SunRun and WRCOG to CEC: be very careful with how you spend that $30m

Remember that recent California Energy Commission (CEC) meeting to discuss the cancellation of funds allocated to PACE (if you don’t, I wrote about it here and here)? Well, I have a few updates on that meeting for you.

(Quick background for those new to the issue: the CEC long ago allocated over $30m in ARRA funds to support PACE programs across the State of California.  This spring the CEC was sued by the Western Riverside Council of Governments (WRCOG) over its award methodology (WRCOG was bitter over being left out), and WRCOG was successfully awarded an injunction preventing the disbursement of funds. As a result, programs that had been designed on the assumption of getting support from the CEC (for example, San Francisco’s PACE program which was using CEC funds to buy 150bps off the interest rate to get it to parity with Sonoma County’s rate at 7%), had to be suspended.  Then the FHFA debacle hit, and the CEC was told by Governor Schwarzenegger’s Recovery Task Force to reallocate funds to other initiatives beyond PACE or be at risk of losing the money.  At a July 28 meeting the CEC decided to do so.  The idea was to stick with the municipalities which had already been awarded funds under PACE, but broaden the use of funds to financing initiatives beyond PACE.)

Now some interesting documents have been published that lend insight into what’s going on behind the scenes.

1) WRCOG’s lawyers wrote a letter to the CEC notifying them that their plan of switching funds around within the same municipalities that had been awarded funds under PACE was unfair (probably true, in my opinion), and that they considered it to be a violation of the court-ordered injunction. The letter is here.

2) SunRun, a residential solar financing company, wrote a letter asking the CEC to require PACE Program Administrators to enter into a non-compete agreement that would preclude them from becoming energy efficiency and solar financing companies at a future date. SunRun is trying to prevent Renewable Funding from winning the contract to become the administrator of the CEC’s funds (which would put it in a position to gather valuable competitive data on SunRun) and then leveraging that position to then compete with it by offering financing as well. That letter is here.

This puts the CEC in a tough position. I don’t envy them.  They don’t have time to run another competitive bid process as WRCOG wants.  If they redistribute the funds within existing grantees, as they need to in order to comply with Governor Schwarzenegger’s request, they’ll get sued by WRCOG for being in violation of the injunction.  Complicating this is SunRun’s letter saying that it’s not fair for Renewable Funding to be both program administrator and provider of financing for these programs. Hmmm….must be interesting times over at CEC.

Lastly, in a recently published  Staff Paper that was drafted to support the meeting, I found the direct language from the Governor’s Office that compelled the CEC to act to move the funds away from PACE. Here’s the language from the July 15th, 2010 letter from Rick Rice of the Governor’s Recovery Task Force to Karen Douglas, Chairman of the CEC:

On October 8, 2009, your Commission issued Solicitation Number 400-09-401 and is now in the process of contracting with several entities as part of your Municipal Financing Program.  However, due to recent decisions by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency that would prevent the continuation of PACE programs, it is evident that the efforts of the [Energy Commission] to use the PACE financing model no longer constitutes a viable option.

I am calling on the [Energy Commission] to adapt to the changed regulatory landscape in a way that will allow full obligation of the reallocated funds by September 30, 2010. If the [Energy Commission] does not respond to the challenges recently imposed by aforementioned federal entities, the [Energy Commission] is teetering on failing to honor both Governor Schwarzenegger’s Executive Order and the federal mandate to put Recovery Act funds to work for the American people as quickly and efficiently as possible. Every day that passes without action by the [Energy Commission] increases the chance that stimulus funds so vital to California’s recovery could be rescinded. The Governor has indicated in the past that any rescission of Recovery Act funds is unacceptable. Therefore, it is incumbent upon the [Energy Commission] to immediately find ways to encumber State Energy Program funds in a manner that prioritizes expediency and viability.”

Anyone have any insight into the latest goings-on at CEC?