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HomeMy WebLinkAboutStaff Report 3723 City of Palo Alto (ID # 3723) City Council Staff Report Report Type: Informational Report Meeting Date: 5/13/2013 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Update on Energy Efficiency Loans Title: Informational Report Updating Council on Business and Residential Energy Efficiency Loan Programs From: City Manager Lead Department: Utilities This is an informational report and no City Council action is required. Executive Summary The City Council on August 3, 2009 directed staff to design a pilot zero-interest energy efficiency loan program to be administered by a third party contractor and targeting small commercial customers (CMR 336:09). The loan program, funded from the Calaveras Reserve in the Electric Fund is to continue through the end of 2014 and has been in place since August 2010. The program has expanded to offerings to both business and residential customers. While both the business and residential programs have been widely marketed, customers have largely resisted taking part in loan programs. In the business program, 17 loan agreement applications have been completed; however, only five have been issued. Due to the low involvement in the commercial loan program, staff will begin administering the program with in-house staff starting in September 2013, as opposed to pursuing a Request for Proposals to find a contractor to administer payments. This will allow the program to continue as a benefit for customers at a lower cost to the City. For the residential program, no loans have been processed. Contractors have reported that customers are more willing to pay cash upfront for efficiency work than to take on a loan. Due to this program’s very low administrative cost, it is planned to continue “as-is” for one more fiscal year with continued marketing. Background City of Palo Alto Page 2 Commercial Zero Interest Loan On May 18, 2009 (CMR 234:09), staff brought to Council a review for several options to implement either an on-utility-bill or an off-bill energy efficiency financing option. The loans were to be designed to assist small businesses in implementing energy efficiency measures. Council directed staff to return by September 30 with a plan to quickly implement a Utilities- financed energy efficiency loan program to assist small businesses in these installations. Staff was directed to solicit input and assistance from community volunteers. After a Request for Proposals process, a contract with Quantum Energy Services and Technologies, Inc. (QuEST) was executed on August 27, 2010 in an amount not to exceed $50,000 per year for up to three years to implement a business electric efficiency zero-interest loan and to manage loan management services. In addition, in September 2011, the City of Palo Alto partnered with the Electric and Gas Industries Association (EGIA) to provide interest- free loans for residents that installed qualifying efficient equipment with one of EGIA’s network of pre-screened contractors, six of whom are available to Palo Alto residents. After discussion with a variety of community leaders and members of the Utilities Advisory Commission, staff returned to Council on August 3, 2009 with a recommendation to implement a zero-interest program to be implemented by a third party contractor (CMR 336:09). The program would allow up to $2,000,000 in funds to be expended from the Calaveras Reserve for these loans for a period of four years. Council approved this recommendation. A Request for Proposals for the third party contractor was then issued in early 2010, and a contract was signed with QuEST on August 27, 2010. The contract, not to exceed $50,000 per year for up to three years, authorized the development and implementation of the business zero-interest loan program for a period of three years. Through March 2013, $82,500 has been spent on the program. There was an extensive period of program design, requiring City Attorney and Administrative Services Department input, review and development of the loan payment process. After this was completed, staff began marketing the program both directly to customers and through other utility third party energy efficiency programs. The program was directly promoted during 114 separate customer contacts through the end of Fiscal Year 2012, including phone calls or meetings with customers, third party energy efficiency program administrators and marketing advisors. Residential Loan Program In order to ensure that residential customers were also able to obtain financing for efficiency measure installation, the City signed a membership agreement with EGIA. This relatively City of Palo Alto Page 3 inexpensive membership, at a cost of $1,500 per year, allows the City to participate in EGIA’s extensive contractor review, approval and referral program. This program, also in use by PG&E throughout the state, requires participating contractors to go through a rigorous approval process. Residents can then receive interest free loans for up to one year (and low interest loans for a longer period of time) for equipment installation with a contractor who has been reviewed by an independent outside agency. Contractors in the program must ensure that licensing and insurance are current and complete training on both the rebate process and business procedures. As of April 2013, six contractors had been certified for Palo Alto’s program, but no loans have been issued. Discussion Commercial Zero Interest Loan The first loan was approved in August 2011 for the installation of a commercial air conditioning system. Regular marketing of the loan through the Right Lights Plus and other efficiency programs generated some interest; however, in general, many businesses remained uninterested in projects that required financing. Of the 14 loan agreement packages that have been received by QuEST through Fiscal Year 2012, only five loans (with four different companies) have been made for a total amount of $85,471. These loans resulted in retrofits that provided some energy savings—255,946 kilowatt hours in first year savings. Of these 17 loan packages received, 11 were approved after credit review and an additional six were declined by customers after further review of the project. Customers declined to complete the efficiency projects for the following reasons:  The customer’s building would begin renovation in the near term, so the timing was not right for the efficiency project.  The customer decided that the measures recommended through the efficiency program were not sufficiently cost-effective to justify taking on a loan.  The building changed ownership midway through the loan process, and the new owner declined to implement the proposed efficiency project.  The customer postponed the efficiency project for operational reasons. Due to the low involvement in the program, and the ratio of administrative cost to loans issued, staff will administer the program with in-house resources beginning in September 2013. This in-house administration, versus a Request for Proposals for external administration, will continue the program for customers at a lower cost to the City. Residential Loan Program While these contractors appreciate being partners in the financing program and have found a number of projects with Palo Alto residents through this certification, no residents have ended City of Palo Alto Page 4 up applying for a loan. When discussing this problem with the contractors, they reported that many Palo Altans support efficient equipment and system installation, but most can fund the work upfront, and do not wish to take on additional debt. With customers unwilling to apply for efficiency project loans, staff is reviewing debt alternatives for all customer groups, from low income residents to the largest business customers. New possibilities include direct payment to install efficiency measures at Palo Alto Housing Corporation, or the City hiring contractors to assist businesses in the design process as they retrofit facilities. Staff is also working with QuEST and EGIA on ways to modify the current loan programs, so that they can provide benefit to more customers. Resource Impacts Funds for this program are included in the FY 2013 Demand Side Management budgets in the electric, natural gas and water operating funds. Policy Impacts The recommendation is consistent with Council policy and supports the electric and natural gas efficiency goals approved by City Council in December 2012.