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HomeMy WebLinkAboutStaff Report 2507-50083.Recommend that the City Council Approve Amendment No. 1 to the Memorandum of Agreement Between California Alternative Energy and Advanced Transportation Financing Authority and City of Palo Alto to Extend the Term of the Agreement from Two Years to Five Years and Continue Offering the GoGreen Home Energy Financing Program for Palo Alto Residents ACTION: 7:50PM – 8:30PM Utilities Advisory Commission Staff Report From: Alan Kurotori, Director Utilities Lead Department: Utilities Meeting Date: September 3, 2025 Report #: 2507-5008 TITLE Recommend that the City Council Approve Amendment No. 1 to the Memorandum of Agreement Between California Alternative Energy and Advanced Transportation Financing Authority and City of Palo Alto to Extend the Term of the Agreement from Two Years to Five Years and Continue Offering the GoGreen Home Energy Financing Program for Palo Alto Residents. CEQA Status – Not a Project. RECOMMENDATION Staff recommends that the Utilities Advisory Commission (UAC) recommend that Council Approve Amendment No. 1 to the Memorandum of Agreement between California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) and City of Palo Alto to extend the term of the agreement from two years to five years and continue offering the GoGreen Home Energy Financing Program to Palo Alto residents. Due to the urgency of needing to extend the MOA before the two-year expiration of September 11, 2025, the item has been agendized for Council approval on September 8, 2025. Upon UAC action on this recommendation, Staff will inform Council about UAC’s action via a supplemental memo before Council acts on September 8, 2025. EXECUTIVE SUMMARY To meet Palo Alto’s ambitious greenhouse gas reduction goals, residents will need to implement energy efficiency and electrification projects at their homes. These projects may need thousands of dollars in capital expenditure. The GoGreen Home Program is a long-standing State-run1 1 Description of GoGreen Financing Program: https://gogreenfinancing.com/residential financing program with participating financing companies (PFCs) to provide consumer financing for these types of projects at competitive rates.2 Since Palo Alto is not served by any investor-owned energy utilities, a separate agreement with the State was required to enable participation of Palo Alto residents. In September 2023, the Council approved a $300,000 agreement with CAEATFA for a two-year term (Staff Report: 2212- 04753). This program was intended to support single-family electrification, with the understanding that it would be most helpful for space heating rather than water heating projects. The first loan for this program came after incentives for space heating electrification were launched in January 2025. The first loan, for a space heating project, was issued in May 2025 for $25,000 at an interest of 3.98% for a 30 month term. As more space heating projects are completed more loans are expected. During the past two years, the Palo Alto program incurred an administrative expense of $4,757 to start the program and a few hundred dollars in administrative fees since the first loan was processed in May 2025. Additionally, $50,000 is being held by CAEATFA to fund the Loan Loss Reserve (LLR), which enables Palo Alto residents to receive lower interest rates. Since there remains a strong need for competitive consumer loans to support energy efficiency and electrification projects, and the administrative cost is minimal (few hundred dollars/month), staff recommends that the Council approve Amendment No. 1 to the MOA, extending the Agreement for an additional three years with no change to the previously approved $300,000 budget. The cost of the Program will continue to be covered by the natural gas City’s Cap-and-Trade Reserve funds. BACKGROUND The California Hub for Energy Efficiency Financing (CHEEF) was formed as a public-private partnership between the State and California’s investor-owned utilities (IOUs). It was authorized by the California Public Utilities Commission (CPUC) in 2013 and is administered by CAEATFA, an agency under the State’s Treasury Department. The GoGreen Home Program issued its first loan in 2016. The objective of the GoGreen Home Financing Program is to offer residential customers alternative financing options, through participating financial institutions, for energy efficiency and decarbonization projects by providing a ‘credit enhancement’ to lenders in the form of a loan loss reserve (LLR), funded by the IOUs and other participating entities (e.g., TECH Clean 2 Current interest rates range from 4% to 9.75% depending on the term of the loan and the credit rating of the borrower. In January 2025, the average interest rate for the 415 loans processed statewide was 6.48%, with an average term of 139 months. The first participant from Palo Alto enrolled in the program in May 2025. 3 September 2023 Staff Report: https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=2950 California). CPAU’s participation to facilitate Palo Alto customer access to GoGreen Home was the first credit enhancement funded by a municipal utility. 4. The loans fund the following Eligible Energy Efficiency Measures: appliances (including electrified appliances such as heat pumps), building envelope, demand response, HVAC, lighting, pool products, water heating. The Program also funds Solar Photo- Voltaic, Battery Energy Storage and EV charger installation projects5. ANALYSIS 4 Financing Companies Serving Santa Clara County: https://www.gogreenfinancing.com/energy-efficiency-home- loans-california/finance-options/?_counties_filter=santa-clara%2Call&zip_code=94301 5 Energy Efficiency Measures: https://www.gogreenfinancing.com/wp- content/uploads/2025/04/reel_eeemsList.pdf Cost of Participating in the Program and Funding Needs 6. The currently approved $160,000 budget for LLR funding will support $2 million in loans by Palo Altans. This amount is expected to support around 100 loans, assuming loan sizes in Palo Alto match the statewide average of about $19,900 per loan. A large part of this LLR would be returned if the loan portfolio does not suffer large delinquencies. The overall loss rate since the program’s inception in 2016 is 1.42%, or 153 loans out of 10,755 loans enrolled. The loss incurred to date is $1.42million (out of $168 million loan portfolio). The LLR currently has a balance of $16 million, most of it funded by the IOUs7, but will also be funded by the City as Palo Altans continue to enroll in the program. 6 The LLR will be assessed at 5% for loan provided to applicants with a FICO score of > 700, and assessed at 20% of loans provided to applicants with a FICO score of < 700; the average assessment for the statewide program todate is 8%. Palo Alto’s first loan processed in May 2025 for $25,000 required a 5% LLR funding, for an amount $1,250 from Palo Alto, because the borrower had a FICO score > 700. 7 GoGreen Program Performance Report: https://www.treasurer.ca.gov/caeatfa/cheef/monthlyreel/2025/01.pdf In the current climate of economic uncertainty and high interest rates, GoGreen Home’s relatively low interest rates may be compelling for interested Palo Altans. Process to Select Contractor, Apply for Loan & Pay for the Home Improvement Project FISCAL/RESOURCE IMPACT Item No. 3. Page 6 of 6 The loan loss reserve (LLR) is maintained in an escrow account between the state and lender. The State will track the LLR status and report to the City on a quarterly basis. The City will stop budgeting additional funding for the LLR if the State ends the GoGreen program, and any remaining LLR funding will be returned to the City after each loan is repaid and fully returned (less any default loan funding paid to lender). The LLR is funded at 5% of the underlying loan (for borrowers with a credit score > 700) and at 20% (for borrowers with credit score <700), with an average rate of ~8% for all loans issued in the state to date. STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW POLICY IMPLICATIONS ATTACHMENTS APPROVED BY: CAEATFA R08-23 Amendment 1 AMENDMENT NO. 1 This Amendment No. 1 (“Amendment”), dated as of September 8, 2025, (“Effective Date”) amends the Memorandum of Agreement (“MOA” or “Agreement”) dated September 11, 2023 by and between the California Alternative Energy and Advanced Transportation Financing Authority, a public instrumentality of the State of California created pursuant to Division 16 (commencing with Section 26000) of the California Public Resources Code ("CAEATFA"), and the City of Palo Alto (“City of Palo Alto”). CAEATFA and City of Palo Alto are sometimes referred to in this Agreement individually as a “Party” and together as the “Parties.” Recitals A.In Decision D.21-08-006, the California Public Utilities Commission upholds CAEATFA’s broad implementation authority over the California Hub for Energy Efficiency Financing (CHEEF) pilots and programs and conditionally allows for the incorporation of non IOU ratepayer funds to expand the reach of the CHEEF programs. B.In accordance with Decision D.21-08-006 and Title 4, Business Regulations Division 13, Article 5, Section 10091.17 of the California Code of Regulations (“GoGreen Home Energy Financing Program Regulations” or “Program Regulations”), City of Palto Alto and CAEATFA desires to amend the Agreement to extend the duration of the MOA for three years as stipulated in the Term of the MOA (Section 5, page 7). IT IS AGREED as follows: 1.AMENDMENTS TO THE AGREEMENT a.In accordance with Section 5 of this Agreement which provides for, among other things, an extension pursuant to mutual agreement, the Parties hereto agree to extend the term of this Agreement through September 10, 2028. b.City’s funding of administrative and credit enhancement cost under the MOA would remain unchanged at an amount not to exceed $300,000, according to Section 3 of the Agreement. 2.GENERAL PROVISIONS a.Further Assurances: The Parties shall work together in good faith to revise all applicable documentation and alert all relevant lenders and contractors as to the project and measure eligibility revisions contemplated by this Agreement. b.Miscellaneous. Other than as specifically modified above, the Agreement shall remain in full force and effect and is hereby ratified, approved, and confirmed. This Amendment is subject to all of the terms and conditions of the Agreement as if it were a part thereof, including, without limitation, any provision with respect to choice of law, venue, and/or jurisdiction.        CAEATFA R08-23 Amendment 1 AUTHORIZED REPRESENTATIVE SIGNATURES City of Palo Alto By: ____________________________________________ Printed Name: Ed Shikada Title: City Manager By: ____________________________________________ Printed Name: Madeleine Salah Title: City Attorney or Designee California Alternative Energy and Advanced Transportation Financing Authority By: ____________________________________________ Printed Name: Christina Sarron Title: Executive Director        Extension of GoGreen Financing Program Utilities Advisory Commission   September 3, 2025 PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font September 3, 2025 •Access to consumer financing critical for Palo Alto residents undertaking  electrification and efficiency projects •July 5, 2023, UAC recommended and September 2023, City Council approved 2- Year Agreement with California Alternative  Energy and Advanced  Transportation Financing Authority (CAEATFA*) •Enabled Palo Alto residents to participate in the GoGreen Home Financing Program •Provided access to consumer financing for efficiency and electrification projects •To date one loan for $25,000 has been processed for a Palo Alto resident * CAEATFA created by the state to help finance public and private energy and transportation projects Background PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font September 3, 2025 •Extend CAEATFA Agreement for to 5-Years (3 additional years) •$300,000 budget unchanged •$140,000 to cover administrative cost •$160,000 to cover loan loss reserve (LLR)  •Could provide loan guarantees for ~$2 million in loans  Recommendation   PaloAlto.gov TITLE 40 FONT BOLD Subtitle 32 font September 3, 2025 Recommended Motion PaloAlto.gov Staff recommends that the Utilities Advisory Commission (UAC) recommend that  Council Approve Amendment No. 1 to the Memorandum of Agreement between  California Alternative Energy and Advanced Transportation Financing Authority  (CAEATFA) and City of Palo Alto to extend the term of the agreement from two years  to five years and continue offering the GoGreen Home Energy Financing Program to  Palo Alto residents.