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By Michael Russell

June 14, 2010 (San Diego)--At a recent Home Energy Professionals meeting at the California Center for Sustainable Energy ( PACE Program Manager, Jeremy Hutman, enlightened a group of Energy Efficiency Auditors about new developments in the Property Assessed Clean Energy (PACE) programs in San Diego.

PACE Programs, in general, are a clever way to finance energy efficiency and renewable energy retrofits on existing real-estate. They allow the property owners to take out specialized long-term loans, similar to a second mortgage, but using government property law to place a primary lean against the property. This frees the loan from an individual's credit, and ties it instead directly to the property that the loan is intended to upgrade. That allows the owner to get the work done, to reduce energy waste, and save money on utilities, regardless of their personal credit. Additionally, the property can be sold, and the loan stays with it, transferred to the new property owners, who will directly benefit from the energy efficiency and generation.

The City of San Diego has been preparing such a program since October 2008, and keeps running into obstacles. They had been planning a roll-out of the program in March 2010, but found that they needed to change the Municipal Code. Now the program should begin late Summer 2010, but there's now a new hitch.

On May 5, 2010, the Federal Housing Financing Agency (FHFA) and Fanny May and Freddy Mac, issued letters that questioned the legitimacy of PACE loans as being senior to their mortgages. That was a reversal of what they originally said back in fall 2009, which was that they were going to accept it as an assessment on the property just as any other.

According to Jeremy Hutman from the CCSE, no PACE program anywhere in the nation will be moving forward until the Federal rules are worked out. 

The ultimate purpose of these programs is reducing energy waste, and to allow for the creation of new markets for renewable energy, so we can put people to work by directly funding infrastructure improvements on existing real-estate. To this end, many of the unemployed have been re-trained to perform the work necessary, and many start-up businesses in renewable energy and energy conservation businesses are waiting for the money to become available. Yet, because of the unscrupulous corruption of the home financing markets, which have caused our economic recession, these privately owned government sponsored enterprises that actually own the debt, are rightly worried about potential waste or unwise loans with a priority claim on their properties. 

There is a learning curve that needs to happen, but unfortunately there is not enough time to get that done before the PACE programs are supposed to get up and running. So, the big push right now is the Department Of Energy (DOE) has put out specific guidelines, or recommendations, for pilot PACE programs nationwide. What they are pushing is that Fannie (FNMA) and Freddie (FHMA) just accept that the new programs that are coming out will follow those guidelines. Including, specific (financial) loan loading order, cost effectiveness and a simple payback, that the system pays for itself in the lifetime of the loan.

The problem with renewable energy technology is that it is EXTREMELY EXPENSIVE, often costing ten to twenty years worth of carbon energy on the front end. Americans tend to worry little about wasting energy, which has traditionally been directly subsidized (editor note: and indirectly through defense expenditures related to contingencies in the Persian Gulf) by our government. So, instead of reducing energy use, we simply buy enough solar panels to meet current usage, and then end up wasting half the energy through inefficiency. Solar installers haven't always required efficiency measures, but for some reason the banks now want property owners to be able to pay back their loans. So, they want to require that any new property loans make financial sense, go figure. 

Fortunately, for anyone involved with the energy efficiency business (like me) the only way to meet the DOE requirements is to do the energy efficiency work first, then add just enough renewable energy equipment to meet the need of the building.

There are basically two different legal mechanisms that are intended to be used for financing these PACE programs in the County of San Diego:

1) CaliforniaFIRST ( - based upon AB811 - a 2008 law that permits cities, counties, and joint power authorities to create clean energy financing districts under an alternative legal framework. Plus, AB474 - from 2009, which added water conservation to AB811 financing options. Property owners can take advantage of financing through CaliforniaFIRST after their local government joins the Program. 

2) The City of San diego is not doing an AB811 program, they are using Mello-Roos program for renewable energy, efficiency, and water as well. The City of San Diego's Clean Generation program based upon a special voluntary opt-in Mello-Roos property tax assessment district, designed to see after our communities facilities district (CFD).

The City of San Diego finds itself in California Climate Zones 7 and 10. In these mild climate zones, some energy efficiency measures make sense and some do not. Therefore, their will be very specific financial loading orders, program guidelines, and vetting and verification. This is to make sure that you take prudent energy efficiency measures before spending money on renewable generation.

Most energy efficiency measures are more effective than renewable energy, but if you have a newer home that was built after 2000, then your home is already meeting tight Title-24 energy efficiency measures. Perhaps all you can do to save money is add renewable energy systems, like solar-thermal hot water.

The bottom line is, right now we're looking late summer at the earliest for the City (of San Diego, Clean Generation) program, and before the end of the year for CaliforniaFIRST program.

To clear up one thing there shouldn't be any up front fees for participating in the CaliforniaFIRST or Clean Generation PACE programs. So, do not let anyone scam you into putting-up a large 'down payment' toward future work. In spite of some confusion, these programs are setup to be pain free, so the loan process is quick, about two weeks before you have funds in hand. Therefore, all auditors, contractors, and inspectors can be paid by the property owner directly out of the loan funds without the homeowner having any out-of-pocket expenses.

See the CCSE presentation here. ( (


Acronym Appendix
Industry Jargon
(apologies for the lack of clarity above, here is s primer on some of the terms and acronyms used in the home energy and finance industry)

AB811 = California State Assemble Bill number 811, from September 2008 - allows local municipalities to create special voluntary property tax districts for energy efficiency and renewable energy retrofits and upgrades. Includes things like Heating and Air Conditioning systems, EnergyStar Appliances, Solar-Thermal Hot Water, and Solar-Photo Voltaic Panels.

AB474 = California State Assemble Bill number 474, from October 2009 - adds financing options for Water Conservation measures, like low-flow pluming, grey water, and landscaping, to AB811 programs. 

PACE = Property Assessed Clean Energy. Also know as, CA AB811 programs. Two such programs are the City of San Diego's Clean Generation Program, and the state wide California First program for Counties.

Clean Generation - The City of San Diego's PACE Program provides a financing for energy efficiency upgrades and renewable energy installations on private property. Participants agree to be part of an assessment district and will pay for the cost of the improvements, plus interest, over a 20-year period on their property tax bill. Qualified projects include renewable energy installations as well as retrofits associated with energy efficiency and water conservation. By making it easier for City residents to embrace clean technologies, the program will lower GHG emissions, stimulate the demand for local cleantech products, and save property owners money.

GHG = Green House Gas - the reduction of which is one of the major goals, along with energy security, energy distribution, and energy cost. 

DOE = The U.S. Federal Department Of Energy

Mello-Roos - named after the authors of the bill that made it California law in 1982. Mello-Roos is a form of financing that can be used by cities, counties, and special districts (such as school districts). Mello-Roos Community Facilities Districts (referred to as "CFDs") raise money through special taxes that must be approved by 2/3rds of the voters within the district. A CFD is formed to finance major improvements and services within the district which might include schools, roads, libraries, police and fire protection services, or ambulance services. The taxes are secured by a continuing lien and are levied annually against property within the district. The assessment appears on your annual property tax bill. If you are in a Mello-Roos district, you must disclose that information to someone who is buying your house. (Editors Notes: When California Proposition 13 passed in 1978, it severely limited the ability of local governments to use property taxes to construct public facilities and services. As a result, new ways to fund public improvements in respective locales were constructed.)

QA/QC - Quality Assurance, Quality Control. In the case of home energy retrofits and renewable energy installations, the government regulations require vetting and verification in the form of Home Energy Audits before and after the work, in order to realize real results.

IOU - Private Investor Owned Utilities, that have been granted a monopoly on a geographic area, like Sempra and PG&E, as opposed to Utilities owned in a Public Trust (like in Riverside). They have been allocated hundreds of millions in government money to administer energy efficiency (EE) programs. While all parties recognize there is an inherent financial conflict of interest between selling and saving energy, parties differ on the extent to which regulatory mechanisms can align IOU and customer (i.e. public) interests. See: Energy Efficiency Performance Incentives. Usually, these incentives require a 10%-20% decrease in energy use to qualify. 

Renewable Funding, LLC - a short-term financing company that also administers some programs. They provide the bridge loans that keep property owners from having to shell-out money up-front, to do the retrofit work and/or buy equipment. The short-term finance company gets paid a percentage, and then re-package the loan for a long-term funder after the work and equipment has been vetted and verified. (editors note: these guys are genius.)

TBD - 'To Be Decided' (Who will verify and audit the buildings and systems to make sure everything works?)

Surveys VS. Audits - A "Survey" is an informal inspection that doesn't meet any legal standards for regulation or certification. For example, a municipal building department may survey a building system to see that it is installed, but not test the system to see that it works. A professional, third-party "Audit" is a required inspection that is used to document scientific measurements of systems and their quality for the purpose government regulations and financial incentives or credits.

FHFA - Federal Housing Finance Agency, their mission is to provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. (Editors Note: at which they are doing a bang-up job!)

FNMA - The Federal National Mortgage Association, nicknamed Fannie May. Fannie May was created in 1938 as part of Franklin D. Roosevelt's New Deal. Fannie Mae was established in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.

FHMC - Federal Home Mortgage Corporation, nicknamed Freddie Mac, its mission is to provide liquidity, stability and affordability to the housing market.

It is important to note that both Fannie May and Freddie Mac are Private Corporations that are Government Sponsored Enterprises (GSEs), This means that, although the two companies are privately owned and operated by shareholders, they are protected financially by the support of U.S. tax payers. These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC oversight.