This document discusses utility on-bill repayment programs in California. It provides background on California's focus on financing energy efficiency incentives to meet aggressive goals. It reviews the policy and implementation issues California considered for its on-bill programs, including eligible sectors, measures, sources of funds, instruments, underwriting criteria and data collection. It describes California's pilot programs and the statewide "hub" used to coordinate financing activities. Key implementation challenges involved credit enhancements, data privacy, IT systems and balancing utility requirements with private capital needs.

1. Utility On-Bill
Repayment
August 2015

2. Harcourt Brown & Carey
Designs clean energy finance programs for
government, utility and commercial clients. We:
• Define goals and objectives
• Establish client risk assumption and cash
resources
• Identify sources of funds
• Develop the financing instrument
• Define data and reporting
• Assist with program launch

3. Goals of this Presentation
Focus on the California experience:
1. Provide background for California’s EE
financing
2. Review Policy Issues
3. Review Implementation Issues
4. Provide Lessons Learned and
Recommendations

4. The Elements of On-Bill Repayment
Utility On-Bill programs generally address the following:
1. Eligible Market sectors
2. Eligible technologies and measures
3. Source of funds (internal vs. external) and Funders (single? Multiple?)
4. The instrument (loan, lease, service agreement etc.)
5. Credit enhancements
6. Bill impact requirements
7. Underwriting
8. Security and collateral
9. Qualifying rates and terms
10. Origination and servicing
11. Open market vs. closed participant structure
12. Transferability
13. Payment distribution, delinquencies, defaults and disconnect
14. Data, data privacy and reporting
15. Program QA/QC

5. Background

6. Why Is California focusing on
financing incentives?
The State PUC, legislature and administration created an EE strategic plan
that:
– Establishes energy efficiency as the highest priority in meeting CA’s
energy needs
– Serves as a framework for making EE a way of life
– Will show how CA will use EE to grow its economy
– Residential new construction will be zero net energy by 2020
– Provides that commercial new construction will be zero net energy
by 2030
– Provides for the needs of low and moderate income customers that
low-income customers

7. Why Is California focusing on
financing incentives? (cont.)
In 20011 HB&C conducted a study for the CPUC concluding that CA
could not achieve these results with the existing rebate/incentive
programs.
– CA’s current annual EE spending is approximately $2 billion
per year (not including customer contribution)
– To achieve the incremental goals would require a total
investment of approximately:
• $5.5 billion per year in the residential market
• $2.5 billion per year in the institutional/commercial
market
• $2 billion per year on the industrial market

8. Why Is California focusing on
financing incentives? (cont.)
The PUC issued a Guidance Decision and Final Decision. These actions
concluded that:
– Financing is important to meeting the goals
– IOUs should hire an expert to make recommendations
– Hold workshops to review the expert's conclusions
– Recommendations made in late 2012
– The IOUs should develop scalable and leveraged financing products to stimulate
increased EE
– Utilize a “hub” to create an open market and to coordinate the state-wide
activities associated with the flow of funds and data
– The “hub” will be embedded in the CA Treasury for reasons of control and
experience with similar functionality
– The programs will be offered to all market sector programs and will be phased in
over a two year period

9. The California Structure: Basics
California’s financing programs have a number of
foundational elements:
– Utilities are not financial institutions
– Rely on multiple private capital sources to fund loans,
leases etc.
– Use ratepayer funds to attract that private capital,
where necessary
– Leverage the benefits of the utility bill to to bring down
rates, improve terms, broaden underwriting
– Attempt to maximize simplicity to greatest extent, for
lenders, participants.
• “Absorb” the complexity behind the program, to
achieve this goal
– Conduct large scale pilots to test the value of financing

10. Sector Pilot Type Credit
Enhancements
On-Bill
Repayment
Disconnection
Residential
Single Family $21 million Optional in PG&E
Territory
No
Master
Metered
Multi-Family
$2 million Yes No
Commercial
Small
Business-
Loan/Lease
$10 million Loans – Yes
Leases - Optional
Loans – Yes
OBR Leases –
Yes
Off-Bill Leases -
No
Non-
Residential
On-Bill
None Yes Yes
CPUC Decision

11. California Hub for Energy Efficiency Financing
Customer ContractorsIOUs
Participating
Lenders
Project
Info
Customer
Info
Account Info and
OBR/EFLIC Payment
Remittance
Loan/Lease Enrollment
Applications and
Claims
OBR/EFLIC Payments
& Loss Reserve
Reimbursements
Energy (and OBR/EFLIC) Payments
California Hub for Energy Efficiency Financing
(CHEEF)

12. Policy Issues

13. On Bill Program Elements and
Policy Considerations
• Market Sector
– Should the program target all sectors residential, multifamily, institutional,
commercial and industrial?
– How and to what extent to address low/mod income?
– Where are the major gaps and opportunities for greatest efficiency and greatest
role for financing?
• Source of funds
– Is there a direct role for ratepayer funds as credit enhancements; as funds directly
invested in projects?
• Eligible improvements
– Given that ratepayer funds support infrastructure development and credit
enhancements, will all the same eligibility rules apply to financing programs as
apply to other eligible improvements?
– What mix of eligible and non-eligible EE measures will be allowed?
– What documentation will be required to demonstrate rule compliance?

14. On Bill Program Elements and
Policy Considerations (cont.)
• Transferability
– What circumstances will allow for a payment obligation to be transferred?
– Will all financings be set up so that they must transfer from existing to successor
occupant?
– Or will they be set up as an option?
– How will this decision affect FI participation? How will it affect underwriting?
• Payment distribution (Addressing partial pays and late payments )
– Are ratepayers paid first, in case of partial pays? In subsequent months of partial
pays, who is paid first? Waterfall??
• Disconnection for non-payment
– Is there a value to OBR in the absence of disconnection?
• Uncertain value, but begin tested through a sub-pilot.
– What market sectors will be allowed to be disconnected?
• Residential disconnection very challenging in California, for non energy charges

15. On Bill Program Elements and
Policy Considerations (cont.)
• Eligible instruments (loan, lease or service agreement)
• Bill neutrality
– Will bill neutrality be a requirement for projects to qualify for
financing?
– What impact do bill neutrality requirements put on program uptake,
eligible project?
– If it is not required for all market sectors, should it be required for
some (e.g. Multi-family)?
• Subsidy levels
– Compensate utility for “use” of the bill?
– Who pays fees to whom (lenders, customers, contractors, IOUs)?
– Provide credit enhancements, in what form and for which markets?

16. Implementation Issues

17. Implementation Issues
• Credit enhancement structures
– What level of credit enhancement actually buys a lower rate, longer terms
or better underwriting?
– What results could be expected from different levels of credit
enhancement for the residential, commercial, multi-family or other
sectors?
– What types of capital providers will provide a benefit for a credit
enhancement?
• Eligible customers
– Must a customer be current on the utility bill at enrollment? Define
“current.”
– Who will assure that currency?
– In cases where an obligation transfers, must a new “successor” customer
also be current?

18. Implementation Issues
• Data Collection
– What data will be collected and in what form (data dictionary)?
– Who will collect and ultimately receive the data?
– How will it be organized, managed and shared (data schema and platform)?
• Sharing permissions?
– What forms will be required prior to sharing information? Placing charge on the utility
bill?
– What level of verification of permissions forms will be required? What will be required
prior to allowing a charge to be placed on the bill?
• Data privacy and security?
– What data will be shared with the administrator?
– At what level of aggregation will data be collected? Presented? At what level of
permissions will data be available to different parties? Who will be able to view/possess
data?
• Data Transfer
– Through what means will data be transferred between utility and the administrator?
– How frequently will that data be transferred (daily/monthly/annually)?
– How will the transfer of data about exceptional events be addressed?

19. Implementation Issues
• Through what means will data be collected?
– Forms - electronic, fillable, etc.?
– Who will collect and ultimately receive the data?
– How will it be organized, managed and shared (data schema and
platform)?

20. Data Flow

21. Implementation Issues
• IT issues
– What existing IT structures can IOUs leverage to build out OBR?
– What new requirements will IT systems need to meet for reporting
purposes? For operational purposes?
– With what frequency must files be generated/transmitted?
– How much can IT systems be automated as opposed to addressing
functional needs through manual operations?

22. Data Protocol

23. File Transmittal Flow

24. Final Observations
• The devil is definitely in the details
• The most controversial issues have been:
– Transfer of payment obligation
– Applicability of on-bill to the res sector
– Specific rules currently applying to use of ratepayer funds,
and applicability to financing programs
• The most challenging issues to address have been:
– IT
– Data privacy, aggregation, security
– Marrying requirements on utility ratepayer funds with the
desire for strong deal flow

25. Final Observations
• The market for OBR is developing quickly
– When we started this effort, few if any finance firms
understood or had an interest in OBR
– Now, that number has increased substantially
• The benefits of OBR definitely depend on the
structure of OBR
– Is OBR just a collection mechanism, with finance
collections subordinate to utility charges?
– Or is OBR a mechanism that provides most of the
benefits of utility charge collection to the finance
charge?

26. Process Flow

27. Thank You
Contact:
Matthew Brown
matthew.brown@harcourtbrown.com
Dave Carey
dave.carey@harcourtbrown.com