Sean Williamson:       Hello and welcome everyone. If you’re here for Capital Provider Perspectives on Commercial PACE Program Design you are in the right place. The webinar is going to start momentarily. We’re going to wait just another minute for folks to show up. But sit tight and we’ll get started soon. All right. Let’s get started.

 

Welcome everyone to Capital Provider Perspectives on Commercial PACE Program Design. My name is Sean Williamson and I’m a policy advisor at the United States Department of Energy where I work with state and local governments to help develop and disseminate technical assistance on best practices for financing energy efficiency and renewable energy. This webinar is the first of the technical webinar series for US DOE’s commercial PACE working group.

 

I’m very happy to have on the webinar today a number of distinguished speakers, experts knowledgeable about commercial PACE financing and in particular some experts able to bring perspective from the capital provider side of things. Next slide please. The purpose of today’s webinar is to provide in depth technical content about commercial PACE program elements, state and local governments with support from market experts. The C-PACE technical webinar series will try to hit this mark throughout the events that we’re going to hold on a quarterly basis.

 

Specifically, today’s webinar will look at capital provider insights about PACE program design as a means to inform state and local governments and support the outcome of private capital investment and C-PACE finance projects. Today’s speakers represent commercial PACE capital providers and bring a wealth of knowledge about the important role of capital providers in insuring C-PACE program success. All of the organizations featured on today’s call are market partners in DOE’s commercial PACE working group.

 

Also note that the webinars that will be a part of the technical webinar series will be public. They will be recorded and posted online at the DOE’s state and local solution center. Also note that the topics that are selected to be featured as part of the C-PACE technical webinar series will be selected based on input from participants in DOE’s C-PACE working group. And each of these webinars will be targeted toward state and local governments. Next slide please.

 

A little bit of housekeeping on today’s webinar. First to reiterate, the webinar will be recorded and transcript and slides will be available online at the US DOE’s state and local solution center, the slide which is here. I’ll point out that we wanted to share a PDF of the slides at this point in time once we started the webinar. But due to some formatting issues that we just noticed, we are unable to share those at this time. But we will have those available shortly to share with attendees on the state and local solution center.

 

Also note that the duration of today’s webinar is 90 minutes. If possible to wrap up shorter we will strive for that. But thanks in advance for everyone who is able to commit that time. Attendees are in listen only mode but attendees are encouraged to type questions and provide feedback throughout the duration of the webinar. And you can do that through the interface tool, through Go to Webinar. Feel free to type in questions at any time and we’ll try to answer those at the end.

 

Next slide please. So the agenda for today’s call is first to share some resources and background from DOE. In particular, I want to do some level setting on today’s topic as well as share some resources for getting into this via DOE resources that we have available. Our featured speakers today will include Genevieve Sherman who is the head of new markets and partnerships for Greenworks Lending.

 

Next, we’ll feature Cliff Kellogg the executive director for the C-PACE Alliance. We will also have on Greg Saunders, chief executive office at CleanFund Commercial PACE Capital. And Jim Stanislaus, co-founder of Petros PACE Financing. Finally, we’ll have Mark Colby who is the general manager for solar and commercial business at Ygrene Energy Fund. I want to thank our distinguished speakers, all very knowledgeable about commercial PACE financing for the work that they’ve put into preparing slides and for sharing their time and knowledge with our attendees today. Finally, we’re going to have a good chunk of time for our Q&A. So again, continue to think through questions that you’d like to as of our speakers. We’ve got a lot of time to ask those at the end. I’m looking forward to that discussion.

 

 First, I want to share some resources and background from the US DOE. First to get those of you up to speed that may not be familiar with commercial PACE financing it’s important just to point out what PACE stands for and that is Property Assessed Clean Energy. The focus of today’s discussion will be on the commercial variety of property assessed clean energy. It will focus on the role of capital providers and in particular the way that capital providers view program design. And that will be the focus of today’s presentation.

 

And you can learn more about this information, this issue via recently released reports co-authored between the Lawrence Berkley National Lab and the US DOE. The title of which is Lessons in Commercial PACE Leadership: The Path from Legislation to Launch. This report offers a valuable starting point for state and local governments looking to get up to speed on commercial PACE financing and pathways for navigating decision points. It overlaps with numerous topics we’ll be discussing today for those of you who want to dig into it further.

 

Additionally, I’ve already mentioned a couple of times DOE’s commercial PACE working through. This is a cohort of state and local governments from across the US working together to learn about, launch and refine C-PACE financing programs. The working group currently includes 25 state and local participants and more than 25 market partners. And it has a goal stimulating 60 million in C-PACE financing by 2022. If you’d like to learn more about the C-PACE working group or potentially participate you can visit DOE’s state and local solution center.

 

All right. So transitioning to today’s topic, capital providers. So it’s important to ask ourselves who are capital providers and why is it important to hear their perspective on program design. So capital providers are the investors who furnish capital for C-PACE projects either directly or by buying bonds issued to fund projects. The word directly is underlined here today because our presenters will focus primarily on the C-PACE of direct lending from capital providers to property owners. We won’t be talking in much depth on the bond financing method.

 

Additionally, I’ll point out that capital providers may be specialty national providers, local banks or other financial institutions. So why are they important to the process? Well, capital providers, they make C-PACE projects and programs sustainable. In particular, they offer private capital and are able to bring financing to scale without relying heavily on taxpayer funds. And so, the role of capital providers in the long-term success of C-PACE programs is vital.

 

Finally, why should capital providers be engaged during the program design stage? By engaging capital providers early to verify a program is tenable, decision makers can ensure their participation. Again, the word early is underlined because this is a period of active program development and refinement across the US. And it’s valuable that capital providers are engaged early in this process as a means to set up programs for long term success and to make that process as efficient and seamless as possible. And so, with that, I’d like to move on to our first presenter of the day and that is Genevieve Sherman from Greenworks Lending. So Genevieve, are you on?

 

Genevieve Sherman:   I am on. Thank you, Sean.

 

Sean Williamson:       Thank you Genevieve. Take it away.

 

Genevieve Sherman:   Ok. Good afternoon everyone. This is Genevieve Sherman. I am the head of new markets and partnerships for Greenworks Lending. And before I dive in I just wanted to thank Department of Energy for pulling us all together with you today and in general for the leadership that they’ve shown in gathering more information and helping us to disseminate this really vital information about how these PACE programs are designed and implemented. So thanks very, very much for that. All right.

 

Next slide please. So just a brief introduction to Greenworks Lending. Greenworks Lending is a commercial PACE financial company. We invest in commercial real estate all over the country with the goal of improving energy performance and reducing operating costs for building owners. We just do this using commercial PACE as our financing tool and we have quite a bit of experience designing PACE programs, designing PACE policy and implementing PACE loans on the ground. We’ve funded projects in actually now I think 12 states across the country so taking full advantage of the excellent PACE policy that’s been put in place by many of these states that I’ll mention in a moment.

 

And we are the first commercial PACE company in the United States to securitize a rated portfolio of just commercial PACE loans. Our roots in commercial PACE go all the way back to a program that we designed back before Greenworks existed when I worked for an organization called the Connecticut Green Bank and we designed a program in the state of Connecticut that includes many of the best practice sort of design features both at the policy level and the program implementation and design level.

 

And we think that those design features really help to allow that commercial market to become incredibly successful even though it is a very small real state market. So we’re very proud of that and gratified to see that a lot of those lessons learned have now expanded nationally into other programs.

 

Next slide please. All right. So I’m jumping in. My role today on this webinar is actually to help set the stage a bit for some of the other speakers that are going to speak next with respect to best practices. My goal here today is actually to give folks a bit of information about what the landscape actually just looks like and how we got to where we are today. So I always like to say that commercial PACE is very much a creature of state legislation.

 

All PACE programs in some form or another are authorized through state legislation and since that is how PACE financial markets are regulated, all PACE programs are in some way influenced or sort of guided by what is in the initial legislation that governs PACE in that state. So what I wanted to start with was to describe to you some of the different roles that state, regional and local governments play in PACE programs depending very much on how the original legislation in that state was created.

 

Broadly speaking there are about three different models here. The first is state authorization. State authorization means that the legislation that creates PACE also authorizes the state itself to administer a PACE program on behalf of local governments. So this is a very specific model where the state itself, that level of government is really the soul authorized entity that can design and implement a PACE program with usually the voluntary participation of local governments. In these states, local governments still have to usually pass some form of local legislation to opt into PACE. But there’s effectively only one option for them and that option is the state itself. Examples of states like this would be Connecticut. The administrator there is the Connecticut Green Bank which is an instrumentality of the state. Massachusetts which recently passed its legislation and Rhode Island.

 

Moving to the right of that is what I’m calling the regional government authorization. And this is a little bit of a hybrid between the state and local governments. In this type of a state, the state legislation directs local government to enable PACE in their jurisdiction. But the legislation also provides instruction with respect to some form of regional governmental body wherein local governments can assign or provide rights that they have under law to a centralized organization that essentially represents them.

 

And this is different everywhere you go. In states like California, this is called a joint power of authority. In other areas, it’s just called a special taxing district or commission. But essentially this is a sort of a middle of the road model where there can be more of a regional organization of local governments to implement these programs. And typically, in states like this, there can be more than one of these districts or joint power of authorities but not always. A good example is the state of Colorado. The state of Colorado effectively only allows for there to be a single statewide organization of local governments.

 

On the converse of that, a state like California or Florida individual local governments can choose to become members or to join multiple regional jurisdictions which actually may overlap. So this is a different type of model. And then finally local government. Some state legislation provides no instruction with respect to the role of state government and the legislation also providers no information or authorization on how local governments can actually form a regional body that has pretty critical rights and authorities. And in those cases, it’s really up to the local government only. They’re the only authorized level of government that can enable PACE in their jurisdiction. And examples of states like that are Maryland, Michigan and Texas.

 

And we’ll talk now a little bit more about how administrative models get designed around these initial models that were sort of built right into the law. Next slide please. All right. So another term many of you many of you may have heard is a program sponsor versus a program administrator. So before I dive into the landscape of what do the administration models look like, I wanted to quickly clarify typically what these terms mean when they are used by PACE capital providers or other stakeholders.

 

A program sponsor may or may not be an entity that is named in the law. It could be a state agency. It could be a new nonprofit. It could be an existing nonprofit. So sponsors are essentially just any entity that acts as kind of the convener and trusted spokesperson for C-PACE stakeholders in its state and particularly in states where it is not an authorized state program or where there is no instruction for local governments to form a regional governing body. Those states typically really require a program sponsor to kind of step up and identify what the agenda is going to be for designing a PACE program in that state.

 

And really good examples of program sponsors in some of the states I mentioned would be the Maryland Clean Energy Center which sponsors a program in Maryland, the Virginia Energy Efficiency Counsel or Texas PACE in a Box which is I think probably the most famous and excellent example of a really effective program sponsor. Moving to the right, a program administrator actually directly represents or supports local governments in executing their obligations under those state or local laws. Sometimes the program sponsor is also the program administrator.

 

But more often than not a program administrator is a separate third party that’s actually providing specific administrative services. And the C-PACE Alliance and other capital providers will speak in much more detail about the role of program administrators. But examples of those, I think some of them are even on the phone today are Lean and Green Michigan, Texas PACE authority and PACE Financial Servicing.

 

Next slide. All right. So now that I’ve given you all a sense of what the ecosystem looks like based on state PACE legislation now we can talk about what the different models are that we see in the market for program administration because as you can probably already tell, the model for the administrator that fits the best for any given state actually depends quite a bit on what the initial setup was in the law in terms of who is actually responsible for administering or sponsoring these programs. So the basic sort of duality here that you see are single administrators versus multiple administrator states.

 

And then another term you may have heard often called open versus closed markets. So first starting with administrators, a single administrator state is simply a state where there is one administrator who administers PACE and any local jurisdiction that has enabled PACE. And again, this could be a state authorized state where a specific agency has just been named the administrator right in the law. Or this could be a situation where its local government authorization but by voluntarily choosing the same administrator. The state effectively still has a single administrator. And examples of these types of states would be Colorado, Connecticut, Maryland. Texas and Rhode Island. Multiple administrator states are states where there are multiple different administrators operating different C-PACE programs often in overlapping areas.

 

So again, this could be for example a state with that regional authorization model where there might be more than one district or more than one joint powers authority. And each of those governing bodies of course can select an administrator to help them administer their program that they choose. And examples of states like this would be California, Missouri and Florida. And again, there are inherent benefits and risks in both of these models. And my fellow capital providers I think will get into much greater detail about what those are.

 

With respect to open versus closed markets, an open market is a market where property owners have choice about what capital provider they work with, what energy contractor they work with. It basically means that on the private side of the public private partnership that is PACE, the building owner has ultimate choice to work with whatever service providers and vendors they would like to. It typically also means that the C-PACE lenders, the capital providers themselves have equal access to customers.

 

So when we think of a traditional open market for commercial PACE today it effectively means that capital providers are in there competing to fund commercial PACE projects. And it effectively means it’s a competitive market. You’ll see in asterisks here from me, some of the open markets do have additional features. For example, a bidding process where the administrator operates an open market but they also originate and bid out project opportunities to commercial PACE capital providers at the same time.

 

So that’s a feature you might see in an open market. And then on the other side, a closed market would be a market where there’s only a single C-PACE capital provider that is either the designated lender from property owners or the default lender. And examples of this would be specific C-PACE districts in Florida and Missouri and until recently California. And you’ll see another asterisks from me here. Closed markets are very rare today in commercial PACE. And we think this was an important distinction to provide listeners on the webinar today. Many of the commercial PACE states that pass their policy early on – I’m going to show you a slide in a minute to give you a sense of that.

 

Capital providers play a very important role in the early days of commercial PACE to actually invest in these markets and help stand up programs. And so, a business model that developed in the early days of commercial PACE was for the capital provider that really invested their resources in developing these markets to have an exclusive right to offer lending in those markets. So while that was a popular business model sort of in the earlier days for states that initiated commercial PACE, it’s actually very rare today. And many states that initially had open markets – I’m sorry, closed markets have since opened them. And California is a very good example of that. Many of the large PACE districts in California now offer capital from a large number of different lending companies. Next slide.

 

All right. So finally, last slide before I send this over. I just wanted to give folks a sense of what this ecosystem looks like in terms of actual investment in the state. The data source for this slide is from PACE Nation. And if all of you are not familiar with PACE Nation, they really are the nonprofit that tracks and disseminates information about PACE nationally. And I encourage you to go to their website. I believe that this data is provided by program administrators so it likely is not reflective of 100 percent of the loans that have actually been funded across the country. But it’s a good benchmark for sort of where we are in these programs.

 

And what you can see is that many of the larger programs sort of near the top of this list are older programs that were established in some time between 2010 and 2013. And closer to the bottom of the list, you can see states that have more recently launched a PACE program like Colorado, Wisconsin and Maryland. And I think an important trend just to note here is that many of the states that were either recently created or an example Connecticut has been around a bit longer but has achieved just a very impressive amount of loans. These are all open market programs and typically with a single administrator. And I think the C-PACE Alliance is going to speak in more detail about why that particular business model is proving to be successful from the perspective of capital providers.

 

So in conclusion, that’s kind of the overview of what exists nationally, why there is so much diversity because these programs are a creature of the day in which they were passed and the policy that was passed at the state level and kind of where we’re headed for commercial PACE nationally. So thank you for your time and I look forward to your questions at the end.

 

Sean Williamson:       Thank you Genevieve for setting the landscape of C-PACE financing and getting us some background on different administrative models. So with that, I’d like to transition to Cliff Kellogg, the executive director for the C-PACE Alliance. And he’ll be joined by Greg Saunders and Jim Stanislaus respectively with the Clean Fund Commercial PACE capital and co-founder or Petros PACE Financing. Cliff, take it away.

 

Cliff Kellogg:              Hi. This is Cliff Kellogg. I hope the audio is working. Can you hear me all right?

 

Sean Williamson:       Yeah. Things are coming through clear.

 

Cliff Kellogg:              Great. Thank you. So first of all, thank you again to Department of energy for forming the working group and for inviting us to participate. I think both Sean and Greg Lavintus over at the National Labs have done a wonderful job. And I also want to thank Genevieve for doing such a great job of laying out the landscape of this field. Sometimes very complex to get your arms all around it and Genevieve has been one of the early pioneers so she did a wonderful job.

 

Let me just mention that my background before joining C-PACE Alliance was first in the private sector as a development lender at Shore Bank in Chicago and also as president as City First Bank here in Washington D.C. And I’ve also had the great fortune to serve at the federal government level at the United States Department of the Treasury during the time that we designed the new markets tax credit and also, I administered the state small business credit initiative that was credit enhancement for small business loans by every state in the country. I’m going to let Greg and Jim introduce themselves in a minute.

 

Let me just say two points right off the bat. You’ll notice that we use the term capital providers rather than lenders and that’s on purpose. When lawmakers use the term lenders, it usually conjures up a whole different set of rules and regulations that don’t really apply to commercial PACE. So that’s why we use this term capital providers and we hope that you will use that term to avoid any confusion. And the second thing I wanted to say is that this presentation that we’re about to make includes an awful lot of detail and I’m sure you can’t possibly keep it all in mind.

 

And not only that but we’ve included an appendix at the end with more details. So we really have spent some time thinking about these questions and we hope that you will use this Power Point and the narrative version of our best practices report as a reference document. So let’s go to the second slide and then I’ll turn it over to Greg and Jim to introduce themselves and describe the C-PACE Alliance.

 

Greg Saunders:          Thanks very much, Cliff. This is Greg Saunders. I’m the CEO of Clean Fund Commercial PACE Capital. We’ve been operating as a commercial PACE capital provider since 2009, funded transactions across the country and are one of the original members of the C-PACE Alliance. Clean Fund has been very supportive of the C-PACE Alliance for a number of reasons.

 

We’ll talk about some of those as we go through the presentation but clearly just to foster best practices to really take into account the voice of the capital providers and other constituents. And really to compliment the work of PACE Nation as well. We really seek to build upon all that they are doing to build awareness in the marketplace and to foster the health of the overall C-PACE market. Jim, I’m going to turn it over to you.

 

Jim Stanislaus:           Good. Hi everyone. I’m Jim Stanislaus, co-founder and CFO of Petros PACE Finance. We’re based in Austin, Texas. We’re also a national C-PACE lender. We’ve – we’re one of the cofounders with Clean Fund of the CPA. And we’ve had – we’ve had a particular focus over the last several years as several others on this call have as well, capital providers of getting in and working with states and municipalities on helping them get up and running. Some of the past legislation previously and we went in and had to work to fix some of those to actually get them in a position that was able to attract private capital and then some of these states are up and coming and that’s one of the impetus items for putting together the C-PACE Alliance.

 

Because we’re each out working to help do this and we are joining our efforts here to push them together to help be more efficient with getting these cities and states up and running faster. And with that, with our background I think it’s four or maybe five states. We’re the first ones where we’ve got it and got some deals done. And then doing it on your own it’s more painful. So this effort is designed to streamline that and to make new cities and states more efficient on a go forward basis.

 

Cliff Kellogg:              Right. And this is Cliff. The C-PACE Alliance compliments C-PACE Nation I think by its focus on what does it take to increase the number of transactions. We really want to overcome the barriers and the hurdles that can sometimes unintentionally get in the way of closing transactions. And at the end of the day that’s the measure of success of a C-PACE program should be that there is a high volume of well done transactions and that really is the goal of the C-PACE Alliance. So as Sean said at the top of the webinar, we hope that policy makers will use the C-PACE Alliance as a sounding board. We’re very active and willing to share our experience having worked in just about every active C-PACE program there is in the country.

 

 On the next slide is a representation of the multiple levels that have important roles. C-PACE is not a top down national program. Genevieve gave you a good flavor of a variety of programs at the state and local level. And it’s important to say that implementation at steps two, three and four is just as important as step one, getting the statute to address the key policy issues is a starting point. But sometimes the rules that are layered on at levels two, three and four can lead to some unnecessary delays and legal costs or requests for disclosures that really will not be accessible to the capital providers.

 

So take away number one this slide is that implementation is as important at the statutes. And the second takeaway is that we really encourage that consultation or sounding board with the capital providers. And I should say that the capital providers expect regulation and they certainly expect the important role of documenting compliance. That’s necessary and appropriate. I think the point is that with this slide is that multiple layers come into play and we only gain for clarity and predictability as much as possible. So let’s go to the next slide and I think Jim is going to lead it off with some of these key elements that we feel are important. Go ahead, Jim.

 

Jim Stanislaus:           Thanks Cliff. So there’s four key elements in a C-PACE statute or a local ordinance for a successful C-PACE program. The first key element is an open market freedom of choice for qualified capital providers, project developers and contractors to each compete for C-PACE projects as compared to a closed market where any of these roles are limited to or controlled by a single party as Genevieve was talking about at the beginning of the conference.

 

Second is no preference among capital providers. The PACE admins are in a good spot but should be referring interested property owners to list a quality capital providers versus controlling the deal flow and even working to underwrite or even going further downstream and should be leaving that to the capital providers since they each have their underwriting and programs that need to be doing that process themselves.

 

Anyway, a third the PACE admin should encourage property owners to obtain an estimate of the potential energy savings. So these admins should also set the qualifications. The program should consider conflicts of interest rules and require review of energy audits potentially by an independent third-party engineering firm. And finally, PACE admin services should be priced a la carte. For those PACE admins broadening their sphere of services, services available on the private market such as estimating energy savings or overseeing project development or evaluating alternative equipment installations should be priced individually if they’re offered by PACE admins to encourage competition in choice.

 

PACE admins should disclose any financial interest in any of these services, in these service providers. And property owners should have the option of purchasing these services for any qualified provider. Again, open market is a very common theme here.

 

Next slide please. So their consistency improves marketing and operational efficiency and consistency also helps attract private investment and fosters transaction volume. So some key elements for statewide consistency in a program, ideally encouraging consistency statewide program, local government may opt into. Some of these possibilities include formal joint powers agreement with a single PA like in Wisconsin, Minnesota. Informal critical mass of local governments with model ordinances and documents like in Michigan, Texas and Ohio is very helpful.

 

And then multiple PACE admins as a group like in California or Florida which also brings a lot of efficiency and consistency. And finally, in supporting these key elements, PACE admin and policy makers, it’s really helpful when they can help develop turnkey programs with documents that are available so that other counties and municipalities can help adopt it and they’re not feeling like they’re on an island and each starting from scratch and doing it on their own.

 

 That’s one of the things that C-PACE Alliance helps and digs into at that level trying to help with that from since we have a lot of the capital providers and other service providers as part of CPA. We try to take that knowledge and the documents we’ve seen elsewhere that works well. We try to help them utilize, implement their documents and encourage them to try to be as consistent across the state as possible. Cliff?

 

Cliff Kellogg:              I think we’re going over to Greg now who is going to talk about how important it is to create strong credit security. Greg, are you there?

 

Greg Saunders:          Yeah, I am. Thanks Cliff. That foundation of C-PACE and this really came out in the early days in Berkley when they came up with this idea is that you need really strong credit instrument in order to make credit available in communities where it otherwise might not be available. And it’s vital from the capital provider standpoint and ultimately from the cost of funds standpoint. Whether it be various elements of strength and security and it starts with having a first priority over private indebtedness such as a mortgage. And hopefully _______ sort of priority with ordinary property taxes and special assessments similar to PACE.

 

It’s the case that some programs started out a little bit differently. I think we know of one where PACE was actually put in the junior position by their indebtedness. That just makes for a higher cost in funds. Also, I think it’s important for the assessment to be recorded on the title of the property as of the funding or closing of the project and not upon the completion of the construction of the project. That just again helps to elevate the cost of complexity of a project because you’re asking the capital providers to essentially provide funds in advance of getting a secured interest in the property.

 

That’s really important that that assessment goes on the very front end of the process. And then it also is really important to have the local government be able to enforce the ______ that is available for default under a special assessment payment in the same manner that they normally would for regular property taxes. That helps to ensure that you have a consistent authority and process for prosecuting or otherwise bringing remedies to a conclusion in the downside scenario. In some cases, we’ve seen a delegation of that responsibility to the capital provider and we’re not recommending that.

 

Let’s go to the next slide to talk about mortgage lender approval. The C-PACE Alliance is a strong believer that getting the banking industry on board, specifically the banker, the mortgage lender on a specific property is really important. That can be in the form of a consent or an acknowledgement that essentially acknowledges the C-PACE financing is going on and acknowledges that it’s not going to cause a default under the mortgage. And the reasons why this is important is because it number one, helps to protect the owner of the property from accidentally or unknowingly getting into a negative situation or default with the mortgage lender.

 

It also does help the capital provider to validate credit worthiness of a project and it does bring banks to the table to make sure that their voice is heard when it pertains to common interests they have. And that is the well being of the property and the collateral. We recognize that there’s a number of different perspectives on this topic but ultimately, we want to make sure that the banking industry is able to embrace C-PACE financing over time and to help to make C-PACE successful by standardizing the ways in which they review and approve C-PACE financing. Admittedly it does take some time to get this acknowledgement from banks. But we think it’s really important.

 

The next slide talks about another key element of a PACE statute or local ordinance. And that is around a minimum savings to investment test. Many of you may know some programs have a definition of savings to investment ratio that may take an accumulative estimate of future savings of a project and divide it by the amount of the initial financing or accumulation of all the payments. While we understand the reasons behind wanting to validate the improvements, we think it’s important to acknowledge that the SIR test often doesn’t really capture all of the value that’s being created and all of the specific reasons a property owner may want to tap into C-PACE to accomplish improvements in a building’s performance.

 

So to the extent there is a need or there is an SRI test that gets put into place, the guidance from the C-PACE Alliance is really that the savings part of that equation is one that is flexible and allows for a lot of the benefit, all of the benefits that area available to the property owner, not just estimate of the actual energy savings but things like the cost of capital, other benefits including the health of the community and health and productivity of the workers in the building. So it does need to be more all-encompassing if it’s going to be part of a statute of local implementation. Cliff, I think you’re on for the next number of slides. So I’m going to turn it back over to you and look forward to answering some questions later on.

 

Cliff Kellogg:              Sure. I just wanted to underscore what you said there Greg about capturing all the benefits, all the types of savings that are created. And these can be quantified. For example, not just utility savings but also savings on operations and maintenance, savings on avoided capital costs because there maybe alternative sources of financing to do the same project at a higher cost than the C-PACE and the value of using C-PACE, that delta should be included in the savings numerator of that ratio, avoiding fees or penalties, new revenues from renewable energy sources if the law allowed for selling generated energy back to the grid.

 

So that ratio the C-PACE Alliance thing should generally not be part of a mandatory requirement. However, if your policy makers feel that it’s essential then we really recommend we have some detailed recommendations in the written version of this report about what should be included in that numerator. So the next slide, the one that we’re on right here, flexibility and financing terms. Can we go back to that for a second? So of course, these may be straightforward points for your consideration. I think the point here is that policymakers may be tempted to get a little too detailed in prescribing financing terms.

 

But experience is that the for financial markets to work efficiently a lighter touch and greater flexibility is important. And too much detail can cause delays and that it certainly causes a lot of more documentation requirements. So the CPA feels that the rules should be as accommodating as possible because that will help lower the cost of capital and that will increase the number of transactions. As more rules are added to a program, there comes a point at which the property owner says look. I’ve got other places that I can go to do this project or I’ll just patch up my existing equipment rather than doing a full energy upgrade. So light touch and flexibility are important.

 

On the next slide, we describe how the CPA is the roles of the program administrator and the capital provider. And our members feel that the program administrator is really in the role of coordinating the design of the program and then certifying projects. So I would call attention to what’s not on the list for the program administrator as an essential function. It’s not necessary to be involved in the design of the project or for the program administrator to duplicate the underwriting that is done by the capital provider or duplicating the energy calculations that are performed by the outside energy experts.

 

So we view the role of the program administrator as a certification and an important compliance function rather than intervening too actively in the design of the project because we feel that that should be done by the private market and the owner should have the option to decide where to obtain those services from among qualified local providers. And the capital providers of course play the complimentary role of finding the financing opportunities and coordinating with the PO. I’m going to keep speaking to the next slide which is about best practices and program administration. And Jim and Greg, you should jump in if you have comments.

 

The next few slides get into some level of detail and I just want to repeat again as I did at the top that this is too much for any person to keep in mind and remember. And so please print out this document, this Power Point and please print out our narrative report and use it as a reference checklist for yourself. The capital providers return to one issue over and over again. And that one issue is what do investors require in order to furnish the capital for C-PACE projects? Because our goal is to bring investment capital into these projects and to make it possible one day even for a secondary mortgage to exist.

 

And so, these issues on this slide number 24 about clarifying who will collect the billing, who – and who will handle the funds. These become very important to investors and we’ve had the experience of the initial investor requiring much more detail than the program had ever thought through before. And I think Greg, you’ve had the experience recently with your efforts to bundle together several transactions that these billing and fund handling issues become front and center.

 

Greg Saunders:          That’s right.

 

Cliff Kellogg:              Anything to add on that?

 

Greg Saunders:          I sure do. Just to help clarify a little bit as well on the capital provider as _____ funder. Petros, the other side of the capital provider world is the secondary market which is global institutional bond buyers who are standing ready to evaluate and invest in C-PACE securities. CleanFund is presenting working to close $115 million publicly issues C-PACE securitization. And one of the topics that has come up very strongly both with rating agencies and these investors is a lot of specificity and reliability and layers sort of a protection around the service and the assets.

 

If for instance a municipality wants to outsource that servicing to local entity but there’s no provisions for a backup service for in case that entity happens to go away, it can cause investors to be a bit more nervous and to discount the credit worthiness of the assets that were originated in that jurisdiction. Servicing and billing is super important. It’s not just C-PACE as you might imagine. These investors also invest in a number of asset classes including commercial mortgages and the standards around servicing and collection there are even more rigorous. So it is a big topic. Cliff, back to you.

 

Cliff Kellogg:              Ok. We have four more slides for you. The next one is a little elaboration on billing and collecting. It’s as Greg said these issues matter to capital providers and so we encourage that before a local government settles on its program rules we hope that you will use us as a sounding board as I said and consider our input. We’ve seen cases where programs launch and then had to go back and do a do over which is not the most efficient way to launch a program. So these issues matter a lot. And I won’t repeat the information on this slide. I’ll just point you back here for a checklist.

 

On slide 26, the next slide please. Delinquencies and foreclosure become important. Of course, this is a top priority to think through beforehand. And we would very much recommend that local governments publish a handbook or a manual that describes the whole process of C-PACE so that there is a comprehensive document that can be referred to by the property and others. They are very good examples of program handbooks in California and in Texas.

 

And there may be others that we can point you to as well. Most investors will really not close a transaction until these issues are sorted out on the front end. Of course, the property owner is always impatient to get started on the project but these details must be combed through to make sure that we meet investor expectations. Jim or Greg do you have anything on delinquency?

 

Greg Saunders:          This is Greg. It sort of goes right into the early remarks on the credit worthiness and having a lot of clarity as to the timeline, methodology and responsibility and certainly very important.

 

Cliff Kellogg:              On slide 27, the next one. We talk about program administration fees. Now fees are always frustrating to property owners. And we should sympathize if you’ve ever shopped for a home mortgage. I’m sure you probably reacted the same way when the home lender says that will be an extra point or an extra two points or even more in some cases. Property owners dislike fees and for that reason it’s important that the program administrator really performs only the functions that are necessary for project approval and administration.

 

High fees really can bring a program entirely to a standstill. We’ve worked in states where fees initially were unacceptably high and the volume of transactions simply never materialized. So these fees are in the high performing states are generally no higher than one percent at closing and have a per transaction tax. And in some states, there may be an annual servicing charge which should be kept absolutely minimal because again it just gets to the point of discouraging property owners. And we should be looking for ways to keep the fees and the services as streamlined as possible. Some program administrators will need help in covering their costs during this start up period while the pipeline of transactions is still low as they’re building up their volume. So some program administrators have been able to obtain funding from public sources, from philanthropies or utility companies. Some program administrators have benefitted by obtaining loaned executives or in-kind office space or consulting revenue. But again, the point is that fees should be kept as low as possible.

 

This last slide, slide 28 is about the role of marketing, education and training. And this really connects to the point about program fees. The more marketing that a program administrator does, it naturally drives up their cost. And so, the CPA would emphasize that his financing tool and it’s not a ______ subsidy that there can be extra costs layered on top of it. General awareness of C-PACE is important with an excellent webpage. But the reason to keep marketing and education and training costs low is because it may be adding to the cost burden and because – the second reason to be concerned is it may have – there have been cases where program administrators were to actively involved in a transaction and misspoke or unintentionally misled a property owner about what kinds of deals might be financeable.

 

And this final slide just has our contact information if you’d like to reach us as well as our webpage. And this complete narrative version of this best practices paper is on our website and so we hope that you find it to be a useful reference document. We’ve devoted a lot of time and energy to it. So thank you very much for your attention on this. And let me just ask my co-panelists Greg and Jim if they have anything else they’d like to add.

 

Greg Saunders:          I don’t Cliff, but thanks.

 

Jim Stanislaus:           No.

 

Cliff Kellogg:              Ok. So flip it back over to you, Sean.

 

Sean Williamson:       Fantastic. Thank you, Cliff, Greg and Jim. That was very comprehensive. As you pointed out it’s going to be hard to retain all that information so encourage our audience to dive into the white paper and the appendix slides that are going to be available as a follow up to this webinar. We’ve got a number of questions that I definitely want to get to but I don’t want to give short thrift to our final presenter, Mark Colby from Ygrene. He’s a general manager for solar and commercial business. So if we can advance to our next slide and have Mark step up to the podium. Mark, please take it away.

 

Mark Colby:               Thank you very much, Sean, Great opportunity to speak to the people that would listen in to a webinar sponsored by the Department of Energy and have such great panelists on here. I feel honored to be among them. Ygrene Energy Fund founded in 2010 and we’ve been in primarily the residential business and have done commercial lending but have really focused more on trying to create that in a little bit more disciplined fashion in the last year and a half or so.

 

Next slide please. Like most of the other panelists on here, you’ll see a lot of common themes because we didn’t really coordinate how we were going to answer these together. We were asked to independently come up with what we thought would be guidance that would help steer state legislators and other people who have built programs around what would be favorable and attract more financial institutions and administrators, etcetera to come into those states. So but the good news is a lot of us think very much alike.

 

Some of the things I kind of grouped into how to you create a favorable C-PACE I guess environment. I grouped some into the here’s the things you sort of have to do if you’re really going to attract the top people and then some preferences and then maybe some guidance and options. In the must category and again it’s been stated before but unless the PACE provider has a super leading position on par with ______, other tax payments, you’re probably not going to get a lot of traction. A junior leading position would essentially kill PACE and if you push that forward don’t expect a lot of traction.

 

We encourage that there would be district formation, anything that makes it a little easier so that you can get multiple jurisdiction at a time rather than have to ______ and have your government relations team especially if you’re an administrator go out there and try to slug it out every city council meeting, every jurisdictional meeting to try to get adoption. It just takes a lot of time, a lot of energy, a lot of cost. So if you’re a funding provider, it might be a little easier to go let’s say and adopt and join a program like TPA, Texas PACE Authority.

 

But if you’re going to try to attract people who want to create their own programs and be their own program administrator and a funding provider, then trying to make it as easy as possible to get adoption is very beneficial. Use of private capital, I mean I don’t see a whole lot of this anymore but it is important. And everyone should really understand that the great majority and bulk of the money that’s coming into PACE, the really only public part of that partnership is on the taxing authority and the state’s laws. When it comes to the cash and how we get it to be able to provide it to be able to build projects and so forth, it’s all private money. And so, allowing that is probably very – it’s critically important.

 

Next bullet there, multiple administrators, capital providers. Again, you’ve heard this before. Genevieve did a far better job explaining it than I but the concept of just having it be an open market, the strong preferences. If you really want to attract the big guys, you want to have – leave it open for new administrators. Leave it open for new capital providers, make it easy for them to come in and compete. And ultimately what you’re doing by doing that is you’re making the lowest cost to capital and the highest number of options and the most capability and wrong ability for your property owners to make selections that are going to work best for them. If you limit it in some way or another then they’re sort of like either come to us or don’t go anywhere and we think there’s a strong preference for keeping it open.

 

So onto the preferences. This is where I guess we diverge a little bit from some of the speakers on here. And by the way, there’s very good reasons for both sides of the lender consents discussion. You might think that some people that get into PACE typically have had some sort of a banking background and might have a little bit of allergic reaction to have something come in after the mortgage ______ suddenly and there might be some great problem with that. But ultimately state law requires lender consent as it does in some states, Texas, Missouri, etcetera. Great. I mean we’re all for property owner protections. But if the state does not require is then we’ve done a lot of discussing with – and I’m drilling down a little bit on this one just so you know why we have this perspective.

 

When you talk to bankers and mortgage lenders, etcetera, off record and not to be quoted, most of them will say I am so glad you’re not asking us for consent. If you ask for consent, I’m going to have to assign it somebody. First of all, it’s going to delay the project which means the property owner has to wait. That’s first going to put them in a negative view of the bank. Second of all, someone is going to have to sign their name to this thing which means they’re going to have to learn about PACE and really get into it. And if something goes wrong, that person is now going to be in trouble.

 

And third of all, ultimately, I don’t really want to create an adversarial relationship with my customer. If I suddenly turn around and say no. I don’t want you to do this project because I don’t really fully understand every reason why he's wanting to do it, I just don’t want to do it because I want to stay in my senior position. That person most likely will go out and find another bank because they’re ultimately going to want to get this project done. If they find another bank who is willing to do this, that bank is going to take the rest of their business because they now have a disfavor able view of the original banker.

 

And so, a lot of times what we get is I really am so glad you didn’t ask us for it. Thank you for notifying us and letting us know. And even when it does require consent or find a covenant in our mortgage that requires it – and we look for those – when we do talk to the banks a lot of them are under a little bit of a misperception that PACE especially where we operate in California and Florida does not allow acceleration of any note. It’s just the annual payment that’s in arears that’s due upon the new property owner taking over or the person who is in arears, who is delinquent they only have to pay back what’s currently owed.

 

So there’s no acceleration. So you’re talking in the 0.5 to 0.7 percent range which is often cured in many other means. So ultimately, we get to this point where lender consent – now I know for a lot of the people that require it and for that reason it delays some of their projects. For us – and we’re – I’ll explain a little bit more why Ygrene is a little bit more of an assembly line C-PACE provider and we do a lot of small cap commercial and we expect approvals on the order of days instead of weeks or months. And we expect to be able to start executing them pretty quickly so this is really helpful for us when allowed by state law.

 

Another preference is that you define – and by the way back to the lender consent. If a provider comes in, they can still make it their own policy internally to require lender consent. California, good example. I think the C-PACE Alliance requires it but in California it’s not requires by state law so it still leaves it up to the funder. It still leaves it up to maybe their lenders to make a requirement or to make it a certain requirement. So I don’t think it takes that right away from anyone who wants to get in the game. But if you take it off the table right away, it removes that advantage for people who are able to convince their lenders and others to allow speed, more speed for the property owner. So eligible improvements broadly.

 

When Ygrene first started their program, it was sort of we had tried to identify exactly which improvements would be eligible and then we technology changes or there’s a new coding for a building that allows a higher reflectivity and therefore less heat absorption, etcetera. And you just – it’s really hard to kind of keep up. I would say on the state level that makes it even more cumbersome and burdensome so I would try to keep those, what’s eligible to a more broad statement sort of in terms of renewable energy production, energy conservation. If you’re going to go down the water conservation side then you’ve got to define that broadly.

 

But I wouldn’t get into exact measures within those categories because it changes so quickly it’s hard to keep people back from doing something that would meet the intent but can’t meet the exact letter and then maybe your state like Texas doesn’t meet but every two years. Now it’s off the table for two years. So I would just tend to say I would be more general in the definition of what would be eligible. The other thing is for providers that do both – Ygrene probably does 90 percent of our business in residential and about ten percent in commercial.

 

Try not to smear the lines between residential property owner protections versus commercial where you have professional buyers that are out there deciding what things they want to do, ability to pay, all of the things that bleed from resi and sometimes over to commercial. Just make sure you keep those well segregated into protections that I think are more on the commercial basis like savings investment ratio or BCR or EEBE or whatever you want to call it. Underwriting criteria, again you’ll see this everywhere. If you poll every one of us here on this call, not every one of us is going to have the same underwriting tombstone. Why? Because yes, there are state components to that that are legislated.

 

And then there are lender requirements meaning I still have to go out and borrow money. So does Clean Fund, so does all the others. And those lenders will say ok. Here’s certain roles in underwriting criteria. If you glom on too many of those it can become very restrictive, overly so and maybe you won’t get as many projects done. So I would just try to make those very high level. And I think they’ve done a really good job of that in California and Florida.

 

Next slide please. These are sort of more in the nice to haves. So I would just call the considerations. Caps, if you were to say hey, this state says you can’t lend any more than five percent, nobody is going to do a project. I mean you can do a few but they’re not going to be chunky. You’re not going to have a decent solar system or whatever in the sort of less than five percent. So I would try to keep a finance cap on the LTV basis somewhere 15 – 20 percent-ish or potentially even more so that again you’re still going to have the filters, the lenders and others. But I wouldn’t make it really small because otherwise you just won’t attract the bigger players.

 

And then combined LTVs. I’ve seen on you can’t lend more than five percent and the combined is like 90 or something. Again it’s, it would be nice if it were up in sort of the California, Florida range, 95 – 100 percent which really helps to be able to get projects done for the widest, broadest audience out there. And the broadening the specific legislative language so that it allows more I guess local control and implementation. It’s not great to have two sentences of PACE law but at the same time if it gets in much gory detail it becomes so hard to sift through to figure out whether it’s worth going there or not.

 

So I would try to keep it as high level as possible because you’re going to have a lot of controls at the program administrator, lender, etcetera. All those filters are still going to be there. And then the last sort of category I guess would – if you want small commercial – I mean and when I think about C-PACE I look at it in a couple different ways. One, yes, there are very large facilities out there. Let’s say a hospital totally refurb. Let’s say it’s in California and they don’t meet seismic code, plus they’d like to have solar and other things.

 

I mean ultimately it would be great to do an entire redo of a hospital that’s $110 million of which $25 million could be just due to LTV etcetera in the PACE realm. So you’re really building a capital stack and instead of having or forcing the property owner to have 20 percent equity stake which is costing them 12 to 15 percent out of their own money or allowing PACE to go in there, swoop in at five, six percent and save them a lot of money over a long period of time, these big, huge businesses and hospitals and stuff that do these, it’s great for them.

 

But I’m really trying to think of the dentist. He’s got a practice he’s opened. He’s got 2,500 square foot facility, like to power his thing, get off the grid or at least get off his electric bill and save some money on it. It’s a $40,000.00 - $50,000.00 project. No one wants to touch it. Nobody on this call really. Because it’s just so hard because with all of the burden of the paperwork and then having to have an independent engineer go out and do an estimate of their initial energy usage and know what it’s going to be afterwards and then having to pull nameplate data on every single component that they power. I mean that’s a $2,500.00 - $3,000.00 hit and then maybe post installation is another $1,000.00 to see and then do some analysis. But you’ve already funded it so what’s the use of that anyway. And then you’ve got a legal review so now you have attorneys in there. It’s another $20,000.00. And when all together a $40,000.00 project, never going to happen.

 

And so, the only way if you really want to get it in the hands of small commercial. I mean I’m talking mom and pops, convenience stores, dental offices, strip malls, things like that. If you really want to do that you’ve got to put yourself in a position to allow the administrators that come in who can take advantage of that like we can and do things like benchmarking. Same thing we do on the resi side. There’s just no way to every single home to look at every single component. What was the U of the old glass you took out? I don’t know. Where are you going to find that? Same thing with small commercial. If you know what the U rating is, R rating, etcetera.

 

But if instead of trying to hunt all of that down if you have a means of benchmarking a building and then going toward a new what actually is going in and focusing less on what’s coming out and just comparing against benchmarks of typical age buildings in that community, then it makes it a lot easier to do those calculations that are legislated like the BCR, SIR, etc. And you might want to limit that by size. You may want to say, hey, I’m only going to allow projects that fund their under a certain dollar figure to use benchmarking. You may say it’s only if it’s commercial off the shelf technology and not if it’s custom, etcetera. But ultimately if you put – if you’re silent on it, that’s good.

 

If you are going to speak on it, maybe you want to cap it. But if you just totally require every single time specific mandated steps then forget small commercial. It’s just not going to happen. And that means small commercial program administrators and capital providers won’t enter than market. Next slide please. So you say ok. Ygrene, you’re a little bit different in your approach. So what have you guys done? Well, nationwide between California, Florida and now into Missouri as well we’ve funded out of the $672 million and 612 projects that have been done and that data I get from PACE Nation which is a great resource.

 

Ygrene has funded $81.8 million on 723 projects. So only 12 percent of the dollars but nearly 45 percent of the projects. Why Ygrene works for small commercial. Again, lender consent was a big tripping hazard for most lenders. Sorry. Most capital providers and most administrators. It has not been for us. Now we do it wherever the _______ wants, wherever we see a mortgage requires it or wherever a property owner just says look. I just want to because I want to maintain a certain relationship with this particular banker. I need them for something. Absolutely. They’ll do whatever the property owner wants.

 

That’s mainly our focus, our ability to execute. There’s a lot of sort of lenders that or capital players that wanted to get into our sort of really small cap commercial space would say they would do something and then after a few months of trying just couldn’t come up with the capital. So our ability to execute because we pull off the same syndicated warehouse for resi is, it gives us a huge benefit. We have really easy and well-defined underwriting procedures. Our approvals are fast. If everything is turned in correctly it’s on the order of three to five ways.

 

We have really defined eligible improvements. They’re drop BCR, SIR calculations to make sure the property owner is getting a return on their investment which by the way we do put in our numerator things like not only avoided energy costs. We put in our numerator increase in property value, some other things that other people have spoke to. And we’ll fund the commercial project on $5,000.00.

 

We, the director of our program Ryan _____ had a customer that came in kicking the tires on an $18,000.00 project and he spent a long time with her really focused made sure that she really understood what she was getting into. Now she’s done 18 projects with us and now they’re in the million-dollar range because they wanted to find out it was real. It was something they could really do, etcetera.

 

And then low fixed fees pretty much everyone has those. And low rates, long terms, again a lot of people have talked to that. The advantage we have over the unsecured in other lenders out there, mortgage lenders, second mortgages, etcetera, backup mortgages and other instruments like that. They’re typically either going to give me a 30-year deal or a balloon after ten or _____ money and the payments are just way higher than a 30-year deal so we have a huge advantage here. And then we have commercial sales professionals out in the field that work with contractors. I think that’s a big advantage that we’re actually out there working deals with them.

 

Next slide. And I added just a couple of examples and I think these are pretty quick hitters but I’m trying to tell the value of PACE but also the value of kind of what we offer in particular. I’ll start to give you what the scene is and then I’ll tell you how it helped. This particular property, the main property is at the top. The property that other unsecureds wanted to somehow use as collateral is at the bottom. We don’t do that. But because the guy that recently got the property is a cop and he didn’t have a lot of vacancy he wasn’t able to secure a regular financing unless he collateralized the property of the inherited property from what he got which is let Quzinos buy them.

 

He didn’t want to do that, didn’t think it was worth it. And the unsecured options rates were higher. And because their terms were shorter the monthly was just, made it nonviable. So what we did is we went in there, we funded the project at nearly a million dollars. We lowered our operating expenses, increased our NOI which increased their property value, put them in a better position if they did want to refi which they didn’t. They were fine and they had positive cash flow from day one. They got a new tenant and so just big, big win all the way around.

 

Next slide. This one, it’s a little ironic that the association of realtors chose PACE but they did. And this one happens to be in Chula Vista. They wanted to put a solar carport parking, 65 kilowatts on their property [break in audio]. Sorry. I had a call coming in. They looked at a seven-year lease but it had a buy out balloon which really killed all their cash flow so they decided against it.

 

We offered them 25-year term but they chose a 15-year term because it was the shortest term that still gave them positive cash flow in year one. It lowered their cost of capital. They also had 13 months before their first payment. So if you’re the property owner here you’re looking at $91,000.00 in savings over avoided utility costs. And then a $526,000.00 20-year savings positive cash flow every year on a $220,000.00 project.

 

And one last one. This is not solar. This one is lighting and HVAC. They were going to lose their state of California tenant because their service levels had gone down so much. They had really poor lighting and their HVAC wasn’t sufficient so state of California who was the client said “Hey. We’re going to leave unless you fix these things.” They really didn’t have a great way of going out there and getting funding otherwise. There was big issues. If they had gone to refi their mortgage they were paying penalties on their original mortgage. Terms were too short. So they decided to use PACE. Because they used PACE though instead of just getting a new air conditioner, instead they had to try to get a higher efficiency air conditioner to qualify for PACE so they actually saved more energy.

 

So I make that point and they have higher efficiency lighting spec in order to qualify for PACE. So in the long run, it actually helped not just get a project done but get it done at higher efficiency. They opted a 20-year term. They got a 13 percent overall energy savings and they kept their tenants. And on top of that is the cherry they achieved a LEAD certification on the building. That’s really all I had so back to DOE.

 

Sean Williamson:       Fantastic. Thank you, Mark. Well, we are at 90 minutes and I know that’s a major commitment for folks to devote that much time. I’ve also noticed we’ve received a number of questions. And so, I’ll suggest that I can take liberty in trying to connect folks who have answered these questions to some of the speakers after the webinar. I’d also like to sort of take five minutes for those of you who can hang on to answer a couple of these questions or rather direct them our speakers to get a little bit of discussion going. But if you do have to leave at this point in time I absolutely understand. It’s been a big commitment of time and that goes to both our speakers and our attendees.

 

Again, thank you to those who were able to attend. This is my information where you can contact me with any follow up questions and the website where we will ultimately post recorded webinar and slides. So let me just take liberty to pick a couple questions here and see if any of our speakers want to jump in and try to field these. So I have one question about direct billing by the cap provider and how payment for that occurs, if it’s once a year or if it happens more often than that. And in particular in the states that have done this, how are they handling funds. Would anyone be able to speak to that particular question?

 

Jim Stanislaus:           I can take a shot at that one. This is Jim Stanislaus from Petros PACE. Most of the states we’re in we do direct billing. In all cases, you have the super senior, the tax assessment in place. And when a PACE loan closes, you have the scheduled payments that are set from the closing documents. Those are put into the special assessment and the dollars amounts and the dates are known and those are all on the tax payment dates. And let’s use Texas for example where we have the ability to direct bill. It doesn’t mean that those payments aren’t in the special assessment. They are.

 

We just have the ability. We bill in advance and we on – we bill in advance. It’s all set dates to the borrower. And in let’s say it’s a state where it’s twice a year or once a year. It doesn’t matter. We would bill about 120 days in advance. And we have the ability to collect payment directly. If the borrower does not make the payment after notice period, then we have sufficient time to notify the municipality to go ahead and collect on that tax collection date.

 

What that does is it gives you the ability when you do collect it, it does – while there’s not municipality risk, it does give you some extra security in the event that there’s ever a municipality issue. You in those transactions you have the ability to collect directly before it has to go through and be collected through the municipality. Does that make sense?

 

Sean Williamson:       Yeah. That does make sense, Jim. Thank you. Let’s grab another question here. How can PACE be used to do a PPA or a solar lease?

 

Mark Colby:               I can answer that one. This is Mark Colby – oh sorry. Go ahead Greg.

 

Greg Saunders:          We’ve done a number of PACE PPAs under our solar PACE product and there are a number of different structures that can accommodate PPAs or leases. What we’ve found works fairly on a fairly straightforward basis is a structure that is called a prepaid PPA where the property owner agrees to an assessment on their property and essentially finances or pays something like 70 to 80 percent of the system cost. Those funds are basically used to pay the installer and a third party owns the system from a legal standpoint, from the tax standpoint was able to garner significantly a number of tax benefits from that investment.

 

So it does involve as you may know a tax equity investor. It’s fairly complex. We have noticed a number of issues post-closing that have arisen where the tax equity partner has adjusted the terms or sought amendments to the PPA. It’s important to take note of the statutory provisions regarding improvements and whether a PPA or a lease is applicable. In California they are deemed improvements under the pay statute. And once you clear that off you have to make sure to figure out how precisely the PPAs need to – the standard power purchase agreement needs to be modified to accommodate a CPs financing structure because there are some specific changes that are needed. Certainly, welcome more offline discussion on that. Sean can provide my contact information if anyone wants to talk about it in more details.

 

Sean Williamson:       Great. Thank you, Greg. Mark, did you want to comment on that as well?

 

Mark Colby:               Actually, I agree with Greg. The only ones that we’ve done to this date commercially have been prepaids on other third-party lien providers that change either the original contract or put an amendment to the original contract that make it PACE eligible. The key things to that would be not just approving a prepayment unless you knew certain things are in there like property can’t be removed. It has to be permanently mounted such so that it’s PACE friendly. That’s the only thing is just ______ any of the modified or amended to certain things.

 

Sean Williamson:       Ok. Great. Let’s try to do a couple more questions here before we break. There is a comment about where the backup servicing provision should be for collection, if you should include that. If you think back to Cliff’s slides about the state law, the local ordinance, the guidance, those different stages throughout the entire implementation process. Where would you embed most of the content on the servicing and where that should occur.

 

Cliff Kellogg:              Greg, would you handle that?

 

Greg Saunders:          This is Greg Saunders. I would have that embedded in the program documentation. It’s not something that needs to be at the statutory level. But for the specific program and how it’s administered there would need to be clear guidance that is articulated as to the process and the timeline and the methodology of recognizing the initial servicer resignation or failure and allowing for a period of time to stabilize if you will or at least get to the next phase of having a replacement servicer come in and assume all of the responsibilities under a servicing contract that is again made public and is very much transparent for everyone to see.

 

So the key there though is if the rules around the identification and the timeline had to be very clear. It’s not that you have to necessarily specify who that backup servicer shall be but it’s quite ok to put in parameters or criteria about what kinds of entities would be qualified to perform that. That would be my guidance. There’s a lot more to this of course.

 

Sean Williamson:       Understood. Thank you, Greg.

 

Genevieve Sherman:   This is Genevieve.

 

Sean Williamson:       Genevieve, go for it.

 

Genevieve Sherman:   I just wanted to add. I just wanted to add onto Greg’s point. There generally is broad consensus that although it’s always a moving target but historically there’s been broad consensus that to the extent that the legislation can specify that local governments that currently collect real property taxes that they are responsible for collecting PACE assessments, that is preferable to have in the law. So even if that role is outsourced or supported by a third-party servicer to the extent that that can be clarified in the law from the beginning that is also a best practice.

 

Sean Williamson:       Thank you. Ok. Let’s put one more question out there and then we will wrap. So this is a question about standardizing SIR. And in particular doing that in a way so that small businesses are able to participate. I know Mark spoke to this to a degree but is there a way to make your SIR design more standardized, have fewer transactions costs associated with calculating it. Are there any best practices associated with having an SIR but making it ultimately less burdensome for property owners to meet at?

 

Cliff Kellogg:              This is Cliff Kellogg. I can pitch in here and just connect. In a handful of states, there’s a preapproved list of energy improvements. So if you’re – in some cases it’s called a fast track procedure. In other cases, it’s actually a list of energy improvements that have already been determined to be energy savings and therefore do not require that SIR, a complete SIR calculation.

 

So New York State has a list of preapproved transactions, of preapproved improvements on their website. And in Texas, the fast track process applies when there’s for example a like for like transaction replacing one piece of equipment with a more efficient piece of the exact same type. So that’s one, that’s one way to do it to simplify the process and avoid the cost burden on smaller projects. I differ to my other capital providers if they have other ideas.

 

Genevieve Sherman:   This is Genevieve speaking. I think an important thing for policy makers and folks that are administering or designing these programs need to keep in mind is that the underlying economics of what makes an energy efficiency project or a renewable energy project or a resiliency project attractive for a building owner plays a really big role in how to think about how we sort of standardize SIR requirements. So simply put an energy efficiency project that costs the exact same amount of money in Connecticut and in Texas, may provide greater financial returns in Connecticut where electricity and gas costs are much more expensive than in Texas.

 

So an SIR specifically is a ratio of cost to benefit on a project that looks primarily at energy savings. And it ignores several other pretty important factors such as non- energy saving related benefits that the building owner is receiving through getting you equipment, through helping their tenants, through leasing a building. And it also doesn’t take into account these differing costs across the country. So ultimately this is very much I think a choice at the local level in terms of what the government is trying to accomplish through it’s PACE policy.

 

But what is a good way to start thinking about this is to encourage the folks that are designing the program to echo I think that was Mark. First and foremost, clarify what is eligible in terms of what you need to demonstrate to show that a project is going to save energy or produce renewable energy. That’s kind of the minimum level of demonstrable evidence to show that the projects are eligible and that they produce a public benefit. But then beyond that, what information is needed to capture the full benefits that the project is delivering.

 

So we always encourage administrators to think really broadly about that and to the extent that they can allow for other revenues associated to the project to be documented and counted as a benefit on the property. Folks should take the broadest possible view of economic benefits received by the building owner in sort of allowing them to show that this is a good project for the building. And beyond that, I would also remind folks that are thinking about this issue to remember that there probably are other financial underwriting criteria that capital providers are looking at when they determine whether a building owner is able to repay a commercial PACE loan.

 

And whether the project achieves enough energy savings to cover the annual assessment cost is really only one of several other likely more important credit metrics that would determine sort of a credit worthiness of a property. So just in closing I would say clarifying what is eligible and a minimum level of documentation to demonstrate that will encourage the largest amount of participation in case by small businesses. But beyond that if there are going to be more stringent requirements around a savings investment ratio, take a really broad view of what constitutes savings and economic benefit for the building owner beyond just what they’re receiving on their utility bill.

 

Sean Williamson:       Fantastic. Thank you, Genevieve. Does anyone care to add to her response?

 

Mark Colby:               This is Mark Colby. I would say these are all three letters acronyms in different states, DCR in California and Florida, SIR in Texas, EEBE in Missouri. And they all have different meanings. SIR in Texas your denominator is not only a project cost, but the project cost plus the interest paid so you have to divide by the total cost that you’re paying for it. In California it’s just the project cost. It doesn’t include the interest that you’re putting on, that capitalized interest, etcetera. And in Arkansas and I haven’t heard this directly but I think it says positive cash flow every year.

 

So they all – there’s different definitions for those by each state. So you want to think carefully about what those are number one. And number two, again we learn from the resi side where you just can’t go in and be able to afford a full energy audit front and back end. That’s why we came up with this benchmarking idea. But we didn’t come up with it and then just decide to wing it. We came up with it and decided in Missouri for example to take it in front of the CEDB, the Clean Energy Development Board, and get their approval on the method with opinions from ______, etcetera. But only once, not for each project, to get an opinion on the actual calculation and are we benchmarking correctly and which measures can we benchmark and is this an acceptable benchmark building so that we can then go back, do the analysis and then say ok.

 

For a small commercial defined as follows, any EER or SIR rating above 12.5 is sufficient to show an EEBE greater than one. And as long as you do that homework in advance. But the good part is it only requires a big investment in attorneys, accountants and others once. It doesn’t require it over and over and over again. When you build a commercial handbook around it that specifies it. And then all of a sudden it makes it easier on the small commercial property owner.

 

Sean Williamson:       Great. Thank you, Mark. I’m going to give Mark the last word and we’re going to conclude the webinar at this point. But I want to give one more big thank you to our speakers. Thank you, Genevieve. Thank you, Cliff. Thank you, Jim. Thank you, Greg. Thank you, Mark.

 

Also thank you to our attendees able to stick through our 90-minute marathon webinar. There’s a lot of content here today but we were able to keep close to 50 people on at least through the 90 minutes plus discussion. So thanks everyone for your attention and I look forward to engaging with you in subsequent C-PACE working group technical webinars. Have a great afternoon everyone.

 

 

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