1. Qualified Energy
Conservation Bonds
Part 1: Overview of Tennessee Program and Best Practices
Pete Westerholm, Program Manager
Katie Southworth, Program Manager
TDEC Office of Energy Programs

2. Disclaimer: This presentation is intended to serve as a general
introduction to qualified energy conservation bonds to finance
energy projects. Nothing contained in this presentation should be
construed or relied upon as legal advice.

3. “You have no control
over how much you pay for energy.
The only thing you can control
is how much energy you use.”
-Mark Samuels, Maintenance Director
Williamson County School District

4. Part 1: Overview of Tennessee Program
and Best Practices
• What are Qualified Energy Conservation Bonds
(QECB)?
• How can they be used to finance energy
conservation projects and meet sustainability
goals?
• What opportunities exist in Tennessee under
the Tennessee QECB program?

5. Bond Finance Basics:
What is a Bond?
Bonds are debt instruments issued by a government or
business to raise money. Similar to loan or IOU.
• Lender is holder of the bond (creditor)
• Issuer of the bond is the borrower (debtor)
• Coupon is the interest paid on the principal
• Principal is the amount that interest is charged against (the
amount “loaned”)
• Maturity is the date by which the nominal amount must be
repaid (also referred to as the “tenor”)

6. What are Qualified Energy Conservation
Bonds (QECB)?
• Low interest bonds that can be issued by
states, territories, large local governments, and tribal
governments to finance renewable energy and energy
efficiency projects.
• Attractive borrowing rates: 1%-5% effective interest rate.
70% of interest rate is subsidized. Issuer typically gets 3%-
4% subsidy from Treasury, lowering borrowing costs
15 to 22-year term
• Created in 2008; greatly expanded by Recovery Act in 2009.
• Total national allocation is $3.2 billion; Tennessee allocation is
$64,676,000
• Issued for qualified energy efficiency, renewable energy, and
energy conservation capital expenditures; qualified projects
are broadly defined.

7. QECB Qualified Projects
Capital expenditures incurred for purposes of:
• Reducing energy consumption in publicly-owned buildings by at
least 20%
• Implementing green community programs (including the use of
loans, grants, or other repayment mechanisms to implement such
programs)
• Rural development involving electricity produced from renewable
energy resources
• Energy-related research facilities and research grants
• Mass commuting facilities
• Demonstration projects (for energy-related processes)
In Tennessee, bonds can only be issued if physical asset
development or improvement is critical component of project

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QECB Criteria
1. 100% of the available project proceeds from issuance must
be used for one or more qualified conservation purposes,
used within 3 years of issuance
2. Bond is issued by a state or local government, and
3. Issuer designates such bond for the eligible purposes
Also:
• Up to 30% of Tennessee’s QECB allocation may be used for
private activity
• Federal Davis-Bacon (prevailing) wage and benefit
requirements apply to projects funded with QECBs. Other
ARRA requirements, such as Buy American, monitoring and
audits, may apply
• Issued as revenue bonds or general obligation bonds

9. QECB Case Study:
Multifamily Energy Efficiency – Boulder, CO
Context:
The City of Boulder’s Housing Authority, Boulder Housing
Partnership (BHP) faced the following challenges:
• Limited ability to finance projects, weak rental economy
beginning 4th qtr 2008
• Uncertainty about status of federal funding to support O&M
• Increasing utility needs, rising costs to tenants
• Need to continue providing services to low income families
• Aging or outdated technologies, equipment, and facilities
Challenge:
Provide safe and adequate housing to a growing number of low-
income residents while managing operating costs and delivering
quality services.

10. QECB Case Study:
Multifamily Energy Efficiency – Boulder, CO
Process:
DEVELOPED SUSTAINABILITY PLAN/ GOALS
• Early 2009- BHP Energy Conservation & Sustainability Plan.
RECOGNIZED OPPORTUNITY TO PERFORM BETTER, SPEND LESS
• Set goal to be first housing net-zero energy housing authority.
PARTNERED WITH AN ESCO (ENERGY SERVICES COMPANY), USED
PERFORMANCE CONTRACT
• April-May 2009- Identified energy services company (ESCO) to complete energy
performance contract work.
DETERMINED BASELINE: AN AUDIT IS A SNAPSHOT OF ENERGY
PICTURE
• Summer 2009- ESCO performed energy audits on eight BHP properties to
determine the most cost-effective improvements.
PRIORITIZE PROJECTS BASED ON NEED, ROI
• Consulted with maintenance department about planned changes, because the
staff would be unfamiliar with the new equipment
• March 2010 - Board and HUD approval, final Energy Services Agreement (ESA)
documenting the work to be completed (including staff training) and the
guaranteed energy savings was executed
IDENTIFY FINANCING STRATEGY
• Nov 2009 - Applied to State for QECB allocation. Received $1.5 million Feb 2010.
• May 2010- Request for Proposals for bond counsel.
• August 25, 2010- Issued $1.44 million of 16-year QECBs to finance improvements
as well as issuance and bond counsel costs associated with the offering.

11. Projects:
Multifamily Energy Efficiency – Boulder, CO

12. QECB Case Study:
Multifamily Energy Efficiency – Boulder, CO
Results:
• Guaranteed savings via performance contract
• The energy savings realized, combined with HUD subsidy,
cover the interest and principal payments on the bonds.
• Energy Conservation & Sustainability Plan goals met
• Will reduce its carbon footprint by over
450 mt/year.
• 45% Water consumption savings
• 28% Electric consumption savings
• 29% Natural gas consumption savings

13. QECB Case Study:
Multifamily Energy Efficiency – Boulder, CO
Funding:
• City of Boulder to Boulder Housing Partners (BHP) as conduit
issuance
• Amount: $1.44 million QECB for energy efficiency
improvements to public housing sites (combined with small
amount of BABs for water efficiency improvements)
• Net interest cost: 2.79%
• Maturity: 16 years
• Lender: Bank of America
BHP estimated that traditional financing would have cost at least 2
percentage points more than was achieved with this offering.

14. How QECBs Work: An Overview
U.S. Treasury allocates QECB bond volume to states
States allocate QECB issuance capacity to Qualified
Issuers, who then sell taxable QECBs to investors
Proceeds from bond issuance are used to fund a Qualified
Energy Conservation Project
Issuer pays a taxable coupon semi-annually to the investor and
repays principal at the end of term
U.S. Treasury pays issuer the lesser of the taxable coupon rate
or 70% of the tax credit rate

15. How QECBs Work: An Overview
U.S. Treasury pays the QECB issuer the lesser of
(a) the taxable interest rate of the bonds or
(b) 70% of the qualified tax credit rate (QTCR) as of the bond sale date.
That Direct Payment is paid directly to issuers contemporaneously
with the scheduled debt service payments to the bondholders if the
issuer properly files for the Direct Payment. The Direct Payment
reduces the NET interest rate that issuers pay to the investors.
www.treasurydirect.gov/GA-SL/SLGS/selectQTCDate.htm.

16. How QECBs Work: An Overview
Net interest cost example - 8/19/2013
• 6.00% = Taxable coupon rate
• 5.33% = Tax credit rate (from Treasury Direct)
• 70% = Subsidy on tax credit rate
• (5.33 x .70) = 3.731% = Direct subsidy
• 21 years = Maturity (can choose up to this term length)
The Taxable Rate minus the Direct Subsidy equals the
Net Interest Rate.
6.00% - 3.731% = 2.269%
In this example, the net interest cost would be
2.269%.

17. How QECBs Work: An Overview
From DOE QECB and CREB Finance Primer

18. Tennessee Program:
Allocation, Re-allocation, Sub-allocation
• Tennessee Legislation/ Authority
• TDEC OEP and Tennessee Local Development Authority roles.
Step 1- Allocation to Large Local Jurisdictions (LLJs)
Step 2- Re-allocation to State QECB program
Step 3- Competitive Sub-allocation to eligible issuers for
qualifying projects

19. Tennessee Program:
Large Local Jurisdictions Allocations
June 2012 Large Local Jurisdictions (LLJs) in TN received a share
of the $64.7 million based on their percentage of the population
• Cities with populations of 100,000 or more
• Counties with populations of 100,000 or more, not including any cities within
the county that are large local governments
15 entities in TN received allocations, totaling $35.9 million.
Blount County, Chattanooga, Clarksville, Hamilton County, Knox County, Knoxville,
Memphis, Metro Nashville, Rutherford County, Shelby County, Sullivan County,
Sumner County, Washington County, Williamson County, Wilson County
“Allocation designees” may:
• Authorize an eligible public entity such as a Development Authority to issue
QECBs
• Allocate all or a portion to an unrelated political subdivision within its
jurisdiction (such as a city in a county – conduit issuer relationship)
• Reallocate to the State

20. Next Steps:
Re-allocation and Sub-allocation
• OEP requested that all 15 Large Local Jurisdictions (LLJs)
determine usage of QECB allocation by June 30, 2013.
• Allocations not utilized by LLJs and reallocated to the State
were combined with state government allocation.
• Total allocation will be available to all qualified local
governments and public universities through a competitive sub-
allocation process.
• OEP is currently evaluating the level of funding to be dedicated
to the competitive round of sub-allocations; anticipated total is
$46,542,400

21. Davis-Bacon, Reporting: An Overview
Any project financed with proceeds of a QECB is subject to the
Federal Davis-Bacon Act prevailing wage and benefit
laws, including any private activity project financed with
proceeds of a QECB
Prevailing wage requirements do not apply to issuer employees
but do apply to contracts entered into for construction, repair, or
alteration
Other ARRA requirements, such as Buy American, monitoring
and audits, may apply
Issuers of QECBs must file a Form 8038 with the IRS upon
issuance of the QECBs
Reporting on project impact to OEP will be required

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QECBs in Action
Best Practices
How do issuers determine which projects to pursue?
What steps are taken to ensure success?
Projects
What types of projects have QECBs funded?
Examples of how energy, and money, is being saved
Next Steps
How can QECBs be used in Tennessee?
How can I learn whether QECBs are a good fit for me?

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Best Practices:
Difference-Making Project Criteria
• Project Feasibility
– Viability of project, technology, budget, compliance
• Project Impact
– Jobs, energy savings, return on investment, environmental benefits
• Project Strategy
– Align with local sustainability strategy, support, part of vision
• Project Readiness
– Timeframe in place for bond issuance, shovel-readiness

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Best Practices:
Performance Based Contracting
Performance-based contracting - payment is conditional on
achieving contractually specified energy savings
Uses energy and utility dollars saved to pay for
the project costs
Also called Guaranteed Energy Savings
Contracts with energy service companies (ESCOs)
Contract for the evaluation, recommendation, or
implementation of energy conservation measures
Payments made over time
Energy savings guaranteed to exceed costs

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QECB Case Study:
Foley, AL
Context:
Limited ability to finance projects, aversion to debt
Increasing utility needs, rising costs
Lack of precise, reliable data for facilities, utilities
Need to continue providing services
Aging or outdated technologies, equipment, and
facilities, combined with rapid growth
Challenge:
Manage operating costs while delivering quality services to a
growing number of residents

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QECB Case Study:
Foley, AL
Process:
Recognize opportunity to perform better, spend less
Partnered with an ESCO (energy services company), used
performance contract
Determine baseline: an audit is a snapshot of energy picture
Prioritize projects based on need, ROI
Identify financing strategy
Projects:
Citywide energy management system, communication network
HVAC, LED lighting, solar panels, rainwater harvesting, and
irrigation control on 18 sites

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QECB Case Study:
Foley, AL
Funding:
$2.8 M from QECB, effective interest rate of 1.3% for 20-year term
$350,000 from state loan
Results:
Reduced utility costs by 33%
Guaranteed savings via performance contract:
$4.2 M over 20 years
Equivalent of removing 1,663 cars from the roads

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QECB Utilization:
Examples in TN
Nashville
$6,440,000 allocation used on energy efficiency upgrades
for downtown Arena, issued August 2012
• Category: reducing energy consumption in publicly-owned
buildings by at least 20%
• Obtained certifications from construction engineers, anticipated
savings approximately 30%
• Resolution adopted by Metro Council granting issuing authority,
general obligation bonds
• Issued at 3.367% interest rate, interest paid semi-annually

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QECB Utilization:
Examples in TN
Clarksville
$1,240,000 allocation being used on energy efficiency upgrades for
LED street light conversion
• Category: reducing energy consumption in publicly-owned buildings by
at least 20%
• Currently has over 10,000 street lights in the city; largely high pressure
sodium street light fixtures
• QECBs funding first phase of comprehensive replacement of all street
lights with LED Light Fixtures
• Both 250 Watt and 1000 Watt fixtures will be replaced with radio-
controlled comparable illumination LED fixtures

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QECB Utilization:
Examples in TN
Memphis
$7,000,000 allocation being primarily used on energy
efficiency upgrades for upgrades to wastewater treatment
plant
• Category: reducing energy consumption in publicly-owned
buildings by at least 20%
• New Blower System at treatment plant to replace four obsolete
single‐stage, centrifugal blowers
• Modern system will have greater operational flexibility, lower
maintenance costs
• Project expected to provide an annual return on investment of
$1 million based on the energy saved

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Bellingham, WA:
Challenges and Opportunities
Population: 81,000
The Issues:
Growing maintenance needs across the city; maintenance often
reactive (short fixes, putting out fires)
Challenging properties: federal building, city hall, aquatic center

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Bellingham, WA:
QECBs as a Part of Overall Energy Strategy
The Strategy:
Consistent with efforts to implement the city’s Municipal Facility
Energy Conservation Strategy
Reduces long term operating costs, greenhouse gas
emissions, essential capital maintenance replacement while
stimulating local economy
Projects identified: lighting, HVAC, aquatic center
renovations, controls of systems
Performance Contracting with ESCO; budget neutral

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Bellingham, WA:
Financed Various Projects
QECB Bond (GO Taxable) $6,500,000
Interest & Debt Service $285,000
Administration $100,000
Facilities Repairs, Engineering $3,570,000
Machinery, Equipment $2,545,000
20% savings for 22 City-owned
assets; net interest rate: 1.68%; 15-
year term

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Bellingham, WA:
Results Exceed Expectations
Variety of measurement and
Verification strategies used
Guaranteed energy savings
of $163,000
Trouble-shooting until
performance achieved,
improved comfort

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Next Steps:
Utilization and Competitive Sub-Allocation
OEP requested that all 15 Large Local Jurisdictions
determine usage of QECB allocation by June 30, 2013
Allocations not utilized by LLJs and reallocated to the State
were combined with state government allocation
Total allocation will be available to all qualified local
governments and public universities through a competitive
sub-allocation process
OEP is currently evaluating the level of funding to be
dedicated to the competitive round of sub-allocations;
anticipated total is $46,542,400

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Next Steps (continued):
Utilization and Competitive Sub-Allocation
OEP will evaluate requests for QECB allocations through a
competitive process; guidelines in development
Information on how to apply will be released in Fall 2013
Competitive sub-allocation process will still require
adherence to appropriate regulations and conditions of
original allocation
End result: more places across TN saving money!

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Next Steps:
Application Workshops to Assist Eligible Entities
Workshops will be held showcasing QECBs:
– September 3: Nashville Ellington Ag Center
– September 6: Knoxville UT Conference Center
– September 11: Jackson Energy Authority Training Center
– September 12: Chattanooga Green Spaces
All workshops will be from 10:30-1:30 local time. Locations and
registration is available at http://tnenergy.org/events/

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Next Steps:
Application Workshops to Assist Eligible Entities
Each workshop will feature an overview of QECBs, industry expert
testimony, detailed case studies, and opportunities to have
questions and concerns answered
Information will also be provided regarding the upcoming application
process, and how eligible entities can prepare proposals this Fall
Finance Directors, Facilities Directors, and other Officials are
encouraged to attend
Attendees will leave being able to make an informed decision
whether QECBs are a good fit for their energy conservation needs

39. Thank You
39
OEP Energy Hotline: 615-741-2994
TDEC OEP Website
http://www.tn.gov/environment/energy/qualified-energy-conservation-bonds.shtml
Pete Westerholm
Program Manager
TDEC Office of Energy Programs
Katie Southworth
Program Manager
TDEC Office of Energy Programs