PROPERTYASSESSEDCLEANENERGYPROGRAMS
(AB811)


OPPORTUNITY OVERVIEW
February, 2010
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Contents

INTRODUCTION...........................................................................................................................3

Benefits to Municipalities and Local Governments: ..............................................................4

Benefits to Property Owner: ....................................................................................................4

Benefits to All Stakeholders: ....................................................................................................5

THE PROGRAM ............................................................................................................................5

FINANCING CONSIDERATIONS ...............................................................................................8

CONCLUSION ...............................................................................................................................9

CONTACT INFORMATION .......................................................................................................10



 

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INTRODUCTION

InJuly2008,Californiausheredintoeffectaneweraofopportunityforcleanandrenewable
energyfinancingwiththepassageofAssemblyBill811(““AB811””).Thislegislationallowscities
andcountiestocreateataxingauthority,withintheirboundaries,inordertomakeloansto
privatepropertyownersforspecificenergyefficiencyand/orrenewableenergyimprovements
totheirprivateproperty.Theloansarerepaidthroughacontractualassessmentonthe
improvedproperty.TheAB811billsummaryreadsasfollows:

““AB811wouldauthorizeallcitiesandcountiesinCaliforniatodesignateareaswithinwhich
willingpropertyownerscouldenterintocontractualassessmentstofinancetheinstallationof
distributedrenewablegeneration,aswellasenergyefficiencyimprovements,thatare
permanentlyfixedtothepropertyowner'sresidential,commercial,industrial,orotherreal
property.Thesefinancingarrangementswouldallowpropertyownerstofinancerenewable
generationandenergyefficiencyimprovementsthroughlowͲinterestloansthatwouldbe
repaidasanitemonthepropertyowner'spropertytaxbill.Thecontractualassessmentscould
notbeusedtofinancethepurchaseorinstallationofappliancesthatarenotpermanentlyfixed
totherealproperty.””(CaliforniaPublicUtilitiesCommissionPublishedReports2008)

Todate,fifteenotherstateshavepassedsimilarlegislation.Nationally,thistypeoffinancing
hascommonlybecomeknownasPACE,PropertyAssessedCleanEnergy.(www.pacenow.org)

Theseprogramsallowlocalmunicipalitiestoencouragepropertyimprovementsthatprovide
energysavingtechnologiesandfeatures.Fundingisprovidedtopropertyownersforapproved
technologies.Fundingauthorizestaxlienplacementontheimprovedproperty,andremainsan
obligationassociatedwiththepropertyupontransfer.Thisstructureovercomesthetwo
greatestdeterrentstoprivatepropertyowners’’completionofenergyͲrelatedimprovements
byoffering:

x MinimalupͲfrontcosts
x Repaymentobligationstayswiththepropertyuponsaleortransferfrom
currentowner

Localmunicipalitiesaregiventherighttoloanfundsdirectlytoowners,chargeinterestand
fees,andcollecttherepaymentviasemiͲannualpropertytaxes(asregularlyscheduled.)


 

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BenefitstoMunicipalitiesandLocalGovernments:

1. Privatecapitalfundingsourceremovesmunicipalobligation.
2. Readymadevehicletofundandexpedite““shovelready””projects.
3. Provideseconomicbenefittoeveryoneinthechain.
4. Lowcostoffundingmadeavailableatatimeofeconomicduress.
5. JobCreation––eachregioncouldexperienceanincreaseinwellpaying““GreenCollar””
jobsthatnumberinthethousands.
6. Potentialtolocallystaffadministrationandapplicationprocessingineachparticipating
municipality.
7. Qualifiedlocalcontractorswillberetainedtoperformallelementsoflaborand
installationoffundedsystems.
8. Resultantinstalledtechnologieswillreduceconsumptionofenergyresources,relieve
stressandloadonaginglocalutilities’’infrastructureandforestalldiversionofmunicipal
capitaltofundimmediateexpansionoftheenergygrid.(InPalmDesertalone,ABͲ811
improvements““havehelpedthecityreachaboutoneͲthirdofitsfiveͲyeargoalfor
energyreductions,pullingcloseto67.5millionkilowatthoursofpoweroffthegrid.””
Kauffman2009)
9. Adirectandmeasurablereductionoftheregion’’sCarbonFootprintisseenalmost
immediatelyasaresultthenew““green””energysourcesandtheirassociatedsavingsin
energyusecomeonline.
10. LEEDAccreditedProfessionalswillpromoteandconduct““ownerfocused””education
seminarstodetailthebenefitsofenergysaving,selfsustainingandrenewableprojects,
andthefinancingoptionsavailabletopropertyowners.Additionaleducationand
trainingwillalsobeofferedtoparticipatingmunicipalities,interestedstakeholdersand
thelaborpool,includingclassesongreeneducation,andacomprehensive““blueto
greencollar””trainingprogramdesignedtofacilitatetheretrainingofthearealabor
forcefromtraditionalemploymentinnonͲgreenjobstopositionsinthesustainable
constructionandmaintenancefield.

BenefitstoPropertyOwner:

1. Readilyavailablesourceofcapitaltopurchaseandinstallenergysavingtechnologies.
2. Relativeeaseoffundingapproval.
3. Owner/occupantwillenjoyalowercostofoperatingexpenses,avoidmarketdriven
spikesinenergycostsandanincreaseinthequalityofinsideair(dependentupon
improvementsinstalled)...resultinginanoverallincreaseinoccupantsatisfactionand
propertyvalue.
4. AsamajorU.S.corporationhasdiscoveredintheimplementationoftheirconnected
workplaceinitiative,inadditiontothecostsavingsandexpensesmoothingbenefitsof
““green””energy,occupants/workersinintegratedcommercialgreen““projectbuildings””
seeameasurable““increaseinproductivity,collaborationandemployeesatisfaction

 

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whilereducingrealestateandtechnologycosts””.(CiscoSystems,Inc.,““CiscoonCisco
2009““)

BenefitstoAllStakeholders:

TripleBottomLine––People,Planet,Profit
 
Allwillbenefitfromtheincreasedquality,reducedconsumption,andnetsavingsenjoyed
fromnewenvironmentallyfriendlysourcesofenergyandothergreentechnologies
installed.


THEPROGRAM
Ourteamwilldesign,launch,fund,manage,andadministertheProgram.Inordertofundthe
loans,wewillutilizefundsfromourcapitalpartners,professionalmanagers,orcapitalmarkets.

FourkeyaspectstoensuretheongoinguseandrelevanceoftheProgramare:Structure,
Scheduling,AccountabilityandScalability.

Structure oftheProgramensuresthatprojects,procedures,standardsandguidelinesare
documentedandconsistentforallparticipants.AwellͲstructuredProgramalsoenjoysgreater
marketacceptanceandwillresultinattractivefinancingoptions.

Scheduling providesfinancingteammembersandparticipatingstakeholderswithtimelinesfor
keytasksrelatedtoprogramdevelopment,implementation,funding,andongoing
administration.

Accountabilityholdsfinancingteammembers,propertyowners,contractors,vendors,andcity
staffresponsibleforcompletionofspecificitemsontheschedule.Similarly,trackingof
appropriatepropertyimprovementsprovidesongoinginformationtoinvestorsthatrequire
securityassurancerelatedtoprovidingcapital.

Scalabilityprovidesfortheabilitytoduplicateprocessesandproceduresacrossincreasing
numbersofparticipantsovertime.Aproperlydesignedprogramcanbereplicatedinother
jurisdictionsandprovidesflexibilitytoincorporateadditionalfinancingsources,technologies,
andprojectsastheProgramevolves.

AsProgramManager,wewillbecomeboththeadministratorandawholesalesupplierof
capitaltoCaliforniamunicipalities.ThroughourfundingsourcesandteamofLEEDAP’’s
(LeadershipinEnergyandEnvironmentalDesignAccreditedProfessionals),wewillbethefirst
competitorinthismarkettoprovideturnkeysolutionstomunicipalitiesthatincludes

 

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immediateaccesstocapital.Otherssimplydesignprogramswiththepromiseofraisingmoney
throughmunicipalbondplacementsorsecuringalineofcreditfortheloans.Programstodate
haveresultedlargelyinafeastorfaminesituations––thatis,whentherearefundsavailable
thereisarushofprojectsseekingfundingandthenwhenthosefundsareallcommitted,there
isafamineagainwithprojectswaitingforthenextcapitalinfusion.

Oursolutionwillprovideongoingfundingtoassurequalifiedprojectscontinuetoreceive
fundingregardlessoftimingofsubmission.Similarly,additionalmunicipalitieswillbeableto
joinexistingProgramsorstartnewonesbasedonthesameavailabilityoffundingand
management.

Followingisadiagramofthepropertyownerexperiencerelatedtofundingproperty
improvementsthroughourProgram.
PROGRAM MANAGER
2. Approved application
PROPERTYͲOWNER 1. Property owner makes triggers property assessment
funding application to Program
3. Property owner receives list of
improvements needed

7. Post Construction audit completed

4. Property owner ENERGYCONSULTANT

5. Program
contracts for
reviews
improvements
contract,
confirms
eligibility
6. Improvements completed
expenditures
with property-owner
from Program
oversight
vs. owner
responsibility

8. Tax Lien
placed on
property. REVOLVINGLOAN
FUND
11. Contractor paid

CONTRACTOR

10. Bond proceeds

12. Property owner
fund Revolving
repays loan through
Loan Fund
addition to property tax
bill

Text/LinesLegend
9. City issues Bond secured
Black=PropertyOwner by tax lien
Blue=Program
Green=FundingFlow
Red=LoanRepayment 13. Loan repayments pay debt
MUNICIPALITY service on the bonds INVESTORS

 

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AsProgramManager,Greenside/CleanEnergyAdvocatesisresponsibleforallinteractionwith
themunicipalityforimplementation,administrationandfundingoftheProgram.These
Programfunctionsinclude:
x Programdesignandlaunch
Ͳdocumentationofeligibleprojectsandallowablefinancingterms
Ͳminimumandmaximumloanamounts
Ͳapplicationprocessingprocedures
ͲProgramHandbook
ͲCounty/Cityresponsibilitiesdefined
x Legaldocumentationassistance
x County/Citystaffandsupervisors/councilliaison
x Supportforanyrequiredelectionproceedings
x Marketingprogramdesign&support
x Educationprogramdesign&support
x Loanapplicationdocumentation
x Loanunderwritingstandardsandprocedureestablishment
x Onlineloanprocessingandtracking
x Assistunderwriterandcounselinpreparationofpreliminaryofficialstatement/
placementmemorandum
x Preparepresentationstoratingagenciesand/orcreditenhancementproviders
x Provideongoingadministrativesupporttoinitiatesubsequentroundsoffinancing
x Ensureproperreportingoftaxliens
x Identificationanddefinitionofeligibleprojects
x Establishmentofprocedurestoensurebestpractices
x Establishmentofcontractorverificationprocedures
x Preliminaryauditingandpostinstallationcommissioningforprojects
x EducationandoutreachtocontractorandvendorconstituentsinProgramarea

Intheeventapublicbondsaleinthecapitalmarketsisdesired,wewillworkwithWesthoff
ConeandHolmstedt(““WCH””),asunderwriter.WCHwouldberesponsibleforbond
underwritingservicesrelatedtofinancing.Servicestobeprovidedinclude:

x EvaluatemostcostͲeffectivedebtmodel
x Workswithfinancingteamtoevaluatecreditenhancementandratingsstrategy
x Preparepresentationstoratingagenciesand/orcreditenhancementproviders

 

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x Assistcounselinpreparationofpreliminaryofficialstatement/placement
memorandum
x PreͲmarketthebondstopotentialinvestors
x SellbondstofundpropertyͲownerloans
x Providepostsaleanalysisandsupport
x Makeamarketinthebonds
x Issuerefundingdebtwhenappropriatetomaintainbalanceofinvestorcapacity

In order to effectively structure and document the program, additional financing team
members would be selected. We will work with the individual municipalities to make certain
thatourselectionsarealignedwithpreferencesofthemunicipalities.Wewouldanticipate,ata
minimum,engagementofthefollowingprofessionals(alongwiththeirrespectiveroles):

x ProgramCounsel1 PrepareProgramimplementationdocuments,loan
applications,projectdescriptionstandards,guidelinesand
performancemeasures
x BondCounsel1 Preparebonddocumentsandfilevalidationdocuments
x DisclosureCounsel1 Preparepreliminaryofficialstatementandprovidefinancing
teamwithlegaladviceregardingdisclosureandcompliance
issues
x JPACounsel1 PrepareJointPowersAuthoritydocumentsanddefineprocess
forinclusionofmultipleparticipatingcities
x Trustee Disbursepaymentsforloansanddebtservice
1
Legal counsel duties will be critical to the overall success of the Program. It is conceivable that these
duties could be performed by one or more firms acting in different capacities.

FINANCINGCONSIDERATIONS

Ourteamispreparedtoimplementacompletelyturnkeyprogramforcitiesandcounties.The
Program,asweenvisionit,willconsistofoneormorecontractualassessmentprogram
jurisdictions.Propertyownerswithinthejurisdictionswillbeabletofinanceenergyefficiency
improvements,baseduponcompletedenergyaudits,withloansthatwillberepaidoverthe
courseofuptotwenty(20)yearsthroughcontractualassessmentsontheirpropertytaxbills.
InordertoqualifyforaloanthepropertyͲownerwillhaveapreliminaryenergyaudittoidentify
appropriateimprovementsandtheirrelativebenefits;thus,providingopportunitiesto
encouragedeeperwholeͲhouseenergyprojects.Theseauditswillbeprovidedatanominalfee
toassurepropertyownercommitment.Auditfeeswillbereimbursablethroughproject
financingifdesiredbythepropertyowner.


 

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Loanswillbefundedthroughthemorecosteffectiveofthefollowing:(i)fundeddirectlyatthe
timeofprojectcompletionthroughissuanceofminibondsbytheCity(orothermunicipal
entity)thatwillreceivefundingfromadirectlendingfacilityorprivatefund,or,(ii)publicbond
saletofundthepurchaseofaggregatedminiͲbondsbaseduponapprovedloans.The
contractualassessmentspaidbythepropertyownerswillservicethedebtonthebonds,funda
reserveaccount,andcoverannualadministrationcostsoftheProgram.Nomunicipalcredit
supportordebtserviceobligationwillberequired.

Whiletheactualfinancingcouldtakedifferentforms,weenvisionutilizingthefollowing
methodsforpoolingtheloans.AttheProgramlevel,likelythroughaJointPowersAuthority,a
““warehousing””bank,revolvingloanfund,orprivateequityfundwouldprovideloans
immediatelyuponapprovedprojectcompletiontocontractors.Uponreachingtargeted
aggregateamountsofloanstheentirepoolofloanswillbesoldeitherthroughpublicsaleor
privateplacementastaxablebondssecuredbythetaxlienobligations.

Asaresultofthecontinuedeconomicdownturn,mostofthecitiesandcountiesarewithout
excesscapitalforsuchprograms.Thesemunicipalitiesshouldwelcomeareadysourceofcapital
thatpromoteseconomicprosperityandenergyefficiencywithintheirpoliticalborders.

Becausetheloansaresecuredbytaxlien,underwritingstandardsareexpectedtobeheldtoa
minimum,butwilllikelyincludethefollowing:

x Propertyownersmustbelistedonthetaxroll
x Propertymustbelocatedintheprogramboundaries
x Propertytaxpaymentsmustbecurrent
x Mortgagepaymentsmustbecurrent
x Existingpropertyliensmustnotexceedassessedvalue(propertyisnotupsideͲdown)
x Consentofexistingmortgageholderforcommercialproperties
x Loantovalueisacceptable
x ImprovementsmustbeappropriateandapprovedbyProgrampriortofunding

CONCLUSION
Ourteamhasprivatecapitalthatislookingforwardtohavinganopportunitytoinvestin
thesePrograms.

WebelievetheProgrammodelandfundingsolutionidentifiedwillprovidesignificantvalueto
participatingjurisdictions.OurapproachworksequallywellforexistingProgramsand
jurisdictionsthathavenotyetbegun.Bylayeringourfinancingcapacityoveranalready
establishedProgrammodel,wewillbeabletoprovideconsistentfundingandmanagement
relieftothejurisdictionanditsconstituents.FornewPrograms,weareabletoemployour
teamofprofessionalstoprovideaturnkeysolution.

 

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CONTACTINFORMATION
GerardCappello LauraFranke
 ManagingPartner Principal
 Greenside,LLC CleanEnergyAdvocates,Inc.
 23440CivicCenterWay,Suite205 1223WilshireBoulevard#310
 Malibu,CA90265 SantaMonica,CA90403
 310.317.6766Tel. 310.892.0177Tel.
 310.717.5959Cell 310.560.1548Cell
 g@gogreenside.com lfranke@ceadvocates.com