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Western Riverside, state Energy Commission battle over $33 million in energy-efficiency funds

October 14, 2010 |  7:06 pm

As a state energy agency engages in a fight with municipal officials in western Riverside County, the clock is ticking on $33 million in federal funding for residential energy-efficiency improvements.

A Riverside County Superior Court judge issued a temporary restraining order Thursday morning against the California Energy Commission, blocking it from doling out the money to municipalities statewide. The funds were to be used to back affordable-financing options for home upgrades such as insulation and solar panels. 

The stimulus funds must be distributed before Oct. 21, according to the Energy Commission, or they’ll be withdrawn.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."

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 and a few other agencies in Riverside County.

More after the jump. Read the transcript of 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 the Property Assessed Clean Energy Program, or PACE. Roughly half of all states adopted the program, through which homeowners could borrow money for energy-efficiency home improvements.

The commission opened a competitive bidding process for the money, inviting California municipalities to apply. State officials say 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 this summer that it considered PACE to be too risky for mortgage lenders because in the event of a foreclosure, PACE funds would be paid back before mortgages.

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

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

About the same time, the Western Riverside council began complaining that it had been left out of the process. The council was granted a permanent injunction against the Energy 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 the program had been rendered "obsolete." The commission says it jettisoned PACE and launched a more general energy-efficiency loan and jobs effort called Energy Upgrade California.

But Judge Molloy, in Thursday’s decision, said the new offering was "almost identical" to PACE. He set a Nov. 4 hearing to consider whether to make the temporary restraining order permanent and whether to find the Energy Commission in contempt of the July injunction.

Local governments that have been awarded grants through the new program are, for now, waiting to see whether 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