5. Financing
For energy efficiency financing matters, our investigation into the program design and implementation issues is relatively recent compared to some of the program areas with which the Commission and parties have a much longer history. Therefore, we anticipate developing further direction in the area of energy efficiency financing throughout 2012 as we consider the utilities' program portfolio applications and a statewide expert financing contractor is hired to design further strategies as described later in this decision. Therefore, for purposes of this decision, our aim is to provide a framework to guide further design efforts around energy efficiency financing for 2013-2014 and beyond.
We have learned that, in general, developing energy efficiency financing programs and solutions is a complex undertaking, and involves the intersection of at least five different worlds:
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.
We expect this list provides all the more reason to embark on a path to test out financing products and means of delivery, as well as utilize outside experts to help engage stakeholder input into program designs, and then to scale up successful mechanisms.
5.1. Background
The Commission has a relatively short history with energy efficiency financing. During the 2010-2012 portfolio cycle, we have made some progress to advance our thinking. Most notably, D.09-09-047 directed Commission Staff to explore a wide range of additional financing possibilities and oversee preparation of a report that recommends the most-promising approaches that should be considered in California for underserved segments of energy users. D.09-09-047 envisioned a series of workshops and meetings that engaged key actors and secured industry perspectives. Last, D.09-09-047 directed Commission Staff to prepare an assessment and plan that ensures effective financing instruments are available to all energy users in the state that can facilitate achievement of the high levels of energy efficiency that California needs.
Additionally, AB 758 (2009, Skinner and Bass) directed the Commission to investigate the ability of electrical corporations and gas corporations to provide energy efficiency financing options for comprehensive energy retrofits for residential and non-residential customers in the existing building stock.
Finally, the Strategic Plan called for a number of near term (2009-2012) strategies related to financing of energy efficiency. These included:
· 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.
In November 2010, Commission Staff convened two days of workshops to discuss energy efficiency financing needs and mechanisms to begin to accomplish both the Commission's and the Legislature's directions to identify meaningful approaches for energy efficiency financing.
In July 2011, Commission Staff released a report by Harcourt Brown and Carey entitled Energy Efficiency Finance in California: Needs and Gaps to continue to accomplish the mandates set out by the Commission, AB 758 and the Strategic Plan. In the report, Harcourt Brown and Carey conducted a needs and gaps assessment, and made findings and recommendations for the most effective approaches to facilitate capital investment in energy efficiency.
On October 25, 2011, an Amended Scoping Memo and Ruling laid out direction for the 2013-2014 energy efficiency program cycle. Among many other issues, the October 25, 2011 Assigned Commissioner's Ruling (ACR) and Scoping Memo emphasized energy efficiency financing as a way to achieve deeper energy retrofits across all sectors by leveraging private capital, in addition to using ratepayer funds to support energy efficiency.
On January 10, 2012, an ALJ ruling on energy efficiency financing was issued that included a Staff proposal suggesting the development of a larger efficiency financing program, supported with both ratepayer funds and private capital funds. Specifically, the ruling included a Staff proposal for the 2013-2014 program cycle that entails: 1) the development of an on-bill repayment structure, 2) the offering of ratepayer-supported loan products, 3) continuation of on-bill financing (OBF) on an interim basis while new financing products are developed and introduced, and 4) creation of an energy loan and project performance database. The goals of the Staff proposal were to:
· 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 ruling described the process for considering the Staff proposal and posed a number of questions to discuss at workshops and via two rounds of party comments. February 8-10, 2012, Commission Staff convened three days of workshops to discuss the Staff proposals and associated issues.
In parallel with these procedural developments, several financing-related activities were underway by the utilities and the marketplace to make available additional financing options for customers. These include:
· 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.
5.2. Positions of the Parties
On January 25, 2012 twenty-three parties filed first-round comments on the January 10, 2012 ALJ ruling on energy efficiency financing, mostly related to policy goals and the preferred overall financing framework. Those parties are: Berkeley Center for Law, Business and the Economy (BCLBE); Beutler Corporation; Build it Green; California Association of Realtors; California Center for Sustainable Energy (CCSE); California Construction Industry Labor Management Trust (CILMT); City of San Diego; Commercial Energy; Efficiency Council; Environmental Health Coalition; DRA; Greenlining Institute/Green For All/Ella Baker Center for Human Rights (EBCHR); LGSEC; Metrus; NCLC; NRDC; PG&E; Renewable Funding; SCE; SDG&E/SoCalGas; SolarCity; TURN; and WEM.
On January 30, 2012 eleven parties filed reply comments to the first round comments of others, including: Beutler Corporation; DRA; Environmental Health Coalition; Greenlining Institute/Green For All/EBCHR; LGSEC; NCLC; PG&E; SCE; SDG&E/SoCalGas; TURN; and WEM.
On February 22, 2012, seventeen parties filed second-round comments on the January 10, 2012 ALJ ruling on financing, on issues raised in workshops and questions in Section 6B and 6C of the ruling, related to program design and implementation details. Those parties are: California Association of Realtors; CCSE; CILMT; CHPC; DRA; ETA; Greenlining Institute/Green For All/ Ella Baker Center for Human Rights; LGSEC; NCLC; NRDC; PG&E; Pulse Energy; SCE; SDG&E/SoCalGas; SolarCity; TURN; and WEM.
On February 29, 2012, ten parties filed reply comments to the second round including: CCSE, CHPC, DRA, LGSEC, National Consumer Law Center, PG&E, SCE, SDG&E/SoCalGas, SolarCity, and TURN.
Comments received on January 25 indicate that most parties (Greenlining/GFA/EHCHR, LGSEC, NRDC, SolarCity, and TURN) are generally supportive of the Staff Proposal's emphasis on-bill repayment, with the exceptions being DRA and the IOUs. For example, Greenlining/GFA/Ella Baker Center for Human Rights (EBCHR) said say they supported on-bill repayment over OBF because: "OBR attracts private capital.... OBR has the potential to attract sufficient resources to bring financing programs to scale and realizing the full potential of energy efficiency improvements. OBF, on the other hand, uses finite ratepayer funding which imposes limits to the scale programs can reach." DRA opposes on-bill repayment for the increased risk of disconnection that it poses to residential customers and because it feels that ratepayer-funded credit enhancements offered via California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) without utility involvement in financing would be a better program model.
The utilities generally oppose the Staff Proposal's dedication of $140 million to (non-OBF) financing activities over the 2013-2014 transition period, citing, among many other things, concerns about its impact on the overall cost-effectiveness of their portfolios. The utilities vary somewhat, however, in their willingness to explore options and experiment with alternative program offerings. SDG&E/SoCalGas signal openness to continuing to explore on-bill repayment as a new financing tool, and offer a list of lending requirements and constraints that would need to be addressed prior to launching full-scale efforts. PG&E also offers thoughtful and considered concerns about the legal constraints that would apply currently to on-bill repayment, particularly in the residential market. SCE also conceptually supports moving away from utilizing only ratepayer funds to support energy efficiency loans and toward more reliance on private capital, but offers the most conservative perspective on the elements of the Staff proposal of any of the utilities, holding up the specter of the housing crisis as a cautionary tale.
The IOUs' comments also convey the preference that a more modest budget and scope of activity should be put in place for 2013-2014 to conduct market research, investigate identified barriers, and pilot line-item billing (LIB) projects for some commercial customers. LIB is an approach where utilities would list third-party payment amounts on the utility bill on behalf of a product or service provider, but, unlike with on-bill repayment, the utilities would not be responsible for the collection of any unpaid debts from those line items. The utilities would simply offer the convenience of billing alongside energy commodities, but would not be responsible or involved in any way with the purpose of the debt, its origination, or bad debt collections.
Regarding on-bill repayment, many other parties raised numerous legal, policy and operational concerns and questions related to attachment of the debt to the meter, disconnection of utility service for nonpayment to third-parties, transference of the debt obligation to the next tenant or owner, and notification of landlords and successor owners or tenants.
Notably, the IOUs and DRA identify two sections in the Public Utilities Code - Sections 777.1(e)(3) and 779.2(a) - that affect the offering of on-bill repayment programs to residential customers because they prohibit termination of residential service for non-payment to a third-party.
Public Utilities Code Section 777.1(e) reads:
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.
Many parties, particularly CHPC, Greenlining, DRA, TURN and the IOUs, oppose disconnection being allowed for on-bill repayment for residential customers, particularly low-income customers (those that qualify for CARE,156) due to concerns about keeping general levels of service disconnection low and fears that lower-income households could find themselves overburdened with energy improvement debt.
In addition to the comments and suggestions discussed above, in the January 25 comments parties identified additional elements that they assert should be added to the Staff Proposal on energy efficiency financing. These suggestions include:
· 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).
5.3. Discussion
As is apparent from the January 10, 2012 ALJ ruling on financing, multiple rounds of comments from parties, and three full days of workshops hosted by Commission Staff, energy efficiency financing is an extremely complex and multi-faceted issue. This topic brings together the interests of a diverse set of entities within and among the following categories: large and small financial institutions, banks and credit unions; customer groups and customer segments; contractors, consultants, energy services companies, and energy efficiency and solar vendors and manufacturers; utilities and third-party implementers; local governments and state agencies; and non-profit advocacy organizations.
As articulated in the January 10, 2012 ALJ ruling on financing, the opportunities offered by an increased emphasis on financing for achieving greater levels of energy efficiency are not new. Emphasis on financing alternatives dates to the 1970s; financing offers the potential of overcoming numerous economic barriers to the adoption of deeper levels of energy efficiency.
Commission Staff hosted the workshops to explore new options for offering financing for energy efficiency to try to achieve the following potential major benefits:
· 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.
If achieved, all of these benefits will result in much higher levels of energy efficiency in California. In addition, the financing offerings need not be limited to energy efficiency, and can support all types of demand-side investments, including energy efficiency, demand response, distributed generation, and storage. To achieve this public interest, our challenge is to design a set of program offerings that will meet the private needs of all or most of the diverse market players discussed above. To make this happen, it quickly becomes apparent that there is no "one size fits all" approach that will work for all customer segments and all market actors. Instead, a portfolio of approaches will be necessary.
In addition, due to the complexity of the legal, policy, and practical issues surrounding design of financing options in various markets, it seems prudent to design an approach where financing programs and budgets can ramp up over time based on practical experience and market participation by various customer segments.
In keeping with these principles of diversity and scalability, we require the utilities to propose in their 2013-2014 program applications a portfolio of financing options (to become a new "statewide" category, with a portfolio of financing programs implemented consistently by all of the utilities) consisting of the following three types of programs to be funded at a level of at least $200 million over 2013-2014:
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.
In addition, we require the utilities to develop a database or contribute to a larger database of financing-related information (including, but not necessarily limited to, credit scores, bill payment history, debt repayment history, estimated and actual energy savings), along with an approach to sharing this information in a manner that will preserve individual customer confidentiality while still meeting the needs of interested financial entities and others for additional data.
Each of these areas is discussed in more detail in a separate section below.
A number of parties in their comments, including PG&E, WEM, SDG&E/SoCalGas, NRDC and TURN, support continuation of the OBF programs for the non-residential market. In the cases of SDG&E/SoCalGas and SCE, the program appears to be quite successful if measured by the level of customer interest and the recent need to shift funds into the program to meet market demand. In the case of PG&E, their program implementation lagged behind the other utilities but appears to be gaining in popularity. SoCalGas seems to face some barriers related to its status as a natural gas-only utility that may be able to be addressed in 2013-2014 through methods to engage with SCE in supporting joint gas/electric improvement projects, or considering extending loan terms to better match the cash flow of savings from longer-lasting improvements. Still, overall, OBF is a strategy that is serving some customers very successfully.
The downsides of the current OBF program are that: 1) it is not leveraged, i.e., it is funded 100% by ratepayers without augmentation by private capital and is therefore limited in size and cannot fully meet customer market demand, and 2) it has been heavily marketed by some efficiency product vendors predominantly to finance lighting projects and has not yet enabled many deep and more comprehensive retrofits. However, over time loan funds are paid back and meanwhile customers can take advantage of easy access to capital and 0% interest rates.159
Since the OBF program required considerable effort to implement and appears to be making good progress at reaching some types of customers (especially small businesses and governmental organizations), we direct the utilities to propose in their portfolios for 2013 and 2014 an OBF program and budget for each year at a level equal to or greater than the amount of OBF funding reserved by non-residential customers in 2012. In addition, we invite the utilities to propose any program design or implementation changes they believe will make the program even more successful in 2013-2014 for customers who most need access to capital. We also stress that we expect the OBF program to be proposed and implemented as a uniform program statewide, which it is not currently.
For example, SDG&E has already limited loan terms for lighting-only projects, offering longer loan terms for projects that are more comprehensive. This is the type of modification we support. We also suggest close attention to and analysis of how OBF can be offered in combination with rebates and incentives, and whether those up-front incentives may be scaled back and/or offered as alternatives to financing, to maximize overall portfolio cost-effectiveness in the non-residential markets.
During the past few years, half a dozen or more financing programs have been offered in California with the support of American Recovery and Reinvestment Act stimulus funds and delivered by a combination of local governments and third parties, some in conjunction with existing financial institutions. Several individuals representing these programs were presenters at the workshops February 8-10, 2012, representing loans to both consumers and commercial properties.160 In addition to the OBF program described above, these efforts represent a good start toward developing experience and data that can help provide a bridge toward larger and more leveraged financing programs in the future.
So far, the American Recovery and Reinvestment Act -funded financing programs have been fairly diverse and distributed geographically throughout the state. Some programs have shown a great deal of success at reaching target markets, offering reasonably low interest rates, and achieving real energy-saving projects. In many cases, the programs were designed by or with local governments, utilizing local credit unions that serve particular, usually local, populations. A few have used American Recovery and Reinvestment Act funds as no-cost capital, or to write down otherwise higher lender-set interest rates, while still taking advantage of any applicable utility rebate programs. Each has its own set of rules surrounding eligible measures, interest rates, loan terms, credit score requirements, etc.
In the long term (2015 and beyond), our goal is develop a standardized set of financing program rules and requirements that can be utilized statewide for different types of consumers so that California can attract a larger amount of private capital from bigger banks and/or sales of loans on a secondary market, bringing even more capital to bear on encouraging energy efficiency projects. CCSE put it this way in their February 22, 2012 comments: "In order to participate in a meaningful way, financial institutions would need to see that any Commission-supported program is scalable and standardized such that energy efficiency loans could be purchased and sold with some frequency in secondary capital markets."
To make that happen, however, we need to continue developing loan and project performance data and experience to share with larger capital market players to ensure their confidence in both debt repayment behavior and the cash flow profile of energy savings associated with the projects. Continuing successful distributed programs, preferably with more standardized risk profiles and whose characteristics are potentially scalable to a broader market, will help us develop that data and experience.
Thus, we require the utilities to propose in their 2013-2014 program portfolios to set aside a specific amount of funding and administrative support for continuing and augmenting previously American Recovery and Reinvestment Act-funded programs that can help establish this performance record. As further discussed in the Section on Statewide ME&O, utilities are required to utilize between $5 and $10 million from the 2010-2012 statewide ME&O budget to augment funding for some types of programs, among them financing programs, in 2012. Utilities should choose for continued funding in 2012, as well as in 2013-2014, those programs that best exemplify the following criteria (utilities may also add additional criteria):
· 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").
In addition to the requirements above, the 2013-2014 program portfolios offer an opportunity to make significant progress toward our longer-term goal of developing new, scalable, and leveraged financing products to offer to consumers to help them produce deeper energy efficiency projects than we have previously achieved utilizing mostly traditional program approaches such as audits, rebates, and information.
We acknowledge, however, that despite recent strides, designing and delivering financial products within a complex landscape of legal, regulatory, policy, and practical constraints is not, in most cases, the core competency of either utility energy efficiency program Staff or Commission regulatory Staff. Thus, to help the Commission accomplish its policy goals and help the utilities design successful strategies for different types of customer segments, it is clear that additional expertise will be needed.
In addition, because one of our goals is to have a large-scale and consistent statewide approach in order to eventually attract additional private capital to help provide funding, our preference is to have one utility be responsible for acquiring the additional expertise needed to help with new program design, on behalf of the other utilities and the Commission. For this role, we select the Sempra utilities, SDG&E and SoCalGas, due to their excellence in designing and delivering the OBF program currently, as well as several related innovative programs in the past. The SDG&E/SoCalGas Staff also has excellent experience from their design and implementation of the most successful OBF program to bring to bear on these new areas.
We realize that this is a tall order for a relatively small utility with limited resources to undertake on behalf of multiple stakeholders, state agencies, and the other utilities. We considered the option of dividing responsibility for the new financing program areas among all four utilities. However, ultimately, since we are trying to move away from financing offerings as "utility" programs funded by ratepayers and toward a model utilizing mostly private capital, we think it is in the best interests of all stakeholders to have one utility hire an expert financing consultant to conduct both the program design efforts and the necessary stakeholder engagement.
To help move this effort forward, we require SDG&E/SoCalGas to hire an expert financing consultant as soon as possible in 2012, no later than August 1, 2012. This effort should be co-funded by all of the utilities and may come either from unspent 2012 program funds and/or 2013-2014 funding. In the meantime, Commission Staff and/or consultants should be able to work with SDG&E/SoCalGas staff to start the program design and continue the stakeholder engagement process. The SDG&E/SoCalGas consultant's objective will be to convene a set of two or more working groups to help design pilot programs in certain market segments in 2012 to be launched in 2013. The minimum two working groups will be designed to address:
· Program design issues for new financing programs.
· Energy project and loan performance data collection and dissemination issues.
It may make more sense for the first working group above to be divided up into multiple groups organized by market segment, with a working group for each of the program areas further detailed below. It also could be helpful to designate additional working groups or sub-groups to apply specialized knowledge to such issues as the best ways to address legal/statutory changes or regulatory approvals or waivers, protocols for billing and payment aggregation, and determining roles and potential institutional responsibilities to perform the necessary functional roles from borrower outreach and education to capital provision, loan origination, and credit enhancement.
We leave the identification of and assignment for these tasks and choices to the discretion of SDG&E/SoCalGas and the consultant hired, in consultation with Commission Staff and other appropriate agencies and stakeholders. We also note that Commission Staff have worked with Lawrence Berkeley National Laboratory personnel who developed a preliminary analysis tool that could be helpful in identifying the effective leverage and cost of alternate financing program structures, and then in using this information to shape a portfolio of funds devoted to existing and new financing programs.161
We also expect SDG&E/SoCalGas and their consultant to consult with the local governments and their partners with financing program development experience gained in the past few years through PACE and American Recovery and Reinvestment Act funded programs.
In comments on the proposed decision, a number of parties, including all of the utilities, expressed concern that the timeline we have identified is too accelerated to allow for meaningful program, design, pilot testing, evaluation, and then full-scale launch of new programs. We cannot emphasize enough the level of priority we place on moving forward with new financing programs.
For the second area identified above related to collection and dissemination of data, while the expert consultant can help facilitate a working group to help identify the data that can be collected and shared, the utilities already collect considerable data related to existing financing programs. Thus, as discussed in more detail below, we also require the utilities to begin the process, in parallel, of developing for California or possibly in collaboration with a possible national approach, a database of financing-related project performance and repayment data that will become the repository of all of the data agreed-upon in the working group that should be collected and shared.
After reviewing multiple rounds of parties' comments on the January 10, 2012 ALJ ruling on financing, as well as experts' comments at the workshops, we are selecting a few promising market segments for which we require the utilities and the consultant hired by SDG&E/SoCalGas pursue the design and development of financing program options to be piloted in 2013 and scaled up in 2014. These are:
Residential Market
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.
Non-residential Market
3. A credit enhancement strategy for the small business market.
4. An on-bill repayment strategy for all non-residential customers.
In addition, we order the development of the financing-related database for collection and sharing of relevant data. Each of these activities is discussed in more detail in the subsections below. Note that this list does not, at this time, include pursuit of an on-bill repayment strategy for the whole residential market. The rationale for this is also discussed further below. Instead, we suggest that the utilities pursue pilot proposals within the single-family residential sector that operate within existing statutory limitations for the time being.
For each of the new program areas described above, we will need the consultant, in cooperation with SDG&E/SoCalGas, to identify the types of functional roles and structure to be used and the entities that should be chosen to perform these roles. These roles include, but are not necessarily limited to:
· 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;
We also articulate the following general principles that should apply to all of the new programs to be designed:
· 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.
The consultant hired by SDG&E/SoCalGas will be expected to identify and define these elements in more detail in 2012 for launching pilots in 2013.
For the single-family residential market, the most promising option appears to be design of a credit enhancement strategy. Credit enhancement may be able to entice financial entities to offer lower interest rates for qualifying customers and/or extend credit to customers with lower credit scores, allowing energy efficiency loans to support more comprehensive projects and/or to reach a larger market.
There are many forms of credit enhancements that may be utilized. For example, a loan loss reserve162 would appear to stretch scarce ratepayer funding effectively, since funds are required only to cover actual loan losses due to non-payment. This is in contrast, for example, to interest rate buy-downs (which some view as a form of credit enhancement), which require funding to offset the interest rate reduction for each and every loan, thereby becoming more expensive for the portfolio overall. However, we do not impose specific requirements for the design of the credit enhancements in the single-family residential market in this decision.
We do, however, offer illustrative program features that we would like to see the consultant aim for, if possible. Those include:
· 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).
Initially, we request utility proposals for the credit enhancement product in their 2013-2014 portfolio applications with discussion of the preferred options and rationale. These details can be further refined over the course of the rest of 2012.
An advantage of credit enhancement for single-family residential customers is also that it could be offered statewide by a single entity and utilized by both local and statewide lenders. One possibility would be for CAEATFA to administer such a program, as suggested in several sets of comments from DRA.
CAEATFA will soon launch a Clean Energy Upgrade Financing Program using up to $25 million from former Renewable Resource Trust Funds previously designated to support the PACE Bond Reserve Program. Under the Clean Energy Financing Program, CAEATFA may provide financial assistance in the form of credit enhancements to financial institutions providing a loan to finance the installation of distributed generation renewable energy sources, electric vehicle charging infrastructure, or energy or water efficiency improvements on homes or small commercial properties. The goal is to increase access to retrofit financing by reducing its cost.
In a first phase, CAEATFA is establishing a loan loss reserve program designed to help financial institutions make loans to California homeowners for energy efficiency and renewable energy retrofits. In a second phase, CAEATFA will issue a request for information to all interested parties - public, private, and partnerships - to obtain information and ideas on alternative financing structures that might add value to the Clean Energy Upgrade Financing Program. CAEATFA anticipates issuing the request for information in the first quarter of 2012. In February 2012, CAEATFA issued proposed regulations for its first phase and hopes to launch the program later this spring.163
In their 2013-2014 program applications, utilities should propose an administrative structure for the credit enhancements that they believe is most likely to be successful at making financing available to more single-family residential customers. If desired, Commission Staff is available to arrange discussions by SDG&E/SoCalGas and their consultant with CAEATFA or other state agencies to explore possible roles and responsibilities.
The utilities, in their comments on the proposed decision, all stated a policy objection to the use of ratepayer funds to support credit enhancements, especially loan loss reserves. The utilities did not state a basis for their objection, and it is unclear how credit enhancement is any different from any other form of ratepayer financial support, such as rebates or incentives. Thus, we do not modify the requirement for credit enhancement strategies to be developed.
As noted above, we do not require, at this time, the development of an on-bill repayment program for single-family residential customers. There are many reasons for this. While intuitively it seems natural that residents are more likely to pay their utility bills than other types of obligations, and there is some evidence to support this conclusion, it is not clear how much of an advantage that would provide to financial entities to be able to offer interest rate reductions compared to the history of how consumers pay other unsecured debt such as credit card charges.
In their February 22 comments, NCLC expresses the following sentiment: "It is not clear that on-bill repayment for residential customers can be designed in a manner that can fairly and appropriately balance the risk to the consumers and ratepayers in general, with the risks to the providers of private capital and the risks to utilities in a manner that can entice all three interests to embrace these efficiency loans on a large scale."
While we suggest that on-bill repayment may be able to be developed successfully for single-family residential customers in the future, our chief concern at the moment is one of timing and feasibility, as DRA expresses in its January 25 comments: "with less than a year remaining before the 2013-2014 transition period starts, it is unrealistic to expect to resolve the issues in time to implement OBR during the transition period."
In addition, at this time we do not have the legal authority to allow the utilities to initiate collection actions for non-payment of portions of the utility bill not related to provision of utility services, and that could lead to disconnection. It had been assumed by the January 10, 2012 Staff proposal and the EDF on-bill repayment proposal that the on-bill repayment arrangement (including application of all customer collections and arrears payment policies) could establish sufficiently higher confidence in loan repayment behavior that lenders would drop their loan interest rates by several percent or more.
The utilities and DRA, in their comments, provide an exhaustive review of our limitations in this regard related to Public Utilities Code Sections 779.2 and 771(e)(3). In comments during the workshops, representatives of various financial institutions differed in terms of their characterizations of how important or influential this payment and collections policy would be in obtaining lower interest rates in any case.
It is clear that to offer on-bill repayment mechanisms with sufficient equivalency to the payment treatment and collections policies for regular utility services would require statutory change. Such change would need to either exempt energy improvement loans from the prohibition applying to non-utility payment obligations, or define energy improvement loans (perhaps referred to as "negawatts") to be equivalent to normal utility charges for utility-provided energy commodities and services. Even then, larger lenders would probably still want to analyze long-term utility account payment histories in order to assign an appropriate credit risk and interest rate to an energy efficiency loan. This would require utilities to make available for examination by potential energy efficiency lenders utilities' (anonymous) customer payment statistics.
Another controversial subject for this market segment is the concept of "bill neutrality," and whether it is a necessary or appropriate requirement alongside on-bill repayment. Bill neutrality refers to the situation in which the combined monthly or annual cost of an energy efficiency loan repayment and the post-project utility bill does not exceed the amount of the original utility bill prior to the project being undertaken.
Opinions among experts in the comments and at the workshops also differ in this area. While it would seem superficially appealing to offer loans along with efficiency projects that ensure that a customer's total bill actually goes down, there are many factors besides the energy efficiency project that may determine whether that result actually occurs. The length of the loan (i.e., how quickly or slowly the loan is paid back), the behavior of the customer utilizing the new equipment (e.g., whether a household elects to enjoy more heat or cooling comfort once monthly bills go down), whether a homeowner elects to undertake high levels of efficiency improvement to obtain the many other benefits received (comfort, environmental footprint, sound management, operational control, etc.), the climate zone in which the structure is located, the quality of the contractor installation that could affect the efficiency improvement's performance, and changes in numbers of residents or appliances and equipment owned all may affect the actual energy and bill savings observed by the customer.
In addition, NCLC, in its second-round comments on the ALJ financing ruling, offers some convincing evidence and statistics related to the likelihood of achieving bill neutrality among California residences. In short, it may be that the math does not work in many California residential buildings; in order to achieve deeper energy efficiency savings through more comprehensive projects such as replacement of HVAC systems, windows, and insulation, bill neutrality may not be possible in the average California single-family residence. This particularly could be the case in moderate climates near the coast or where loans are repaid in less than 15 years. Bill neutrality also may not be necessary, as long as the consumers are informed of the cost impacts and see sufficient benefits in terms of energy savings, comfort, and aesthetics.
In addition, there is already a well-developed financial infrastructure in the existing marketplace in the form of home equity loans for larger and more expensive projects for homeowners with strong credit. While these mechanisms may not be robust enough in the current housing market to be able to serve the majority of homeowners who do not have high credit scores and/or significant equity in their homes, it is not clear that on-bill repayment, on its own, will be able to make significantly more financing or better rates and terms available to those who have access to home equity loans at this point in time.
However, we do see potential in the on-bill repayment mechanism for the residential market in the long term. It appears that the most important elements that would convince large financial institutions to bring capital to these types of loan products are satisfactory resolution of the legal issues discussed above, a track record of successful loans, certainty regarding the effectiveness of using utility bills as a payment collections method, and the expectation that utility programs or state policies will drive large volumes of energy upgrade projects.
To help build the loan repayment record, we direct the utilities to collect data on the performance of loans receiving credit enhancements and OBF through current programs and build a database of California loan payment history from all sources of energy project loans, as mentioned above and further discussed below.
Further, we will monitor the progress of similar programs for the single-family residential market in other states such as New York, Oregon and Pennsylvania. We note that in New York there was explicit statutory authority to develop an "on bill recovery" charge administered by the six IOUs and the Long Island Power Authority that is tariff-based, subject to potential termination of service with normal payment and collection policy safeguards in the case of non-payment of loan charges, requires bill neutrality based on estimated savings, and allows the payment obligation to survive changes in ownership (i.e., the repayment obligation is passed on to successive owners until the full loan amount is repaid).
In addition, Greenlining et al. in their comments on the proposed decision suggest that the Commission should encourage pilot approaches in the single-family residential sector during 2013-2014 that operate within existing statutory constraints for this segment. This is a sensible approach and we invite proposals in the portfolio applications designed to address this segment of the market.
We also clarify that, contrary to comments by some parties on the proposed decision, our failure to order development of on-bill repayment for the single-family residential sector does not signal a lack of support for financing in the single-family market in general. Credit enhancement is a strong form of financing support, and we expect the utilities to propose other options to pilot as well within existing statutory constraints, as stated above. In addition, we expect that the pilot on-bill repayment approach we signal in the next section for the multifamily segment of the residential market will give us significant insight into the options for the single-family residential segment as well.
While some workshop participants and commenters advocated for starting an on-bill repayment approach with the "easiest" market segment of residences, which is usually, according to conventional wisdom, the single-family segment, in this case we believe that starting with multifamily buildings may offer the opportunity for more success. While the multifamily segment is often challenging due to the multitude of ownership structures, split incentive issues, income levels, etc., it is also an under-served market that offers the chance to identify and craft creative and complete solutions. We acknowledge that some legislative action may be necessary to allow us to move forward with the ideas described here.
Multifamily buildings that house primarily low-moderate income households may provide a unique test bed for multiple aspects of a financing program. First, these types of buildings are typically owned by one owner and rented to multiple tenants whose units are separately metered. Many of the energy improvements most applicable to these buildings (central water heating, public area lighting and space conditioning, building shell improvements, air sealing) will benefit more than one household unit at a time. One of the most promising aspects of on-bill repayment is that it may allow loan repayments to be associated with particular meters (and the associated current occupants) rather than specifically-named original tenants or landlords. Crafting a solution for this segment of multifamily buildings may serve as a model for addressing the tenant-landlord split incentive problem in general - overcoming long-standing barriers to achieving energy efficiency potential.
An interesting parallel experience exists with virtual net metering of solar installations that started with multifamily buildings that house low-income tenants under the California Solar Initiative Multifamily Affordable Solar Housing program element. Under that program, the net energy metering (NEM) rules permit any excess solar production to be credited at retail rates and assigned to individual tenant (and common area) meters on a pro-rata basis defined by the property owner. If a solar system can be installed and benefit multiple meters in a multifamily building, there appears to be no conceptual reason why an energy efficiency project could not be treated similarly, providing a benefit to both tenants and landlords. Focusing on this particular smaller market niche first should help solutions emerge that may be more broadly applicable to other situations.
Some areas that will need to be addressed include:
· 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.
We offer the following initial guidance on program design features that may be desirable to pursue, and will look forward to the utilities' applications and subsequent consulting expertise to offer refinements on these ideas. The multifamily financing offerings should:
· 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).
Similar to the single-family residential market, some form of credit enhancement is likely to be successful in making more and/or more affordable financing options available to larger segments of the small business market. While not as much detail was discussed at the workshops or in comments related to the small business customer segment, these types of customers often face similar barriers to energy efficiency investments as their residential counterparts. There are no commercial credit scores or equivalent tools to consumer credit scores to help lenders assess the credit-worthiness of small business owners.
Discussion at the February 8, 2012 workshop revealed that for conventional lenders to assess loan credit for small businesses requires a fairly arduous and costly financial assessment of the assets, revenues, liabilities, and business prospects of each individual business. For this reason, most small business owners must offer their personal credit (and/or equity in their homes) as a pledge for any business-related loans. This makes it quite difficult for them to obtain financing and then when obtained, many business people would rather apply this to their core business activities and not to energy projects that affect operating costs.
Metrus Energy, in February 22, 2012 comments, stated its belief that credit enhancement is more likely to expand the commercial market than on-bill repayment alone. BCLBE, in January 25, 2012 comments, described the inherent limitations to commercial mortgage underwriting techniques, tools, and criteria that are not sufficiently developed to leverage private funds for energy improvement purposes.
We are well aware that the existing OBF program of the utilities is used by small businesses and other nonresidential customers (loans up to $100,000 per meter except for institutional facilities, which have larger caps), and the terms of these utility-originated loans are far better than anything offered through private lenders. OBF terms offer 0% interest with qualification criteria primarily based on the customer having a good two-year utility bill payment history and the prospect that the loans can be repaid by savings within the expected useful life of the energy efficiency measures. According to a presentation by SDG&E/SoCalGas at the workshops, OBF loan payment defaults for over 960 loans issued to date (some of which were issued to government or institutional customers) and totaling $24 million, amount to about one-half of one percent of the loan principal.
Based on the need of this small business market segment for efficiency financing, the current experience with OBF, and the utility-shared desire to expand non-residential financing through private lending, we direct the utilities to include a proposal in their 2013-2014 program applications to offer at least some form of credit enhancement for non-utility-originated lending to this market segment. As with single-family residential, this credit enhancement may be provided or aggregated by a third-party such as CAEATFA or a similar type of entity such as one making small business administration-insured loans.
Our initial inclination is that credit enhancement of non-utility loans for small business customers should be offered as an alternative to the zero interest OBF option currently available to the same customers, and not in addition to OBF for the individual customer. The question of multiple program participation should be addressed in the utility 2013-2014 applications and further addressed in the program design details developed subsequently. Criteria for the circumstances surrounding eligibility for OBF loans, as opposed to credit-enhanced private loans, also should be addressed.
We also direct the utilities to design an on-bill repayment program for all types of non-residential customers beginning in 2013 for expansion in 2014. After workshop discussion and comments, it is clear that on-bill repayment in the non-residential market is almost uniformly embraced by all stakeholders and less fraught with complexity for all players than on-bill repayment for residential consumers.
First, collections and disconnection policy are not big factors for non-residential customers. The utilities' OBF programs already include pro-rata allocation of customer remittances for energy loan repayments and energy charges and for the escalation of collections procedures eventually leading to disconnection of utility service for non-payment of OBF loans. The same structure can and should be utilized for on-bill repayment. Moreover, there is clear added-security value for efficiency loans collected via on-bill repayment as indicated by many workshop participants' statements that there is no value to real estate that lacks utility electricity and/or natural gas service.
Second, as detailed in workshop panel discussions and a few written post-workshop comments from CILMT, CCSE, and NCLC, bill neutrality does not appear to be a requirement or even necessarily a desirable strategy for this market. Most businesses (commercial, industrial, agricultural, institutional) have access to more internal or external expertise on energy costs and usage impacts from their facility managers or contractors and can effectively evaluate the economic impact of the energy efficiency projects and associated financing costs. In comments on the proposed decision, some parties comment in favor of requiring bill neutrality while others agree with the proposed decision that it should not be required. NRDC submitted a constructive suggestion for the Commission to require that a customer must be presented with an estimate of the expected energy savings and bill impacts of the energy efficiency project at the time the customer agrees to the project. This is a sensible idea and we adopt it.
Our objectives in requiring the utilities to develop an on-bill repayment program for non-residential customers are as follows:
· 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.
The types of design features we would like to see in the utility applications and subsequent program design from the expert financing consultant in this market are illustrated below:
· 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.
In their 2013-2014 program portfolio applications, the utilities should also provide details on the billing system upgrades and/or other information technology costs that may be associated with an on-bill repayment offering for the non-residential market. To help keep these incremental costs to a minimum, we urge the utilities to look into the clearinghouse or aggregator functions proposed by EDF in Attachment C to the January 10, 2012 ALJ ruling on financing, and as further illustrated by Deutsche Bank at the February 10, 2012 workshop.165
In addition, utilities should propose, as desired, a fee mechanism to negotiate with participating lenders or other financial entities that allows utilities to cover the costs of any ongoing billing expenses and infrastructure upgrades to provide the on-bill repayment service.
Finally, as with the continuation of the OBF program, the utilities should include in their applications a discussion of the relationship of the on-bill repayment offering with existing utility programs and their associated rebates or other financial incentives, with the goal of maximizing the cost-effectiveness of the program portfolio in the non-residential markets.
As mentioned several times above, consistent feedback from potential financial entities interested in providing energy efficiency project capital, as well as other stakeholders, is that we need additional information and data to fully inform program design, risk assessment, interest rates, and credit enhancement levels. We have experience already in California thanks to OBF and American Recovery and Reinvestment Act-funded financing programs that can be compiled and shared, as well as years of project investment experience in providing energy efficiency program incentives and evaluations.
The biggest issue always when discussing utility customer data is the need to protect individual confidentiality. In this case, we are discussing sensitive customer information such as addresses, bill payment history, loan payment history, credit scores, and performance of energy investments. In typical Commission decisions surrounding this issue, we seek to preserve confidentiality through aggregation of data. However, in this case, it is the individual customer data, project by project, that is the most illuminating. Thus, we will need to find ways to protect customer privacy through methods such as "anonymizing" customer data.
Thus, we direct that SDG&E/SoCalGas use their expert financing consultant to convene a working group to address issues with data collection and dissemination. The working group will need to obtain guidance on what loan data and qualities will be needed to engage the secondary financial markets to purchase loan portfolios. The group should also explore possible ties to the development of a national database underway with U.S. Department of Energy, federal housing entities and others.
In parallel, we direct the utilities to begin the development of a database that will eventually, once confidentiality protocols are worked out, be able to provide anonymous customer data publicly. The database should be developed to contain information such as the following, along with any other data worked out among working group members:
· 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.
We recognize that additional Commission action in the future may be necessary to approve confidentiality protocols that may be proposed to meet the above requirements.
This section addresses the question of whether utilities will be given credit for the incremental energy savings achieved with the financing programs described above, as well as next steps for developing financing programs and providing additional Commission guidance, if needed.
We recognize that for utilities to be enthusiastic developers and implementers of energy efficiency financing programs, they need to see a benefit to their business and/or their customers. For this reason, it will be important that the utilities are credited with any incremental energy savings achieved beyond those associated with rebates or other related programs by the financing offerings. CCSE argues in February 22 comments that "a primary incentive for the IOUs to utilize on-bill repayment or other on bill instruments is the capture of energy savings for portfolio attribution. Explicit language could impose credit enhancement requirements and other portfolio-related constraints, which would likely limit project eligibility, reducing the relevance and scalability of the instrument." We agree.
However, we are not convinced that, as proposed by the utilities, every energy efficiency measure included in a project that is offered financing must also be part of another utility incentive program. This could unnecessarily constrain the potential for customers to go further with energy savings from projects that are offered financing but that may not fit neatly into other incentive program offerings. A more restrictive approach may be appropriate in the case of credit enhancements and OBF, where utility ratepayer funds are being used to fund financing. However, it is less appropriate when considering on-bill repayment. We will leave the details of the appropriate threshold level of eligibility for other utility incentive programs to the expert consultant designing the new financing approaches under contract with SDG&E/SoCalGas, but for now we specify that the utilities shall not require that all financed measures must be eligible measures to be treated by one or another program in the utility portfolios.
In addition, utilities should propose in their 2013-2014 program applications an approach for counting incremental energy savings achieved by financing program offerings while avoiding double counting with savings from other programs.
We also clarify that we consider this statewide financing portfolio category as a whole to constitute a set of "resource" programs designed to deliver additional savings beyond those that would otherwise be achieved by other programs. The utilities shall include the statewide financing programs in their portfolio applications as resource programs and estimate the incremental savings associated with their delivery. We recognize that this may be a somewhat speculative exercise at the beginning, but over time, evaluation results should lead to more reliable estimates of incremental savings achieved by financing programs.
As discussed above, our efforts to design the next generation of financing solutions are still nascent and all of the market players and stakeholders likely will require that considerably more information be developed between now and the end of 2012 before launching new pilot programs in 2013. We acknowledge that when the utilities file their 2013-2014 portfolio applications, the financing components may not yet be fully developed. Our consideration of those applications will give us additional opportunities to consider our ultimate requirements for the 2013-2014 time period.
Currently, we anticipate the following timetable for the various activities addressed in this decision related to financing programs:
· 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.
In comments on the proposed decision, the utilities all asserted that the requirement for $200 million in funding of energy efficiency financing programs in 2013-2014 is too high. However, their comments imply that this requirement is only for new financing programs. That is not the case. This suggested budget was for the entire portfolio of financing programs, including the continuation of existing OBF programs as well as the previously-ARRA-funded financing programs implemented by local governments. We do not order specific budgets for each of these categories.
Many parties also commented that the timetable for design and rollout of new financing programs in 2012 and 2013 is too short. We stress that this area of new program development is a high priority for the Commission and the state. Therefore, we decline to amend the timetable, but encourage the utilities to present a realistic but aggressive timetable for design and implementation in their 2013-2014 portfolio applications.
The utilities also predict that the proposed decision underestimated the costs of upgrading utility billing systems to accommodate the new on-bill repayment program for non-residential customers. We do not prejudge or resolve that issue now. Utilities will have ample opportunities in the portfolio applications and in the future to detail the actual expenses associated with on-bill repayment implementation; likewise, other parties will have opportunities to review those estimates.
Many parties commented both for and against the proposed decision's recommendation not to require bill neutrality for the non-residential on-bill repayment program. NRDC presented, in its comments, a compromise that makes sense and we will adopt. Although we will not require bill neutrality, we will require that an estimate of the bill impacts of the energy efficiency project to be financed be presented to the customer at the time they are making the commitment to the project (usually when they are signing a contract with their contractor). This ensures an informed decision by the customer without a strict requirement for bill neutrality.
The utilities also objected in their comments on the proposed decision to the requirement that partial bill payments be allocated on a pro-rated basis between payment for utility services and repayment of debt on the energy efficiency project, arguing that this has the potential to increase utility uncollected receivables and risks higher rates of disconnection. They also argue that there is precedent for utility service payments taking priority, in the context of payments to third parties such as direct access electricity service providers and community choice aggregators.
We decline to make any change to the pro-rata requirement in the event of partial payments. We remind the utilities that this program will at least initially be offered only to non-residential customers. We think the utilities' concerns about rising uncollectible payments and risk of disconnection for non-payment are overstated for non-residential customers. In addition, unlike in the residential sector, even if there were an increase in the potential for customer disconnection as a result of non-payment of on-bill repayment obligations, there is no prohibition against disconnection of a non-residential utility customer for non-payment of a third party change. That prohibition only applies to residential customers. Finally, the direct access and community choice aggregator examples are not applicable here; repayment of debt for an energy efficiency project is fundamentally different from payments to other service providers for energy generation services.
Several parties, including Efficiency First, WEM, SolarCity, Greenlining et al., TURN, and CHPC, suggested in comments on the proposed decision that the Commission's requirements are not aggressive enough in the financing area. Some parties would prefer that we order at least pilot programs for residential on-bill repayment in the single-family market starting in 2013. We decline to take that step at this time, but leave open the possibility that on-bill repayment for all residential customers may be available beginning in 2015 or sooner. We hope that SDG&E/SoCalGas and the expert consultant hired to help design a statewide approach in the multifamily residential market can make significant progress designing solutions that may also be applicable to the single-family residential market.
The utilities also object to the fact that the proposed decision declined to require that all measures financed as part of a financing program be eligible for a utility incentive program. However, such a requirement could be too restrictive and may prevent worthwhile projects from moving forward. The utilities' position may be appropriate for credit enhancements utilizing ratepayer funds, but is not appropriate in the case of on-bill repayment. Thus, we retain the prohibition on utilities requiring that all financed project components be eligible for another utility incentive program, but we leave the finer points of how much of a total project must be eligible for other incentive programs to SDG&E/SoCalGas and their consultant to propose in the future. We have also clarified that we consider the financing programs to be "resource" programs capable of delivering savings additional to the savings from other programs. As such, the utilities should propose savings estimates in their portfolio applications that can be subsequently verified through evaluation.
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/.
