renewable energy technologies, energy efficiency technologies, clean alternative fuels, and clean alternative fuel vehicles in California within 10 years of the effective date of this Act.  Prior to making any expenditures for this, the Authority must adopt a strategic plan.  
  All expenditures for Commercialization Acceleration must be based upon a competitive selection process.  The Authority must, at a minimum:  
 
  Ensure that the expenditure will advance the goal of commercializing economically viable renewable energy technologies, energy efficiency technologies, clean alternative fuels, or clean alternative fuel vehicles in California.  
  Evaluate the potential that the expenditure will achieve significant results, bringing the above to the market in California, within a reasonable time frame from the date of the expenditure.  
  Establish that it is reasonably likely that a significant share of the finished technology or product will be available to California or that a significant share of all components used in the finished technology or product will be manufactured in California.  
  Evaluate the cost of energy developed or saved by the proposal relative to its ability to advance the objectives of the Commercialization Acceleration Account.  
  Evaluate the probability that the proposal will result in a sustained, unsubsidized market-competitive technology or technologies that can achieve substantial consumer or business acceptance.  
  Ensure that the expenditure is consistent with the two-year and ten-year strategic plan adopted by the Authority.  
 
  To receive money from the Commercialization Acceleration Account the recipient must provide matching funds equal to at least 50% of the expenditure, except that in the case of loans and loan guarantees, the recipient may provide equity or subordinated debt equal to at least 25% of the loan or loan guarantee.  "This constraint will not be applicable to the distribution for a clean alternative fuel equal to approximately the first fifteen percent (15%) of the distribution of the gasoline distribution system." []  
  Any funds that remain in the account after ten years must be divided equally between the Gasoline and Diesel Use Reduction Account and the Research and Innovation Acceleration Account.  
 
  The Authority must take the following actions and establish the following Standards for Vocational Training Account Expenditures.  
 
  The Authority must make expenditures from the Vocational Training Account to train students to work with renewable energy technologies or energy efficiency technologies, clean alternative fuels, and clean alternative fuel vehicles.  Prior to making any expenditures for this, the Authority must adopt a strategic plan.  
  All expenditures made from the Vocational Training Account must be based upon a competitive selection process. The Authority must, at a minimum:  
 
  Ensure that the expenditure is for training in renewable energy technologies, energy efficiency technologies, clean alternative fuels, or clean alternative fuel vehicles.  
  Ensure that the expenditure does not supplant existing state funding for training in these areas.  
  Evaluate the quality of the program, the potential for achieving significant results, including consideration of how the expenditure will aid or result in training workers in these areas, and the time frame for achieving that goal.  
  Ensure that the expenditure is consistent with the two-year and ten-year strategic plan adopted by the Authority.  
 
  The Authority must take the following actions and establish the following Standards for Public Education and Administration Account Expenditures  
 
  The Authority must make expenditures from the Public Education and Administration Account to educate the public regarding the importance of energy efficiency technologies, renewable energy technologies, and full life-cycle petroleum reduction, to report on the progress of the program, and to administer the Authority.  
  At least 28.5% of the funds in the Public Education and Administration Account must be expended for the purpose of public education regarding funded technologies.  
 
  In addition to the annual report required for the Committee under its old name, the Authority must now also issue an annual report to the Governor, the Legislature, and the public describing its activities, its accomplishments, and future program directions per this Measure.  Each annual report must include the number and dollar amounts of incentives; the recipients of incentives for the prior year; the Authority's administrative expenses; a summary of research findings, and an assessment of the relationship between the Authority's award of incentives and the Authority's strategic plan.  
 
  The Authority must annually undergo an independent financial audit of its activities from a certified public accountant provided to the State Controller, who must review the audit and annually issue a public report of that review.  
 
  A Citizens' Financial Accountability Oversight Committee, chaired by the State Controller. must be established.  This committee must review the annual financial audit and the State Controller's report and evaluation of that audit.  The State Controller, the State Treasurer, the President Pro Tem of the Senate, the Speaker of the Assembly, and the chairperson of the Authority must each appoint a member of the committee, chosen from the public.  The committee must provide recommendations regarding the Authority's financial practices and performance.  The State Controller must provide staff support to the committee.  The committee must hold a public meeting, with appropriate notice, and a formal public comment period.  The committee must evaluate public comments and include appropriate summaries in its annual report.  
 
  The California Energy Independence Fund Assessment is imposed upon the "privilege" of "severing" oil from the earth or water in California for sale, transport, consumption, storage, profit, or use.  The assessment will be paid by each producer.  [Producer is defined as “any person who takes oil from the earth or water in this state in any manner; any person who owns, controls, manages, or leases any oil well in the earth or water of this state; any person who produces or extracts in any manner any oil by taking it from the earth or water in this state; ... and any person who owns an interest, including a royalty interest, in oil or its value, whether the oil is produced by the person owning the interest or by another on his or her behalf by lease, contract, or other arrangement".  (42001(h)) ]  The fee must be applied as follows to all portions of the gross value of each barrel of oil severed:  
 
  42002 (a) 1.5% of the gross value of oil from $10 to $25 per barrel;  
  42002 (b) 3.0% of the gross value of oil from $25.01 to $40 per barrel;  
  42002 (c) 4.5% of the gross value of oil from $40.01 to $60 per barrel; and  
  42002 (d) 6.0% of the gross value of oil from $60.01 per barrel and above.  
 
  NOTE:  This list is taken directly from the Measure.  There are at least two possible meanings, and which is meant is unclear.  It could mean that a single tax is applied, at the gross current price for oil.  It could also mean that the tax is to be assessed against each increment of the price, contributing to the gross current price.  This results in substantially different amounts for the tax, as shown in the following table where the price for oil is presumed to be $70 per barrel, as it was recently:  
 
         
Price Level Tax Rate Single Tax Tax by Increment  
$0 to $9.99 0.0% NA $0.000  
$10 to $25 1.5% NA $0.225 (1.5% x the additional $15)  
$25.01 to $40 3.0% NA $0.450 (3.0% x the additional $15)  
$40.01 to $60 4.5% NA $0.900 (4.5% x the additional $20)  
$60 and up 6.0% $4.20 $0.600 (6.0% x the additional $10)  
Total Tax   $4.20 $2.175  
         
 
  Except as otherwise discussed below, the assessment must be upon the entire production in the state, regardless of the place of sale or to whom sold or by whom used, or the fact that the delivery may be made to points outside the state.  
 
  Purchasers as well as of producers of oil, or both, are authorized and required to withhold the proportionate amount of the assessment due from any payment due to interested parties.  
 
  The assessment imposed is the primary liability of the producer and is a liability of the first purchaser and each subsequent purchaser.  Failure of the producer to pay the assessment does not relieve the first purchaser or a subsequent purchaser from liability for the assessment.  A purchaser of oil produced in this state must satisfy himself that the assessment on that oil has been or will be paid by the person liable for the assessment.  
 
  The assessment must not be passed on to consumers through higher prices for oil, gasoline, or diesel fuel.  At the request of the Authority, the board must investigate whether a producer, first purchaser, or subsequent purchaser has attempted to gouge consumers by using the assessment as a pretext to materially raise the price of oil, gasoline, or diesel fuel.  
 
  The assessment imposed by this Part is in addition to any ad valorem taxes imposed by the state, or any of its political subdivisions, or any local business license taxes.  No equipment, material, or property shall be exempt from payment of ad valorem tax by reason of the payment of the gross tax.  
 
  Two or more producers that are corporations and are commonly owned or controlled directly or indirectly shall be considered as a single producer for purposes of application of the assessment.  
 
  The California Energy Independence Fund Assessment will not be imposed upon:  
 
  Oil owned or produced by any political subdivision of the state.  
  Oil produced by a stripper well in any month in which the average value of oil is less than $50 per barrel.  If in any month the average value of oil is $50.01 or more per barrel, a stripper is subject to a fee in the amount of three percent (3%)of the gross value of oil above $50.01.  [Stripper well means "a well that has been certified ... as an oil well incapable of producing an average of more than ten barrels of oil per day during the entire taxable month.  Once a well has been certified as a stripper well, such stripper well shall remain certified as a stripper well until the well produces an average of more than 10 barrels of oil per day during an entire taxable month."]  
 
  The assessment is due and payable to the board on a monthly basis.  The board may define the manner in which all payments are made to the state, and the board may prescribe the forms and reporting requirements necessary to implement the assessment.  The board may employ auditors, investigators, engineers, and other persons to engage in all activities necessary for the implementation of the assessment.  In all such proceedings, the board may act on behalf of the people of the State of California.  
 
  The board must enforce the provisions for collecting the assessment and may prescribe, adopt, and enforce rules and regulations, including, but not limited to, the payment of interest and the imposition of penalties.  
 
  All assessments, interest, penalties, and other amounts collected pursuant to assessing the tax must be deposited in the California Energy Independence Fund.  Before allocating funds, the Authority must reimburse the board for expenses incurred in the administration and collection of the assessment imposed by this Part.  The board must transfer money received from these sources to the California Energy Independence Fund at least once per calendar month.  
 
  The Assessment ends once the Authority has spent $4 billion and after all indebtedness associated with the Clean Alternative Energy Act has been paid or payment has been provided for, unless a later enacted statute, that becomes operative on or before the date this Part becomes inoperative, deletes or extends the date on which it becomes inoperative.  However, so long as any bonds or other obligations secured by the assessment created by this Part remain outstanding, neither the Legislature nor the people may reduce or eliminate the assessment, and this pledge may be included in the proceedings of any such bonds as a covenant with the holders of such bonds.  
 
  Any challenge to the validity of this Act must be filed within six months of its effective date.  
 
  This Act may be amended to carry out its purpose and intent by statutes approved by a two-thirds vote of each house of the Legislature and signed by the Governor.  
 
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