How Utilities’ Support Can Enhance and Leverage Maryland’s New Home Energy Loan Program Terry Daly, Loan Program Manager Maryland Clean Energy Center Peter Krajsa, Chairman and CEO AFC First Financial Corp.

Helping consumers, supporting businesses, advising policy makers A national leader in home energy financing

In the current “Perfect Storm” of energy crisis and credit contraction, consumers and contractors need simple financing options to make energy improvements 70% of all home improvements up to $15,000 are financed in one way or another, 90% of improvements greater than $15,000 are financed Contractors drive most of this demand Financing Energy Efficiency – Key Facts

Rebates and tax credits are great – but where does the rest of the money come from? Keep it simple for contractor and consumer – the goal is work performed and energy savings, not the number of audits conducted Financing Energy Efficiency – Key Facts (cont’d)

Two Types of Energy Efficiency Customers HVAC Estimate REACTIVE I Must Reduce My Energy Bills! PROACTIVE

REACTIVE Consumer - Welcome to the “Twilight Zone” Typical “urgent” HVAC or home repair installations ($3,000 to $15,000) are the consumer’s financing “twilight zone” - too big for a credit card, too small for a home equity loan. The vast majority of energy efficiency improvements Customer doesn’t want a lien on their home Time sensitive – consumer needs work done ASAP Contractor-Driven

REACTIVE Consumer - the “Twilight Zone” (cont’d) “Come-on” or “Teaser” (0% for 6 months type) financing -- NOT the answer for a major capital purchase and can hurt contactor credibility Borrower wants longer term or lower rate than he can get from bank Solution: Unsecured point of purchase loan programs with (lower rates based on simple product qualification – ENERGY STAR)

PROACTIVE Consumer - The “Thinker” “Whole house” improvements are larger projects which generally require financing More project driven, less time sensitive Contractor is the expert More customer thought, engagement and foresight

PROACTIVE Consumer - the “Thinker” (cont’d) Borrower may not have adequate home equity for an loan Solution: “Home Performance with ENERGY STAR” model with Energy Audit, recommendations and lower rate than ”Reactive” financing

A Successful Consumer Energy Efficiency Program…. Addresses Both “Reactive” and “Proactive” Consumers. Recruits and trains contractors on how to better utilize special financing and monthly payment plans to increase both their closing rates and market penetration for more energy efficient home improvements.

A Successful Consumer Energy Efficiency Program… (cont’d) Utilizes centralized loan approval and contractor administration to provide maximum efficiency and customer service to both consumers and contractors in loan origination, administration and loan servicing Provides customers with a special financing program that encourages choosing higher efficiency improvements over lower efficiency items Provides measureable results on energy savings resulting from improvements

Programs Should Incentivize Consumers To Make Deeper Energy Improvements But…provide lower interest rate to the consumer who will do the “Whole house” improvement program Contractors have to “buy in” to the ease of the program and can’t be put off by complexity – need to accommodate their customers Use simple, consumer recognized national standards such as ENERGY STAR for equipment standards – no need to “reinvent the wheel” or confuse the market

The Contractor Network- The Primary Key to a Successful Program and Maximum Program Uptake A program’s Contractor Network must consist of companies that are ethic and financially stable A contractor may be great technically, but if they don’t have the financial stability to stand behind their work or warranty they can damage the program. A successful program recruits and trains contractors on how to better utilize special financing and monthly payment plans to increase both their closing rates and market penetration for more energy efficient home improvements – to help them grow their business Maryland has an established network of Home Performance and Energy Contactors

AFC First – A National Leader In Energy Efficiency Lending AFC First Financial Corporation is an experienced specialty energy efficiency lender and the provider of the EnergyLoan® program.. Founded in 1947 in Allentown, PA. AFC has processed over 50,000 energy efficiency loan applications. Retail contractor-driven energy lending to consumers has been primary business since AFC First is one of only three Fannie Mae approved Energy Lenders in the nation. Currently lending in 24 states with over 3,000 Approved Contractors, Manufacturer, Utility and State and Municipal Partners National lending capabilities, currently organizing Green Energy Federal Credit Union

Examples of AFC First’s “Contractor-Driven” Programs Pennsylvania’s Keystone HELP (PA Treasury, DEP, cross marketing with state utilities) Over 7,000 loans and $58 million in energy efficiency Connecticut Solar Lease (Connecticut Clean Energy Fund) Nations first rate-payer funded program. Over $40 million in residential solar leases Connecticut Energy Efficiency Fund (HES) Program CL&P and UI provide support of this rapidly growing program with expected annual volume of $15 to $20 million New Illinois Utility Energy Efficiency Financing Program New $12 million on-bill financing initiative with all six state utilities Programs with Duke Energy, Progress Energy, National Grid, Yankee Gas and others

Maryland’s New EnergyLoan Program Emulates Successful National Models Funding for pilot by Maryland Clean Energy Center Supported by Maryland Energy Administration and Maryland Home Performance with ENERGY STAR program Delivered through an established Maryland contractor network Administered by national energy efficiency lender, AFC First Financial Corporation (whose National VP of Business Development lives and is based in Maryland) Designed to be Compatible with national programs such as Home Star

UTILITY CASE STUDY – Connecticut Program Funds for Loss Reserves and Rate Buydowns provided by CL&P, UI and Municipal Utilities Enhancing and Energizing State’s Existing Operating Home Performance Program 1,000 applications and $7.2 million in energy efficiency loan program approved in first 4 months of program Annual program investment by utilities of $4 to $5 million expected to be leveraged to $20 million or more in private capital for energy efficiency loans

How Does the Leverage Work In Connecticut? Utility Program Support for Rate Buydown and Loss Reserve AFC First Financial (originator ) Contractor Borrower P&I 1 Market Based Private Capital Secondary Market Investor (Regional Banks, Fannie Mae etc) Loan Proceeds P&I 1 Retrofit Sale of Note AFC First Financial (servicer ) Utility (rate payer) funds are used to provide loss reserves and incentives to reduce rate to borrower lower than market based rate needed by private capital market - driving demand and energy savings

A Similar Model in Maryland Would Create a Sustainable Program for Residential Energy Efficiency Finance Core capital will come from private market with higher yield expectations “Program” funds used to provide a lower rate to the consumer provided by stimulus and other funding will be exhausted Utility funding provides a sustainable source of program dollar to leverage private capital, typically at least 5:1 Turnkey program with an established contractor delivery network ready to go Flexible program design to encourage improvements with maximum documented energy savings and greatest bang for the buck

Keep it Simple Don’t get caught in red tape Energy Efficiency lending programs are competing against credit cards. Most Consumers (and Contractors) will follow the path of least resistance even if it is more costly Accomplish your goal (helping consumers install energy efficiency improvements) without overburdening contractors or consumers with complexity