State Enacts Energy Efficiency Finance Program
February 20, 2012
Last year the state enacted a bill, ABX1 14, which creates the Clean Energy Upgrade Program. The purpose of the program is to reduce the costs to property owners that wish to finance the costs to install distributed generation renewable energy sources (such as solar), electric vehicle charging infrastructure, or energy or water efficiency improvements on their property. Assistance is provided in the form of state funds to support lenders against loan defaults. The program is available for improvements in residential property of up to three units or for commercial projects that costs less than $25,000 in total. The program, initially funded with $25 million, is administered by the California Alternative Energy and Advanced Transportation Financing Authority (“Authority”).
While the voluntary program is potentially attractive to lenders because of the credit enhancement, it also entails very detailed and onerous qualification standards that could overwhelm its advantages. A lender is required to develop a “loan program” suited to the state program that meets a number of criteria, and submit an application to the Authority for approval. The application, which is currently being developed by the Authority together with regulations, must include a detailed description of the loan program, including (among other things):
- that the loans are for less than 10% of the value of the property;
- the purpose of the loan conforms to the purposes of the statute;
- the loan program employs Authority-developed “best practices” to qualify eligible properties for participation;
- the loan program is “cost efficient”;
- whether the loan program would create jobs (presumably by the lender);
- certain quality assurance and consumer protection standards are met; and
- savings produced by the program (presumably in terms of lower fees and rates) are passed on to the property owners .
Pursuant to the Authority’s draft regulations, the Authority will establish a Loss Reserve Account for the accepted lender applicant for the purposes of receiving contributions from the Authority and paying claims. The account will be held by a Program Trustee and all moneys in the accounts remain the property of the Authority.
After a lender experiences a charge off on a covered loan, it may make a claim for reimbursement pursuant to a claims procedure still being developed. Standards for charging off a loan should be consistent with the lender’s usual standards. Lenders are also required to provide quarterly reports to the authority that includes data on each qualified loan.
This is a link to the draft regulations. Comments may be submitted in writing until February 24.
- The idea here is that the loan program is designed in such a way as to be efficient and less costly to borrowers as compared to a bank’s existing products. But lenders may find it challenging to develop a cost-effective program in light of the program’s numerous requirements.
The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.
© This CBA Regulatory Compliance Bulletin is copyrighted by the California Bankers Association, and may not be reproduced or distributed without the prior written consent of CBA.