1. Federal and state laws and regulations affecting lending, payment collections, and security of real property.

2. Financing structures and repayment histories that must be transparent and able to be risk-assessed by originating credit markets, as well as secondary capital markets, to turn over portfolios of loans.

3. Utility and state-directed energy efficiency programs and their technical elements to measure and maximize the energy savings performance of project investments (also referred to as quality assurance).

4. Energy efficiency marketing and sales activities to drive project transactions, primarily driven by contractors, vendors, and energy service providers, who are concerned about high conversion rates from sales prospects to closed sales, managing overhead costs, and getting prompt payment.

5. Consumer protection and low-income services advocacy.

· Creating innovative financing programs for the construction of energy efficient homes and buildings;

· Using finance tools to encourage the demand of energy efficiency building products, systems, and appliances; and

· Convening a task force on financing with particular attention to issues of multifamily housing and paying for actions with longer-term paybacks.

· Expand access to credit and capital among utility customers/energy end users to help achieve the energy savings goals laid out in the Strategic Plan.

· Ensure financing mechanisms offer attractive interest rates that hold appeal to the prospective borrower (energy improvement sponsor) and sufficient term length. Both factors can help ensure the combined cash flow of debt repayment and bill savings is neutral or at least manageable.

· Increase market penetration in commercial leased space and rental housing, where occupancy tenure can be short, by adopting a finance mechanism conducive to repayments being connected with the property. This means that successor occupants and owners would remain the beneficiaries of the energy improvements and continue to pay off any facility-based energy improvement debt obligations, instead of the original borrower who may have since moved out.

· The full-scale launch of the OBF programs in the current utility program portfolio cycle. The program is 100% funded by ratepayers and available to non-residential customers for up to five-year loans (up to ten years for institutional customers) at 0% interest.

· Property Assessed Clean Energy (PACE) assessment financing, where energy-related assessments were repaid as part of local property taxes. Upon launch, PACE was expected to be the "silver bullet" perfect solution, offering affordable interest rates due to the security tied to property, and repayment from the current property owner. In the residential market, this program was thwarted by concerns from federal housing mortgage authorities over lien placement and the potential impact on federally-backed mortgages. In the California's commercial market, some PACE activities are proceeding such as in Los Angeles, Placer, and San Francisco counties. We remain hopeful that PACE will succeed in the near future in both the residential and commercial markets. Had PACE proceeded as fast as initially appeared, it is likely we would not be undertaking such an intensive approach here to identifying other financing options. But at this point in time, we cannot count on PACE being available on a large enough scale to significantly aid in achievement of the energy savings goals laid out in the Strategic Plan, especially in the residential markets.

· American Recovery and Reinvestment Act stimulus-funded financing program initiatives (at least eight in California) in 2011-2012 enabled experimentation with different target markets, loan repayment terms, loan originators, and loan program administrators.

If a corporation furnishes residential service subject to subdivision (a) (master metered properties), the corporation shall not terminate that service in any of the following situations:... (3) for indebtedness owed by the customer to any other person or corporation or if the obligation represented by the delinquent corporation other than the electrical, gas, heat or water corporation demanding payment therefore.

Public Utilities Code Section 779.2(a) reads:

No electrical, gas, heat, telephone or water corporation may terminate residential service for nonpayment of any delinquent account or other indebtedness owed by the customer or subscriber to any other person or corporation or when the obligation represented by the delinquent account or other indebtedness was incurred with a person or corporation other than the electrical, gas, heat, telephone or water corporation demanding payment thereafter.

· The inclusion of quality installation requirements into finance program design to ensure development of high-quality green jobs (Greenlining, Green For All, and the Ella Baker Center for Human Rights).

· Recognition of existing American Recovery and Reinvestment Act-funded energy efficiency finance programs that involve local governments and the recommendation that future financing activities should be conducted on a regional basis by local government regional energy networks (LGSEC).

· Specification of what happens procedurally when utility service is disconnected due to nonpayment, and how utility service can be re-established (NCLC).

· Refinements to the Staff Proposal's recommendation to create an energy loan performance database to collect and share aggregate energy savings data with entities that provide financing (NRDC, PG&E, and Renewable Funding).

· Recommendations for whether and how to offer financing to customers with poor/low credit histories (SDG&E/SoCalGas, SCE and Greenlining/GFA/EBCHR).

· Overcoming the "first cost" of energy efficiency upgrades;

· Leveraging ratepayer funds by bringing in private capital;

· Increasing sales of energy efficient products and services;

· Reaching a broader set of customers and market segments; and

· Encouraging customers to invest in projects that will achieve deeper energy savings.

1. Continuation of and improvement to the on-bill financing (OBF) programs currently in the utility 2010-2012 portfolios for non-residential customers.157

2. Continuation of successful financing programs that were originally supported by American Recovery and Reinvestment Act stimulus funding in 2011 and 2012 and implemented by third-parties and local governments, in some cases administered by or through the California Energy Commission.158

3. A set of new financing programs to be designed in 2012, and then offered consistently on a statewide basis, in pilot form in 2013, and at a larger scale in 2014.

· Potential for scalability to larger target markets.

· Ability to leverage ratepayer funds (e.g., with reasonable budgets for outreach to prospective borrowers or for modest levels of credit enhancement) with private loan capital.

· Ability to test unique and/or new program design and delivery options (i.e., effects of requiring bill neutrality, offering longer loan terms, assessing tradeoffs between rebates and financing, etc.)

· Ability to serve previously-unserved or under-served markets (such as multifamily residential, for example).

· Ability to offer low interest rates to consumers, including loan programs that make use of "flexible capital" (from foundations, small business sources, etc.).

· Effective utilization of total combined ratepayer funding support from all sources - utility programs, local or state government partnerships, third-party programs, and financing (in other words, in the vernacular: "best bang for the buck").

· Program design issues for new financing programs.

· Energy project and loan performance data collection and dissemination issues.

1. A credit enhancement strategy for the single-family residential market.

2. A financing program strategy designed specifically for the multifamily residential market that includes both credit enhancement and an on-bill repayment option (and/or tariff-based energy efficiency improvement reimbursement mechanism) that may require legislative change to fully implement. Variations in program structure or terms may be appropriate to ensure the ability to engage customers and building owners from both a) low-moderate income and b) moderate-high income multifamily residential market segments.

3. A credit enhancement strategy for the small business market.

4. An on-bill repayment strategy for all non-residential customers.

· Financing program administrator;

· Credit enhancement manager;

· Administrator of interest rate buy-downs (if applicable);

· Capital providers;

· Lenders/originators;

· Servicing agent and/or clearinghouse for data flow from lenders to on-bill repayment facility; and

· on-bill repayment billing administrator;

· Each finance product should be designed for a uniform statewide program, or with standard statewide terms, documents, and procedures.

· "Keep it simple and fast" - contractors are the most likely marketing agents and will need to be able to present finance information to the borrower/energy-user to drive transactions. Thus, programs should avoid over-complexity of design or required paperwork, etc.

· For the non-residential on-bill repayment, a single servicing agent should be considered who would relay simple finance payment information to the utility bill.

· In terms of defining functions and roles, the consultant should assume that a servicing agent will be responsible for all special adjustments, the originator will be responsible for consumer inquiries, and there could be a separate program dispute resolution process for issues with contractors.

· Interest rates of around 7% for most borrowers with credit scores of 600 or more; and

· Terms of up to 15 years for major energy efficiency actions (possibly longer for solar installations).

· The need for landlord acquiescence to allow an improvement project and the placement of a repayment obligation on a meter, since it could affect their ease of finding subsequent tenants, who would be expected to continue loan repayment.

· The notification process for successor tenants.164

· The desire for limits or protections, such as bill neutrality, that the cost of measures undertaken, and associated repayment obligation, will imply a reasonable debt relative to the anticipated bill savings.

· Start with a bill neutrality objective, at least for credit-challenged or lower-income populations.

· Consider an additional cushion beyond bill neutrality (for example, limiting bill savings to 80% of estimate) to minimize potential negative impact on consumers.

· Seek to structure loans and eligible measures to give the owner at least an 11% return.

· Start with placing the loan obligations on common meters. A second stage product could work on tying the payment obligation to individual tenant meters. This will require greater attention to notification and disclosure, as well as possibly credit re-qualification by tenants.

· Identify specific waivers and/or clearance required from the California Department of Corporations.

· Consider possible tariffed service utilizing private capital.

· Seek to marry the energy efficiency loan opportunity with solving another problem (such as equipment malfunction, safety, health).

· Seek to pair the energy efficiency measure with a home equity loan instead of a stand-alone unsecured energy loan.

· For multifamily market-rate rental housing, credit enhancement may be necessary to drive participation.

· Offer (and test) with a variety of multifamily types, including high rises and low rises, condos and rentals, and different physical configurations (e.g., central vs. individual building systems).

· Expand the class of customers who can qualify for credit to undertake energy improvements by more directly capturing the cash flow advantages of lower utility bills.

· Provide a predictable repayment system for customers to utilize.

· Seek to utilize utility bill payment history as a basis for credit approval for energy improvement loans.

· Reduce the burden and costs now required to assess individual business credit-worthiness.

· Help energy services providers with added credibility in marketing to end users with ability to offer financing and, in doing so, streamline sales transactions.

· A program design that leads non-residential customers to view loan repayment and utility bill payment as a composite and undifferentiated obligation, without regard to the potential for disconnection for non-payment or pro-rata allocation of partial payments.

· Loans with interest rates of under 9%.

· Loan caps for commercial/institutional users that are high enough to capture costs of expensive mechanical equipment projects that offer deeper energy savings.

· Provision for pro-rata allocation of partial payments between utility service payments and loan repayment.

· Customer type,

· Host site characteristics,

· Utility payment history,

· Borrower credit scores and energy project repayment histories,

· Energy project performance data (by building or customer, not only by measure), and

· Billing impacts comparing pre- and post-installation utility bills.

· July 2012: Utilities file 2013-2014 energy efficiency program portfolio applications, including:

    o Basic structure of financing programs and budgets planned for 2013-2014, and

    o Plan for expert consultant hiring and structure of working groups and timeline for 2012.

· By end of third Quarter of 2012: Expert financing consultant presents 2013 pilot program design details in written program plan and public workshop.

· Fourth Quarter of 2012: Additional Commission direction in response to consultant's program plan, if necessary.

· January 1, 2013: Continuation of OBF programs and selected financing programs previously supported by American Recovery and Reinvestment Act stimulus funds.

· First Quarter of 2013: Launch of new financing program pilots.

156 CARE is the California Alternate Rates for Energy program, which provides assistance and rate relief to qualified low income customers.

157 As of this date the utilities have authorization in the current cycle to spend approximately $70 million on OBF loans, including the March 8, 2012 augmentation authorized to SCE's OBF budget in Resolution E-4473.

158 The CEC reports oversight on some $40 million of American Recovery and Reinvestment Act funds committed to local financing of efficiency, of which $37 million came from the State Energy Program administered by the CEC and $3 million came from Energy Efficiency Community Block Grant funds.

159 As articulated in D.09-09-047, because of the prospect for high levels of repayment, loan capital need not be counted as an "expenditure" in cost-effectiveness analysis; only actual losses from defaulted OBF loans need to be treated as a programmatic expenditure by utilities.

160 Presenters included CRHMFA Homebuyers Fund, Los Angeles County, Santa Barbara County, and the Town of Windsor in Sonoma County. Additionally, a summary of lessons learned included the experience of additional organizations that sponsored financing programs including: CCSE, Ecology Action, Heschong Mahone Group (for San Diego, Sacramento, and San Francisco), City of Los Angeles, Placer County, Renewable Funding (for Los Angeles and other American Recovery and Reinvestment Act-funded programs), City/County of San Francisco, Sacramento Municipal Utility District, and Sonoma County.

161 The energy efficiency financing impacts calculator was described and illustrated at the February 10, 2012 public workshop. The presentation is available at: http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/.

162 A loan loss reserve sets aside (reserves) a certain amount of money to cover potential losses (in case of no repayment). For instance, a 5% loan loss reserve on a $60 million loan portfolio would cover up to $3 million of a capital provider's losses on that loan portfolio.

163 Details are available at: http://www.treasurer.ca.gov/caeatfa/abx1_14/index.asp.

164 The February 22, 2012 comments from the California Association of Realtors offers additional thoughts on this subject.

165 The presentation is available at: http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/.

Previous PageTop Of PageNext PageGo To First Page