Design Application Processing Procedures for Property-Assessed Clean Energy Financing Program
The eleventh step for launching a commercial property-assessed clean energy (PACE) financing program involves designing the process for reviewing applications and either approving or rejecting them.
The PACE application process for a property owner typically includes the following actions:
- Energy Audit - Have a trained technician perform an energy audit that includes recommended measures for improving the property’s energy efficiency.
- Eligible Measures - Choose measures to be included in the project based on PACE eligibility, goals, and cost effectiveness.
- Lender Consent - Engage the mortgage-holder and obtain consent to add the PACE assessment to the property tax bill.
- Application Submission - Submit application package to the PACE administrator.
- Application Approval - Receive application approval from the PACE administrator.
- Project Implementation and Completion - Have licensed contractors implement the measures.
- Payment Request -When project milestones are met or the project is completed, submit request for progress/final payment.
- Repayment - Pay back the assessment via property taxes; the term is between 5 and 20 years, depending on the useful lives of the included measures.
The two points at which the PACE program administrator is most heavily involved are when the property owner submits the application (step 4) and when the applicant requests payment (step 7). It is vital for the PACE program to have clear processes both internally and externally to handle these steps properly and efficiently.
Making Approval as Simple and Objective as Possible
A recommended practice for any PACE program is to make the application approval process as objective as possible by reducing the decision to a simple and consistent set of go/no-go decisions based on clear, defensible criteria. For example, the two key stages of application processing might include the following go/no-go criteria:
At point of application submission (step 4):
- Is the application filled out completely and signed by all legal owners?
- Has written lender consent been obtained?
- Has the applicant/property met all program eligibility criteria?
- Does a property title search confirm legal owners and eligibility?
- Are all measures in the project eligible for financing?
- Does project review verify that the total project will save energy?
- If the applicant is participating in a utility rebate/incentive program, has the associated paperwork been submitted?
- Does the project meet the Savings-to-Investment Ratio (SIR) target?
- Are the chosen contractors eligible to participate in the program?
At point of request for progress/final payment (step 7):
- Has a lien been placed on the property to secure the financing?
- Is there proof that the project has been completed or that a milestone has been reached?
- Has the applicant signed and submitted the payment request form that states a milestone has been reached and the owners are satisfied with the work?
- If the applicant wants payment to go directly to the contractor, has the applicant signed a payment assignment document?
- Have appropriate permits been submitted?
- Have contractor invoices showing progress been submitted?
- Is an independent onsite inspection necessary, and if so, does it verify claimed progress?
Clean energy projects applying for financing are likely to be significantly different, largely due to the mix of property sizes and types in a commercial program. This means that PACE program administrators or their consultants will need to be well-versed in reviewing a wide range of project sizes and combinations of efficiency measures within them in order to verify the legitimacy and energy-saving potential of the projects that seek funding.
A key source of information to determine project savings is the energy audit submitted with the application. But energy audits come in all formats and use differing assumptions (e.g., escalation rate for energy, opportunity costs, etc.), which complicates the review process for the program administrator.
An excellent way for the PACE program to deal with such variation is to have its own analysis template (an Excel spreadsheet, for example) that applicants (or contractors on their behalf) must fill out and submit with their applications (see the Energy and Cost Savings Analysis Template as an example). By having a uniform project summary format (analysis template) that is the same for every applicant and uses a realistic, consistent set of assumptions, the program administrator can more quickly review the individual measure savings and total estimated energy/cost savings and cost-effectiveness of the project.
The commercial PACE program further benefits from having access to someone with sufficient energy engineering knowledge/experience who can review projects that are more complex (i.e., ones that have a lot of measures or equipment/materials that are not as common). This person could be a local government staff member in the same or another department (e.g., Planning Department or Department of Environment), or a consultant from an energy engineering services firm brought in on an as-needed basis.
Property Title Search
Ownership of commercial properties takes various forms. These include a corporation, limited liability company (LLC), partnership, trust/trustees/living trust, individual(s), joint tenants, and common property. Sometimes an entity that owns a property in one of those ways is nested within another legal entity.
The ownership variations affect a PACE program in two important ways: (1) determining who is or are legal property owner(s) with authority to encumber the property with a PACE tax assessment, and (2) determining whether the owner(s) meets the program eligibility requirements. Grantees can determine the answers to both by having a title search performed on the property. A firm with specialized expertise and experience usually conducts this search.
The complexities of commercial property ownership make commercial title searches more expensive than their residential counterparts, as it takes longer to trace the chain of legal entities and verify who the owners are and whether program eligibility requirements are met. Title search costs can range from $200 to $1,000 for a single property, and the PACE program must factor in this expense and decide how best to cover it (i.e., built into administrative costs or billed separately to the applicant).