1. MUNICIPAL SUSTAINABILITY UTILITIES: A USER’S PRIMER Boulder, Colorado June 16 C. Baird Brown Chris Berendt

2. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 2 Taking Action on Energy and Climate Change Enact the community’s values Manage heating, cooling, and electric load as assets – Load shape – Load flexibility Assist businesses, organizations and citizens achieve sustainability goals Finance energy investments efficiently

3. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 3 A Municipal Sustainability Utility A merger of two models Municipal Utility – Proven, widespread, reliable, effective service model. Sustainability Finance Organization – Vermont, Delaware, District of Columbia – Programs in Berkeley, CA, Savannah, GA, PA – Makes sense on a city, county or regional basis

4. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 4 Municipal Utility Generate or purchase electricity Serve a local or regional community Tax exempt finance – Utility assets – Favorable rates for strong credits Tax exempt prepayments for energy – Bulk purchases – Finance electric production Load management – Distributed generation – Demand response – Incentive tariffs – Smart management – Storage Goals other than lowest price electricity and shareholder return

5. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 5 Sustainability Finance Organization A “utility” for sustainable infrastructure Ability to Aggregate – Procurement – Financing (e.g. revolving loan fund, pooling or securitization) Prequalification of Vendors Standard Documentation Municipal Finance Markets Subsidies from Governmental Sources

6. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 6 Delaware Sustainable Energy Utility To be responsive to customers and market forces in implementing and redesigning the programs it delivers; To design a portfolio of programs to allow all energy end-users, regardless of electricity or gas retail providers, and regardless of market segment or end-use fuel, to participate in the SEU programs; To promote program initiatives and market strategies that address the needs of persons or businesses facing the most significant barriers to participation; To promote coordinated program delivery, including coordination with low income weatherization programs, other efficiency programs, and utility programs; To coordinate with relevant regional and national energy efforts and markets, including markets for pollution emissions offsets and credits, and renewable energy certificates;

7. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 7 Delaware Sustainable Energy Utility To consider innovative approaches to delivering sustainable energy services, including strategies to encourage third party financing and leveraged customer contributions to the cost of program measures, as consistent with principles of sound program design; To offer "one-stop shopping" and be the point-of- contact for sustainable energy services in Delaware; To create a comprehensive website that provides easy access to SEU programs and information for all Delawareans, allowing them to participate in SEU programs electronically; To emphasize "lost opportunity" markets, which are sustainable energy measures that can only be cost- effectively captured at particular times, such as during new construction or extensive remodeling; and To emphasize market strategies to deliver services.

8. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 8 Integrated Financing Abilities Tax exempt finance Utility finance for community assets Ability to invest in energy companies – Non profit subsidiaries On-bill financing Net metering Tariff funded credit enhancement Green Bonds Public Private Partnerships Project finance Local equity

9. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 9 Make the Most of: Existing infrastructure – Retrofit, repurpose, switch fuels Tax advantaged financing – Investment tax credits and grant in lieu of credits – Production tax credits – New market tax credits – Energy efficiency tax deduction – Tax-exempt bonds Environmental markets – carbon credits – renewable energy certificates (RECs) Smart Management USDA Loan guarantees

10. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 10 Arizona Mitigation Benefits/Costs

11. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 11 Public-Private Partnerships Private Developers – Technology – Construction and operating expertise – Performance guarantees End Users – Long-term energy usage (savings or purchase) – Facilities with opportunities Tax Investors

12. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 12 Project Finance Finance asset on its own revenues – Long term power purchase contract – Long term energy savings Project makes money independent of volatility in input and output markets Performance guarantees from operator Tax-benefits outweigh residual value – Can have fair market value purchase option Public/Private Partnerships

13. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 13

14. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 14 Green Bonds SMU permits improve financial structuring Create long-term steady returns through aggregated project credits – The new utility bonds Environmental standards

15. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 15 Citizen Funding Vehicle Use a for-profit LLC as a tax investment vehicle Citizens and local businesses can be tax investors in community sustainability projects – Passive loss rules – Investment-at-risk rules Tax-exempt leasing rules – A power purchase agreement or properly structured services agreement is not a lease – Can’t have city control Investor can donate interest after tax benefits are realized – Can’t promise ahead – Can explain value in planned giving

16. Municipal Sustainability Utilities: A User’s Manual | June16, 2011 16 Conclusion Where there is a will there is a way C. Baird BrownChris Berendt 215-988-3338202-230-5426 baird@dbr.comchristopher.berendt@dbr.com