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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 10/28/2014 - UTILITIES ON-BILL FINANCING PILOT PROGRAM REVIEW ADATE: STAFF: October 28, 2014 John Phelan, Energy Services Manager WORK SESSION ITEM City Council SUBJECT FOR DISCUSSION Utilities On-Bill Financing Pilot Program Review and Recommendations. EXECUTIVE SUMMARY The purpose of the On-Bill Financing pilot program (also known as the Home Efficiency Loan Program) is to provide residential utility customers with low-cost financing for energy efficiency, solar photovoltaic, and water conservation improvements to support the outcomes adopted in City of Fort Collins policies and plans, such as the Climate Action Plan, Energy Policy and Water Conservation Plan. For the October 28 City Council work session, staff will present a review of program results to date and recommendations to enhance the program. The recommendations focus on simplifying the application and program processes, improving the loan terms, and revising the structure to address residential rental and business lease properties. Staff will also present the requirements, resources and schedule for implementation of the recommendations, including City Council actions. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does Council support the proposed recommendations? 2. If so, does Council support the proposed resources and schedule for implementation? BACKGROUND / DISCUSSION The purpose of the On-Bill Financing (OBF) pilot program (also known as the Home Efficiency Loan Program) is to provide residential utility customers with low-cost financing for energy efficiency, solar photovoltaic, and water conservation improvements to support the outcomes adopted in City of Fort Collins policies and plans, such as the Climate Action Plan, Energy Policy and Water Conservation Plan. The OBF pilot program was established by Ordinance No. 033, 2012, which revised language in Chapter 26 of the City Code to enable Utilities to provide financing and on-bill servicing of loans for energy efficiency, water efficiency and renewable energy projects. The OBF pilot program (OBF Program) was launched in January 2013, and was reviewed by Council in August 2013 to understand results to date and determine next actions in managing the OBF Program’s success. City Council’s feedback indicated general support for the OBF Program and requested that staff return in fall 2014 with a review of the OBF Program and recommendations for improvements. History Fort Collins Utilities offered the Zero Interest Loan Program (ZILCH) starting in the early 1980s. While the program was successful for many years, from 2002 to 2009 it had relatively little activity. The 2009 national mortgage crisis resulted in changes to the requirements for local government entities to be able to originate loans for home improvements. As a result, the Zero Interest Loan Program was suspended in early 2011. The OBF Program superseded the energy and water efficiency aspects of the Zero Interest Loan Program. The air quality- related aspects of the Zero Interest Loan Program, with funding from the Environmental Services Department, continues under a revised administrative model. October 28, 2014 Page 2 Current Program Development and Characteristics The OBF Program was developed collaboratively by Utilities (Energy Services and Billing), Finance, and Legal department staff, with assistance from the consulting firm Harcourt, Brown and Carey. The program was modeled after successful programs and is most succinctly described as a traditional loan program which is serviced by Utilities on customer’s monthly bills. The development process included the Energy and Water Boards and local stakeholder groups. Customers qualify by their bill payment history and credit score, eligible projects are defined by Utilities incentive programs and the loans are secured via a deed of trust recorded with Larimer County. The Code changes adopted by Council authorize Utilities to provide financing services. A key element of the program is that the loan payments are treated like any other element of a customer’s bill (e.g., electricity, water, wastewater and stormwater). With such treatment, loan payments are not differentiated from other services. Utilities normal and customary practices for non-payment apply, up to an including service disconnection. Utilities also has established rights under City Code for collection of any past due amounts at a property’s time of sale, also known as the “perpetual lien” ordinance. The OBF Program uses pre-existing standard capabilities of the Utilities billing system; no customization of the system was required. Due to the use of a Deed of Trust of security in the property, the origination of these loans must be in compliance with federal and state consumer protection lending rules. As a result, customer qualification and loan closing services are provided in partnership with a third party financial partner, EnergySmart Partners LLC. EnergySmart Partners is a subsidiary of the non-profit Funding Partners, a local Fort Collins Community Development Financial Institution. Program fees and the interest rate range are defined in Utilities’ residential rate ordinances. The City Finance Department developed a set of rules and regulations for administrative implementation of the OBF Program. OBF Program capital comes from Light & Power and Water reserve funds, determined by the project type. The funding is a “balance sheet transaction,” where the funds are accounted for by moving from reserves to accounts receivable. As such, loan funding is not a typical expenditure or a budget item. Council has authorized Utilities for a maximum outstanding balance of $800,000 for the loan program. Should demand for financing reach this limit, Utilities will coordinate a request for additional funding. Program information, including details on customer and project eligibility, qualifications and loan terms can be found at fcgov.com/financing. Changes made to the program as a result of the August 2013 Council Work Session are shown in the table below. Attribute 2013 2014 Loan term Determined by loan amount (5, 7 or 10 years) Selected by customer (5, 7 or 10 years) Interest rate Two tiers based on credit score (prime plus 2% or 5.25%, prime plus 3% or 6.25%) Two tiers based on credit score (5.0%, 6.0%) Fort Collins Program Results The following table lists the program results from January 2013 to date. Description Number Funding Notes Closed loans 20 $145,122 86% energy projects, 14% water projects, min $2126, max $14995, avg $7256 Pending loans 2 $20,000 Denied loans 6 5 denied based on credit score, one based on utility payment history October 28, 2014 Page 3 Marketing was increased in 2014 to build awareness for the Home Efficiency Loan Program amongst Utility customers along with specific outreach to customers completing efficiency audits via energy advisor services. Contractor trainings were also completed to reinforce the availability of this financing option for customers. Samples of marketing materials are included in Attachment 4. New Models for On-Bill Financing There are a number of different models for utility on-bill financing programs. One model which has been successful is called an on-bill “tariff”, with the How$mart program from Midwest Energy having the longest track record. The tariff model was pioneered by the Energy Efficiency Institute Inc. Based in Vermont and is also known as the PAYS model (pay as you save). The use of the word “tariff” is used here to denote that the service charges for the financing are undifferentiated from any other utility charge. Key characteristics of this approach include:  A tariffed service charge assigned to a meter location, not to an individual customer;  Billing and payment on the utility bill with disconnection for non-payment; and  Independent certification that projects are appropriate and savings estimates exceed payments in both the near and long terms. The Community for Sustainable Energy organization (CFORSE), a grassroots lobbying group, has advocated for an on-bill financing program modeled after How$mart for the last several years. Their efforts have resulted in hundreds of letters being sent to Fort Collins City Council. In parallel with CFORSE efforts, Fort Collins Utilities has been working with Rocky Mountain Institute to develop frameworks for new business models for implementing and scaling efficiency and renewable energy. Effective on- bill financing tools are expected to play a key role in ongoing efforts to expand efforts to meet community energy and climate goals. Utilities staff have been in contact with the originator of the How$mart program, the current program manager and the originator of the PAYS model. The tariff approach was considered in the original development of the program. However, it was not recommended due to concerns about obligating future customers to service charges which they did not originate and that there would need to be upgrades to Utilities billing system. Attachment 1 is a letter from Midwest Energy’s How$mart program manager, noting key program elements and results. The tables below compare Fort Collins current Home Efficiency Loan Program with How$mart, based on these elements and results. Midwest Energy is a utility co-op providing electricity and natural gas services to approximately 50,000 residential customers (Fort Collins Utilities serves approximately 68,000 residential electric customers and 34,000 water customers). Comparison of Fort Collins On-Bill Loan and How$mart Programs: Key Elements Attribute How$mart Fort Collins Recommended Changes Treatment of the loan payments as an on- bill service charge Tied to the meter Tied to the customer Yes Handling billing of the service charges in the same way as other utility services, especially in regards to non-payment No differentiation between utility services No differentiation between utility services No Inclusion of agreement language requiring notification of service charge to subsequent utility customers Based on UCC filing and required lease language for rental properties Not applicable; loans are not transferable Yes, for rental October 28, 2014 Page 4 projects Offering low and attractive interest rates Currently at 3% Currently at 5% or 6% Yes Developing a contractor based sales force Contractors are primary marketing approach Direct marketing to customers plus engaging contractors Ongoing Use of legal documents and intellectual property licensed from the Energy Efficiency Institute, Inc. Licensed and adapted by Midwest Energy Under consideration TBD Comparison of Fort Collins On-Bill Loan and How$mart Programs: Results Results How$mart Fort Collins Notes Projects per year 200 325 Average of last two years Loans per year 200 ~20 Estimate for 2014 Percentage of project types 70% heating and air conditioning; 30% include insulation and air sealing; 38% heating and air conditioning; 57% include insulation and air sealing; 5% windows FC program provides flexibility for comprehensive projects Self-funded through energy savings 30% of projects are completely self-funded from the energy savings, with the remaining requiring buy-down by customers with up-front funding; Scope of projects determined by customer; up to 100% of costs can be financed FC program provides flexibility for comprehensive projects Program fees 5% 5% of loan amount (average $300) Total of $205 for October 28, 2014 Page 5 It is important to note two key aspects of the recommendations.  The recommendations are interrelated in sometimes complex ways. The eligibility and qualification of customers and measures, the legal aspects of recording and administration, billing system capabilities, energy savings and loan terms all impact each other.  Actions required to implement the recommendations include those that require Council action and those that can be implemented administratively through the program rules and regulations. Simplifying Application and Program Process Attribute Current Recommendation Notes Customer qualification Bill payment history Minimum FICO credit score Bill payment history Minimum FICO credit score FICO scores required to manage perception of risk for default No clear association between a program’s underwriting criteria and participant default rates Service disconnect and perpetual lien provide risk mitigation Credit score improves future access to capital Fees $25 application fee $150 origination fee $30 recording fee Program participation to be self-funded and/or cost based Determined by business processes of final program design Recording Deed of Trust UCC filing Works for providing diverse remedies, including service disconnection; clouding the title; being subordinate to mortgage or other bank liens (by statute) and can be transferred via “written agreement.” Provides for more flexible program administration Improving Loan Terms Attribute Current Recommendation Notes Interest Rates 5-10% possible range Two rate tiers Fixed rate for term Annually set by program rules Allowable range from 2.5- 10% Single rate tier Fixed rate for term Annually set by program rules Rate intended to be “low but not zero” to be attractive to customers and allow for adjustments. Considerations for setting rate include other City loan programs, market rates for alternative investments, potential future use of 3rd October 28, 2014 Page 6 energy projects Water customers for water projects Single family and townhome customer rate classes (GS/GS25) customer are in leased space and face the split incentive of having one party pay utility bills while another party controls efficiency investments Same business processes can work for residential and business customers Applicant Property owner Property owner for owner-occupied Property owner with acknowledgement from current tenant for rental and lease properties Owner is responsible for upgrades to premise, agrees to obligation and notification of future tenants Current tenant agrees to service charges on bill Transferability Non-transferable, due upon sale or refinance Loans are transferable by written acknowledgement Written acknowledgement for rental/lease properties is via lease language between owner and tenant Related to UCC filing Measures EW* Home projects Water service line replacement Wastewater line replacement Solar PV * Efficiency Works Add EW business project types For rental/lease, measures limited by bill neutrality requirements Customer may only borrow funds up to the bill neutral service charge limit; they may buy-down the total cost to reach this level Summary The proposed program structure is a hybrid of the existing Home Efficiency Loan Program with key elements of the “tariff” model (similar to the How$mart program) and includes the addition of small business customer rate classes.  For owner-occupied properties, the OBF Program would operate in a similar fashion to today with simplified processes and improved loan terms. Owners would choose to participate, determine qualification and project October 28, 2014 Page 7 whether to a current tenant customer or the property owner. Utilities staff developed software requirements and is awaiting a preliminary estimate from the billing system software vendor for customization. Staff will also develop a schedule for testing of the billing system's new configurations. Energy Savings Calculations Loans in rental and lease situations are obligating future customers to the service charges which they did not initiate. An essential requirement for these projects is that they generate annual savings in excess of the annual service charges. For example, for a home that needs insulation, air sealing and a new furnace, the annual electricity and natural gas savings should exceed the annual service charges based on the maximum term of 15 years. Customer may only borrow funds up to the bill neutral service charge limit; they may buy-down the total cost to reach this level. Over the course of a 15 year term, it is highly likely that a range of tenancy situations will inhabit a given property, each with their own number of occupants and personal habits. It is not uncommon to see energy use variability of plus or minus 100% in the same premise based on the occupants and behavior. As a result, Utilities proposes to calculate bill neutrality based on standardized project and measure requirements which are then customized with energy modeling of a specific home or business. The chart below illustrates the types of projects which are likely to meet the bill neutrality requirements as a function of annual utility costs and percentage savings. Illustration of Typical Project Costs and Available Capital as a Function of Annual Utility Bills, Percentage Savings and Loan Terms Public Outreach A public forum to gather feedback on the recommendations was held October 16, from 5:30-7:30 at the Senior Center. The forum was coordinated with community stakeholders, including the Community for Sustainable Energy. Results from the forum are included as attachment 5. October 28, 2014 Page 8 Council Actions As noted above, the OBF program was established by Ordinance 033-2012 which revised language in Chapter 26 of the Municipal Code to enable Utilities to provide financing and on-bill servicing of loans for energy efficiency, water efficiency and renewable energy projects. In order to implement the recommendations, Council action is required for revising the rate ordinances.  Adding financing language to the small business rate classes  Revising the fees and interest rate range as determined by the final program plan. The remaining recommendations can be implemented administratively via revision to the program rules and regulations. Next Steps Staff will finalize the program design based on feedback from Council during this work session. The steps include:  Customization of the billing system software, including testing  Development of legal documents, such as agreements for owner occupied and rental/lease projects, notification requirements and UCC filings.  Determination of business processes, including the approval of applications, closing requirements, utility bill savings modeling and project requirements.  Rate ordinance adoption for all affected rate classes and service types.  Updated marketing plan for the revised program. Staff proposes to complete these items by the end of January 2015, with the exception of the billing system customization. The schedule for the billing system will be determined by the vendor custom programming and subsequent testing by Utilities. ATTACHMENTS 1. Letter from Midwest Energy How$mart to Fort Collins, October 2014 (PDF) 2. Ordinance No. 033, 2012, Authorizing On-Bill Financing (PDF) 3. Home Efficiency Loan Program Product Guideline, April 2014 (PDF) 4. Home Efficiency Loan Program 2014 marketing sample materials (PDF) 5. OBF Public Forum Summary Memo (PDF) 6. On-Bill Utility Finance Pilot Oct 28 Work Session Presentation (PDF) 1330 Canterbury Road Hays, KS 67601 1-800-222-3121 www.mwenergy.com To: Fort Collins City Council and Staff From: Brian Dreiling, Manager of Energy Services Thank you for your interest in Midwest Energy’s How$mart program. How$mart has provided over $5 million in capital funding to over 1,000 homes in our territory since 2007. The on-bill tariff model has been very successful, and we are happy to collaborate with Fort Collins on best practices for energy efficiency. Key success factors for our program include: o Treatment of the loan payments as an on-bill service charge tied to the meter; o Handling billing of the service charges in the same way as other utility services, especially in regards to non-payment; o Inclusion of agreement language requiring notification of service charge to subsequent utility customers; o Calculation of utility bills after upgrades to be no more than 90% of pre-retrofit bills; o Offering low and attractive interest rates, currently at 3%; o Developing a contractor based sales force, and o Use of legal documents and intellectual property licensed from the Energy Efficiency Institute, Inc. Key statistics of our program include: o The program has supported about 200 projects per year over the last two years; o Approximately 70% of the completed projects are for heating and air conditioning systems; 30% include insulation and air sealing; o Approximately 30% of projects are completely self-funded from the energy savings, with the remaining requiring buy-down by customers with up-front funding; o The program includes fees that are 5% of the loan amount; o The default rate has been very low, with losses of only $12,500 out of the total (0.25%); o A UCC filing is recorded with counties for all projects in order to provide title notification; o How$mart has seen 15% participation by rental properties, with over 20% participation over the last year; o For properties with loans that have sold, approximately 50% have been paid off during the sale transaction, and o The home audit cost of $200 is waived if the customer participates in the program before eight months. I hope this information is useful to the Fort Collins City Council in consideration of staff recommendations to revise the current program. Utilities staff have been in conversations with Midwest Energy staff since 2010 during the initial development of Fort Collins on-bill financing program. I look forward to hearing the results of Fort Collins discussions on next steps. ATTACHMENT 1 ATTACHMENT 2 1 Revised 04/15/2014 EnergySmart Partners LLC Product Guideline City of Fort Collins Utilities “Home Efficiency Loan Program” H.E.L.P. Eligible Borrowers: Applicants who own residential property located in Fort Collins that is to be improved by the loan and are current City of Fort Collins electric utility customers (for qualified energy efficiency and renewable energy improvements) or water utility customers (for qualified water improvements). For energy efficiency and renewable energy improvements, customers must have scheduled or received a City of Fort Collins Home Efficiency Audit. Eligibility of Utility customers to participate is based on credit scores and stated or verified income and pursuant to other criteria and procedures adopted in administrative rules and regulations adopted by the City of Fort Collins Chief Financial Officer. Utilities reserves the right to also base qualification on utility bill payment history (reviewed by City of Fort Collins Utility staff), All applicants claiming ownership interest in the subject property must be natural persons (no legal entities) and provide a single valid Social Security Number or Individual Tax Identification Number (ITIN), consistent among all forms of income verification. Further eligibility defined within a classification table shown below on page three. Loan Amount Minimum loan amount is $1,000; Maximum loan is $15,000 (per utility premise). Loans can be up to 100% of eligible project costs within loan limits stated above. Rebates Home Efficiency Program rebates are processed and distributed separately from the “Home Efficiency Loan Program” loan. The rebate check is sent directly to the homeowner by Fort Collins Utilities staff. Property Type: Eligible properties are single family dwellings or townhomes. Residential rental properties are eligible with loan application from the owner, a natural person. A loan secured by a deed of trust on a rental property will be billed directly to the person who obtained the loan. Collateral: Loans will be secured by a deed of trust recorded with Larimer County. Electric service may be discontinued for nonpayment of past-due accounts directly or indirectly related to the provision of electric service, in which event written notice shall be given in accordance with Section 26-713 of the Fort Collins Municipal Code and any Council-approved service rules and regulations. Interest Rate: Fixed interest calculated at time of application based upon a classification table shown below on page four. Interest rates to be revised annually by the City Financial Officer. Income Threshold: Loan terms may depend upon verified household income though no maximum income limit is imposed for program eligibility. Debt Ratio: When borrower debt-to-income ratio requires verification, proposed loan repayment amount combined with all other obligations of the borrower shall not exceed standards defined by borrower classification table shown below on page three. Repayment: Monthly payment of principal and interest will be collected by the City of Fort Collins Utility Billing Office as a line item on the borrower’s City of Fort Collins monthly utility bill. Escrow for hazard insurance and property taxes are ATTACHMENT 3 2 Revised 04/15/2014 not provided by EnergySmart Partners LLC (ESP) and remain the sole responsibility of the home owner. Term: Loan amounts of $1,000 to $15,000 are available with terms of 60, 84 and 120 months; and are fully amortizing, with all outstanding principal, interest and other sums due at maturity. Loan Payoff: Loans will be closed after receipt of all principal and interest. Loans must be paid off at time of property sale or refinancing of the property first mortgage. Loans can be prepaid in full, at any time, without penalty. Use of Funds: Permitted capital improvement projects shall enhance the health, safety, and energy or water efficiency of the home, including installation of renewable energy systems as allowed by the City of Fort Collins Utilities On-Bill Financing Program administrator. A list of qualifying energy improvements and the rebates available can be found by accessing the links on the Home Efficiency Program (HEP) home page: www.fcgov.com/homeefficiency. A list of qualifying renewable energy projects and the rebates available can be found by accessing the links on the Solar Rebates home page: www.fcgov.com/utilities/residential/conserve/renewables/solar-rebates. Water service line repairs qualify as described on the service line repair page: www.fcgov.com/utilities/what-we-do/water/water-distribution/service-line- repairs. Loan Fees: A one-time non-refundable application fee in the amount of $25 shall be due and payable upon submittal of all City of Fort Collins Utilities Home Efficiency Loan Program loan applications. An additional origination fee in the amount of $150 is due to ESP at time of loan settlement. Customer may choose to pay the origination fee at closing or add the amount to the loan principle (not to exceed loan maximum). Public recording and any other third party service fees are the responsibility of the borrower and assessed at the time of loan settlement. Origination Procedures Application: EnergySmart Partners LLC, a wholly-owned subsidiary of Funding Partners for Housing Solutions, Inc. collectively referred to as “ESP”, will receive completed residential loan applications from applicants through ESP’s website: www.energy-smart-partners.com, a signed Authorization to Release Information and supporting documentation. A credit report and processing fee of $25 shall be due ESP at time of application and paid by applicant on ESP website. Processing: ESP will order third party verifications including credit report(s), the property owner and encumbrances report, evidence of hazard insurance and the City of Fort Collins Utility estimated rebates. Under normal circumstances and if ESP has received all required information, an applicant can expect receive information about whether the applicant is eligible to receive a loan within 24 hours or one-business day. Confirmation of credit determination, loan terms and remaining documentation requirements, as applicable, will be delivered in electronic format to the applicant for review and acceptance. Pre-Settlement: ESP will prepare loan closing documents that shall include a Lien Waiver & Completion of Work Affidavit wherein the borrower must acknowledge the amount paid to the project contractor upon loan settlement. The project contractor is required to acknowledge that all work is or will be completed according to the Fort Collins Utilities program standards and in a good and workmanlike fashion within the agreed-upon timeframe. The project contractor is required to verify that all suppliers and/or subcontractors for the project are paid in full with no further recourse to the borrower, and furnish lien waivers to 3 Revised 04/15/2014 that effect. The building permit for the project must have received final approval from the City of Fort Collins Building Department and the project work must be approved by the HEP inspectors and staff prior to loan closing. Fees Collected: Application, public recording and other third party fees shall be assessed and detailed within a settlement statement prepared by ESP. Borrower must pay the loans fees at time of settlement. Settlement: ESP will present all loan documents to borrower at the time of loan settlement. Each Borrower must acknowledge receipt of a standard Colorado Notice of Rescission, allowing cancellation of the deed of trust within three business days of settlement. The deed of trust documents must be signed in the presence of a notary public, which will be arranged between ESP and the borrower. Funding: Upon receipt and acceptance of completed and signed Lien Waiver & Completion of Work Affidavit and HEP Rebate Application forms from the project contractor(s) and, if applicable, subcontractors, ESP shall release loan proceeds directly to project contractor(s) upon confirmation that all work is complete. Dependent upon the scope of the proposed project, ESP will disburse funds to all applicable contractors and will disburse payment directly to the borrower for any deposits the borrower has paid to the contractor upon receipt of a paid receipt. Execution of a release of lien affidavit, and a completed Rebate Application sent to Fort Collins Utilities, is required from all applicable contractors prior to each distribution of loan proceeds. Disbursement of funds is prohibited prior to expiration of the three business day rescission period. Post Closing: ESP shall retain all original documents and permanent loan file, record deed of trust documents and UCC filings as necessary, process and issue subsequent project draw requests, and issue release of collateral obligations upon final satisfaction of the Note. Copies of all executed loan documents will be provided to City of Fort Collins after loan settlement. Loan Qualifications: In order to obtain a loan from ESP under the City of Fort Collins “Home Efficiency Loan Program”, a borrower must meet the following requirements: Credit Metrics Tier 1 Tier 2 Minimum FICO (Credit Score) • Each borrower must meet the minimum FICO score • If there are multiple borrowers, the lower the score (regardless of income) must be used for qualification • 680 if salaried (or fixed income) • 720 if self- employed less than 2 years • 640 if salaried (or fixed income) • 680 if self- employed more than 2 years • 720 if self- employed less than 2 years • Utility Bill History (if available, reviewed by Fort Collins Utility staff) • 6 months timely payments • 12 months timely 4 Revised 04/15/2014 *Loans may be assigned to a different approval tier, be declined or subject to further review if underwriter determines that FICO score or other factors are inconsistent with actual credit and employment profile. Interest Rate and Loan Term Schedule: Tier 60 Month Term ($1,000 - $15,000) 84 Month Term or less ($1,000 - $15,000) 120 Month Term or less ($1,000 - $15,000) 1 5.00% 5.00% 5.00% 2 6.00% 6.00% 6.00% The Interest Rates above have Annual Percentage Rates (APR’S) that may range as low as 5.47% to as high as 14.32% based on the borrower’s credit worthiness, loan amount, term and income verification type, and is subject to our credit qualifications. Interest Rates and APR’s are subject to change without notice. Income Verification Requirements: Salaried Employees, Pension, SSI Income, etc. Self Employed Stated Income (No Verification Required) • When the loan amount is less than $5,000 • Or any loan amount if the FICO is greater than 680 Income Verification Required • When the loan amount is greater than $5,000 • And the FICO is less than 680 • One pay stub with YTD earnings dated within 30 days of the application or award/benefit letter for SSI or pension showing income amount, payment frequency; start and end dates. Rental income verified by lease or Schedule E from tax return. NOTE: Any “other” income (not primary income), which is being used to qualify the loan, must be verified. Stated Income (No Verification Required) • When the loan amount is less than $5,000 • Or any loan amount if the FICO is greater than 680 Income Verification Required • When the loan amount is greater than $5,000 • The FICO is less than 680 • Most recent federal income tax return (first 2 pages of 1040) plus Schedule C if applicable. Rental income verified by lease or Schedule E from tax return. NOTE: Any “other” income (not primary income), which is being used to qualify the loan, must be verified. Maximum Debt to Income Ratio Requirements (“Max DTI Ratio”): Debt to Income Ratio Tier 1 Tier 2 List Total Monthly Obligations • Any loan which has a remaining term of less than 6 months may be excluded from the calculation • When revolving accounts do not show a minimum payment use the greater of 1% per month or $10 • Real Estate taxes and homeowners insurance (if not included in the mortgage payment) must be included in Our customers appreciate the results “ I am so impressed with the total process. On top of that, getting substantial rebates made this a win-win situation. I have already recommended this to my friends and neighbors.” – Homeowner 1983 ranch style house “ Our home’s comfort level and energy usage were really awful. After we made the recommended improvements, the comfort level now is amazing. The ﬂ oors are warm in the morning, and the house is a breathing, healthy environment.” – Homeowner 1950 two-story house “ I’m not sure I could have afforded to increase my home’s efﬁ ciency if I hadn’t heard about the program and then participated. The range of rebates really cut down my costs and I’ve applied for ﬁ nancing. I love the program and am absolutely thrilled with how kind I’ve been treated.” – Homeowner 1980 pre-fabricated one-story home 3/14 Home Efﬁ ciency Program Discover Your Home’s Potential Audits Improvements Rebates fcgov.com/HomeEfﬁ ciency • utilities@fcgov.com 970-221-6700 • TDD 970-224-6003 Discover Your Home’s Potential Save money and increase your comfort Fort Collins Utilities can help with: • energy and water efﬁ ciency audits • free energy advisor services to help you take the next step • participating contractors • rebates • easy home efﬁ ciency loans ATTACHMENT 4 Energy Advisors Your auditor can also provide free energy advisor services to help you create a customized plan for your home and budget. Available rebates • Insulation and air sealing • Furnaces and boilers • Windows • Air conditioning • Water heaters • Evaporative coolers • Heat pumps • Ventilation systems • Whole-house fans • Duct sealing Fort Collins Utilities also offers a variety of energy and water efﬁcient appliance and sprinkler rebates. Free sprinkler audits are also available. Find rebate details at fcgov.com/HomeEfﬁciency. Find out how your home can work for you A home efﬁciency audit identiﬁes ways to conserve energy and water while adding comfort to your home. The affordable audits ($60) include an inspection and tests by qualiﬁed auditors, who use blower doors and infrared cameras to reveal opportunities for improvement. Combustion safety tests also are included. To be eligible, you must be a Utilities electric customer and occupy a single-family home or townhouse. Three steps to make your home more efﬁcient 1. Schedule your audit • Call 970-221-6700 or TDD 970-224-6003. • Review your report with prioritized recommendations. 2. Talk to a free Energy Advisor to plan your upgrades 3. Choose a participating contractor • Have your contractor complete the improvements and submit your rebate application. • Cash your rebate check in six to eight weeks after we receive your completed paperwork. Participating contractors To be eligible for rebates, you must have completed an efﬁciency audit and work with a participating contractor, selected for a commitment to meet Utilities’ quality standards. Participating contractors in a variety of specialties are listed online at fcgov.com/HomeEfﬁciency. Audits Improvements Rebates Easy Home Efﬁciency Loans • No money down • Conveniently repay the loan on your monthly utility bill • Simple application • Borrow up to $15,000 • Apply online at energy-smart-partners.com or call 970-494-2021 Find out more at fcgov.com/ﬁnancing 5/14 Save $25 with this ValPak coupon. Make ﬁnancing your home improvement easy. fcgov.com/ﬁnancing See details on reverse. Take advantage of a Home Efﬁciency Loan with NO APPLICATION FEE Use coupon by July 31, 2014 Two steps to get started Step One – Complete Application Call Energy Smart Partners, 970-494-2021 Step Two – Schedule a Home Efﬁciency Audit Call Fort Collins Utilities, 970-221-6700 Financing details • You may qualify for up to $15,000. • Mention this coupon to waive the $25 application fee. • Loans can be up to 100 percent of the project costs. • Conveniently repay the loan on your monthly utility bill. Use your loan to upgrade: • Insulation and air sealing; furnaces and boilers; windows; air conditioning; water heaters; heat pumps; whole-house fans and duct sealing. Audit details • You will receive a report with prioritized efﬁciency improvement recommendations. • Let an Energy Advisor help you take the next step. Your auditor will offer this FREE service. Home Efﬁciency Loan Program Making it Easy to Conserve Receive low-cost ﬁnancing for energy eﬃciency, solar PV and water conservation loans. Conveniently repay loan on your monthly utility bill. PROJECTS • Furnace, air conditioner, whole house fan, water heater • Insulation and air sealing • Windows • Solar photovoltaic (PV) • Water service line repair and/or replacement GET STARTED • Schedule a Home Eﬃciency Audit by calling 970-221-6700; required for energy eﬃciency or solar loans • Lear more about qualiﬁcations and details at fcgov.com/ﬁnancing BENEFITS • No money down • Repay the loan on your monthly utility bill • Simple application • Borrow up to $15,000 ELIGIBILITY • For residential property owners of single-family homes in Fort Collins (rental properties are eligible) • Must be a current Utilities electric customer to apply for energy eﬃciency and/or solar loans • Must be a current Utilities water customer to apply for water conservation loan Utilities 970-221-6700 | TDD 970-224-6003 fcgov.com/utilities | utilities@fcgov.com Save $25 with this ad through July 31, 2014. Make ﬁnancing your home improvement easy. Take Advantage of a Home Efﬁciency Loan with NO APPLICATION FEE Two Steps to Get Started Step One – Complete Application Call Energy Smart Partners, 970-494-2021 Step Two – Schedule a Home Efﬁciency Audit Call Fort Collins Utilities, 970-221-6700 Financing details • You may qualify for up to $15,000. • Mention this ad to waive the $25 application fee. • Loans can be up to 100 percent of the project costs. • Conveniently repay the loan on your monthly utility bill. Use your loan to upgrade • Insulation and air sealing; furnaces and boilers; windows; air conditioning; water heaters; heat pumps; whole-house fans and duct sealing; solar photovoltaic (PV); water service line repair and/or replacement fcgov.com/ﬁnancing 6/14 LIMITED TIME DOUBLE REBATES on purchases made Sept. 1 - Dec. 31, 2014 When you buy an ENERGY STAR® qualiﬁed clothes washer When you buy an ENERGY STAR qualiﬁed dishwasher $ Wh bb E $ When you recycle your refrigerator or freezer $ When you buy a WaterSense or MaP Premium toilet or oooooooooooooorrrrrrrrrrrrr $ $ fcgov.com/rebates-programs 970-221-6700 • TDD 970-224-6003 fcgov.com/facebook @fortcollinsgov Regularly $50 Regularly $25 Regularly $50-$75 Regularly $35 09/14 Schedule a low-cost Home Efficiency Audit to learn how to improve the efficiency and comfort of your home. Home Efficiency Loans (up to $15,000) are available with no money down and convenient payments on your monthly utility bill. with in-store markdowns on energy efﬁcient LED and CFL bulbs and Lutron® C•L CFL/LED dimmers an aan and occupancy sensors. Product brands, selection and purchase limits vary from store to store. No rain checks. Available for all Fort Collins Utilities customers. fcgov.com/rebates-programs 970-221-6700 TDD 970-224-6003 fcgov.com/facebook @fortcollinsgov 1 On-Bill Utility Financing Pilot Program Review and Recommendations City Council Work Session October 28, 2014 2 • Review of current pilot program and results • Recommendations to simplify program, increase participation and address rental/lease residential and business customers • Requirements, resources and timeline for implementation of recommendations, including Council actions Overview 3 – Does Council support the staff recommendations for revising the program? – If so, does Council support the proposed resources and timeline for implementation? GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 4 How do we best utilize a community wide payment and credit financial tool to support community goals? 5 • Home Efficiency Loan Program – Started January 2013 and revised January 2014 – Loans for energy efficiency, renewable energy and water service line repair – Monthly payments on utility bill along with other services (electricity, water, wastewater, stormwater) – Single family and town homes – Rental properties eligible; loan payments by owner Current Program 6 • Loan Application and Terms – Qualification by bill payment history and credit score (two tiers, minimum 640 FICO) – Interest rate of 5% or 6% – Term of five, seven or ten years – Recorded with a Deed of Trust • Projects – Scope determined by customer – Most commonly insulation and air-sealing, furnaces, air-conditioning and windows Current Program 7 Current Program – Results Description Number Funding Notes Closed loans 20 $145,122 86% energy projects, 14% water projects, min $2,126 max $14,995 avg $7,256 Pending loans 2 $20,000 Denied loans 6 5 denied based on credit score, one based on utility payment history 8 On-Bill Financing Models • Tariff model key attributes – Service charge assigned to a meter location, not to an individual customer – Billing and payment on the utility bill with disconnection for non-payment – Independent certification that savings exceed payments – E.g. How$mart as implemented by Midwest Energy 9 • Simplify application, business processes and security • Improve loan terms • Enable loans to be billed as a service type within Utilities billing system • Two program options – Owner-occupied – Rental/lease Recommended Program 10 Small Business: • Add small business customers and related efficiency measure types • Most small business customers are in leased space where one party pays the utility bills while another party directs efficiency investments • Same program business processes for residential and business customers Action Required: • Council adoption of revised rate ordinance language Recommendations: Small Business 11 Recording: • Replace Deed of Trust with a UCC filing, recorded with Larimer County • Works for providing diverse remedies ‒ Service disconnection ‒ Clouding the title ‒ Subordinate to mortgage or other bank liens (by statute) ‒ Transferable via written agreement • Provides for more flexible program administration Action Required: • Revise administrative rules and regulations Recommendations: Recording 12 Interest Rate: • Revise allowable range of interest rates to 2.5% - 10% • Revise qualifications to single tier and interest rate • Rate intended to be “low but not zero” to attract customers and allow for adjustments • Considerations for setting rate include: Other City loan programs, market rates for alternative investments, potential future use of 3rd party capital Actions required: • Council adoption of revised rate ordinance language for interest rate range • Revise administrative rules and regulations for single tier Recommendation: Interest Rate 13 Loan Term: • Revise allowable terms to include 15 years • Selected by applicant for owner occupied • Determined by bill neutrality for rental/lease • Longer term provides for lower payments and options to be bill neutral for rental/lease premises • Loan term cannot be longer than savings measure expected life Action Required: • Revise administrative rules and regulations for loan term Recommendation: Loan Term 14 Applicant: • Property owner for owner-occupied • Property owner with acknowledgement from current tenant for rental and lease properties • Owner is responsible for upgrades to premises, agrees to obligation and notification of future tenants • Current tenant agrees to service charges on bill Actions required • Revise administrative rules and regulations • Develop agreement language for owner occupied and rental properties Recommendation: Applicant 15 Transferability: • Obligation tied to premises (similar to stormwater service) • Loans are transferable by written acknowledgement • Written acknowledgement for rental/lease properties is via lease language between owner and tenant • Related to UCC filing Actions required • Customize and test Utilities billing software • Revise administrative rules and regulations • Develop agreement language for owner occupied and rental properties Recommendation: Transferability 16 Energy Savings • For rental and lease properties – Measures limited by bill neutrality requirements – Customer may only borrow funds up to the bill neutral service charge limit – Customer may buy-down the total cost to reach this level Actions Required: • Calculate projected bill savings and compare to current and typical customer bills • Revise administrative rules and regulations • Develop notification language for rental/lease properties Recommendation: Energy Savings 17 Energy & Capital Calculator 10% 15% 20% 25% 30% $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 $6,000 $6,500 $7,000 $7,500 $8,000 $8,500 $9,000 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 Typical tier 1 furnace project Typical tier 2 furnace project Loan Term 15 (years) Rate 3% Annual Utility Cost $1,750 Percent Savings 20% Available Capital $5,093 Typical insulation & air sealing project Annual Utility Bill Available Capital 18 • Changes to administrative rules and regulations – Internal staff, 4-8 weeks • Council adoption of revised rate ordinance language, 4-8 weeks • Revise legal documents – Cost estimate for intellectual property pending 4-8 weeks • Customize and test billing system – Cost estimate for customization and schedule for programming and testing pending • Updated marketing plan ready upon rollout of revised program Requirements and Timeline 19 – Does Council support the staff recommendations for revising the program? – If so, does Council support the proposed resources and timeline for implementation? GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED ratio • Reductions to the Borrower’s monthly Utility Obligations derived from improvements may be considered at the underwriter’s discretion List Total Monthly Income Divide Total Obligations by Total Income to determine DTI Ratio Maximum total monthly obligations to total monthly income (Max DTI Ratio). 50% Max DTI Ratio Maximum total monthly obligations to total monthly income (Max DTI Ratio). 45% Max DTI Ratio payments Bankruptcy, Foreclosure, Repossession None in the last 7 years None in the last 5 years Unpaid Collection Accounts, Judgments, Tax Liens No more than $2,500 No more than $2,500 Loan Amounts $1,000 to $15,000 $1,000 to $15,000 eligibility and determine the scope of work within the approved measures and maximum loan terms. After the work is completed and approved, service charges would remain on the bill for the loan term.  For rental or leased properties, the OBF Program includes additional steps, requirements and limitations. The owner chooses to participate, with acknowledgement from the current tenant for service charges on the bill. The scope of the project may be limited by the requirement that the service charges be less than the expected total utility bill savings. Customer may only borrow funds up to the bill neutral service charge limit; they may buy-down the total cost to reach this level. As a part of the loan agreement, the owner commits to including notification language in their tenant lease for the service charge on the utility bill. After the work is completed and approved, service charges would remain on the bill for the loan term. The billing system will be configured to automatically revert the service charges to the owner for any period when the property may be vacant (similar to Utilities Stormwater services). Utility Billing System Customization Fort Collins Utilities is using existing functionality within the billing system software to implement the Home Efficiency Loan Program. However, in order to enable the transferability of the loan service charges in rental / lease scenarios, the billing software requires customization. As noted above, the customization will allow the loan service charges to work in a similar fashion to stormwater services. For stormwater, the charges are uniquely calculated based on the characteristics of the premise (or property) and are always included in monthly billing, party capital Loan term 5, 7 or 10 years Selected by applicant 5, 7, 10 or 15 years Selected by applicant for owner-occupied, determined by bill neutrality for rental/lease Longer term provides for lower payments and options to be bill neutral for rental/lease premises Loan term cannot be longer than savings measure expected life Customer Eligibility and Rental / Lease Properties Attribute Current Recommendation Notes Customer eligibility Electric customers for Add small business Most small business application, origination and recording FC fees are direct costs Default rate 0.25% 0% Limited data for Fort Collins Recording with County UCC filing is recorded for all projects to provide title notification Recorded Deed of Trust See recommendations Rental market participation 15%, with over 20% in the last year 1-3% for projects, 1 loan See recommendations Transfer at time of sale 50% NA See recommendations Home audit cost $200 customer cost is waived for 8 months to encourage participation Customer cost $60 Total cost ~$300 Audits in both programs are subsidized Recommendations A team comprised of staff from Utilities Energy Services, Billing, Finance and Information Technology, with support from the City Attorney's Office and Finance Department, have developed a set of recommendations for revisions to the current program. The recommendations fall into three areas:  Simplifying the application and program processes  Improving the loan terms, and  Revising the structure to address residential rental and business lease properties. and lease properties Calculation of utility bills after upgrades to be no more than 90% of pre-retrofit bills Required by all projects Not required Yes, for rental and lease