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CaliforniaHubforEnergyEfficiencyFinancing

SupplementalReportofthe201516BudgetPackage

(Item09710010528)

November1,2016

Submittedby:

CaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthority(CAEATFA)

915CapitolMall,Room457Sacramento,CA95814

Tel:(916)6518157Email:[email protected]

November1,2016

CaliforniaHubforEnergyEfficiencyFinancing

SupplementalReportofthe201516BudgetPackage

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TableofContents

SectionI:LegislativeReportingAuthority.....................................................................................................1

SectionII.Overview......................................................................................................................................1

SectionIII.PolicyContextandCHEEFPilotStructure...................................................................................2

TheNeedforFinancing.............................................................................................................................3

CAEATFAsRole.........................................................................................................................................3

ThePilotPrograms....................................................................................................................................4

Residential.............................................................................................................................................4

Nonresidential.....................................................................................................................................5

CHEEFInfrastructure.................................................................................................................................5

SectionIV.StatusofPilotImplementationandLessonsLearned................................................................7

EstablishmentofCHEEFInfrastructure.....................................................................................................7

ResidentialEnergyEfficiencyLoanAssistanceProgram...........................................................................8

LenderRecruitmentandTraining.........................................................................................................9

ContractorRecruitmentandTraining.................................................................................................10

EarlyREELLoanPortfolio....................................................................................................................12

OnBillRepaymentInfrastructureandOBRProgramDevelopment......................................................13

InfrastructureDevelopmentandOperations.....................................................................................13

ProgramDevelopmentandRegulations.............................................................................................15

SectionV.ChallengesandLessonsLearnedinEarlyImplementation.......................................................16

NextSteps...............................................................................................................................................18

Appendices:

AppendixA.ReportingRequirementsfromtheSupplementalReportofthe201516BudgetPackage

AppendixB.REELLenderProfiles

AppendixC.PilotBudget

AppendixD.WorkingGroupReport

CaliforniaHubforEnergyEfficiencyFinancing SupplementalReportofthe201516BudgetPackageNovember1,2016 Item09710010528

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SectionI:LegislativeReportingAuthorityThisSupplementalReportofthe201516BudgetPackagedescribestheCaliforniaAlternativeEnergyandAdvancedTransportationFinancingAuthoritys(CAEATFA)progressindesigning,developing,andimplementingtheCaliforniaHubforEnergyEfficiencyFinancing(CHEEF)pilotprograms.ThisreportprovidesinformationonthedevelopmentoftheCHEEFinfrastructureandprogramactivitythroughSeptember2016,aswellaschallengesandopportunities,andfuturepilotdevelopmenttimetablesandnextsteps.Thespecificreportinglanguagerequirementsfromthe201516BudgetPackagecanbefoundinAppendixA.CAEATFAalsoprovidesQuarterlyReportstotheCaliforniaPublicUtilitiesCommission(CPUC)andmakesthemavailableonitswebsiteat:http://www.treasurer.ca.gov/caeatfa/cheef/resources.asp

Inaddition,asrequestedbytheLegislatureduringthistimeperiod,CAEATFAinconsultationwiththeCPUCcreatedaworkinggrouptoidentifypotentialcriteriaforacomparativeassessmentofenergyefficiencyfinancingprogramsavailableinCalifornia.TheCAEATFABoardapprovedandpublishedtheworkinggroupreportonJuly19,2016,anditcanbefoundinAppendixD.AdditionalinformationonthepublicprocessanddevelopmentofthisreportcanbefoundonCAEATFAswebsiteat:http://www.treasurer.ca.gov/caeatfa/workinggroup/index.asp

SectionII.OverviewThroughaseriesofpilotprogramsspanningtheresidential,multifamily,andnonresidentialmarketsectors,CAEATFAispartneringwiththeCPUC,theinvestorownedutilities(IOUs)1,theCPUCStatewideMarketingImplementerandtheCalifornialendermarkettosupportthedevelopmentofnew,scalableandleveragedfinancingproductsforconsumerstohelpthemproducedeeperandbroaderenergyefficiencyprojectsthanpreviouslyachievedthroughtraditionalprogramapproaches.Thepilotsaimtobringbroaderaccesstoprivatecapitalandwillassistinremovingtheupfrontcostbarrieroffinancingforconsumerstoundertakeenergyefficiencyretrofits.

InSeptember2013,theCPUCapprovedDecision1309044(D.1309044),whichauthorizedtwoyearpilotprogramstobesupportedby$66millionofIOUratepayerfundsandservingfourmarketsegments:2

Singlefamily,withonethirdoffundsreservedforlowandmoderateincomehouseholds,

Multifamily,affordablehousingwithmastermeters,

Smallbusinesses,and

OnBillRepaymentoffinancingbynonresidentialenergyusers,withoutcreditenhancement.

Thepilotprogramswereestablishedwithamyriadofgoals,allofwhichareintendedtosupporttheStatesbroaderenergyefficiencyandenvironmentalpolicygoalsusinganinnovativeapproach.The1TheIOUsconsistofPacificGas&Electric(PG&E),SanDiegoGas&ElectricCompany(SDG&E),SouthernCaliforniaEdison(SCE),andSouthernCaliforniaGasCompany(SoCalGas).2InJune2015theCPUCapprovedDecision1506008,whichclarifiedthatthe24monthtermforthePilotProgramsshouldalignwiththeenrollmentofthefirstloanineachfinancepilotlaunch.Thatis,eachfinancepilotwillhaveanindependent24monthscheduleinitiatedbytheenrollmentofthefirstloaninthatparticularfinancepilot.


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designoftheCaliforniaHubforEnergyEfficiencyFinancingPilotwillcreateacentralizedandstandardizedplatformtodevelopanopenmarketinfrastructuretoencourageadditionalprivatecapitalinvestment,whilealsoloweringcostsandexpandingaccesstocapital.Thepilotsoffervariousformsofcreditenhancements(CEs)toprovideadditionalsecuritytoparticipatingfinancialinstitutions,therebyattractingmoreprivatecapitaltoenergyefficiencyfinanceandexpandingconsumeraccesstoenhancedloanterms.Thepilotswillalsoincludeonbillrepayment(OBR)mechanisms,whichwilltestwhetherpaymentontheutilitybillincreasesdebtserviceperformanceacrossmarketsectors.BothCEsandOBRareimplementedacrossmultiplesectors,asfurtherdescribedinthePilotProgramdescriptionsbelow.Primarily,thepilotsaredesignedto:

(a) attractagreateramountofprivatecapitaltotheenergyefficiencyretrofitmarketbyreducingrisktolenders;

(b) broadentheavailabilityoffinancingtoindividualswhomightnothavebeenabletoaccessitotherwise;and

(c) addresstheupfrontcostbarriertoenergyefficiencyretrofitprojects.UndertheCHEEF,CAEATFAservesastheadministratoroftheprogramfortheIOUs/CPUC,operatingunderbothCAEATFAsauthorizingstatuteandstandardstateprocedures,andunderthegovernanceprocessandrequirementsasestablishedbytheCPUCandfurtherinterpretedbytheIOUsasregulatedentities.ThenatureofthepilotsreliesonleveragingtheIOUinfrastructure,whileestablishinganincentive/riskinsuranceprogramthatworkswithprivatefinancingbusinessmodelsandtheneedsoftheenergyefficiencyretrofitmarketplace.Thiseffortisanticipatedtobethefirstopenmarket(multiplelenders)onbillrepaymentplatforminthenation.

Inaddition,akeycomponentoftheCHEEFrequiresthatpilotactivitydataloan,project,andenergysavingsbeprovidedtothepublicandtointerestedparties(rangingfromcapitalmarketstopolicyleaders),creatinganinformationportalofstatewideenergyefficiencyinvestmentandfinancingactivity.Ultimately,thedatabasewillincludeinformationfromtheIOUsonbillfinancingprograms,localgovernmentARRAfundedprograms,andothereffortsthroughouttheState.

SectionIII.PolicyContextandCHEEFPilotStructureAchievingcomprehensiveandcosteffectiveenergyefficiencyinallexistingbuildingsisstatepolicy,andoneofthreeprimaryapproachestomeetCaliforniasaggressiveenergyandenvironmentaltargets[e.g.,SenateBill32(Pavley,2016),AssemblyBill802(Williams,2015),SenateBill350(DeLeon,2015),AssemblyBill758(2009,Skinner),AssemblyBill32(Nunez,2006)].

TheCaliforniaGlobalWarmingSolutionsActof2006(AB32,Nunez)requiresthereductionofgreenhousegasemissionsinthestateto1990levelsbytheyear2020(approximatelya25%reductionof2006levels).TheSeptember2016SenateBill32(SB32,Pavley)expandsandextendsthisrequiredreductionto40%belowthe1990levelby2030.

AccordingtoagapanalysispreparedfortheCPUCandcompletedbyHarcourtBrown&Carey(HB&C)inJuly2011,meetingCaliforniastargetsrequiresmobilizinganestimated$50billionofinvestmentsinenergyefficiencyimprovementsoverthenext1520years.3Atthetimeitwasestimatedthatpublicorratepayerfundedinvestmentswerelessthanhalfthislevelandwouldbeinsufficienttomeetthese

3http://www.caleefinance.com/wpcontent/uploads/2014/04/CPUC_FinancingReport_HBC_Jul8v2.pdf


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goals;therefore,marketsourcedcapitalandsolutionsarerequired.Whiletherehasbeensomegrowthinthemarket,thesegapsandneedslargelyremaintoday.

TheNeedforFinancingLackofaccesstoaffordablecapitalisakeyhurdletoinvestmentinenergyefficiencyimprovementsacrossallsectorsoftheeconomy.Homeowners,businessownersandcontractorshavereportedtoCAEATFAthroughitsoutreachandworkshopprocessesthatthisaffordablecapitalaccessgapstandsinthewayofenergyefficiencyinvestments.

In2009,AssemblyBill758(Skinner)recognizedthisdilemmaandspecificallydirectedtheCPUCtoexploreratepayersupportedmeanstofinanceenergyefficiencyretrofits.FollowingthepassageofAB758,theCPUCcommissionedanindependentstudyofgapsandneedsforfinancing(completedin2011)andheldanumberofpublicworkshops.Thestudyidentifiedneedsinspecificmarketsegments,andtheCPUCorderedtheutilitiestohireaconsultanttodesignpilotenergyefficiencyfinanceprograms.Theseweretobebasedonprivatecapital,usingcreditenhancementsorothersupporttoattractcapitalatfavorablelendingtermsforborrowers.

InSeptember2013,theCPUCissuedaDecisionthatauthorizedtwoyearpilotprogramstobesupportedbyupto$65.9millionofIOUratepayerfundsinitiallyauthorizedthroughDecember2015.4ThetermofthepilotswasfurtherclarifiedintheCPUCsJune2015Decision1506008,whichorderedthateachpilotprogramoperateonitsowntwoyearclock,commencingwiththefirstloanenrollmentineachpilot.5

Subsequently,theStateadoptedtheCleanEnergyandPollutionReductionActof2015(SB350,deLen)whichestablishesnewenergyefficiencyandrenewableelectricitytargetsfor2030inordertosupportCaliforniaslongtermclimategoalofreducinggreenhousegasemissionsby80percentbelow1990levelsby2050.Thestatutealsofindsthatthereisinsufficientunderstandingofthebarriersforlowincomeanddisadvantagedcommunitiestoaccessenergyefficiencyinvestments,solarphotovoltaicenergygeneration,weatherization,otherformsofrenewablegeneration,andcontractingopportunities.6TheCaliforniaEnergyCommissionhasdevelopeditsinitialstudywhichhasbeenprovidedtothepublicforinputandfeedback;financialbarriersandaccesstofinancinghavebeenidentifiedasanexistinggapwithaneedforasolutionsandincreasedopportunities.Today,theCHEEFpilotsareacomponentoftheAB758ActionPlandevelopedbytheCaliforniaEnergyCommission.

CAEATFAsRoleCAEATFA,housedintheStateTreasurersOffice,wasrequestedtoadministertheCHEEFpilotsbytheCPUCbecauseofitsstatutoryandstatewideauthority,financialacumen,andexperiencewithbothfinancialandenergyefficiencymarkets.CAEATFAstransparentprocessesfacilitatecollectionofpublicinputtosupportprogramdevelopmentandensureefficientandresponsibleuseofratepayerfunds.

InitsroleasCHEEF,CAEATFAhasengagedwithCPUCstaff,theIOUs,theStatewideMarketingImplementer,lendersandprivatecapitalproviders,energyefficiencyretrofitcontractorsandavarietyofstakeholderstodevelopprogramstructuresandRequestsforProposalstoprocurethirdparty4http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K182/77182202.pdf5http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M152/K787/152787673.PDF6Scavo,Jordan,SuzanneKorosec,EstebanGuerrero,andBillPennington.2016.AStudyofBarriersandSolutionstoEnergyEfficiency,Renewables,andContractingOpportunitiesAmongLowIncomeCustomersandDisadvantagedCommunities.CaliforniaEnergyCommission.PublicationNumber:CEC3002016009SD.


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professionalassistanceinimplementingthepilotprograms.AstatusupdateonCAEATFAsworkonthepilotprogramsisprovidedbelow.

ThePilotProgramsBasedontheconsultantgapanalysisandreportissuedin2011,theCPUCdeterminedthescopeofseveralpilotprograms.7Eachpilotwasdesignedtoencourageprivatelenderstodevelopfinancialproductsforenergyefficiencyprojectsacrossmultiplemarketsegments.Throughthesepilots,theCPUCseekstodevelopscalableandleveragedfinancingproductstostimulatedeeper[energyefficiency]projectsthanpreviouslyachievedthroughtraditionalprogramapproaches.

CAEATFAlaunchedtheResidentialEnergyEfficiencyLoan(REEL)AssistancePrograminJuly2016,isintheprocessofdevelopingtheinfrastructureandregulationsfortheremainingpilots,andwillsolicitpublicinputthroughoutitsdevelopmentandimplementationofthepilotprograms.Asthepilotswillbelaunchedinsequence,CAEATFAstaffisworkingtoimplementthefirstpilotwhilealsodevelopingsubsequentprograms.FurtherinformationonthestatusofCAEATFAsimplementationanddevelopmentactivitiesisprovidedlaterinthissection.

Inaddition,undertheseefforts,thepilotactivitydataloan,project,andenergysavingswillbeprovidedtothepublicUltimately,thedatabasewillincludeinformationfromtheIOUsonbillfinancingprograms,localgovernmentARRAfundedprograms,andothereffortsthroughouttheStatetoprovidethedataontheenergyefficiencyinvestmentandfinancingactivity.

Thiseffortisanticipatedtobethefirstopenmarket(multiplelenders)onbillrepaymentplatforminthenation.Thefollowingsectionsdescribeeachpilot,inturn.

Residential

Theresidentialpilotsimplementcreditenhancementsandlimitedonbillrepaymentfeaturesforsinglefamilyandmultifamilyresidences.

ResidentialEnergyEfficiencyLoan(REEL)AssistanceProgram.FormerlyknownastheSingleFamilyLoanProgram(SFLP),theREELAssistanceProgramoffersaloanlossreservetoparticipatingfinancialinstitutions(PFIs)forfinancingsofresidential8energyefficiencyupgrades.Becausetheloanlossreservehelpsmitigateaparticipatingfinancialinstitutionsrisk,lendersoffermoreattractiveloanterms,suchaslowerinterestratesorextendedterms.Onethirdoftheavailablecreditenhancementsistargetedtolowtomoderateincomeborrowers.Inaddition,thisprogramallowsalternativeunderwritingcriteriasuchasutilitybillpaymenthistorytobeconsideredtofurtherexpandaccesstofinancing.TheREELAssistanceProgramincorporatesasubpilot,theEnergyFinancingLineItemCharge(EFLIC),tobeconductedinthePG&Eserviceareaonly,designedtoevaluatetheattractivenessofOBRtocustomersintheresidentialsector,andtoidentifytheimpactofOBRonresidentialloanperformance.CustomersparticipatingintheEFLICprogramwillnotbesubjecttoutilitydisconnectionasaresultofnonpayment

7TheProgramImplementationPlanssubmittedbytheIOUsdefinedseven(7)pilots:(1)SingleFamilyLoanProgram(nowtheResidentialEnergyEfficiencyLoan(REEL)assistanceProgram;(2)asubpilotofREELthatallowsforpaymentonbillinPG&Eterritory,EnergyFinanceLineitemCharge(EFLIC);(3)MasterMeteredMultifamilyProgram;(4)SmallBusinessOffBillLease;(5)SmallBusinessOnBillLease;(6)SmallBusinessOnBillLoan;(7)OnBillRepaymentNoCreditEnhancement(nonresidential).NotethatCAEATFAlaterrequested,andtheCPUCapproved,thatthesmallbusinesspilotsbecombinedandincludetheprovisionofenergyserviceagreements(ESAs)inbothoffbillandonbillpilots,similartothetreatmentofleases.8Four(4)unitsorfewer.


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ofthechargeontheirutilitybill.Inaddition,thefinancingobligationwillnottransferwiththemeter,fromonepropertyoccupanttoanother.

MasterMeteredMultifamilyProgram(MMMFP).TheMMMFPwillofferonbillrepaymentformastermeteredmultifamilyproperties,primarilywithinthelowtomoderateincomesector(deedrestrictionthatrequiresaffordablerentpricingwithatleast50%ofunitsoccupiedbyincomequalifyinghouseholds).Theprogramincludesacreditenhancementaswell.SimilarlytotheEFLICProgram,borrowersparticipatinginthisprogramwillnotbesubjecttoutilitydisconnectionasaresultofnonpaymentoftheOBRchargeontheirutilitybill.However,thefinancingobligationcantransferwiththemeteruponconsentfromfuturepropertyowners/managers.

Nonresidential

Thenonresidentialpilotswillimplementonbillrepaymentforthecommercialsector.Unliketheresidentialprograms,customersparticipatinginthenonresidentialprogramswillbesubjecttoutilitydisconnectionasaresultofnonpaymentoftheOBRchargeontheirutilitybill.Fortheseprograms,thefinancingobligationmayremainandtransferwiththeutilitymeteruponconsentfromfuturepropertyowners/customers.

SmallBusinesswithCreditEnhancement.Thisprogramwillofferonbillrepaymentoffinancingsdrawnforenergyefficiencyimprovementstosmallbusinesses.Theprogramwillalsoincludeacreditenhancement(likelyintheformofalossreserve),andwillsupporttypesoffinancingthathaveproventobeeffectivewithintheenergyefficiencyindustry,suchasequipmentleases,energyserviceagreements,andloans.TheDecisionalsoauthorizedanoffbillversionforaleasesandenergyserviceagreements.

NonResidentialOBR(withoutcreditenhancement).Thisprogramwilltargetmediumandlargebusinesses,andpublicbuildings.Theprogramservesasanopportunitytoevaluatetheeffectsofonbillrepaymentasasinglefeature.Nocreditenhancementswillbeofferedthroughthisprogram.

CHEEFInfrastructureCentraltotheinfrastructureneededtoimplementtheCHEEFareaMasterServicer,TrusteeBank,ContractorManager,DataManager,andTechnicalAdvisor.BelowaredescriptionsofeachoftheserolesandinformationonthecurrentstatusasitrelatestoCAEATFAsprocurementprocesses.

MasterServicer.TheMasterServicer(MS)playsakeyroleinthedailyadministrationoftheprogram,acceptinglenderandloanenrollmentapplications,andprocessingonbillrepaymenttransactions.Throughacompetitivesolicitation,CAEATFAselectedConcordServicingCorporation(Concord)astheMS,andenteredintoacontracteffectiveApril23,2015.Concordbeganitsonboardingprocess,anddefiningitsinfrastructureanddataprivacyrequirementsofthepilots.ConcordsubsequentlybeganthemappinganddevelopmentoftheREELinfrastructureprocess,whileconcurrentlyworkingwiththeIOUstodefinethevariousbusinessrequirementsrequiredoftheIOUbillingsystemstoenabletheflowoffundsanddataforonbillrepayment.ThecurrentcontractwithConcordServicingCorporationissettoexpireonDecember31,2016,andiseligibleforoneadditionaloneyearextensionbeforethecontractisrequiredtoberebid.

TrusteeBank.TheTrusteeBankholdstheratepayerfundsprovidedbytheIOUstoserveascreditenhancementsunderthevariouspilotprograms.CAEATFAmaintainstheintegrityofratepayerfunding,andprovidesdirectiontotheTrusteeBanktotransfercreditenhancementfundsbetweenIOUprogramholdingaccountsandparticipatinglenderaccounts.The


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regulationsdevelopedforeachpilotspecifytheamountofcreditenhancementfundsavailableforeachenrolledfinancing,andalsoidentifytheprocessesforpaymentofclaimsundertheprograms.TheTrusteeBankcontractwasinitiallyapprovedbytheDepartmentofGeneralServicesonMarch11,2015,withacurrenttermthroughDecember31,2016.Itcanbeextendedforanadditionaloneyearperiodbeforethecontractisrequiredtoberebid.

ContractorManager.TheContractorManagerwillenrollandmanageparticipatingcontractorsintheREELProgram,coordinatewiththeStatewideMarketingImplementeronoutreach,andconductqualitycontroloversightofprojectsnotparticipatinginanIOUrebate/incentiveprogram.TheRFPforthisserviceisunderdevelopment,andisexpectedtobereleasedinQ42016,asCAEATFAconsidersincorporatingthecommercialpilotsintotheContractorManagersscopeofwork.

AgentBank/SecureFlowofFunds.InCAEATFAStaffsresearchandoutreachtointerestedlendersontheOnBillRepaymentpilots,lendersexpressedtheneedforadditionalsafeguardsaroundtheirfunds,astheIOUsremitdailypaymentsdesignatedforparticipatinglenders.InworkingwithConcordServicing,legalcounsel,andadvisors,itwasdeterminedthatanAgentBankwasanappropriateroletoaccommodateinterestedlenderneeds.TheRFPforthisservicewasadvertisedonMay16,2016.ThoughpotentialbiddersposedvariousquestionsregardingtheRFP,CAEATFAdidnotreceiveanyresponses.Staffiscurrentlyreevaluatingthestructure,consultingwithbankingprofessionals,theIOUs,andConcordinexploringalternativestothisstructurethatenablesasecurestreamoffundsforlendersundertheopenmarketstructureofthepilots.

DataManager.TheDataManagerwillreceivepilotprogramdatafromtheMasterServicerandotherenergyefficiencyfinanceprogramadministratorstoprepareitforpublicpresentationanduse.ItwillalsoreceiveprojectenergyusagefromtheIOUs.ThedatawillbeaggregatedandanonymizedaccordingtothecombinedstandardsandregulatoryrequirementsoftheIOUsandcapitalproviders.TheRequestforProposal(RFP)forthisservicehasbeenpreliminarilydraftedbutnotreleased;asCAEATFAprioritizesitsworkload,theRFPwilllikelybereleasedQ12017.Concurrently,CAEATFAanditsagentswillcontinuetocollecttheappropriatedatatoultimatelybetransmittedtothedatamanagerwhenitisundercontract.

TechnicalAdvisors.TheTechnicalAdvisorsprovidenecessaryexpertisetoassistinCAEATFAsdevelopmentandimplementationoftheCHEEFprograms.CAEATFAhascontractedwithEnergyFuturesGroup,Inc.initsresearchanddevelopmentforthecommercialpilots.Inaddition,CAEATFAanticipatesexpandingitsTechnicalAssistancesupportthroughoutthedevelopmentandimplementationoftheCHEEFprogramsandadministrativeinfrastructure.CAEATFAcontinuestorelyontheongoingtechnicalsupportofHarcourtBrown&Carey,undertheimplementationagreementwiththeInvestorOwnerUtilities.Thishasbeenhelpfulinprovidingcontinuityunderthepilots.

Inaddition,CAEATFAcoordinateswiththeCenterforSustainableEnergy(CSE)astheStatewideMarketingImplementer.9UndertheCPUCapprovedfinancingmarketingplan,theStatewideMarketingImplementerhasasubstantiverolewithstrategicpartners,andcarriesoutascopeofworkthatincludesimplementationactivities,includingcontractorandlendercollateralandcobrandingefforts,andisnotpredominantlyfocusedonconsumermarketing.CSEhasdevelopedandadministerstheCHEEFwebsite

9TheCPUCiscurrentlyundergoingacompetitiveprocesstoselectaStatewideMarketingImplementerunderanewcontract.


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thatprovidesanactivetoolforprogrampartnersretrofitcontractorsandcapitalproviderswhichincludestrainingmodulesandincentives,eligibilityrequirements,projectdevelopmentandleadgenerationtools,andcollateralmarketingmaterialandincentives.Undertheplan,CSEisconductingcontractoroutreach,andalsocustomizesitsmarketingsupportforparticipatinglendersanddevelopsregionalstakeholderrelationships.

SectionIV.StatusofPilotImplementationandLessonsLearnedBelowisabriefhistoryofCAEATFAsimplementationoftheCHEEF,anupdateonpilotlaunchanddevelopmentandanoverviewofsomeofthekeylessonslearnedfromtheimplementationprocess.

EstablishmentofCHEEFInfrastructureAsnotedabove,inSeptember2013,theCPUCapprovedDecision1309044whichauthorizedtwoyearpilotprogramsthroughDecember2015.CAEATFArequiresstatebudgetapproval(reimbursementandexpenditureauthority)toadministertheCHEEF,andreceiveditsinitialbudgetapprovalaspartofthestandard2014Budgetprocess,andwasapprovedtoadministerthepilotsastheywereinitiallyauthorizedthroughDecember2015.Uponreceivingbudgetauthority,CAEATFAenteredintoaMemorandumofAgreementwiththeCAPublicUtilitiesCommission(effectiveJuly2014)andafundingcontractwiththecombinedfourIOUs(effectiveSeptember2014),withSoCalGasastheIOUadministratorofthecontract.InSeptember2014,CAEATFAwasabletobeginrecruitingandhiringstaff,andtodevelopthescopeofworkforthevariousservicesprovidedundertheCHEEFinfrastructure.AsCAEATFAbroughtonstaff,itworkedtoconcurrentlydeveloptheprogramdesignandinitiatethestakeholderprocessofthefirstpilotinthesequence,theResidentialEnergyEfficiencyLoanassistanceProgram(formerlysinglefamilyloanprogram).

InAugust2014,CPUCthenPresidentPeeveyissuedanAssignedCommissionersRulingwhichclarifiedtheCommissionsintentforthepilotstobeoperationalforaminimumof24months;thiswassubsequentlyconfirmedbyDecision1506008,whichacknowledgedthatthepilotswouldbelaunchedsequentiallyeachwithaninitialtwoyeartermthatbeginswiththefirstloanenrollmentofeachpilot.10Subsequently,aspartofthe201516BudgetAct,CAEATFAsreimbursementandexpenditureauthoritywasextendedthroughFY201617.

CAEATFAdevelopedthescopeofworkfortheTrusteeandMasterServicer,andthecontractswithUSBankandConcordServicingtookeffectinMarchandApril2015respectively.CAEATFAstaffspentthenextseveralmonthswiththesetwokeycontractorsonboardingthemonthespecificstructuresandrequirementsofthepilots,includingidentifyingthescopeandflowofdataandfunds,anddefiningandbuildingtheinfrastructurefortheMasterServicertoadministerthepilots.ItshouldbenotedthatConcordServicinghadexperiencewithdevelopingandadministeringotheronbillrepaymentprograms(e.g.NewYork,Connecticut,Hawaii),however,theCaliforniaopenmarketstructurewasuniquefromtheotherStatesapproacheswhichresultedinlittleexistinginfrastructureandfewlessonslearnedtoleverage.

Asnotedabove,CAEATFAstaffwereconcurrentlyworkingwiththeMasterServicerandIOUsto1)developtheoffbillREELprogramastheinitialpilottolaunchinthesequence,while2)developingandmappingtherequirementsofIOUbillingsystems,whichwouldenabletheIOUstoscheduletheirITresourcesandbeginthedevelopmentoftheirITinfrastructuretoenableonbillrepayment.

10CAEATFAsbudgetauthoritywaslaterextendedthroughthestatebudgetprocessthroughFY201617.


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ResidentialEnergyEfficiencyLoanAssistanceProgramTheResidentialEnergyEfficiencyLoan(REEL)AssistanceProgramhaslaunched,enrollingitsfirstloaninJuly2016,andisanticipatedtohaveaninitialpilottermthroughJuly15,2018.

CAEATFAstaffbeganitsresearchanddevelopmentfortheREELpilotasstaffwerehiredoverQ3/Q42014,andinitialstakeholderworkshopswereconductedinfall2014.Staffproposeddraftregulationsincludingrequirementsforlendereligibility,contractoreligibility,projecteligibility,andunderwritingcriteriainDecember2015,andmademodificationsinresponsetopubliccommentandfeedback.Duringthistime,CAEATFAalsoworkedwithstakeholderstoidentifytheappropriateprojectqualityassurance/qualitycontrol(QA/QC)forprojectsnotparticipatinginanIOUrebateandincentiveprogram.TheinitialregulationswereapprovedbytheCAEATFABoardinFebruary2015,andenactedbytheOfficeofAdministrativeLawinMarch2015.

Asnotedabove,thecontractwithConcordtheMasterServicerunderthepilotsbecameeffectiveinApril2015.DuringitsfirstfewmonthsundercontractConcordfocusedoncominguptospeedontheoverallpilots,identifyingleveragepointswithitsexistingservicingstructure,andtheoverallscopeofwork.Oversubsequentmonths,Concordworkedondefining,developingandtestingmodificationstoitsinternalsystemsanddevelopingtheoffbillCHEEFinfrastructure.CAEATFAstaffworkedwithConcordindevelopingprocess,transactionanddataflowsfortheREELprogram,aswellasproceduresandcheckliststooperationalizeREEL.

Concurrently,CAEATFAworkedextensivelywiththeIOUsonmodificationstothecombinedlistofeligibleenergyefficiencymeasures(EEEMs)tomaketheEEEMSportalandthefourdistinctlistsofEEEMsmoreeffectiveforitsusersretrofitcontractors,lendersandConcord.11

InresponsetoexperiencegainedinearlyREELprogramoperationalizationwithConcord,IOUs,CPUCandearlylendersinQ42015andQ12016,CAEATFAreleasedamodifiedversionoftheproposedregulationsundertherequiredrulemakingprocess.TheCAEATFAboardapprovedtheupdatedregulationsonFebruary16,2016andtheCaliforniaOfficeofAdministrativeLaw(OAL)approvedthemonApril13,2016.Theregulationsincludedupdatestostreamlineprogramparticipationandadministration.12

InApril2016,ConcordhadestablishedtheoperationalinfrastructureforREEL,testingoftheloanenrollmentsprocesswascompleted,EEEMslistrevisionshadbeencompletedandtherevisedregulationswereenacted.

11TheEEMSPortalisusedbycontractors,lenders,andConcordtoensureprojecteligibilitybyclearlycommunicatingthefinancingrequirementsforcomprehensive/wholehouseprojects,andcanbefoundathttp://eeems.azurewebsites.net/.OneofthemostchallengingaspectsforimplementationhasbeenstreamliningthelistsofEligibleEnergyEfficiencyMeasures(EEEMslists)andworkingwitheachIOUtomakesurethattheirlistisaccurate,uptodateandeasyforcontractorsandlenderstoutilize.ContractorshavehaddifficultyidentifyingtheirmeasuresduetothecomplexityoftheEEEMslists.CAEATFAalsoworkedwithstaffattheCPUCandIOUstoclarifyrequirementsforEEEMswhenaprojectiscompletedwithoutanIOUrebateorincentive(FinanceOnlyPath).12Staffincorporatedlessburdensomewaystoadministertheprogram,suchasstandardizedprogramidentifiersandprojectdatatrackingrequirements.Additionally,updatestoandclarificationoftheregulatorytextwererequiredtoaddressimplementationissuesraisedinternallyandbystakeholders,programdatatrackingneedsoftheCPUC,andtheneedtoincorporatetheabilitytoenrollaloanthatwouldnotreceiveacreditenhancementforsolarinstallation.


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LenderRecruitmentandTraining

CAEATFAhasbeenrecruitingParticipatingFinancialInstitutions(PFIs)andParticipatingFinanceLenders(PFLs)13throughoutprogramdevelopment,andwasabletoenrollitsfirstlenderwhentheinitialprogramregulationswereapproved.Todate,CAEATFAhasreceivedlenderapplicationsfromseven(7)entities;oftheapplicationsreceivedtodate,five(5)havebeenapprovedasofSeptember9,2016.Currently,two(2)approvedparticipatinglendershaveestablishedtheirinternalprocessmodificationsandinfrastructureandcanenrollCHEEFsupportedloans.

CAEATFAiscontinuingtorecruitadditionallenders,advocatingtheREELlendervalueproposition,assistingwithobtaininglendersinternalsupporttodevelopaCHEEFproductwithintheirinstitutions,andsupportingthedevelopmentoftheirapplications.CAEATFAwillbeonboardingandtrainingnewlendersandanticipatesfive(5)operationallendersbyDecember2016.Table1belowprovidesanoverviewoflendersapplicationsreceivedtodate.

Inordertocreateasmoothlenderinterfacewiththeprogram,CAEATFAhasinvestedasignificantamountoftimetorefinetheloanenrollmentprocessandintegratewithlendersexistingprocedures.14CAEATFAstaffhasalsocreatedimplementationtoolsandresourcematerialsforlenderswhichincludechecklists,animplementationmanual,fillablePDFformsandaloanenrollmentworkbook.CAEATFAisworkingwithparticipatinglenders,incoordinationwiththeCenterforSustainableEnergy,todevelopmarketingsupportthatworksbestwiththeirneedsandbusinessmodels.CAEATFAworkswithCSEandeachlendertobestcommunicatetheirproductdetailsandoperationalprocessestothecontractorsthatareamainmarketingchanneltocustomers.

Table1.LenderGeographicalCoverageandLendingStatus

LenderName ApprovalDate GeographicalCoverage LendingStatusViewtechFinancialServices June2015 Statewide Approved,developinginternal

infrastructureandrevampingproduct

ValleyOakCreditUnion August2015 Tulare,Kings,Madera,andFresnoCounties

Active

MatadorsCommunityCreditUnion March2016 Statewide ActiveDesertValleysFederalCreditUnion

September2016 PartsofKern,InyoandSanBernardinoCounties

Approved,currentlyinonboardingprocess

CaliforniaCoastCreditUnion September2016 Statewide Approved,currentlyinonboardingprocessallU.S.CreditUnion PendingReview Monterey,SantaCruz,and

SanBenitoCountiesPendingApplicationUnderReview

TerraGreenCommunityDevelopmentCorporation

PendingReview Statewide PendingApplicationUnderReview(incompleteapplication)

13APFLisalenderthatoperatesunderauthorityoftheCaliforniaDepartmentofBusinessOversightandthatholdsFinanceLenderlicense.ItisdistinctfromaParticipatingFinancialInstitutionthatoperatesunderthefederalRiegleAct.14Someexamplesincludeworkingtodeterminethebestoperationalflowforthelendertoperformalloftherequiredeligibilitychecksfortheprogram,obtaintherightdocumentationandprovideagooduseexperiencefortheborrowerandcontractor;facilitatingtestingwithConcord;creatingproceduresforpartnernotifications;conductingoperationswalkthroughs;andadvocatingthattheIOUsacceptesignaturesonthecustomerenergydatarelease.


10

EachlenderapproachestheadoptionandintegrationoftheirREELproductintotheirstandardportfoliosdifferently,undervarioustimetablesandwithdifferentimpactstotheirITtechnologies/infrastructureandexistingprocesses.ThetimeintensityandchallengesofthisprocessarenotuniquetoparticipationintheCHEEF.Instead,theyareareflectionofthedecisionmakingandgovernanceprocessesofthevariouslenders,multiplepriorities,andthelendersapproachestoincorporatinganewproductintotheirexistinginfrastructures.15

Participatinglendersareloweringtheirinterestrates,extendingloantenors,andbroadeningaccesstofinancing.ThetablebelowprovidesanoverviewofparticipatinglenderstermsoftheirREELfinancingproductincomparisontotheirstandardunsecuredfinancingproduct.

Table2.ComparisonChartofParticipatingLendersUnsecuredLoanvs.REELProgram

MATADORS

COMMUNITYCREDITUNION

CALIFORNIACOASTCREDITUNION

VALLEYOAKCREDITUNION

DESERTVALLEYSFEDERALCREDITUNION

DETAILS UNSECURED REEL UNSECURED REEL UNSECURED REEL UNSECURED REEL

AvailableAreas STATEWIDE STATEWIDETulareandMadera

Counties

SomeCitiesinKern,InyoandSanBernardino

CountiesMinFICO 660 640 600 600 580 580 580 580MinInterestRate 9.90% 5.99% 6.85% 5.88% 8.95% 6.77% 8.49% 4.50%MaxInterestRate 12.40% 7.99% 18.85% 7.88% 15.95% 9.27% 18.00% 8.50%MaxTerm 1year 15year 5year 15year 5year 15year 5year 15yearMinLoanAmount n/a $2,500 $5,000 $2,500 n/a $2,500 $2,500 $2,500MinLoanAmount(10yr) n/a $2,500 n/a $2,500 n/a $10,000 n/a $10,000MinLoanAmount(15yr) n/a $2,500 n/a $2,500 n/a $25,000 n/a $25,000MaxLoanAmount $5,000 $50,000 $20,000 $50,000 $20,000 $50,000 $15,000 $50,000MaxLoanAmount(NoFICOScore)

n/a n/a n/a $35,000 n/a n/a $2,500 $35,000

AfinancialanalysisthatexaminestheexpectedfinancialsavingsduetotheseimprovedtermscanbefoundinAppendixB.

ContractorRecruitmentandTraining

IncoordinationwiththeCenterforSustainableEnergyandIOUpartners,itwasdeterminedthatoutreach,recruitmentenrollmentandtrainingforparticipatingcontractorswouldcommenceonceaparticipatinglenderwasoperationalandhadthecapacitytoenrollaloan.CAEATFAstaffdevelopedcontractortrainingcontentandtoolkits,incoordinationwithCSEandinconsultationwiththeIOUs.CAEATFAscontractortrainingisnottechnical;itisacompliancetrainingthatpresentsalloftheeligibilityrequirementsoftheprogram,instructsinhowtocompletenecessarydocumentation,providesanoverviewofthedifferentproductsavailablefromparticipatinglenders,introducescontractorstomarketingresourcesandopportunitiesandprovidesguidanceonwheretofindadditionalhelpandresourcesinimplementingtheprogram.Inaddition,CAEATFAstaffdevelopedresourcesforcontractors

15OpinionDynamicsrecentlypresentedpreliminaryfindingsofaCPUCFinanceOutreachStrategyStudythatconfirmedthatlenderonboardingistimeintensive,andcouldtakeupto6months.


11

toimplementtheprogramincludinganimplementationhandbook,sampleprojectdocumentation,andvideotutorials.16

ContractortrainingbeganonApril13,2016withthefirstinpersoncontractortrainingeventbeingheldinTulare,CAattheSouthernCaliforniaEdisonEnergyCenter.ValleyOakCreditUnion,thefirstlenderpreparedtoenrollaloanundertheREELprogram,wasinattendancetoengagewithcontractors.

OncethefirstREELlenderprovidingstatewidecoveragewasonboarded,amorerobustcontactoroutreachplanwasdevelopedandimplemented,withsignificantcoordinationwiththeIOUsandotherstrategicpartnersandindustrygroups.CAEATFA,incoordinationwiththeIOUsandCSE,hasbeenschedulingandconductingtrainingatvariousHomeUpgradetechnicaltrainingevents,leveragingthepreexistingcontractornetworks.ThiscoordinationisbecomingmorerobustastheREELpilotrollsout,andpartiesareevaluatingoutreachmethodologiesandtheireffectiveness.

CAEATFAstaffisalsoconductingonlinecontractortrainingsonaweeklybasis.17AsofSeptember30,2016,102contractors/contractorcompanieshavecompletedtheREELrequiredtraining;44ofthosecontractorshaveenrolledintheREELprogram,andatleastsix(6)projectshavebeencompleted.StaffcontinuetoconductoutreachandtraincontractorsontheREELprogram.ThemapinFigure1belowreflectsthestatusofenrolledcontractorsasofSeptember30,2016.

Figure1.NumberofREELEnrolledContractorsbyCounty

Ultimately,theroleofenrollingandtrainingcontractorstoparticipateinthepilotprogramwillbeshiftedfromCAEATFAstafftoaContractorManagerwithstrongsubjectmatterexpertiseinthefield;theContractorManagerwillalsoperformtherelevantprojectqualitycontrolfortheREELProgramandtheotherpilotsasneeded.Theproposedscopeofworkforthisentityhasbeendrafted,andstaffhasbeenanticipatingincorporatingcommercialeffortsasthecommercialpilotisdeveloped.16Contractorresourcescanbefoundatthecheef.comand/orhttp://www.treasurer.ca.gov/caeatfa/cheef/reel/contractor/index.asp17Thecurrentonlinecontractortrainingschedulecanbefoundonthecheef.com.


12

EarlyREELLoanPortfolio

AsofSeptember30,2016,three(3)loanshavebeenenrolledintotheprogram,allfundedbyMatadorsCreditUnion.Table3belowshowstheloanamountforeachprojecttodate:

Table3.SummaryofREELLoanAmounts

DateEnrolled

LenderName

LoanAmount

CreditEnhancementAmount18

InterestRate

IncomeRange

FICOBAND D/IRatio

TermofLoan(Months)

9/20/2016 Matadors $8,385 $ 922.35 6.99% $100,000 $149,999

701760 3645% 120

7/25/2016 Matadors $12,285 $1,351.35 6.99% $100,000 $149,999

641700 2535% 120

7/18/2016 Matadors $7,500 $ 825.00 6.99% $75,000$99,999

701760 4655% 180

GrandTotal$28,170$3,098.70

MatadorsCommunityCreditUnionisastatewidecreditunionofferingfinancialproductstopayforeligibleenergyefficiencytoqualifiedsinglefamilyresidentialcustomersthroughoutCalifornia.Matadorsdidnotpreviouslyoffersinglemeasureenergyefficiencyhomeimprovementloans,andamemberseekingthistypeoffinancingwouldhaveappliedforaPersonalloanthroughthecreditunionatarateof9.90%forhigherFICOborrowersandatratesupto12.40%forthosewithalowerFICO.WiththeavailabilityoftheCEtheyhavebeenabletodevelopaloanproducttocoversinglemeasures,aswellaswholehouseretrofits,offeringunsecuredfinancingratesthatrangefrom5.99%to7.99%.

Thelowerinterestratesandlongerrepaymenttermswillresultinlowermonthlypaymentsandsavingsforcreditchallengedborrowers.Forexample,aMatadorsmemberwhoneedstotakeapersonalloanof$5,000foranemergencyHVACreplacementwouldbechargedatleast9.90%foraloanthathastoberepaidinone(1)year.Thatsameborrower,withtheREELproductoption,willpayonly5.99%andhasuptofive(5)yearstorepaytheloan.Adirectcomparisontoidentifyfinancialsavingsisnotavailable,sinceacomparablefinancingproductwasnotpreviouslyofferedbythelender.

Inaddition,severalopenloanshavebeenoriginated,buthavenotyetclosedorbeenenrolledintheprogram.CAEATFAisworkingwithitsparticipatinglendersandvariouscontractorsonaccuratelycompletingthenecessarydocumentationandcertificationsforeligibleloanenrollment.Thisisanormalstageofprogramrampupandimplementation,inwhichstakeholdersfamiliarizethemselveswithaprogramsstandardsandprocesses.CAEATFAisincorporatingadditionalearlylessonslearnedtofurtherimprovetheREELProgram.

18Noclaimsonthereservefundshavebeenmadetodate.


13

Table4belowshowstheEligibleEnergyEfficiencyMeasuresthathavebeeninstalledtodate:

Table4.CHEEFEligibleEnergyEfficiencyImprovements&EstimatedEnergySavings

MeasureType MeasureSpecification

QuantityInstalled IOUServiceTerritory

EstimatedEnergySavings

HVAC 14SEERSplitSystemAirConditioner 1 SouthernCaliforniaEdison 0.25kilowatthours(kWh)peryear

HVAC AirconditionerwithEvaporativelyCooledCondenser

1 SouthernCaliforniaEdison 107kWhperyear

HVAC 16SEERSplitSystemAirConditioner 1 SouthernCaliforniaEdison 38.9kWhperyear

HVAC DirectEvapCooler 1 SouthernCaliforniaEdison 766kWhperyear

HVAC EnergyStarcertifiedcentralnaturalgasfurnace

1 SouthernCaliforniaGas 34.1Thermsperyear

Astheonbillrepaymentinfrastructureisdeveloped,asfurtherdescribedbelow,CAEATFAwillworktoincorporatethePGEsubpilot,EFLIC,intoREEL.Overthelastseveralmonths,CAEATFAandPGEhavebeenhavingconversationswithNEST/GoogleonapotentialstructureandproductthatleveragestheEFLICinfrastructureandreliesonbillpaymenthistoryasalternativeunderwritingcriteria.

OnBillRepaymentInfrastructureandOBRProgramDevelopmentAsnotedabove,severalofthepilotprogramsincludeOnBillRepayment(OBR)asakeyfeature.CAEATFAstaffiscontinuingtoworkwiththeIOUs,MS,andinterestedlenderstolaythefoundationandestablishtheOBRinfrastructure.

InfrastructureDevelopmentandOperations

OnekeycomponentoftheOBRinfrastructureistheDataExchangeProtocol(DEP),whichestablishesthespecificdatapoints,filelayoutandfrequencyunderwhichdataandpaymentswillbeexchangedviasecureandautomatedprocessesbetweentheMSandIOUs.ThiswillenabletheIOUstoremitpaymentdatasecurelytotheMSandremitpaymentssecurelytolenders.EstablishmentoftheDEPwasatimeintensiveandhighworkloadpriorityoncetheMSwasonboarded,sinceitdefinestherequirementsfortheITbillingsystems,andoncecompletedtheIOUscouldstartdevelopment.Afterworkingthroughmultiplecomplexresidentialandcommercialcustomerdatascenarios,theMSandtheIOUssignedoffontheDEPinJanuary,2016.Thoughmostlysignificantfortheonbillpilots,theDEPisalsocriticalforthesharingofcustomerenergyconsumptiondatawithintheREELprogram.ThecompletionoftheDEPwasaresultofnumerousmeetingsandhundredsofhoursofworkbytheMS,IOUsandtheirITteams,andCAEATFAstaff.ThiseffortwastakingplaceconcurrentlywiththedevelopmentoftheCHEEFinfrastructureandREEL.

TheMasterServicer,PG&E,SDG&E,SoCalGas,andSCEthenworkedindependently,andinclosecoordinationtobuildtheirindividual,customizedITsystemstoaccommodatethedataexchangeand,inthecaseoftheutilities,modifytheirbillingsystemstoacceptenergyefficiencyfinancingchargesontheirbills.InMarchof2016,CAEATFA,theMSandtheIOUslaunchedintotheplanningandtestingofthedataexchangeprotocolandtheOBRinfrastructure.Thepartiesidentifiedseveralinformationtechnologyrisksandgapsrelatedtotestingplanthathadbeeninitiallydeveloped,andaddressedthem


14

bydevelopingseveralmitigationstrategiestoensurearobusttestingplanapproachandprocess.InApril2016,theMSbroughtonasystemsintegration/projectmanagementresourcewithexperienceintestinganddevelopingOBRprograms.ThepartiesthenworkedtogethertofinalizeandcompletethetestingplanandtestingschedulefortheIOUMSfunctionality.ThetestingplanandtestingscheduledocumentswerefinalizedandacceptedinearlyJune.Withtheseitemscompleted,CAEATFAhasbeenabletodeterminetheanticipatedtimeframestocompletetheIOUMSITinfrastructureforOBR,andprojectareasonabletimetablefortheOBRpilots.

Table5.OBRDevelopmentMilestones

Milestone TargetDate

1.FinalizeDataExchangeProtocol January2016completed

2.EstablishTestSchedule&DevelopTestingPlan June2016completed

3.BeginIOUMasterServiceSystemIntegrationTesting June2016inprocess

4.AdditionalResearchonSecureCashFlowIssue Julyinprocess

5.IssueSecureCashFlowRFI/ReviewResponses October/Nov

6.DevelopSecureCashFlowRFP/CompetitiveBid/DGSapproval Nov2016Jan2017

7.CompleteIOUSystemIntegrationTesting Dec2016/Jan2017

8.WorkshopOBRinfrastructureforLenders Q42016/Q12017

9.SecureCashFlow/ConcordITBuildOut(est.26months) Q1/Q22017

10.ITContingency(TBD) Q32017

11.EndtoEndTesting(includessecureflowoffunds;lendertesting) Q2/Q32017

TheMSandCAEATFAcontinuetoworkthroughtheonbilllenderinteractionprocess.Thisworkincludesdevelopmentofcommunication,dataflow,andasecurecashflowbetweenthelendersandtheIOUs,asfacilitatedbytheMS.CAEATFAhasbeenworkingwiththeIOUs,regardingitsrecenteffortstodefinethefullscopeofOBRimplicationsforlenders.Ultimately,thisprocesswillinformtheOBRCommercialworkshopsscheduledforQ42016/Q12017.

Todate,initsresearchinthedevelopmentoftheOBRinfrastructureandinitialworkshops,CAEATFAhasidentifiedtheneedfor:(1)anoperationalreservefundtosmooththefundingstreamtoaddresspotentialanomaliesintheIOUbillingsystems,and(2)securecashflowtoenableopenmarketOBR(furtherdiscussedabove).CAEATFAisworkingwithitspartners,stakeholdersandCPUCtofurtherclarifytheseissuesandproposesolutions.CAEATFAwillcontinuetotroubleshootandaddressissuesthatmaycontinuetoariseasOBRisfurtherdeveloped.


15

ProgramDevelopmentandRegulations

Duringthistimestaffhascontinuedtoresearchprogramdesignfeaturesandfinancialstructuresforthesmallbusinessandnonresidentialprojects;financingstructuresbestsuitedformultifamilyprojects;andtheincorporationofEFLICundertheREELProgram.CAEATFAconductedsomeinitialworkshopsrelatedtotheOBRtariffsandleaseprovidersin2015,andhassubsequentlybeenmeetingwithinterestedpartiestodiscusskeyresearchquestionsonvariousproposalsandstructures.CAEATFAsregulatoryprocesstodeveloptheseprogramswillbeginonceCAEATFAstaffisabletoadequatelyincorporatetheonbillrepaymentfeaturesasdescribedabove.Morerecently,CAEATFAbeganholdingaseriesofseveralworkshopsfortheCommercial,EFLIC,andMultifamilypilotsbeginninginJuly2016.BelowisalistofcompletedandanticipatedworkshopsthatwillinformCAEATFAsregulatoryprocess.

January8,2015SmallBusinessLeaseProviderRoundtable

InitiatedtoassistindevelopingapotentialRequestforProposal(RFP)fornomorethanfourleaseproviders.ThisRFPrequirementisnolongernecessary,assubsequentCPUCaction,D1512002providedthenecessaryflexibilitytoincorporateleaseprovidersandenergyserviceagreementsintothegeneralsmallbusinessandcommercialpilots.

May12,2015OnBillRepaymentWorkshop

PotentialimpactofOBRonlenderunderwritingcriterial LenderneedsandlegalprovisionsrelatedtoOBRflowoffunds Lenderrequirementrelatedtoonbillpresentations Requirementsforanoperationalreserve

July20,2016CommercialFinancingProgramParameters

Creditenhancementstructure(forsmallbusinesspilots) Financialproducteligibility Financeprovidereligibility Borrower/Customerunderwritingguidelines

October28,2016CommercialProjectProgramParameters

Eligiblemeasuresandeligibleprojects Contractorrequirements ProjectQualityAssurance/QualityControlrequirements Datareporting Financeonly(nonrebate)pathway

Fall2016/Winter2017(dateTBD)OnBillRepaymentProgramParameters

Onbillcustomerandpropertyeligibilityguidelines OnbillinfrastructureandcommunicationwiththeMasterServicer Detailsandtimingofcashflowsandpayments Specialsituations:Latepayments,disconnections,andremovalfromthebill

Fall2016/Winter2017(dateTBD)EFLICProgramParameters

TimeframewillbesequentialtoOBRdevelopment. Financialproducteligibility


16

Financeprovidereligibility Borrower/Customerunderwritingguidelines

Fall2016MultifamilyProgramParameters

TimeframewillbesequentialtoOBRdevelopment Financialproducteligibility Financeprovidereligibility Borrower/Customerunderwritingguidelines

Q1/Q22017SmallBusiness,Multifamily,EFLIC,OBR

RegulatoryWorkshops

CAEATFAstaffwillbedevelopingregulationsfortheremainingpilotsandundergoingtheregulatoryprocessfortheEFLIC,Multifamily,andSmallBusiness/OBRpilotsfromQ42016Q22017,aligningwiththedevelopmentoftheOBRinfrastructure.

Thetablebelowillustratestheprojectedtwoyearpilotimplementationperiod,basedontheanticipateddateforthefirstloan(financing)enrollmentundereachpilot.CAEATFAanticipatesthattheOBRinfrastructureandpilotregulationswillbecompletedQ22017,andisanticipatinglenderswillneedadditionaltimetodeveloptheirownITinfrastructure.

Table6.AnticipatedPilotImplementationSchedule

PilotImplementationPeriod FY1516 FY1617 FY1718 FY1819 FY1920ResidentialPilot(CE) SmallBusinessPilot(CE) MultifamilyPilot(CE) NonResidentialOBRONLY

SectionV.ChallengesandLessonsLearnedinEarlyImplementationThepilotshavetakenlongerthananticipatedtodevelopandlaunch,largelyduetothefollowing:

Earlytimetablesdidntadequatelyincorporate:

TheimpactonthescheduleofCAEATFAsrequiredstateprocesses,coupledwiththeregulatoryandcomplianceprocessesoftheIOUsandCPUC.

Thetimeanddetailrequiredtoeffectivelydesignandbuildtheprograminfrastructure(datasystems,processes,procedures,handbooks),nordiditincorporatetheperiodoftimetooperationalizethepilotsthephasebetweenprogramdevelopmentandimplementationwhichrequirestheestablishmentandtestingofprocessesandprocedures.

Thetimethatparticipatinglendersandotherprogramparticipantswouldneedtodevelopandaligntheirinternalsystems(governingboards,legal,IT).


17

Designandimplementationofthepilotshasbeenfarmorecomplexthananticipatedandpresentedininitialtimetables:

Overallcomplexityofintegratingregulatedfinancialinstitutionprocedureswiththoseofregulatedutilities.

SubstantialcomplexityinaddressingITneedsofutilities,lendersandMasterServicerinordertodevelopasautomatedaprocessaspossibleforonbillfunctionality.

Unanticipatedcomplexityresultingfromlaunchingmultiplepilotswithmanydifferentcharacteristics(onandoffbill,creditenhancedandnoncreditenhanced,requiring(ornotrequiring)compliancewithutilityrebateandincentiveprogramrequirements,coverageofmultiplemarketsectors,integratingmultiplelenders).

Thecomplexityofcoordinationandissuesinherentinthepilots,includingthecoordinationbetweentwostateentities(CAEATFAandCPUC)workingtoconcuronpolicyandprogrammaticdesignissuesunderseparateprocessesandworkloadbalances.Inaddition,requiredcoordinationwiththefourprivateIOUcompaniesandtheirstaffandvariousdivisionsandthecomplexityofintegratingwithIOUrebateandincentiveprograms,necessitatingincorporationofeligibleenergyefficiencymeasuresandtherelatedexistingrequirementshaveallcontributedtothecomplexityofdesignandimplementationofthepilots.CoordinationwiththeStatewideMarketingImplementer,whichhandlesseveraloperationalelementsforthepilots,hasalsobeenmoretimeintensivethaninitiallyanticipated.

UnderstaffedresourcesatCAEATFA,andhighvacancyrates,aswellasshiftsinstaffingwithlenders,IOUs,andCPUC.CAEATFAunderestimatedboththelevel(highercapacity/projectmanagementskills)andnumberofstaffitwouldneedtoimplementthepilots.

Limitedtermpositionsmakeitdifficulttoattractandretainqualifiedstaff.Oftheseven(7)CHEEFstaffpositionsatCAEATFA,thefilledpositionratewas2.67PYsinFY201415,and4.56PYsin201516.TheCHEEFiscurrentlyresourcedwithnine(9)limitedtermstaff,thehighestclassificationattheStaffServicesManagerIlevel.

InabilitytoleveragelearningfromotherstatesduetouniqueopenmarketapproachlaidoutintheDecision,requiringprivatelenderstointersectwiththeonbillinfrastructureandengagementwithmultiplelendersacrossmultiplesectors.

CAEATFAhastakenanumberofstepstoaddressthesechallenges:

SubstantialcollaborationandactiveparticipationfromIOUpartnersinattemptstoaddressbarriers,andeffortstoleverageexistinginfrastructure.

RetainedHarcourt,Brown&Carey,incoordinatedeffortwiththeIOUs,toprovidenecessaryexpertiseandcontinuity.

Hiredadditionalconsultingresources(e.g.,atestingoversightmanagerforallITtestingactivitywithOBRexperience;technicalassistanceforcommercialpilots).

Soughttoengage/trainnewstaffquicklyduringimplementation.CAEATFArequestedadditionalstaffinthe2015Budget,butdidnotobtainlegislativebudgetapproval.CAEATFAsubsequentlyreceivedauthoritytoadministrativelyestablishtwo(2)compliancepositionsinFY201617.

Examinedwaystostreamlinepilots:

FocusedondevelopingandlaunchingREELwhileconcurrentlydevelopingtheOBRstructureforremainingpilots.


18

Collapsedthesmallbusinessleaseoffbill/onbillpilotintoabroaderpilotforcontinuityandefficiencies.

AdvocatedforstreamlinedEEEMslist,streamlineddatarequirementsforfinanceonlypath,asable,anddevelopedprocessestostreamlineimplementation(electronicsignatures)

Implementednewprojectplanningtoolstomoreeffectivelytrackinterdependencies,projectplansandschedules.

Continuedtoidentifyandmitigateriskstothetimetableandimplementation,specificallyasitrelatedtotheITbuildoutoftheIOUsandMasterServicer,andthesecureflowoffundsforopenmarketOBR.

DevelopednewbudgetproposalforFY201718,which:(a)requestsadditionalexpenditureandreimbursementauthorityconsistentwithupdatedprojectedtimetableofthepilots,(b)rightsizesstaffforCHEEFscopeofworkbyincreasingthelevelofstaff,(c)establishesaseniorprojectmanager,and(d)requestsafewselectpermanentstafftobetterensurecontinuitythroughoutpilotimplementation.

NextStepsCAEATFAisexcitedtohavelaunchedREELwhichhasbeenpositivelyreceivedbythemarketinprovidingalternativeoptionsforhomeownerstoundertakeenergyefficiencyimprovementsandfocusonitsearlyimplementationandgrowth.Concurrently,CAEATFAcontinuestoworkwithitspartnersandstakeholderstodevelopandoperationalizeonbillrepayment,andthepilotsthatrelyontheOBRinfrastructure.Asadditionalresearchisconductedtoestablishonbillrepayment,CAEATFAwillworkwiththeCPUCanditspartnerstoassesschallengesthatmayarise,andpotentialmodificationstostructure.

Inaddition,CAEATFAandtheCPUCareexploringwaystostreamlinethepilotstoensuretheireffectivenessandresponsivenesstomarketchangessince2013.Concurrently,CAEATFAisworkingtoextendthefundingandbudgetaryauthoritytoaddresstheextendedtimetabletoimplementthepilots.Basedoncurrentprojectedprogramdevelopmentschedules,CAEATFAanticipatesthattheseriesofpilots,eachsequentiallylaunchedforatwoyearperiod,willrunintoFY201920.


A1

AppendixAReportingRequirementsfromtheSupplementalReportofthe201516BudgetPackage,

Item09710010528

CaliforniaHubforEnergyEfficiencyPilotProjects.OnorbeforeNovember1,2016,CaliforniaAlternativeEnergyandTransportationFinancingAuthority(CAEATFA)shallreport,inconsultationwiththeCaliforniaPublicUtilitiesCommission(CPUC),totheSenateandAssemblyBudgetCommitteesonthedegreetowhichtheCaliforniaHubforEnergyEfficiencyFinancingPilotProgramshaveincreasedtheavailabilityoflowercostfinancingforenergyefficiencyinvestmentsthroughoutthestate.Foreachprogram,whereapplicableandavailable,thereportshallincludethefollowingitems:

Numberoflendersparticipating.

Financialproductssupported.

Numberofprojectfinancingssupported.

Totalloan/financingamounts.

Aggregateddataonaverage,median,maximum,andminimumloanamounts.

Termsoffinancialproducts,suchasinterestratesandbenefitstoborrowers,andhowthosetermscomparetootherloanproductsinthemarketplace.

Creditenhancementcontributionsandclaimrates.

Summaryofenergyefficiencyimprovementsmade.

Aggregatedborrowerinformation,includingdataonaverage,median,maximum,andminimumforincome,creditscore,anddebttoincomeratio.

Aggregatedestimatedfinancialandenergysavings.

Average,median,maximum,andminimumactualenergysavingsresultingfromthisprogram.

Anyadditionalinformationabouttheperformanceoftheprogramsthatitconsidersusefulwhenevaluatingthesuccessoftheprogram.

CAEATFA,inconsultationwiththeCPUC,shallalsocreateaworkinggroupthatwillincludekeystakeholderstodevelopcriteriaforacomparativeassessmentofenergyefficiencyfinancingprogramsavailableinCalifornia,includingPropertyAssessedCleanEnergyfinancingandlegacyutilityonbillfinancingforshorttermlending.CAEATFAshallpublishsummariesoftheissuesdiscussedwithandrecommendationsmadebytheworkinggroup.RelevantSenateandAssemblypolicycommitteestaffshallbeinvitedtoobservemeetingsoftheworkinggroup.

Thefollowingtableprovidesamapkeytolocationsinthisreportwhichcorrespondtothespecificdatarequestedinthe201516BudgetPackage.CAEATFAhaspreparedtheprecedingreporttobetterinformthelegislatureofprogramprogresstodate,butsubmitstheseresponsestoprovidecontextandreferencetheoriginalrequest.


A2

Program

DataRequested

REEL(residentialonly)

EFLIC(residential

only)

SmallBusiness Multifamily OBRNoCredit

EnhancementNumberoflendersparticipating 7applications

received,5lendersenrolled;2lenders

operational.

NA NA NA NA

Financialproductssupported LoansandRetailInstallmentContracts(RIC)

LoansandRICs Loans,Leases,EnergyServiceAgreements

Loans,Leases,EnergyServiceAgreement

Loans,Leases,EnergyServiceAgreements

Numberofprojectfinancingssupported

3 NA NA NA NA

Totalloan/financingamounts $28,170 NA NA NA NA

Aggregateddataonaverage,median,maximum,andminimumloanamounts

SeeTable 3. NA NA NA NA

Termsoffinancialproducts,suchasinterestratesandbenefitstoborrowers,andhowthosetermscomparetootherloanproductsinthemarketplace

SeeTable 2,andAppendixB.

NA NA NA NA

Creditenhancementcontributionsandclaimrates

$3,098.70increditenhancement,noclaimstodate.

NA NA NA NA

Summaryofenergyefficiencyimprovementsmade


Aggregatedborrowerinformation,includingdataonaverage,median,maximum,andminimumforincome,creditscore,anddebttoincomeratio.


Aggregatedestimatedfinancialandenergysavings

Notavailableatthistime.

NA NA NA NA

Average,median,maximum,andminimumactualenergysavingsresultingfromthisprogram

Notavailableatthistime.

NA NA NA NA

Anyadditionalinformationabouttheperformanceoftheprogramsthatitconsidersusefulwhenevaluatingthesuccessoftheprogram

Seeattached. NA NA NA NA


B1

AppendixBREELLenderProfiles

AsofJune30,2016,threelendersViewtechFinancialServices,ValleyOakCreditUnionandMatadorsCommunityCreditUnionhaveenrolledintheResidentialEnergyEfficiencyLoanAssistanceProgram.CAEATFAiscurrentlyrecruitingotherEligibleFinancialInstitutions,andconductingadditionaloutreach.

ValleyOakCreditUnionisaregionalcreditunionofferingfinancialproductsandservicesinCaliforniasCentralValley,aregiondominatedbylowtomoderateincomehouseholdsaccordingtotheCADepartmentofHousingandCommunityDevelopment.ValleyOakservesborrowersinFresno,Kings,Madera,andTularecountiesandiseagertoofferenergyefficiencyfinancingtoitsmembersinordertohelpthemtoreducetheirenergyconsumption,improvetheirhomes,andultimatelylowertheircostoflivingexpenses.

WhileValleyOakdidnotpreviouslyofferanenergyefficiencyhomeimprovementloan,amemberseekingthistypeoffinancingwouldhaveappliedforaPersonalLoanthroughthecreditunionatarateof8.95%forhighFICOborrowersandatratesupto15.95%forthosewithalowerFICO.WiththeavailabilityoftheCE,theyhavebeenabletodevelopaloanproductofferingratesthatwerereducedfrom8.95%15.95%to6.77%9.27%.

ValleyOakRate(PersonalLoancomparedtoREELLoan)

BorrowerFICO PersonalLoanRate REELloanRate730+ 8.95% 6.77%680729 9.95% 7.27%640679 11.95% 7.77%600639 13.95% 8.27%580599 15.95% 9.27%

ValleyOak Term&LoanAmount

(PersonalLoancomparedtoREELLoan)

Term(Years) PersonalLoanAmount REELLoanAmount15 $2,500$20,000 $2,500$50,000610 NotOffered $10,000$50,0001115 NotOffered $25,000$50,000

Thelowerinterestrateswillresultinsignificantcustomersavingsforcreditchallengedborrowers.Forexample:

AValleyOakcustomerwithaFICOscoreof580,takingoutan$8,0007yearloan,wouldsave$2,203.41ininterestoverthelifeoftheloan.

AValleyOakcustomerwithaFICOscoreof600,takingouta$20,00012yearloan,wouldsave$8,668.91ininterestoverthelifeoftheloan.


B2

MatadorsCommunityCreditUnionisastatewidecreditunionofferingfinancialproductstopayforeligibleenergyefficiencytoqualifiedsinglefamilyresidentialcustomersthroughoutCalifornia.

MatadorsRate(PersonalLoancomparedtoREELLoan)

BorrowerFICOSignatureLoan

Rate(1yr)REELLoanRate

(5yr)REELLoanRate(10yr)

REELLoanRate(15yr)

740+ 9.90% 5.99% 6.99% 7.99%690739 10.90% 5.99% 6.99% 7.99%660689 12.40% 5.99% 6.99% 7.99%640659 NotOffered 5.99% 6.99% 7.99%

Matadors Term&LoanAmount(PersonalLoancomparedtoREELLoan)

Term(Years) PersonalLoanAmount REELLoanAmount

1 $500$5,000 $2,500$50,00025 NotOffered $2,500$50,000610 NotOffered $2,500$50,0001115 NotOffered $2,500$50,000

Matadorsdidnotpreviouslyoffersinglemeasureenergyefficiencyhomeimprovementloans,andamemberseekingthistypeoffinancingwouldhaveappliedforaPersonalLoanthroughthecreditunionatarateof9.90%forhigherFICOborrowersandatratesupto12.40%forthosewithalowerFICO.WiththeavailabilityoftheCEtheyhavebeenabletodevelopaloanproducttocoversinglemeasures,aswellaswholehouseretrofits,offeringunsecuredfinancingratesthatrangefrom5.99%to7.99%.

Thelowerinterestratesandlongerrepaymenttermswillresultinlowermonthlypaymentsandsavingsforcreditchallengedborrowers.Forexample,aMatadorsmemberwhoneedstotakeapersonalloanof$5,000foranemergencyHVACreplacementwouldbechargedatleast9.90%foraloanthathastoberepaidinone(1)year.Thatsameborrower,withtheREELproductoption,willpayonly5.99%andhasuptofive(5)yearstorepaytheloan.


B3

CaliforniaCoastCreditUnionisastatewidecreditunionofferingfinancialproductstopayforeligibleenergyefficiencytoqualifiedsinglefamilyresidentialcustomersthroughoutCalifornia.

CaliforniaCoastRate(SignatureLoancomparedtoREELLoan)

BorrowerFICO SignatureLoanRate REELLoanRate700+ 9.85% 5.88%675699 12.85% 6.88%640674 15.85% 6.88%600639 18.85% 6.88%

CaliforniaCoast Term&LoanAmount(SignatureLoancomparedtoREELLoan)

Term(Years) SignatureLoanAmount REELLoanAmount

15 $5,000$20,000 $2,500$50,000610 NotOffered $2,500$50,0001115 NotOffered $2,500$50,000

CaliforniaCoastdidnotpreviouslyofferanyenergyefficiencyhomeimprovementloans.Amemberseekingunsecuredfinancing(5yearterm)wouldhaveappliedforaSignatureLoanthroughthecreditunionatarateof9.85%forhigherFICOborrowersandatratesupto18.85%forthosewithalowerFICO.WiththeavailabilityoftheCEtheyhavebeenabletodevelopaloanproducttocoversinglemeasures,aswellaswholehouseretrofits,offeringunsecuredfinancingratesthatrangefrom5.88%to7.88%.

Thelowerinterestratesandlongerrepaymenttermswillresultinlowermonthlypaymentsandsavingsforcreditchallengedborrowers.Forexample,aCaliforniaCoastmemberwhoneedstotakeapersonalloanof$5,000foranemergencyHVACreplacementwouldbechargedatleast9.85%foraloanthathastoberepaidinfive(5)years.Thatsameborrower,withtheREELproductoption,willpayonly5.88%andhasupto15yearstorepaytheloan.


B4

DesertValleysFederalCreditUnionisaregionalcreditunionofferingfinancialproductsandservicesinCaliforniaseasterndeserts,aregiondominatedbylowtomoderateincomehouseholdsaccordingtotheCADepartmentofHousingandCommunityDevelopment.DesertValleysservesborrowersinpartsofInyo,KernandSanBernardinocountiesandiseagertoofferenergyefficiencyfinancingtoitsmembersinordertohelpthemtoreducetheirenergyconsumption,improvetheirhomes,andultimatelylowertheircostoflivingexpenses.

WhileDesertValleysdoesofferanenergyloancalledAlternativeEnergyLoan,itisonlyforsolarprojects.Amemberseekinganenergyefficiencyhomeimprovementloan(5yearterm)wouldhaveappliedforaSignatureLoanthroughthecreditunionatarateof10.99%forhighFICOborrowersandatratesupto18.00%forthosewithalowerFICO.WiththeavailabilityoftheCEtheyhavebeenabletodevelopaloanproductofferingratesthatrangefrom4.50%to8.50%.

DesertValleysRate(SignatureLoancomparedtoREELLoan)

BorrowerFICOSignatureLoan

Rate(5yr)REELLoanRate

(5yr)REELLoanRate(10yr)

REELLoanRate(15yr)

700+ 10.99% 4.50% 5.50% 6.50%640679 12.99% 5.50% 6.50% 7.50%600639 15.99% 6.50% 7.50% 8.50%580599 18.00% 7.50% 8.50% NotAvailable

DesertValleys Term&LoanAmount(SignatureLoancomparedtoREELLoan)

Term(Years) SignatureLoanAmount REELLoanAmount

15 $2,500$15,000 $2,500$50,000610 NotOffered $10,000$50,0001115 NotOffered $25,000$50,000

Thelowerinterestratesandlongerrepaymenttermswillresultinlowermonthlypaymentsandsavingsforcreditchallengedborrowers.Forexample,aDesertValleysmemberwhoneedstotakeapersonalloanof$5,000foranemergencyHVACreplacementwouldbechargedatbetween10.99%18.00%foraloanthathastoberepaidinfive(5)years.Thatsameborrower,withtheREELproductoption,willpaybetween4.50%8.50%andhasupto10yearstorepaytheloanandupto15yearsiftheirFICOis600orhigher.


C1

AppendixCPilotBudget

TheDecisiondirectstheIOUstoallocateatotalof$65.9milliontothefinancepilotsovertheinitialpilotperiod.ThetablebelowprovidesanitemizedbreakdownofexpendituresthroughSeptember30,2016.

*Note:Quarterlyexpendituresarebasedongoodfaithestimatesduetoalagininvoicesubmittals.

Todate,CAEATFAhasexpendedapproximately$2,076,550.40ofthe$7millionallocatedforCHEEFstartupcosts,education,outreach,andtrainingforlendersandcontractors.19ThisfundingcoversCAEATFAsexpendituresfromSeptember12,2014throughSeptember30,2016.AsofSeptember30,2016,$495,322.05ofthefundshadbeenexpendedoncontractswiththirdpartiesspecificallytheMasterServicer(ConcordServicingCorporation)andtheTrusteeBank(USBank).

AsofJuly1,2015,CAEATFAreceivedextendedlegislativebudgetauthoritytocarryouttheservicesoftheCHEEFwithintheinitialexisting$7millionbudgetthroughJune30,2017(FY201617).AsthetimeframefordevelopmentoftheITinfrastructurefortheOBRpilotsisdetermined,CAEATFAwillworkwiththeCPUCtoidentifytheappropriateleveloffuturebudgetaugmentations.

19TheseexpenditureswereunderreviewbytheIOUsduringthetimeofthisreport.

FinancePilotBudgetwithCAEATFAExpendituresfromSeptember12,2014throughSeptember30,2016*

ITEM FUNDINGAMOUNT

ExpendituresThrough9/30/2016*

1. CHEEFstartupcost(includesCAEATFAadministrativeandcontractingcosts)

$5million $1,865,575.82

2. Marketing,education,outreacha. StatewideMEOplanb. CAEATFAoutreachandtrainingtofinancial

institutionsandcontractors

$10million$8million$2million

NA$210,974.58

3. Residentialpilotsa. Singlefamilyloanlossreserveb. EnergyFinancingLineItemCharge($toPG&E)c. Multifamilydebtservicereservefund

$28.9million$25million$1million$2.9million

NANANA

4. Nonresidentialpilotsa. SmallbusinesssectorOBRwithcreditenhancement

i. Subpilot:OBRforleaseprovidersii. Subpilot:Offbillforleaseproviders

b. NonresidentialOBRwithoutcreditenhancement

$14million$14million

NA

5. InformationTechnology($toIOUs) $8million NATOTALFUNDINGFOREEFINANCINGPILOTSTOTALCAEATFAEXPENDITURES

$65.9MILLION $2,076,550.40

TOTALCAEATFAFUNDINGBUDGETREMAINING $4,923,449.60


D1

AppendixDWorkingGroupReport

CriteriaforaComparativeAssessmentofEnergyEfficiencyFinancing

ProgramsAvailableinCalifornia

Criteria for a Comparative !ssessmentof Energy Efficiency FinancingPrograms !vailable in California

July 2016

Table of Contents A. Introduction .......................................................................................................................................... 4

1. Purpose of this Report.................................................................................................................. 4

2. Acknowledgements ...................................................................................................................... 4

B. Highlights: A Summary of the Proposed Comparative Criteria and Discussion of Issues..................... 5

1. Key Issues to Consider .................................................................................................................. 6

Criteria that are Comparative....................................................................................................... 6

Comparative Criteria v. Evaluation Methodologies...................................................................... 6

Competing Policy Goals ................................................................................................................ 6

Differing Levels of Development .................................................................................................. 6

Analytic Information v. Comparative Criteria............................................................................... 6

Net Energy Savings v. Gross Energy Savings................................................................................. 7

Availability of Data........................................................................................................................ 7

Market Transformation and Establishing a Baseline.................................................................... 7

Program versus Financing Product ............................................................................................... 8

Project-Level vs. Program-Level Savings....................................................................................... 8

Process Evaluation........................................................................................................................ 8

Other Policy-Related Metrics........................................................................................................ 8

C. Proposed Criteria for a Comparative Assessment of Energy Efficiency Financing Programs Available in California ................................................................................................................................................... 9

1. Energy Savings Attributable to Financing Program ...................................................................... 9

Importance of Attribution Analysis .............................................................................................. 9

Attribution Methods...................................................................................................................10

Access to Energy Savings Data....................................................................................................10

Data Quality, Reporting, and Verification...................................................................................10

2. Analytic Information...................................................................................................................10

Finance Program Elements.........................................................................................................10

3. Cost-Effectiveness: Total Net Savings and Benefit-Cost Ratio ...................................................11

Total Net Benefits vs. Benefit-Cost Ratios..................................................................................11

Calculating Financing Costs ........................................................................................................11

2

Program Maturity .......................................................................................................................12

4. Savings, Cost-Effectiveness, and Market Penetration by Market Segment and Project Type...12

Impacts by Market Segment: Customers/Sub-segments Reached, Attributable Savings, and

Project Type/Characteristics: Measure Mix by Program, Number of Measures per Project,

Cost-Effectiveness by Market Segment......................................................................................12

Savings per Project .....................................................................................................................12

5. Customer Experience: Customer Satisfaction and Consumer Protection ..................................12

Customer Satisfaction.................................................................................................................12

Consumer Protection..................................................................................................................13

6. Market Transformation ..............................................................................................................13

Logic Models...............................................................................................................................14

Market characterization .............................................................................................................14

Interim Metrics ...........................................................................................................................14

Tracking Simultaneous Impacts..................................................................................................14

D. Background .........................................................................................................................................14

1. Legislative Directive....................................................................................................................14

2. Working Group Process ..............................................................................................................15

3. Written Comments .....................................................................................................................15

4. Timeline of Activities ..................................................................................................................15

5. Background Information on California Energy Efficiency Financing Programs ..........................16

PACE Financing ...........................................................................................................................16

CHEEF Pilot Programs .................................................................................................................16

On-bill Financing .........................................................................................................................16

Other Financing Programs ..........................................................................................................16

Evaluation of California Energy Efficiency Financing Programs .................................................16

Appendix A Working Group Members.................................................................................................18

Appendix B Written Comments on Proposed Comparative Criteria ...................................................19

3

A. Introduction

1. Purpose of this Report

This report recommends criteria for a comparative assessment of energy efficiency financing programs

in California, and includes comments from a stakeholder working group regarding the relative

importance and challenges posed by the comparative criteria.

The recommended comparative criteria are simply a proposal, and are offered as a starting point for an

important conversation on how the state should evaluate and compare various energy efficiency

financing programs. This paper does not explore the methodologies used for the criteria, although this

will be a critical issue going forward with any comparative assessment. Additionally, this report assumes that a primary purpose of the criteria is not merely to determine whether a financing program is

successful in making capital available, but to understand whether by doing so, the financing program is

producing greater energy savings or reducing the need for public funds while improving or maintaining

energy savings.

This report was undertaken in response to the 2015-16 California Budget in which the California

Legislature tasked the California Alternative Energy and Advanced Transportation Financing Authority

(C!E!F!) efficiency financing programs in California. The work was to be done in consultation with the California

C (CC) CAEATFA did not receive funding for this project.

To fulfill this directive, CAEATFA staff convened a public process to encourage stakeholder participation

and input in developing criteria for a comparative assessment. Over several months, CAEATFA, with

technical assistance from Lawrence Berkeley National Laboratory and Energy Futures Group, hosted a

series of educational workshops featuring presentations from stakeholders on various metrics for

evaluating energy efficiency financing programs. The process culminated with a public meeting at which

a working group, appointed by the CAEATFA Board, discussed a proposal of comparative criteria drafted

based on the discussions from the previous workshops. The list of working group members is included as

Appendix A to this report. CAEATFA also solicited written public comment on the proposed comparative

criteria; written comments received are included in Appendix B to this report.

2. Acknowledgements

CAEATFA staff would like to recognize Jeffrey Deason, Program Manager in the Electricity Markets and

Policy Group at Lawrence Berkeley National Laboratory, and Christopher Kramer, Senior Consultant at

Energy Futures Group, for their technical assistance and support in creating this report. CAEATFA staff

would also like to thank those who presented at the workshops: Chuck Goldman, Jennifer Caron, Megan

Campbell, Jeevika Galhotra, Alex Hill, Frank Spasaro, Craig Carlock, James Hamill, Mike Lemyre, Barbara

Spoonhour, Jewel James, Jenine Windeshausen, Pat McGuckin, and Laura James. Finally, CAEATFA staff

would also like to thank the staff at the CPUC for their participation and advice, and to all who

contributed on the working group.

4

B. Highlights: A Summary of the Proposed Comparative Criteria and

Discussion of Issues

This report proposes C climate change goals and focus on goals that can be compared across programs. Programs may have

different policy goals or priorities, making the development of comparative criteria challenging.

The reduction in energy useage brought about specifically by the financing program, but not including savings that would have occurred in the absence of the offered financing.

Energy Savings Attributable to Financing Program

Basic program and finance information to provide context and detail on the various energy efficiency financing programs in California, including but not limited to such things as: loan volume, cost of borrowing, etc.

Analytic Information

Cost-Effectiveness: Total Net Benefits and Benefit-Cost Ratio

Total Net Benefits: The dollar value of the energy savings attributable to the financing program less the cost of providing those savings.

Benefit-Cost Ratio: The dollar value of the energy savings attributable to the financing program divided by the costs of providing those savings.

Energy Savings, Cost-Effectiveness, and Market Penetration by Market Segment and Project Type

Impacts by market segment/sub-segment, by building type, as well as customer demographics.

Measure and project characteristics: metrics related to the types of projects installed using the financing programs.

Customer Satisfaction and Consumer Protection

Customer satisfaction: Whether customers got what they expected out of the program and were happy with the experience. Customer satisfaction may include ease of use, time/duration of transaction/project, quality of project, comfort, health, etc.

C interests, including by preventing consumers from taking on obligations they are unable to meet, and by providing a clear understanding of financial product, energy savings expected, the uncertainty of savings projections, terms of financing, and repayment schedule.

The financing program's ability to scale up savings by impacting the market as a whole.

Market Transformation

5

1. Key Issues to Consider

Criteria that are Comparative: The criteria are intended to evaluate programs relative to each other;

therefore, criteria must look at common aspects that can be compared across energy efficiency

financing programs. Additionally, the criteria are intended to understand not just the relative

performance of programs, but also how programs may complement each other and the potential costs

and benefits of having multiple programs in the same market segment. For example, certain programs

may be more effective in different sub-segments of a particular market or may be more successful at

encouraging certain project types.

Comparative Criteria v. Evaluation Methodologies: This report intentionally focuses only on

comparative criteria, and not on evaluation methodologies. Methodologies for evaluating energy

efficiency financing programs are still being developed and refined, and may vary across programs.

However, the choice of methodologies is a critical element of program evaluation. If the proposed

criteria are to be useful, energy efficiency financing programs will need to apply evaluation

methodologies consistently across programs.

Competing Policy Goals: Different programs will have various policy goals, posing a challenge to

conducting a comparative evaluation. For example, some programs may place greater emphasis on

return on investment or market expansion. Others may be more interested in more efficient use of

ratepayer funds, or ensuring a greater amount of energy savings, either through more or deeper

projects. Some may be more focused on specific sub-sectors or income levels. The Legislature, by

asking for proposed comparative criteria, has raised the important issue of establishing clear, statewide

set of goals for energy efficiency financing programs.

Differing Levels of Development: The discussion of some proposed criteria is relatively well developed,

while of others, such as Market Transformation, the discussion is largely conceptual. Because CAEATFA

was charged with recommending criteria, the report includes any criteria CAEATFA believes valuable to

a comparative analysis, regardless of whether a well understood method for analyzing the criteria exists.

Analytic Information v. Comparative Criteria: Certain basic data may provide helpful context around

various energy efficiency financing programs. For example, loan volume, interest rates charged, private

capital leveraged, and loan performance data each provide useful and important information regarding

the financial aspects of a given program. This data is not assessment criteria per se, as it may not

provide a direct measurement of the achievement of policy goals, such as an increase in cost-effective

F

into superior performance along policy dimensions, e.g. lower interest rates may not directly translate

into more energy savings or into reaching targeted populations. To the extent these metrics do influence

energy savings, the impacts will be reflected in the energy savings criteria. Nonetheless, analytic

information is included in the proposed criteria because it became clear during the working group

discussion that this information was important to policy makers for understanding the context of a

program and tracking the progress during the early years of program development.

6

Net Energy Savings v. Gross Energy Savings: The proposed criteria recommend evaluating programs

the financing program. However, many members of the working group pointed out that quantifying

gross energy savings might also provide useful context, and could easily be included in the energy

savings criteria. Most programs currently self-report gross energy savings, but if gross energy savings are

to be included as criteria, it is important that methodologies used by financing programs for calculating

gross energy savings are verifiable and consistent enough across programs to allow for useful

comparison. It is also important to note that net savings are the ultimate measure of the energy impact

of a financing program and that a program with higher gross savings than another program will not

necessarily also have higher net savings.

Availability of Data: Financing programs in California are at different stages of development, and some

have no program data to inform any type of evaluation. In addition, programs are run by a variety of

program administrators with different procedures and privacy constraints, and may or may not be

collecting the necessary data, or may not make data publicly available. The Legislature may wish to

establish policy or standards for the availability of certain data.

Market Transformation and Establishing a Baseline: In addition to obtaining energy savings through

direct program participation, some financing programs seek to scale up savings by impacting the market

as a whole.

Assessing the market transformation impact of programs involves several elements:

(1) !

energy efficiency financing. This establishes a starting point for evaluating market changes.

Members of the working group noted that the CPUC has done considerable work on establishing

a baseline that perhaps could be used as a starting place for all energy efficiency financing

programs.

(2) A logic model that describes the expected impacts on the market from program intervention

and establishes a timeline over which specific changes are projected, which may be many years

after program launch.

It became clear from working group discussions that goals for transforming energy efficiency financing

markets are new and somewhat loosely defined. Furthermore, financing programs may concentrate on

different aspects of market transformation. For example, some programs may focus on gathering loan

performance data to reduce the perceived risk of energy efficiency lending, thereby increasing the

number of lenders, improving rates and terms, and encouraging a loosening of creditworthiness

requirements. These supply side efforts might be expected to indirectly increase customer demand

through increase of availability of credit and more attractive lending terms. Other programs may focus

on using financing to drive demand directly by shifting customer perceptions of the value proposition

offered by energy efficiency; and yet other programs may focus not only on increasing customer

demand through market transformation, but also on whether the government is able to invest less

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