HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 05/17/2016 - SECOND READING OF ORDINANCE NO. 058, 2016, AMENDIAgenda Item 5
Item # 5 Page 1
AGENDA ITEM SUMMARY May 17, 2016
City Council
STAFF
John Phelan, Energy Services Manager
SUBJECT
Second Reading of Ordinance No. 058, 2016, Amending the Code of the City of Fort Collins to Clarify On-Bill
Utility Financing Terms.
EXECUTIVE SUMMARY
This Ordinance, unanimously adopted on First Reading on May 3, 2016, clarifies the interest rate language in
relevant Utilities rate ordinances for the Home Efficiency Loan Program (HELP). Loan interest rates would be
set at 4.0% starting on June 1, 2016. A 4% interest rate is within the range approved by Council for the
program in January 2015 and remains the Chief Financial Officer’s recommendation. The interest rate revision
was reviewed by the Council Finance Committee, who recommended moving forward with this proposed
change. Staff also plans to return to Council in the third quarter of 2016 with options and recommendations for
the program, including a transition to third party capital.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on Second Reading.
ATTACHMENTS
1. First Reading Agenda Item Summary, May 3, 2016 (w/o attachments) (PDF)
2. Ordinance No. 058, 2016 (PDF)
ATTACHMENT 1
Item # 9 Page 1
AGENDA ITEM SUMMARY May 3, 2016
City Council
STAFF
John Phelan, Energy Services Manager
SUBJECT
First Reading of Ordinance No. 058, 2016, Amending the Code of the City of Fort Collins to Clarify On-Bill
Utility Financing Terms.
EXECUTIVE SUMMARY
The purpose of this item is to clarify interest rate language in relevant Utilities rate ordinances for the Home
Efficiency Loan Program (HELP). Loan interest rates would be set at 4.0% starting on June 1, 2016. A 4%
interest rate is within the range approved by Council for the program in January 2015 and remains the Chief
Financial Officer’s recommendation. The interest rate revision was reviewed by the Council Finance
Committee, who recommended moving forward with this proposed change. Staff also plans to return to Council
in the third quarter of 2016 with options and recommendations for the program, including a transition to third
party capital.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
The Home Efficiency Loan Program (HELP) (also known as the On-Bill Financing (OBF) program) provides
residential and certain commercial utility customers with low-cost financing for energy efficiency, solar
photovoltaic, and water conservation improvements to support the Utilities’ efficiency and conservation efforts
and the outcomes adopted in City of Fort Collins policies and plans, such as the Climate Action Plan, Energy
Policy and Water Efficiency Plan. HELP was established by Ordinance No. 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.
The HELP was launched in January 2013, and was reviewed by Council in August 2013, October 2014 and
January 2015. Loan activity ramped up significantly in the second half of 2015 and continues into early 2016.
Based on the participation to date, Council increased the maximum outstanding loan balance limit with
Ordinance No. 035, 2016 on April 5, 2016. Ordinance language to revise the interest rates was originally
included in the April 5, 2016, ordinance. Prior to the meeting, the City Attorney’s Office determined that the
Code revisions needed to go through the formal public notification process. The April 5 ordinance was
amended to separate the Code changes from the increase in loan balance limit. This ordinance brings back
interest rate Code revisions and the formal public notification process will be complete prior to second reading,
scheduled for May 17, 2016.
The initial purpose of HELP was to develop a financing mechanism for qualified residential customers in
support of energy efficiency improvements. Such a financial product was not available from local private
financial institutions. The goal continues to be supporting more energy projects and more comprehensive
projects within the Fort Collins Utility Services Area.
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This interest rate clarification by Code is the next step in an ongoing process to develop a sustainable
financing approach for energy efficiency. Utilities has demonstrated success with the program participation to
date and this change is aligned with pending efforts which are aimed at being able to scale the program
substantially over an extended period of time.
Revising On-bill Financing Interest Rates
Under the current model, where loan capital is provided by Utilities reserve funds, the City has broad discretion
for setting loan characteristics. The interest rate range is defined in the City Code (currently set from 2.5% to
10%) and the interest rate for new loans is set by Council in via ordinances. The lower end at 2.5% was
included, at Council direction, to support getting the program started with a favorable interest rate. The higher
range was included to allow for flexibility moving forward and to accommodate changes in the financial
marketplace.
For the Council meetings in January and February of 2015, the interest rate recommended by staff and Chief
Financial Officer was 4%. During these meetings, Council provided direction to set the interest rate at 2.5%
and also to extend the maximum loan term from 15 to 20 years.
On February 22, 2016, staff presented to the Council Finance Committee the recommendations for the OBF
capital funding and program interest rates. The Committee took the staff recommendations under advisement
and also clarified the intent to manage available funds as a revolving loan fund over time, where repaid funds
become immediately available for use by the on-bill financing program. Based on that discussion and Chief
Financial Officer’s recommendation, staff is proposing that the interest rate for loans funded by the recent
increase in capital allocated under Ordinance No. 035, 2016, be serviced with a 4% fixed interest rate. The
proposed change in interest rate will better align loan rates with the expected transition towards market rates
as described in the following section.
There are two primary reasons for the proposed interest rate change:
• With the anticipation of capital pressures on the Electric Utility reserves coming from aging infrastructure,
the Climate Action Plan and potentially broadband efforts, there is not sufficient capacity within the Light &
Power Fund to finance the level of energy improvements needed in the community. Hence it is necessary
to look toward lending institutions to provide the capital for this ongoing program which will require raising
the interest rate to a market based rate. In order to encourage participation by lending institutions for what
is likely a new product for them, it is prudent to demonstrate that there will be a market for their product at
a higher interest rate. This proposal is still below the actual market interest rates but it is a significant step
in that direction.
• Increasing the interest rate in a modest but significant step towards expected market rates will prevent a
single large step in interest rates at a later date. A more gradual approach will keep contractors and
customers engaged in the program.
Planning for Third Party Capital Sources
The recently approved increase in the outstanding balance limit under Ordinance No. 035, 2016, will, in effect,
create a timeline for developing a project to recommend next steps for capital sources and loan options for
customers after 2016. Based on the new limit, an interdepartmental staff team will develop recommendations
by late summer 2016 for implementation by the end of the year or sooner.
Staff has chartered a project team to research, identify and recommend options for consideration by Council to
meet future capital requirements for HELP and programs similar to On-Bill Finance type programs. The team is
comprised of staff from Utilities Resource Conservation, Utilities Strategic Finance, City Finance, the City
Attorney’s Office and Sustainability Services. Team members also represent a number of Climate Action Plan
strategic teams (Energy Efficiency, Financing and Climate Economy).
The results of this team’s efforts will be presented to Council Finance and/or Council for consideration,
including but not limited to:
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• Cost of capital to City, Utilities and/or loan recipients
• Scalability
• Impact on City or Utilities balance sheet
• Legal review for servicing of loans on utility bills under a new structure
• Characteristics of loan terms (e.g. qualifications, interest rates, loan term)
• Relationship to existing and proposed efficiency and renewable energy programs and services.
The project team recommendations presented later in 2016 will include a recommended roadmap for all loan
characteristics.
Relationship of Financing to Climate Action Plan
The developing implementation plan to meet the 2020 CAP objectives includes expanded efficiency results,
accounting for nearly 50% of the 2020 reduction target. It is expected that financing of energy efficiency will be
a key tactic to reaching higher participation levels. It will be important to balance the requirements of financing
partners with the expectations of customers.
The target for the CAP 2020 objectives would require an approximately 4x increase in results from residential
programs, requiring reaching more customers and completing more comprehensive improvements saving both
electricity and natural gas. Continuing to offer attractive financing is considered to be an important element for
success moving forward.
Over 60 loans have been completed to date, used primarily for home efficiency upgrades and with a few solar
and water projects. The energy loans, taken as a group, are estimated to be saving 10% of the carbon
emissions of these homes. This equates to 1.2 tons avoided per household and 72 annual tons per year.
Including the lifetime savings of these improvements brings the customer cost to approximately $400 per ton
carbon avoided. The improvements are also providing utility bill savings, comfort improvements and health and
safety benefits. Because the loans are paid back to Utilities with interest by customers, the cost to Utilities from
the HELP program is low to negligible.
Program Development and Characteristics
The OBF program was developed collaboratively by Utilities, City Finance, and the City Attorney’s Office 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. Customers qualify based on their bill payment history and credit score, eligible
projects are defined by Utilities incentive programs, and the loans are secured via a UCC lien filing recorded
with Larimer County.
The City Code changes adopted by Council in 2012 and 2015 authorize Utilities to provide financing services
to meet the program deliverables. 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 and including service disconnection. Utilities also has established rights under Section
26-718 of the City Code for collection of any past due amounts at a property time of sale, known as a
“perpetual lien”.
The program uses pre-existing standard capabilities of the Utilities billing system. 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. The interest rate range is defined in Utilities’ annual residential rate
ordinances. The City Finance Department developed a set of rules and regulations for administrative
implementation of the OBF program.
The OBF 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
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accounts receivable. As such, loan funding is not a typical expenditure or a budget item.
Loan Activity and Information
• As of April 19, 2016, total outstanding balance was $587k, with $249k preapproved (see chart below).
• Based on end of 2015 data, the annual repayment amount would be approximately $50k annually and the
dollar weighted average term is 12.4 years. Median term is 10 years.
• Average loan amount is $8,500.
• Approximately $110k has been repaid (or paid off) plus a modest amount of interest income has been
collected since the program started.
• 98% of the outstanding program loan balance has come from the Light & Power fund.
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Current Loan Program Characteristics
Attribute Notes
Interest Rates Allowable range from 2.5-10% per proposed rate ordinance 2015 rate at 2.5% per
direction from Council
Customer
qualification
Minimum six months bill payment history Credit score minimum of 640
Fees Fees are cost based for services current fees of $25 for application, $150 for closing,
$11 for recording
Recording UCC filing recorded with Larimer County
Loan term 5, 7, 10, 15, or 20 years Selected by applicant
Customer
eligibility
Residential single family and townhome properties, small business customers (by
owner), Rental properties (by owner)
CITY FINANCIAL IMPACTS
Clarifying the interest rate in City Code does not impact the Utilities budget, as the funds are not appropriated
or expended. If all remaining funds are loaned out, the resulting increase in the interest rate would increase
utility revenues by approximately $9,000 annually.
BOARD / COMMISSION RECOMMENDATION
At its February 22, 2016, meeting, the Council Finance Committee discussed this topic and recommended it be
brought forward for full Council consideration.
PUBLIC OUTREACH
Utilities modified the information on all web resources for the program, indicating that an interest rate change is
under consideration. Staff also informed participating contractors and the program administrator about the
pending change to seek feedback. A number of contractors and the administrator responded with the general
consensus that lower interest rates are better, but that the proposed increase to 4% was not generally a
concern.
The ordinance language herein was originally included in the April 5 ordinance. Prior to the meeting, the City
Attorney’s Office determined that the Code revisions needed to go through the formal public notification
process. The April 5 ordinance was amended to separate the code changes from the increase in loan balance
limit. This ordinance brings back the Code revisions and the formal public notification process will be complete
prior to Second Reading, scheduled for May 17. That process includes postcards to out-of-City customers and
published notice in the Coloradoan newspaper.
ATTACHMENTS
1. Council Finance Committee minutes, February 22, 2016 (PDF)
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ORDINANCE NO. 058, 2016
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING THE CODE OF THE CITY OF FORT COLLINS
TO CLARIFY ON-BILL UTILITY FINANCING TERMS
WHEREAS, the Home Efficiency Loan Program (also known as On-Bill Utility
Financing) (HELP) was established by Ordinance No. 033, 2012, which amended Chapter 26 of
the City Code to enable Fort Collins Utilities to offer financing and on-bill servicing of customer
loans for energy efficiency, water efficiency and renewable energy upgrade projects; and
WHEREAS, HELP provides low-cost financing for energy efficiency, solar photovoltaic,
and water conservation improvements, in support of Utilities’ efficiency and conservation
efforts, and policy goals from Plan Fort Collins, the Climate Action Plan, Energy Policy and
Water Conservation Plan; and
WHEREAS, HELP has been a valuable addition to the City’s efficiency and renewable
energy programs, which foster sustainability through reduced energy and water use, local
contractor education and investment in the built environment, and improved home comfort,
health and safety; and
WHEREAS, on February 17, 2015, City Council adopted Ordinance No. 012, 2015,
which expanded eligibility for HELP to business utility customers, set the term for new loans at
20 years, and set a range of loan interest rates to be applied pursuant to procedures and standards
adopted by the Financial Officer under Section 26-720 of the City Code; and
WHEREAS, on February 22, 2016, the Council Finance Committee expressed support
for staff’s additional recommendation that HELP be managed as an ongoing revolving loan fund,
where repaid loan capital is returned to and available for re-issuance through HELP; and
WHEREAS, on April 19, 2016, City Council adopted Ordinance No. 035, 2016, which
increased the allocated outstanding balance limit for HELP to $1,600,000, to meet increasing
demand on the program from recent community initiatives; and
WHEREAS, staff has identified clarifying language needed in Chapter 26 of the City
Code to better express restrictions set by Ordinance No. 012, 2015 on the interest rate range for
HELP loans, and to set the interest rate on program loans issued on or after June 1, 2016; and
WHEREAS, the City Council has determined it is desirable to clarify in the City Code
the approved interest rate range for new HELP loans and provide flexibility in the administration
of those loans, in furtherance of the benefits available to ratepayers through the program; and
WHEREAS, Article XII of the City Charter authorizes City Council to expend net
operating revenues of the City’s utilities for renewal, replacement, extraordinary repair,
extension, improvement, enlargement, and betterment of such utilities, or other specific utility
purposes determined by Council to be beneficial to the ratepayers of said utilities; and
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WHEREAS, Section 26-720 of the City Code authorizes the Financial Officer to
formulate and promulgate rules and regulations for the administration of Chapter 26 with respect
to credit and lending standards and rates and administrative practices for utility loan programs,
which shall include renewable energy development and utility loan programs.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2. That, for the reasons stated above, the City Council hereby finds and
determines that the Home Efficiency Loan Program (also known as On-Bill Utility Financing) as
described herein will be for the betterment of the affected Utilities, and will be beneficial to the
ratepayers of those Utilities and serve specific public purposes related to energy and water
conservation and efficiency.
Section 3. That Sec. 26-129(f) of the Code of the City of Fort Collins is hereby
amended to read as follows:
Sec. 26-129. Schedule D, miscellaneous fees and charges.
. . .
(f) The interest rate for water service-related loans shall be no less than two
and five tenths (2.5) percent and no more than ten (10.0) percent, per annum, with the interest
rate for new loans issued on or after June 1, 2016 being four percent (4.0%), per annum to be
reflected in the administrative rules and regulations adopted by the Financial Officer pursuant to
§ 26-720.
Section 4. That Sec. 26-289(6) of the Code of the City of Fort Collins is hereby
amended to read as follows:
Sec. 26-289. Miscellaneous fees and charges.
. . .
. . .
(6) Interest for wastewater
service-related loans:
2.5% - 10% per annum; to be
set for new loans annually,
with the rate for new loans
issued on or after June 1,
2016 being four percent
(4.0%), per annum, to be
reflected in the administrative
rules and regulations adopted
by the Financial Officer
pursuant to § 26-720.
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. . .
Section 5. That Section 26-464(q) of the Code of the City of Fort Collins is hereby
amended to read as follows:
Sec. 26-464. Residential energy service, schedule R.
. . .
(q) Loans. Services in the form of loans for electric service-related improvements,
conservation measures or efficiency enhancements shall be documented on forms
determined by the Utilities Executive Director and the Financial Officer. Any such loans
shall be made consistent with the applicable program requirements, credit and risk
standards and interest rate provisions as set forth in this Article and in the administrative
rules and regulations adopted by the Financial Officer pursuant to § 26-720. The interest
rate for such loans shall be no less than two and five-tenths (2.5) percent and no more
than ten (10.0) percent per annum, with the interest rate for new loans to be set annually,
with the rate for new loans issued on or after June 1, 2016 being four percent (4.0%), per
annum, to be reflected in the administrative rules and regulations adopted by the
Financial Officer. Obligations for repayment of any such loans are subject to the
provisions of Article XII of this Chapter. Loan-related fees for electric service-related
loans shall be set annually based on related program costs, in the administrative rules and
regulations of the Financial Officer pursuant to § 26-720.
Section 6. That Section 26-465(s) of the Code of the City of Fort Collins is hereby
amended to read as follows:
Sec. 26-465. Residential demand service, schedule RD.
. . .
(s) Loans. Special services in the form of loans for electric service-related
improvements, conservation measures or efficiency enhancements shall be documented
on forms determined by the Utilities Executive Director and the Financial Officer. Any
such loans shall be made consistent with the applicable program requirements, credit and
risk standards and interest rate provisions as set forth in this Article and in the
administrative rules and regulations adopted by the Financial Officer pursuant to § 26-
720. The interest rate for such loans shall be no less than two and five-tenths (2.5) percent
and no more than ten (10.0) percent, per annum, with the interest rate for new loans to be
set annually with the rate for new loans issued on or after June 1, 2016 being four percent
(4.0%), per annum, to be reflected in the administrative rules and regulations adopted by
the Financial Officer. Obligations for repayment of any such loans are subject to the
provisions of Article XII of this Chapter. Loan related fees for electric service-related
loans shall be set annually based on related program costs, in the administrative rules and
regulations of the Financial Officer pursuant to § 26-720.
Section 7. That Section 26-466(s) of the Code of the City of Fort Collins is hereby
amended to read as follows:
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Sec. 26-466. General service, schedule GS.
. . .
(s) Loans. Special services in the form of loans for electric service-related
improvements, conservation measures or efficiency enhancements shall be documented
on forms determined by the Utilities Executive Director and the Financial Officer. Any
such loans shall be made consistent with the applicable program requirements, credit and
risk standards and interest rate provisions as set forth in this Article and in the
administrative rules and regulations adopted by the Financial Officer pursuant to § 26-
720. The interest rate for such loans shall be no less than two and five-tenths (2.5) percent
and no more than ten (10.0) percent, per annum, with the interest rate for new loans to be
set annually with the rate for new loans issued on or after June 1, 2016 being four percent
(4.0%), per annum, to be reflected in the administrative rules and regulations adopted by
the Financial Officer. Obligations for repayment of any such loans are subject to the
provisions of Article XII of this Chapter. Loan-related fees for electric service-related
loans shall be set annually based on related program costs, in the administrative rules and
regulations of the Financial Officer pursuant to § 26-720.
Section 8. That Section 26-467(s) of the Code of the City of Fort Collins is hereby
amended to read as follows:
Sec. 26-467. General service 25, schedule GS25.
. . .
(s) Loans. Special services in the form of loans for electric service-related
improvements, conservation measures or efficiency enhancements shall be documented
on forms determined by the Utilities Executive Director and the Financial Officer. Any
such loans shall be made consistent with the applicable program requirements, credit and
risk standards and interest rate provisions as set forth in this Article and in the
administrative rules and regulations adopted by the Financial Officer pursuant to § 26-
720. The interest rate for such loans shall be no less than two and five-tenths (2.5) percent
and no more than ten (10.0) percent, per annum, with the interest rate for new loans to be
set annually, with the rate for new loans issued on or after June 1, 2016 being four
percent (4.0%), per annum, to be reflected in the administrative rules and regulations
adopted by the Financial Officer. Obligations for repayment of any such loans are subject
to the provisions of Article XII of this Chapter. Loan-related fees for electric service-
related loans shall be set annually based on related program costs, in the administrative
rules and regulations of the Financial Officer pursuant to § 26-720.
Section 9. That Section 26-712(b) of the Code of the City of Fort Collins is hereby
amended to read as follows:
Sec. 26-712. Miscellaneous fees and charges.
. . .
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(b) The following account and miscellaneous fees and charges shall apply to all City
utility customers receiving service pursuant to the terms of Chapter 26, whether within or
outside of the corporate limits of the City, except as otherwise expressly stated:
Fees and Charges Amount
…
Interest rate for utility service-related loans: 2.5% - 10% per annum; to be set annually for
new loans, with the rate for new loans issued
on or after June 1, 2016 being four percent
(4.0%), per annum, to be reflected in the
administrative rules and regulations adopted by
of the Financial Officer pursuant to § 26-720
. . .
Other miscellaneous charges will be based on direct cost plus fifteen (15) percent indirect costs.
Introduced, considered favorably on first reading, and ordered published this 3rd day of
May, A.D. 2016, and to be presented for final passage on the 17th day of May, A.D. 2016.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk
Passed and adopted on final reading on the 17th day of May, A.D. 2016.
__________________________________
Mayor
ATTEST:
_______________________________
City Clerk