1. Targeting and Winning with Qualified Energy Conservation Bonds ARRA Sales Training January 4, 2010

2. What We’ll Cover Today Qualified Energy Conservation Bonds – Overview
Why Drive QECB’s
Selling Features – QECB’s
How are QECB’s allocated
State’s allocations (Top 25)
Targeting Example – Virginia focus
Highlights: Rates & Terms, Security & Structure
Sales Strategy
Energy Conservation Projects
Green Community Program
QECB Challenges
Genesee County – Voice of the Customer
Successful Implementation – Abundant Power Solutions
Questions & Wrap Up
Johnson Controls

3. Qualified Energy Conservation Bonds – Overview
The Energy Improvement and Extension Act of 2008: Authorized the issuance of Qualified Energy Conservation Bonds (QECBs)-initial limit $800 million
The American Recovery and Reinvestment Act of 2009: Expanded the allowable bond volume to $3.2 billion
H.R (2010): Introduced an option to recoup part of the interest issuers pay on QECBs through a direct subsidy (like that for Build America Bonds) from the Department of Treasury rather than a tax credit QECB Background
Qualified Energy Conservation Bonds (QECBs) may be issued by state, local and tribal governments to finance qualified energy conservation projects. A minimum of 70% of a state’s allocation must be used for governmental purposes, and the remainder may be used to finance private activity projects.
Qualified projects are defined broadly. Examples of qualified projects include energy efficiency capital expenditures in public buildings, green communities, renewable energy production, various research and development, efficiency/energy reduction measures for mass transit, and energy efficiency education campaigns.

4. Why Drive QECB
They represent an incredibly cheap form of borrowing. QECBs reduce the issuers borrowing cost near state, local, and travel governments.
They allow state, local, and travel governments to issue bonds and then to fund qualified energy conservation projects.
QECB issuer pays an investor a taxable coupon to borrow money and then receives a direct cash rebate from the US Treasury.
The Recovery Act expanded the allowable bond volume to 3.2 billion - and then the real game-changer was that HR 2847 in 2010 introduced an option to recoup part of the interest issuers pay on QECBs through a direct cash subsidy.
Like the Build America Bonds, QECB are effectively the same mechanism. This is a game-changer in the sense that it allows QECB government issuers to take advantage of the much larger taxable bond market.
Issued as a revenue bonds, the bond would be supported by specific revenue streams (energy efficiency program). The repayments on that loan program would actually provide security to the bond investor

5. How are QECB Allocated
The U.S. Treasury allocated $3.2 billion of QECB issuance capacity to State Treasurers based on population
Each State was required to allocate issuance capacity to municipalities with populations >100,000 based on the municipality’s percentage of total state population
–Example: If a municipality has 150,000 residents and the state has 1.5 million residents, the State must allocate 10% of its QECB issuance capacity to the municipality
–If the municipality does not intend to issue QECBs, it may reallocate its issuance capacity back to the State
Processes for notifying State authorities of intention to issue QECBs (and deadlines for doing so) vary

6. QECB Allocations State or Territory QECB Allocation Total Allocation
Alabama
$48,364,000
Kentucky
$44,291,000
Ohio
$119,160,000
Alaska
$7,120,000
Louisiana
$45,759,000
Oklahoma
$37,787,000
American Samoa
$673,000
Maine
$13,657,000
Oregon
$39,320,000
Arizona
$67,436,000
Maryland
$58,445,000
Pennsylvania
$129,144,000
Arkansas
$29,623,000
Massachusetts
$67,413,000
Puerto Rico
$41,021,000
California
$381,329,000
Michigan
$103,780,000
Rhode Island
$10,901,000
Colorado
$51,244,000
Minnesota
$54,159,000
South Carolina
$46,475,000
Connecticut
$36,323,000
Mississippi
$30,486,000
South Dakota
$8,343,000
Delaware
$9,058,000
Missouri
$61,329,000
Tennessee
$64,476,000
District of Columbia
$6,140,000
Montana
$10,037,000
Texas
$252,378,000
Florida
$190,146,000
Nebraska
$18,502,000
US Virgin Islands
$1,140,000
Georgia
$100,484,000
Nevada
$26,975,000
Utah
$28,389,000
Guam
$1,826,000
New Hampshire
$13,651,000
Vermont
$6,445,000
Hawaii
$13,364,000
New Jersey
$90,078,000
Virginia
$80,600,000
Idaho
$15,809,000
New Mexico
$20,587,000
Washington
$67,944,000
Illinois
$133,846,000
New York
$202,200,000
West Virginia
$18,824,000
Indiana
$66,155,000
North Carolina
$95,677,000
Wisconsin
$58,387,000
Iowa
$31,150,000
North Dakota
$6,655,000
Wyoming
$5,526,000
Kansas
$29,070,000
Northern Marianas
$899,000
Total Allocation
$3,200,000,000
Top 25 Allocations

7. QECB Allocations - Virginia
Example
Municipality Name
Allocation
SMIS Loaded
Opportunity Status
Business Assignment
General Background
Sales Assignment
Comments
QECB
Fairfax County
$10,512,656 No
Virginia Beach City
$4,554,143
Yes
Active
Solutions
Joint selling with APS
Tom
Scheduling combined meeting to demonstrate leveraged funds approach
Prince William County
$3,764,598
Chesterfield County
$3,130,521
Henrico County
$3,030,414
Loudoun County
$2,903,590
Norfolk City
$2,470,542
Chesapeake City
$2,290,975
Arlington County
$2,134,764
Richmond City
$2,093,745
Newport News City
$1,892,936
Hampton City
$1,533,382
Alexandria City
$1,464,096
Stafford County
$1,262,805
Spotsylvania County
$1,244,652
Portsmouth City
$1,067,136
Commonwealth Sub allocation is
$35,249,046
Tracking
Johnson Controls

8. QECB Rates & Terms Interest Rates
U.S. Treasury pays QECB issuer the lesser of:
The taxable rate of the bonds
70% of the Qualified Tax Credit Rate (QTCR) as of the Bond Sale date—currently 5.00%
The QTCR is set daily by the U.S. Treasury and can be found here: »
Example: Net Interest Cost
5.50%----Taxable interest rate paid to investor
3.50%----Minus Direct Subsidy (5.00% QTCR x 70% subsidy )
2.00%----Net Interest Cost (Taxable Rate-Direct Subsidy)
Maturity
Currently 18 years-Set monthly by the U.S. Treasury**

9. QECB Security & Structure
Bond Security
Revenues
General Obligation
Collateral (equipment, property, etc)
Structures
Bullet -All principal is paid back at maturity
Serial -A portion of the bonds matures at regular intervals
Term bond with sinking fund

10. QECB – An Example
U.S. Treasury pays issuer the lesser of the taxable coupon rate or 70% of the tax credit rate
The issuer pays a taxable coupon semi-annually to the investor and repays principal at the end of 17 years
Bond proceeds are used to fund a Qualified Energy Conservation Project
Qualified Issuers sell taxable QECBs as a 17 year bullet to investors
State Treasurers allocate QECB issuance capacity to Qualified Issuers
U.S. Treasury allocates QECB bond volume to State Treasurers

11. Sales Strategy Green Community Projects Energy Conservation Projects
Qualified projects are defined broadly: Examples of qualified projects include:
Energy efficiency capital expenditures in public buildings – at least 20% energy consumption reduction
Renewable energy production
Various energy-related research and development
Efficiency/energy reduction measures for mass transit
Energy efficiency education campaigns
Green communities programs
Conference Report to the American Recovery and Reinvestment Act of 2009 includes the following statement regarding Congressional intent about the broad intended scope of this term:
"Also, the provision clarifies that capital expenditures to implement green community programs includes grants, loans, and other repayment mechanisms to implement such programs. For example, this expansion will enable States to issue these tax credit bonds to finance retrofits of existing private buildings through loans and/or grants to individual homeowners or businesses, or through other repayment mechanisms….Retrofits can include heating, cooling, lighting, water-saving, storm water-reducing, or other efficiency measures.―
Example: Unsecured Commercial EE Loan Program
Rules
A maximum of 30% of QECB allocations may be used for private activity purposes
All bond proceeds must be spent within 3 years or used to redeem bonds at the end of that 3 year period
Issuers must have a binding commitment with a 3rdparty to spend at least 10% of the bond proceeds within 6 months of the issuance date
Only 2% of the bond proceeds can be used towards cost of issuance
Energy Conservation Projects
Green Community Projects
QECB.pdf

12. QECB Challenges Low QECB volume allocations Investor unfamiliarity
QECB volume allocations often do not have sufficient size to wet investor appetite
Issuers might want to consider a pooled issuance
Investor unfamiliarity
Taxable investors are not as familiar with municipal credits
Build America Bonds have helped familiarize the taxable investor base with municipal credits
A bond issuance takes several months to structure, market, price and close
QECBs might strain bond issuance limits for some issuers

13. QECB Considerations Who owns the QECB program for the state?
What is the deadline for communicating the municipalities intention for the allocation?
What is done with unused or unallocated funds?
How to determine how much QECB has been utilized in their state?
What actions should they take if there is an underutilization of QECB in their state?
Johnson Controls

14. Voice of the Customer Account: Genesee County, Michigan George Martini
Finance Director
JCI Account Leadership:
Daniel Mack
Energy Solutions Account Executive
Johnson Controls

15. Customer needs What was driving the customer
Create Jobs
Cost Efficiency
Finance Needed Capital
Would the customer have done this without ARRA
In the customers words
Why did the customer implement with QECB
Customer’s perspective on the QECB

16. Overview of the funding source
Customer’s perspective on the QECB
Type of fund or funds
How was the money distributed
Customer’s approach to accessing and issuance
Application process
As defined
Restrictions on the fund
Any unique restrictions of use requirements
Customers response to the fund availability

17. Customer Solution Amount of ARRA funds, interest rate
$9.4M in Self Funded Improvements
QECB $7,815,784 at 5.59% interest rate (1.91% Net…Total amount saved using QECB over Tax Exempt Bonds - $1.5M
$1.6M Energy Efficiency & Conservation Block Grant
Improvements
Building Automation Controls Solar PV & Thermal
Lighting/Lighting Controls IT (1200 VOIP Phones & Network Upgrade)
New RTU’s/Boilers Windows/Doors Roofs (Repair and New)
Retro-commissioning Fire Panel Replacement
Critical Services (Mechanical, Controls, M&V)
Internal Resources 4m vs
Systems (Including NIS, F&S), Service and Energy Solutions
Unique qualities of the job
Fully funded by ARRA, Extensive IT Improvements, Solar w/Kiosk, ≈100 Local Jobs

18. Successful Implementation
Abundant Power
Charlotte, North Carolina
Larry Ostema
Managing Partner
Johnson Controls

19. Successful Implementation – Abundant Power Solutions
Current:
Market: $171 million through 9/2010 over 15 issuances
Geography: 12 of 15 issuances west of Mississippi
Placement: 90% privately placed to bond purchaser(s)
Security: 50% general obligations bonds; remainder revenue, including COP
Opportunity:
Challenges: Local government bond issuance; secured by series of junior lien credits
Solution: “Corporate” conduit (i.e., state) issuance for local government “green community program,” potentially linked with “side car” for government owned facilities
Potential purchasers: IOUs, manufacturers, foundations, other synergistic
Johnson Controls

20. Optimal Structure – Abundant Power Solutions
Johnson Controls

21. Market Strategy – Abundant Power Solutions
Johnson Controls

22. Questions & Wrap Up
Johnson Controls