Targeting and Winning with

Qualified Energy

Conservation Bonds

ARRA Sales Training

January 4, 2010

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Qualified Energy Conservation Bonds – Overview

Why Drive QECB’s

Selling Features – QECB’s How are QECB’s allocated

State’s allocations (Top 25)

Targeting Example – Virginia focus

Highlights: Rates & Terms, Security & Structure

Sales Strategy Energy Conservation Projects

Green Community Program

QECB Challenges

Genesee County – Voice of the Customer

Successful Implementation – Abundant Power Solutions

• Questions & Wrap Up

What We’ll Cover Today

Qualified Energy Conservation Bonds – Overview

The Energy Improvement and Extension Act of 2008: Authorized the issuance of Qualified Energy Conservation Bonds (QECBs)-initial limit $800 million

The American Recovery and Reinvestment Act of 2009: Expanded the allowable bond volume to $3.2 billion

H.R. 2847 (2010): Introduced an option to recoup part of the interest issuers pay on QECBs through a direct subsidy (like that for Build America Bonds) from the Department of Treasury rather than a tax credit QECB Background

Qualified Energy Conservation Bonds (QECBs) may be issued by state, local and tribal governments to finance qualified energy conservation projects. A minimum of 70% of a state’s allocation must be used for governmental purposes, and the remainder may be used to finance private activity projects.

Qualified projects are defined broadly. Examples of qualified projects include energy efficiency capital expenditures in public buildings, green communities, renewable energy production, various research and development, efficiency/energy reduction measures for mass transit, and energy efficiency education campaigns.

Why Drive QECB

They represent an incredibly cheap form of borrowing. QECBs reduce the issuers borrowing cost near

state, local, and travel governments.

They allow state, local, and travel governments to issue bonds and

then to fund qualified energy conservation projects.

QECB issuer pays an investor a taxable coupon to borrow money and then receives a direct cash rebate from the US Treasury.

The Recovery Act expanded the allowable bond volume to 3.2 billion

- and then the real game-changer was that HR 2847 in 2010 introduced

an option to recoup part of the interest issuers pay on QECBs through a direct cash subsidy.

Like the Build America Bonds, QECB are effectively the same

mechanism. This is a game-changer in the sense that it allows QECB

government issuers to take advantage of the much larger

taxable bond market.

Issued as a revenue bonds, the bond would be supported by

specific revenue streams (energy efficiency program). The repayments on that loan program would actually

provide security to the bond investor

How are QECB Allocated

The U.S. Treasury allocated $3.2 billion of QECB issuance capacity to State Treasurers based on population

Each State was required to allocate issuance capacity to municipalities with populations >100,000 based on the municipality’s percentage of total state population

–Example: If a municipality has 150,000 residents and the state has 1.5 million residents, the State must allocate 10% of its QECB issuance capacity to the municipality

–If the municipality does not intend to issue QECBs, it may reallocate its issuance capacity back to the State

Processes for notifying State authorities of intention to issue QECBs (and deadlines for doing so) vary

QECB Allocations

State or Territory QECB Allocation State or Territory QECB Allocation State or Territory QECB Allocation

Alabama $48,364,000 Kentucky $44,291,000 Ohio $119,160,000

Alaska $7,120,000 Louisiana $45,759,000 Oklahoma $37,787,000

American Samoa $673,000 Maine $13,657,000 Oregon $39,320,000

Arizona $67,436,000 Maryland $58,445,000 Pennsylvania $129,144,000

Arkansas $29,623,000 Massachusetts $67,413,000 Puerto Rico $41,021,000

California $381,329,000 Michigan $103,780,000 Rhode Island $10,901,000

Colorado $51,244,000 Minnesota $54,159,000 South Carolina $46,475,000

Connecticut $36,323,000 Mississippi $30,486,000 South Dakota $8,343,000

Delaware $9,058,000 Missouri $61,329,000 Tennessee $64,476,000

District of Columbia $6,140,000 Montana $10,037,000 Texas $252,378,000

Florida $190,146,000 Nebraska $18,502,000 US Virgin Islands $1,140,000

Georgia $100,484,000 Nevada $26,975,000 Utah $28,389,000

Guam $1,826,000 New Hampshire $13,651,000 Vermont $6,445,000

Hawaii $13,364,000 New Jersey $90,078,000 Virginia $80,600,000

Idaho $15,809,000 New Mexico $20,587,000 Washington $67,944,000

Illinois $133,846,000 New York $202,200,000 West Virginia $18,824,000

Indiana $66,155,000 North Carolina $95,677,000 Wisconsin $58,387,000

Iowa $31,150,000 North Dakota $6,655,000 Wyoming $5,526,000

Kansas $29,070,000 Northern Marianas $899,000 Total Allocation $3,200,000,000

Top 25 Allocations

QECB Allocations - VirginiaMunicipality Name Allocation SMIS

LoadedOpportunity

StatusBusiness

AssignmentGeneral

BackgroundSales

Assignment Comments

QECB            

Fairfax County $10,512,656 No          

Virginia Beach City $4,554,143 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Prince William County $3,764,598 No          

Chesterfield County $3,130,521 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Henrico County $3,030,414 Yes          

Loudoun County $2,903,590 No          

Norfolk City $2,470,542 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Chesapeake City $2,290,975 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Arlington County $2,134,764 No          

Richmond City $2,093,745 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Newport News City $1,892,936 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Hampton City $1,533,382 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Alexandria City $1,464,096 No          

Stafford County $1,262,805 No          

Spotsylvania County $1,244,652 No          

Portsmouth City $1,067,136 Yes Active Solutions Joint selling with APS Tom

Scheduling combined meeting to demonstrate leveraged funds approach

Commonwealth Sub allocation is $35,249,046 Tracking          

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Example

QECB Rates & Terms

Interest Rates

U.S. Treasury pays QECB issuer the lesser of:

The taxable rate of the bonds

70% of the Qualified Tax Credit Rate (QTCR) as of the Bond Sale date—currently 5.00%

The QTCR is set daily by the U.S. Treasury and can be found here: »https://www.treasurydirect.gov/GA-SL/SLGS/selectQTCDate.htm

Example: Net Interest Cost 5.50%----Taxable interest rate paid to investor

3.50%----Minus Direct Subsidy (5.00% QTCR x 70% subsidy )

2.00%----Net Interest Cost (Taxable Rate-Direct Subsidy)

Maturity

Currently 18 years-Set monthly by the U.S. Treasury**

QECB Security & Structure

Bond Security

Revenues

General Obligation

Collateral (equipment, property, etc)

Structures

Bullet -All principal is paid back at maturity

Serial -A portion of the bonds matures at regular intervals

Term bond with sinking fund

QECB – An Example

U.S. Treasury pays issuer the lesser of the taxable coupon rate or 70% of the tax credit rate

The issuer pays a taxable coupon semi-annually to the investor and repays principal at the end of 17 years

Bond proceeds are used to fund a Qualified Energy Conservation Project

Qualified Issuers sell taxable QECBs as a 17 year bullet to investors

State Treasurers allocate QECB issuance capacity to Qualified Issuers

U.S. Treasury allocates QECB bond volume to State Treasurers

Qualified projects are defined broadly: Examples of qualified projects include:

• Energy efficiency capital expenditures in public buildings – at least 20% energy consumption reduction

• Renewable energy production• Various energy-related research

and developmentEfficiency/energy reduction measures for mass transit

• Energy efficiency education campaigns

• Green communities programs

Conference Report to the American Recovery and Reinvestment Act of 2009 includes the following statement regarding Congressional intent about the broad intended scope of this term:

"Also, the provision clarifies that capital expenditures to implement green community programs includes grants, loans, and other repayment mechanisms to implement such programs. For example, this expansion will enable States to issue these tax credit bonds to finance retrofits of existing private buildings through loans and/or grants to individual homeowners or businesses, or through other repayment mechanisms….Retrofits can include heating, cooling, lighting, water-saving, storm water-reducing, or other efficiency measures.―

Example: Unsecured Commercial EE Loan ProgramRules

• A maximum of 30% of QECB allocations may be used for private activity purposes

• All bond proceeds must be spent within 3 years or used to redeem bonds at the end of that 3 year period

• Issuers must have a binding commitment with a 3rdparty to spend at least 10% of the bond proceeds within 6 months of the issuance date

• Only 2% of the bond proceeds can be used towards cost of issuance

Sales Strategy

Energy Conservation Projects Green Community Projects

QECB.pdf

QECB Challenges

Low QECB volume allocations

QECB volume allocations often do not have sufficient size to wet investor appetite

Issuers might want to consider a pooled issuance

Investor unfamiliarity

Taxable investors are not as familiar with municipal credits

Build America Bonds have helped familiarize the taxable investor base with municipal credits

A bond issuance takes several months to structure, market, price and close

QECBs might strain bond issuance limits for some issuers

Who owns the QECB program for the state?

What is the deadline for communicating the municipalities intention for the

allocation?

What is done with unused or

unallocated funds?

How to determine how much QECB

has been utilized in their state?

What actions should they take if there is an underutilization of QECB in their

state?

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QECB Considerations

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Account:

Genesee County, Michigan

George Martini

Finance Director

Voice of the Customer

JCI Account Leadership:

Daniel Mack

Energy Solutions Account Executive

Customer needs What was driving the customer

Create Jobs

Cost Efficiency

Finance Needed Capital

Would the customer have done this without ARRA In the customers words

Why did the customer implement with QECB Customer’s perspective on the QECB

Overview of the funding source

Customer’s perspective on the QECB

Type of fund or funds

Customer’s perspective on the QECB

How was the money distributed

Customer’s approach to accessing and issuance

Application process

As defined

Restrictions on the fund

Any unique restrictions of use requirements

Customers response to the fund availability

Customer Solution

Amount of ARRA funds, interest rate

$9.4M in Self Funded Improvements

QECB $7,815,784 at 5.59% interest rate (1.91% Net…Total amount saved using QECB over Tax Exempt Bonds - $1.5M

$1.6M Energy Efficiency & Conservation Block Grant

Improvements

Building Automation Controls Solar PV & Thermal

Lighting/Lighting Controls IT (1200 VOIP Phones & Network Upgrade)

New RTU’s/Boilers Windows/Doors Roofs (Repair and New)

Retro-commissioning Fire Panel Replacement

Critical Services (Mechanical, Controls, M&V)

Internal Resources 4m vs

Systems (Including NIS, F&S), Service and Energy Solutions

Unique qualities of the job

Fully funded by ARRA, Extensive IT Improvements, Solar w/Kiosk, ≈100 Local Jobs

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Abundant Power

Charlotte, North Carolina

Larry Ostema

Managing Partner

Successful Implementation

Successful Implementation – Abundant Power Solutions

Current:

Market: $171 million through 9/2010 over 15 issuances

Geography: 12 of 15 issuances west of Mississippi

Placement: 90% privately placed to bond purchaser(s)

Security: 50% general obligations bonds; remainder revenue, including COP

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Opportunity:

Challenges: Local government bond issuance; secured by series of junior lien credits

Solution: “Corporate” conduit (i.e., state) issuance for local government “green community program,” potentially linked with “side car” for government owned facilities

Potential purchasers: IOUs, manufacturers, foundations, other synergistic

Optimal Structure – Abundant Power Solutions

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ESCO

Abundant Power SPE

State Economic Development Authority

State Bond Allocation AuthorityState Bond Approval Authority

Bond Approval

Obligor/Energy Underwriter

Bond Purchaser(s)

$

$

QECB Allocation

$City/County

GuaranteePayment

Loan Loss Reserve

Green Community Program Lending

Market Strategy – Abundant Power Solutions

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$200M Funding Opportunity for QECB Bonds to Fund

Commercial Green Community Programs

• Abundant Power seeks to originate $200 million of Qualified Energy Conservation Bonds (QECB) to fund Green Community Programs through a conduit issuance structure with a single ESCO performing the energy efficiency improvements

• Abundant Power is the national leader in designing, administering and financing clean energy financing programs sponsored by state and local governments and utilities

• Launching nation’s first QECB conduit issuance through South Carolina Jobs Economic Development Authority for Abundant Power’s clean energy financing program in Charleston

• Structured to include option for residential improvements and credit under the Community Reinvestment Act

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Questions & Wrap Up