Update from Renewable Funding on CEC post

Good morning everyone.  I’ve been contacted by Renewable Funding regarding this latest post about the CEC. RF tells me they will be sending some information to set the record straight.  I will post an update as soon as I hear from them. Stay tuned…

Showing no fear, CEC boldly goes where none has gone before

Well, no one can accuse the California Energy Commission of not acting boldly in its effort to make California a greener place.  In a decision that was largely ignored by the media, last week the Commission decided the fate of the $33m it had originally allocated to support Property Assessed Clean Energy (PACE) programs across the state.  Most readers of this blog know the background on this issue; for those who don’t see related posts here, here, and here.

I have near limitless thoughts and concerns on how this contract was awarded and the methods by which it aims to achieve energy savings in the State. I recognize the constraints the CEC was under to get this money spent or risk losing it, and I am completely supportive of its desire to green our State’s buildings, but I am troubled by what I have learned about the program thus far.

Right now, I think it’s important for us all to get grounded in the facts and the data. In a future post I will share my concerns regarding program design and what should be done to address it.   So with that said, Dear Reader, let’s dispense with getting you educated on Energy Upgrade California.

Energy Upgrade California – I’ve never heard of it; what is it?

Energy Upgrade California (EUC) is a statewide energy efficiency, water conservation, and renewable energy generation incentive program for residential and commercial buildings. It coordinates federal, state, utility, and local government programs into a single resource for the State of California. It’s actually an impressive feat of jurisdictional coordination. The CEC, the CPUC (California Public Utilities Commission), the utilities (Investor and Public Owned), and local governments have all banded together to create one statewide initiative to focus on greening our homes and buildings. In total, over $1B (!) has been allocated to the program. And now the CEC is chipping in the $33m it had earmarked for PACE as well.

The idea is to coordinate all of the various retrofit programs across the state under one umbrella brand and marketing campaign. The EUC program aims to create a “one-stop resource for information on building retrofit benefits, financing and incentives, finding a qualified contractor, workforce training, and home energy ratings” and “creates a foundation” for AB 758 (a bill that, among other things, gives the CEC regulatory authority over existing buildings), HomeStar (should it pass), and PACE (should it come back).

This program has existed and been underway for a while, though it has not yet publicly launched. The “news” here is that the CEC, after seeing PACE get shut down by the FHFA is throwing its hat in the ring and contributing $33m to boot. The Commission gave clear direction that the money originally earmarked for PACE should still be used for financing, so staff saw a clear opportunity to partner with Energy Upgrade California, which up until the CEC’s involvement has been mostly a statewide marketing & branding campaign (think: flexyourpower.org). The CEC has come in to provide, among other things, the financing meat to the CPUC’s marketing potatoes.

That sounds like a great, statewide program. What is the CEC doing in particular with that $33m?

Well, they are doing a few things.  There’s no better way to understand than to dig into the numbers.

1. $8.5m goes to pilot PACE programs. Yes, that’s right: PACE programs. The CEC is proceeding forward with pilot PACE programs in the hopes of mollifying the FHFA concerns (good luck). Sonoma County has received $3m to pilot residential PACE, and the Los Angeles Department of Water and Power (LADWP) has received $5.5m to pilot a commercial PACE program. Winners: Sonoma County & LADWP.
2. >$5m goes to a statewide web portal. A statewide web portal will be created to support the program under the brand “Engage 360.” The CEC has allocated roughly $5m to this initiative, though if you fully burden it with allocations from other aspects of the program (i.e., reporting & tracking below), it’s probably something closer to $8m that will be spent on the portal.  Winner: Renewable Funding.
3. $6.5m goes to a “financing clearinghouse.” This financing clearinghouse is intended to be something akin to an energy efficiency Lending Tree.  The State already had $50m from SB 77, which created a loan loss reserve fund for PACE across the state. They are reapportioning that $50m to a loan loss reserve (or other mechanism like interest rate buydown) to support EUC financing initiatives. The idea here is to create a marketplace where a large financial institution or other specialty financier like, say, Renewable Funding could bid its loan product into the marketplace (through RFP) and the State, through its financing clearinghouse administrator, Renewable Funding, would buy down the rate. This portion of the contract is to design and administer this clearinghouse. Winner: Renewable Funding.
4. $3.5m goes to workforce development.  Winner: Ecology Action.
5. $2.5m goes to outreach, marketing, and customer support. Winner: MIG.
6. $2.1m goes to tracking and reporting. Winner: Ecology Action.
7. $3.6m goes to regional coordination and development. Winner: Ecology Action.
8. The balance goes to various organizations, including the CSCDA, for overhead, administrative tasks, etc.

So who were the big winners out of all of this?  If you haven’t been doing your pattern matching while reading along, here’s some help:

CSCDA: I haven’t backed out their share from the numbers, but securing this contract is a pretty big win for them

Ecology Action: $11.5m

Renewable Funding: $10.5m

LADWP: $5.5m

Sonoma County: $3m

MIG: $1.75m

Not bad for a day’s work, eh?

What’s Next?

If I had more time, I’d write about the process by which this contract was awarded (or lack thereof) and go into detail on some of the sections like the plans for the web portal or financing clearinghouse, but unfortunately I’ve got to skedaddle. I leave you with a few resources that might be of help until we meet again:

1. The transcript of the presentation to the CEC at their September 22 business meeting when they approved this plan. The content you want starts at Page 18.
2. Statement of Work for the program
3. It’s Budget
4. Detail on Sonoma County’s PACE Pilot
5. Detail on LADWP’s PACE Pilot

All of these documents are publicly available and came from this website: http://www.energy.ca.gov/business_meetings/index.html

For those in this industry, it’s probably worth your time to familiarize yourself with these documents. Happy reading!

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?

CEC cancels $30m for PACE

On July 28th the California Energy Commission (CEC) decided to cancel the $30m in stimulus funds that had been allocated to support Property Assessed Clean Energy (PACE) programs across California. I wrote about this issue in some detail in previous post.

Now the difficult task of figuring out how to redirect the money will begin. The CEC plans to take up the issue at its August 6th meeting. The CEC has told me privately that their actions are really designed to save PACE, not kill it. It will give them the flexibility to park the money in generic loan loss reserve funds and similar mechanisms that can be retooled quickly for PACE should we see some regulatory clarity emerge from Washington.

Regardless of whether the CEC can redirect the funds to PACE down the road, the industry will suffer here in California as a result. The counties that received grants had spent months getting their spending plans together, lining up vendors (including, for example, my former company, GreenDoor), and getting plans reviewed and approved by the CEC. If PACE clears the regulatory hurdle in, say, October, will the CEC simply fund the PACE grants that they had already approved? And, how does the Riverside County lawsuit play into this (which, surely now, is moot but might stage a revival if the CEC returns to funding PACE…)?

It will be interesting to hear what the CEC decides to do at its August 6th meeting.

Relevant media coverage of this issue: San Francisco Chronicle and New York Times and Sacramento Business Journal. All of these articles are basically a reprint of the official press release from the CEC, which appears below.

For Immediate Release: July 29, 2010

Media Contact: Susanne Garfield – 916-654-4989

HEADLINE:
Energy Commission Acts to Protect and Expand Property-Assessed Clean Energy Financing Options, Strongly Rejects FHFA Faulty Logic

SACRAMENTO — The California Energy Commission canceled a $30 million solicitation that would have supported PACE programs in 23 counties and 184 cities. The Commission action, which responded to roadblocks created by recent actions of the Federal Housing Financing Authority (FHFA), ended awards to five local governments and jurisdictions that were using Property-Assessed Clean Energy (PACE) financing as the cornerstone of their county and statewide energy investment programs.

“PACE is an essential and necessary tool to help Californians invest in energy efficiency retrofits for their homes and achieve our state’s energy and environmental goals while adding clean energy jobs,” commented Karen Douglas, Chairman California Energy Commission. “Unfortunately, FHFA has undermined California’s job creation and environmental initiatives by creating significant new regulatory hurdles for PACE programs at the eleventh hour.

“This action is necessary to expand the financial options available to local governments to achieve residential energy efficiency retrofits. It is vital that energy financing programs, including PACE, are offered so building owners can overcome one of the biggest obstacles to investing in energy efficiency and renewable energy projects – lack of access to long term, low-interest financing,” she continued.

PACE financing has been recognized throughout the nation as a potential breakthrough financing option that allows building owners to fund permanent energy efficiency and on-site renewable energy improvements through a voluntary assessments paid with their property taxes.

On July 6, 2010, the FHFA reversed their earlier position and damaged the authority of local governments to issue priority lien tax assessments by directing Fannie Mae and Freddie Mac to take punitive actions against homeowners who live in communities that participate in PACE financing programs. The FHFA had originally stated that lenders should treat PACE assessments as any tax or assessment that may take priority over Fannie Mae’s lien.

California has been an early leader and innovator in developing and implementing the PACE financing concept. The City of Berkeley, City of Palm Desert and County of Sonoma piloted the first PACE programs beginning in 2008.

With strong federal encouragement and recognizing the potential of PACE, the Energy Commission invested $110 million of its federal stimulus State Energy Program funding in pursuing three competitive program solicitations for:

1)  PACE municipal financing.
2)  Municipal and commercial building targeted retrofits.
3)  Comprehensive residential building retrofits.

Five local governments that would have established PACE programs in 23 counties and 184 cities received $30 million of this total under the Municipal Financing Program. These entities were expected to leverage $370 million, create 4,353 jobs, save more than 336 million kilowatt-hours of energy, and avoid the emissions of 187,264 tons of greenhouse gasses for the first two years of the program.

The Energy Commission strongly supports the authority for California local governments to provide PACE financing through property assessments, and the extensive efforts at the local level over the past year plus to develop this innovative approach. The FHFA, however, should not be in the business of interfering with municipal discretion to use their taxing authority for the general welfare to upgrade their infrastructure and local resources.

“The Governor, California’s Congressional delegation, the State Legislature, the Attorney General and 21 states recognize the crucial value PACE financing offers and is working with the White House to address the FHFA PACE financing issues. We are optimistic that this issue will be resolved,” said Douglas. “Given, however, the strict deadlines for expanding Recovery Act funds, the Energy Commission must act quickly to encumber the federal stimulus funds under the Municipal Financing Program in a way that supports and allows additional financing options, including PACE, to ensure that the benefits of this program are protected.”

Staff recommendation paper on canceling the SEP Municipal financing solicitation is available at: www.energy.ca.gov/2010publications/CEC-400-2010-009/CEC-400-2010-009.PDF (PDF file, 258 kb)

More information regarding the SEP municipal financing program is available at: www.energy.ca.gov/recovery/sep.html#efficiency

# # #

For more information:
http://www.energy.ca.gov/releases/2010_releases/2010-07-29_clean_energy_finanacing.html
(If link above doesn’t work, please copy entire link into your web browser’s URL)

Is the CEC pulling the plug on PACE?

According to a recent memo, California Energy Commission (CEC) staff are requesting that Commissioners at an upcoming July 28 meeting cancel the Program Opportunity Notice for PACE programs in California (Program Opportunity Notices are CEC-speak for grant funds from the Recovery Act).

Staff are asking the Commission to do two things: 1) cancel the funds that have already been allocated to PACE; and 2) provide the authority to redirect the funds to other “financing options in addition to first-liens.” This immediately brings to mind two questions: 1) what other financing options in addition to first-liens are out there (that are compelling)?, and 2) will the CEC open up the bidding process again, or merely redirect the money that has already been awarded? These are controversial topics, so first a little background.

The CEC received $226m from the American Reinvestment & Recovery Act (ARRA) through a vehicle called the State Energy Program (SEP). The ARRA SEP grants were meant to be spent on initiatives that “stimulate the economy (SEM), create jobs (CJ), reduce energy use and greenhouse gas emissions (REUGHG), and generate renewable energy (GRE).” (I’m kidding about the last few acronyms; if you’re still following along at this point, I applaud you.)

The CEC decided to allocate $110m of the $226m to energy efficiency initiatives, split across three categories:

1. PACE Programs – $30.2m (PON 400-09-401)
2. Comprehensive Residential Building Retrofit Program – $29.6m (PON 400-09-402)
3. Municipal and Commercial Targeted Measure Retrofit Program – $50.2m (PON 400-09-403)

We’ll save the other programs for another blog and look into what the CEC did with its $30m in PACE grants:

• $16.5m was allocated to California FIRST, a collection of 13 counties led by Sacramento County
• $4.7m went to the City of Los Angeles for a PACE Commercial program
• $4.4m went to the North Coast Energy Independence Program, six Northern California counties that had plans to take Sonoma County’s model and apply it to their local regions
• $2.5m to Sonoma County to take its SCEIP program “to the next level”
• $2.1m to the City and County of San Francisco for its Green Finance SF program

The funds were intended to be used to offset the start-up costs for PACE programs and to make the financing product  more compelling by doing things like buying down the interest rate (as San Francisco’s PACE program chose to do). Those following this issue closely know that no money from the CEC grants has yet been spent.  The funds have been held up behind a court-ordered injunction as a result of a lawsuit brought by the Western Riverside Council of Governments (WRCOG – sorry, I can’t help myself). Mark Boselet of Greentech Media does a nice job providing background on this lawsuit here.

So now that we have a bit of background, what’s going on here? Well, essentially the CEC staff is asking for permission to spend the money allocated to PACE on other financing initiatives.  They are up against a deadline and need to start spending their ARRA funds as soon as possible, or risking losing them.

Per order of the Gubernator, funds have to be allocated by September 30th, and by order of the Federal Government they must start being spent by October 21st, 2010. That’s not very far away, so the CEC is surely feeling pressure. The uncertainty around PACE compels them to begin allocating it to other alternatives, as does a recent directive by the Department of Energy. Surely they will try to do creative things like create loan loss reserve pools that can be used by both PACE and by other financing models, so that if and when PACE gets back on track they can reallocate the money to PACE.

But again I come back to my two questions: 1) what are the other financing programs the CEC will allocate money to? and, 2) if they aren’t going to allocate the money to PACE initiatives, will the existing grantees still get their money to spend on alternatives? Is it fair, for example, for the California FIRST initiative (a coalition of governments that was brought together expressly to form a unified Joint Powers Authority under the CSCDA so that they could collectively issue PACE bonds) to administer an unsecured energy lending program? What would be the point of collecting 13 counties together to do that?

I’m hearing that FHA Title I loans are gaining steam as a preferred alternative. What do you think? (Note you have to scroll back up to the top near the title of this blog to leave a comment.)

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For those with a hankering for detail, here are some resources for you:

• PDF of Memo to CEC Commissioners and PDF of Related Backgrounder provided to commissioners that includes copies of the DOE underwriting guidelines, the FHFA letters, and other related info. You can find these on the CEC’s website here
• The documentation surrounding the original Program Opportunity Notices is here (scroll about 2/3 of the way down the page to find it) and the detail on how the grants were allocated is here