1. Money Talks: Financing Efficiency Improvements Panel Discussion Moderator: Curt Nichols, CEM Senior Manager of Strategic Initiatives

2. Today’s Agenda/Objectives Introduce Topic/Panelists Capital Access/Financing Background Conventional Financing Resources Newer Project Funding Options –Models for Project Financing –Commercial PACE Financing –Efficiency Service Agreements Audience Interaction (Q&A)

3. Panelist Introductions 1.Business Models for Project Finance John MacLean Energy Efficiency Finance Corp 2.Commercial PACE Financing Jane Elias Sonoma County Energy Program 3.Efficiency Service Agreements Frank Visciano Metrus Energy

4. Capital Access/Financing Many commercial projects ignore financing. However: Financing pays for itself through savings Interest rates are at an all-time low The cost of waiting can be high You preserve existing reserves Utilization of Capital is a Major Barrier to Project Completion

5. Without Necessary Capital Energy-saving projects are put on hold Get higher energy bills each month Maintenance costs can increase Building values can decline Unemployment can rise Financing options ARE available

6. Current Financing Resources Financing Options Widely Available Conventional Bank Line of Credit Utility Backed Financing Vendor Backed Financing Equipment Lease-Purchase Performance Contracting Mission-based Lenders

7. Currently Available Resources Site-Specific Financing Options Oregon –SELP loans (ODOE) www.oregon.gov/ENERGY/LOANS/Pages/selphm.aspx Washington –Energy Efficiency Loan Program (WSHFC) www.wshfc.org/energy/eelp.htmwww.wshfc.org/energy/eelp.htm (non-profits, multifamily)

8. Current Financing Resources Site-Specific Financing Options Idaho –Energy Loan Program (OER) www.energy.idaho.gov/financialassistance/energyloans.htm Montana –Alternative Energy Loan Program (DEQ) www.deq.mt.gov/energy/renewable/altenergyloan.mcpx

9. Current Financing Resources A Couple More Financing Options Federal Agencies (in the Pacific Northwest) –BPA Facilitated UESC Financing www.bpa.gov/energy/n/federal.cfm Qualified Energy Conservation Bonds –State, Local, or Tribal governments can use www1.eere.energy.gov/wip/solutioncenter/financialproducts/qecb.html

10. Other Financing Options Today’s Panelists (the REAL experts here) Additional Financing Resources John MacLean, Energy Efficiency Finance Corp Commercial PACE Financing Jane Elias, Sonoma County Energy Program Efficiency Service Agreements Frank Visciano, Metrus Energy So, lets hear from them

11. Business Models & Examples for Financing Commercial Sector Energy Efficiency Projects Efficiency Connections Northwest Conference Spokane, Washington October 18, 2012 Presented by: John MacLean Energy Efficiency Finance Corp. jmaclean@eefinance.net & phone = 360-339-3936

12. Case for Energy Efficiency Investment Save $ by lowering operating costs: energy, water, maintenance Improve facilities & comfort & productivity Meet energy system replacement/upgrade needs Improve building value Gain “green” branding in the marketplace; increase tenant appeal & occupancy Public goods: reduce GHG emissions, create jobs, macro recovery

13. Project Implementation: Suggested Decision Criteria for Facility Owners Coordinate facilities/engineering with finance and decision-making. Leadership is critical from the start. Main criterion: implement projects that pay for themselves from operating cost savings Additional criteria & considerations:  Assess & meet energy system replacement needs  Gain other EE investment benefits  Understand the costs of delay Manage project risks

14. Three EE Finance Mechanisms & Examples The following EE finance programs target commercial sector buildings and are now operational. They also have used ARRA funds to mobilize & leverage commercial finance. Non-profit sector (healthcare, education, Y’s, etc.) -- tax-exempt bond private placements  example: WA State Housing Finance Commission program Large Commercial Buildings-- Utility on-bill collections & financing  example: City of Seattle MacDonald-Miller program Large Commercial -- Property Assessed Clean Energy (PACE) financing  example: Los Angeles City/County Commercial PACE program

15. Uses of ARRA Funds for Risk Sharing Risk sharing & co-financing can be instrumental to support commercial financial institution EE/RE lending Goals: pioneer new finance products, broaden access to finance, extend tenors, lower rates & financing costs Credit enhancement structures using ARRA funds include:  Loan Loss Reserve Funds  Debt Service Reserve Funds  Subordinated Debt Structures  Interest Rate Buydowns Finance is necessary but not sufficient  must be combined with marketing & project delivery mechanism  grant funds can support project development through the full cycle

16. Financing for EE projects in the 501c3 and multi-family housing sectors, eligible for tax-exempt bond financing In partnership with a local ESCO that will offers turnkey project development & implementation $1 million State SEP grant used as debt service reserve fund & subordinated loan co-finance Can finance up to $10 million in projects; bonds are privately placed; bond proceeds are lent directly to eligible borrowers Marketing by ESCO, bank partner & WSHFC WA State Housing Finance Commission Energy Efficiency Project Financing for Non-Profits Tax-exempt Bond Private Placement Program

17. WSHFC EE Finance Program Diagram USDOE WA Dept of Commerce ARRA SEP funds WSHFC: SEF MMFS End-Users/ Borrowers: 501c3’s; Multi-family housing Bond Purchaser EECE Grant Agreement Marketing; project development; Turnkey EE projects & services Program Agreement Financing Agreements ( deal-by-deal) Program Agreement DSRF Notes: 1. EECE Grant Agreement & Program Agreements executed at Program start. 2. Financing agreements done case-by-case. Stream-lined documentation to be developed with bond counsel 3. DSRF can be deposited with Bond Purchaser. 4. Contractor is MacDonald- Miller Facilities Solutions, Inc.

18. Seattle Commercial Buildings Energy Efficiency Project Development & Finance Program EE investments for commercial buildings in downtown Seattle MacDonald-Miller Facilities Solutions, Inc. provides turnkey development, implementation, services & savings guarantees Customer signs Energy Services Agreement to make payments based on savings Customer payments collected on SSC steam bill; similar program with Seattle City Light under consideration Projects financed by new finance company, MECS ARRA funds used for subordinated debt financing, debt service reserve & carbon reduction incentives Scalable & replicable program model Mission-related investment by Seattle Foundation in initial projects Seattle 2030 District has been formed and is promoting EE investment as a civic project in Seattle;

19. EE FINANCE PROGRAM CASH FLOW EXAMPLE

20. …….. Customers MECS, new finance co. MacDonald- Miller Turnkey project & services & equity Energy Services Agreement (ESA) for turnkey EE project development, implementation, services & financing Long-term steam supply; green energy Seattle Steam Steam & ESA payments EE project payments; Escrow services agreement Seattle Foundation City of Seattle Investment Incentive funding & Investment Fund Seattle Commercial Buildings Energy Efficiency Project Development & Finance Program Dept of Commerce Sub- loan Seattle City Light elec. savings incentives Lock box acct

21. Property Assessed Clean Energy “Commercial PACE” Assessment Contract btw County & Property Owner PACE assessment collected with property tax; obligations runs with the real estate County sells a bond to Investor on private placement basis; County passes through assessment payments to Investor Lienholder consents required Bond proceeds finance EE & resource efficiency improvements Building Owner negotiates directly with Contractor & Investor Funding available for up to 100% of project Lower rates & longer terms, allows deeper projects to be funded Share costs and savings with current tenants & future owners Debt service reserves enhance credit structure Can consider Commercial PACE legislation in WA State

22. Building Owner Lender LACBPPLA County 4. CDD/LA approves application and forwards to County EE Retrofit Contractor PACE Investor 1. Owner engages Contractor 2. Contractor conducts audit and develops scope of work 3. Owner submits Program Reservation package 5. Owner uses notification of eligibility to negotiate project-specific financing terms with PACE Investors 8. County remits coupon payments to the PACE investor 7. Owner remits assessment payments to County 6. County structures bond according to owner- negotiated terms, Investor purchases the bond through “private placement” Los Angeles Commercial PACE: How it Works

23. Thank You! John MacLean President Energy Efficiency Finance Corp. Olympia, WA jmaclean@eefinance.net Phone: 1.360.339.3936

24. Sonoma County’s Commercial PACE Story October 18, 2012 24

25. 10/18/12 JE 25 Sonoma County Energy Independence Program SCEIP opened March 2009 County-wide, comprehensive program Billed once a year as an assessment on your property taxes Wide range of both residential and commercial improvements eligible (> 90), energy efficiency, water conservation and renewable generation measures 57 Commercial participants, representing many different business types, funded between $9,000 and $2.3 Million Reduce and Produce

26. 26 57 Commercial Projects Funded by SCEIP $10.7 Million, 94 Improvements Impact Jobs: 160 (ARRA), 23.5 Local Construction, 20 Lenders Solar PV: 2.1 MW, 44 systems, 1,297 tons eCO2 annual reduction 10/5/12 SKB

27. 10/18/12 JE 27 Who is Eligible? Improvements permanently affixed to the property Within geographical boundaries of the county Applicants are legal owner(s) of property Request less than 10% value of the property Commercial: 1. Lender Acknowledgement Of 57 properties, 19 had no mortgages Lender ack. received from 23 unique lenders 2. Utility Company Energy Evaluation 3. Organizational Documents

28. 10/18/12JE 28 ‘Underwriting’ No credit check required, No income qualifications Does not count against debt/income ratio No risk pricing; everyone pays the same fixed 7% simple interest rate, Interest may be tax-deductable Less than 100% lien to value ratio No bankruptcy or involuntary liens on the property Current on ALL liens against the property Current on ALL property taxes

29. 10/18/12 JE 29 Long Term Sustainable Financing Warehouse Twice a Year Property Tax Payments County Treasury Pool $45M SCWA $15M Sonoma County Financing Authority SCEIP Property Owner $ Bonds Debt Services $ $ $ Investors and Open Market Financing

30. 30 Building a Flourishing Program: Things to Consider Community Goals, Political Will and Market for PACE Identify Partners: public, private, education and non-profits Work with Stakeholders: Mortgage Lenders, Contractors, Local Utilities Strategic and Business planning Program Funding: start-up, operating, project Administrators, Staffing, Steering Committee, Legal Team, Financing Team Program Delivery: a Storefront and/or Web Site Staff & Workforce Tools and Training Marketing, Education & Outreach 10/18/12 JE

31. 31 Challenges / Opportunities Getting the message out Return on investment stories More robust energy evaluation tools for commercial properties Acceptance by banks and lenders Interest rate competition Long term financing options

32. 10/18/12 JE 32 PACE Replication Manual Available on SCEIP website: www.sonomacountyenergy.org (Resources for Local Governments) PACE How-To Manual based on SCEIP and other CA programs Document Library Resources Lessons Learned

33. Sonoma County, CA WRCOG, CA Los Angeles, CA California PACE-Regional San Francisco, CA Palm Desert, CA Placer County, CA Sacramento, CA

34. 10/18/12 JE 34 Thank you Sonoma County Energy Independence Program 404 Aviation Boulevard, Suite 200 Santa Rosa, California 95403 (707) 565-6470 SCEIP@sonoma-county.org jane.elias@sonoma-county.org www.sonomacountyenergy.org