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$33 million in energy-efficiency funding at stake in Western Riverside court fight

October 14, 2010 |  6:02 pm

Battle lines are being drawn in a Riverside County superior court over the fate of $33 million in federal stimulus funding for residential energy-efficiency improvements.

The funds were originally set aside for the beleaguered Property Assessed Clean Energy program, or PACE. Now they are meant to be used to support affordable financing options for home upgrades such as solar panels or efficient windows.  

But a local judge issued a temporary restraining order Thursday morning against the California Energy Commission, blocking it from doling out the money to municipalities around the state. The funds must be distributed before Oct. 21, according to the commission, or they’ll be withdrawn.

Energy officials asked Judge John D. Molloy to allow the money to be transferred to the California Department of General Services to keep it in the state. But Molloy isn’t budging, accusing the commission of being “duplicitous” and playing a “dangerous game.”

Commission officials fired back Thursday evening, calling the events “disingenuous at best and a frivolous abuse of the legal process at worst.”

The complicated clash stems from the Western Riverside Council of Governments’ claim that it has a right to part of the $33 million. The council represents 17 cities in western Riverside and Riverside counties.

More below the jump. View the transcript from Thursday's proceedings here.  Download TRO-CourtTranscript-10-14-10

Late last year, the Energy Commission received the funds from the federal Department of Energy to use toward PACE. Roughly half of all states adopted the program, which used bond money to fund energy-efficiency home improvements that would be paid back through long-term property assessments.

The commission opened a competitive bidding process in order to give out the money, inviting California municipalities to apply. State officials claim that the Western Riverside council turned in a $20-million proposal that ignored guidelines and then missed the deadline to fight disqualification.

Meanwhile, the Federal Housing Finance Authority decided over the summer that it considered PACE to be too risky, because liens through the program were granted priority over mortgages in the event of a foreclosure.

The regulator, which is the conservator for mortgage giants Fannie Mae and Freddie Mac, directed lenders to back away from PACE communities. In a difficult housing market, a chill quickly settled over the program, effectively freezing it.

That left the Energy Commission with a pot of money it couldn’t use. 

Around the same time, the Western Riverside Council began complaining that it had been left out of the process. The council sought, and was granted, a permanent injunction against the Commission in early July, prohibiting the agency from handing out PACE funds unless it considered the council’s bid. 

Faced with the Housing Finance Authority blockade, the Energy Commission instead decided to cancel the original call for PACE proposals entirely, saying that it had been rendered “obsolete.” It recently reworked the program as a more general energy-efficiency loan and jobs effort called Energy Upgrade California.

But Judge Molloy, in Thursday’s decision, said the new offering is “almost identical to the original program.” He set a Nov. 4 hearing date to consider whether to make the temporary restraining order permanent and whether to find the Energy Commission in contempt of violating the July injunction.

The arguments are “absurd” and “reprehensible,” the commission said Thursday night, demanding that the council withdraw the restraining order and dismiss the lawsuit. Local governments that had been awarded grants through the new program are, for now, waiting anxiously to see if the funds will come through in time.

"Western Riverside deliberately refused to engage the Energy Commission in a public forum and ambushed us with a baseless, last-minute contempt charge," said Karen Douglas, commission chairman. "This court order places us squarely in conflict with federal deadlines, at the expense of local governments across the state."

-- Tiffany Hsu