CaliforniaFIRST Program Handbook for Non-Residential Properties

CaliforniaFIRST Program Handbook for Non-Residential Properties As of April 20, 2016

Table of Contents SECTION 1 INTRODUCTION 1 1.1 PROGRAM OVERVIEW 1 1.2 PROGRAM PURPOSE 2 1.3 LEGAL STRUCTURE OF PROGRAM 2 1.4 FINANCE STRUCTURE OF PROGRAM 3 1.5 PROGRAM ADMINISTRATION 3 1.6 LOCAL PARTICIPATION 3 1.7 DEFINITIONS AND ACRONYMS 3 1.8 FUTURE PROGRAM CHANGES 5 1.9 PROGRAM CONTACT INFORMATION 5 SECTION 2 NON-RESIDENTIAL PROGRAM INFORMATION 1 2.1 PROGRAM DETAILS 1 2.2 FINANCE DETAILS 5 2.3 APPLICATION AND FINANCING PROCESS 7 2.4 TECHNICAL DETAILS 13 SECTION 3 GENERAL TERMS AND PROVISIONS 16 3.1 TAXES 16 3.2 CHANGES IN STATE AND FEDERAL LAW 16 3.3 CHANGES IN THE PROGRAM TERMS; SEVERABILITY 16 3.4 DISCLOSURE OF PROPERTY OWNER INFORMATION 16 3.5 RENEWABLE ENERGY CREDITS 16 3.6 FRAUD 16 3.7 EXCEPTIONS TO THESE TERMS AND PROVISIONS 17 3.8 RELEASES AND INDEMNIFICATION 17 3.9 COMPLIANCE WITH FUTURE MORTGAGES 17 APPENDIX A PROGRAM DOCUMENTS 17 REFERENCES 18 CaliforniaFIRST Program Handbook

SECTION 1 INTRODUCTION 1.1 Program Overview The California Statewide Communities Development Authority ( CSCDA ) is a statewide joint powers authority sponsored by the California State Association of Counties and the League of California Cities. CSCDA s mission is to provide local governments access to low-cost financing for projects that provide a tangible public benefit, contribute to social and economic growth, and improve the overall quality of life in local communities. CSCDA is offering the CaliforniaFIRST Program (the Program ) within participating communities throughout the State of California (the State ), to encourage property owners to invest in renewable energy sources, energy and water efficiency improvements, seismic strengthening improvements, electric vehicle charging infrastructure and other improvements authorized by applicable law. CSCDA is offering the Program to provide financing for the installation costs of energy efficiency, water Efficiency, renewable energy improvements, seismic strengthening improvements, electric vehicle charging infrastructure and other improvements authorized by applicable law through proceeds derived from the sale of bonds and other financing mechanisms authorized by law. The bonds and other financing mechanisms are repaid through a contractual assessment (described in detail under 1.3 Legal Structure of Program below), which is represented by a new line item on participating property owners property tax bills over 5 to 40 years depending on the type of property, the financing amount, the Effective Useful Life ( EUL ) of the Authorized Improvements, and capital markets availability. A Notice of Assessment (e.g., lien ) is recorded on the participating property to secure the financing. The due and owing obligation will be senior to liens for mortgages and other non-governmental liens on the property. As a non-accelerating obligation, only the current annual assessment obligation plus any arrearages will the due at any given time. Participation in the Program is completely voluntary and requires the full consent of all owners on the property title. Property taxes remain unchanged for those who do not choose to participate in the Program. This Handbook provides an overview of the non-residential component of the Program (a separate handbook is available for the residential component of the Program). Non-Residential Properties consist of commercial, industrial, agricultural, large multi-family (five or more units), and non-profit-owned properties. The purpose of this Handbook is as a reference document for Program participants. It does not obligate the Program nor constitute an offer to finance. The non-residential component of the Program is based on an open market approach. Under this approach, the property owner works directly with a lender and leverages CSCDA s ability to issue a bond or undertaking other financing mechanisms and levy assessments on the property tax bill. The lender purchases the bond or other financial instrument (e.g., an assignment) on a private placement basis. The Program s underwriting criteria focus on relevant payment history and value of the property rather than the creditworthiness of the property owner. See Section 1.6, Local Participation, for information regarding participating communities. CaliforniaFIRST Program Handbook 1

1.2 Program Purpose The Program enables property owners to finance the often-large upfront costs of certain improvements to their property authorized by California law. With the passage of Assembly Bill 32, the State set ambitious goals for reducing carbon emissions from existing buildings and increasing their alternative energy use and improving energy efficiency. Many California cities and counties have also set their own greenhouse gas reduction targets. Similarly, water conservation efforts, including the promotion of water-related improvements to non-residential, industrial, or other real property, are necessary to address the issue of chronic water shortages in the State. Property owners can help local governments achieve greenhouse gas reductions and reduce water use. At the same time, they can save money by investing in renewable energy and energy and water efficiency improvements. The Program also provides financing for the installation of seismic strengthening improvements, electric vehicle charging infrastructure and other improvements authorized from time to time by applicable law. 1.3 Legal Structure of Program The Program utilizes a tool that is widely used by local agencies in California to finance public benefit projects: land-secured financing. State law has long provided cities and counties with the power to issue bonds and levy assessments on the county property tax bill for financing public projects, such as sewers, parks, and the undergrounding of utilities. The Program utilizes the provisions of Chapter 29 of Part 3 of Division 7 of the Streets & Highways Code of the State, which is commonly referred to as AB 811, to levy contractual assessments for the purpose of CaliforniaFIRST Program Handbook financing the installation of renewable energy and energy and water efficiency improvements that are permanently affixed to private property. A contractual assessment is an assessment that is levied by contract (an Assessment Contract ) pursuant to AB 811. The Assessment Contract will be executed by each participating property owner and CSCDA. A list of other Program-related documents is available in Appendix A. Under the Program, a contractual assessment lien is placed on each participating property in an amount necessary to (i) finance the installation of authorized improvements over a 5- to 40-year period of time, depending upon the EUL of the financed improvements and (ii) pay the costs of administering the Program. The contractual assessments are paid on the County property tax bill and will have priority over the existing mortgage lien. If the owner sells the property, the repayment obligation remains an obligation of the property, unless otherwise negotiated. CSCDA will issue bonds and undertake other financing mechanisms that are authorized by applicable law that are payable from the contractual assessments. If contractual assessments are not repaid in a timely manner, a judicial foreclosure action may be filed to collect delinquent installments, plus any penalties and interest. The Program is completely voluntary and does not impact the property tax bills of nonparticipating properties. CSCDA does not guarantee that the Program is the best financing option for each property. CaliforniaFIRST Program Handbook 2

Property owners are encouraged to research all available types of financing and select the one that is most appropriate for them. 1.4 Finance Structure of Program The Program is based on the open market approach, in which a property owner negotiates financing directly with a project lender of their choice. The Program offers financing through a specified project lender. Or, alternatively, property owners are permitted to identify a project lender. All project lenders must be qualified by the Program to meet regulatory requirements. See Section 2.2 regarding lender qualifications. Generally, financing will involve the contractual assessment obligation of a single property. However, the Program may also aggregated a number of assessment contract. See Section 2.2 regarding Stand-Alone and Pooled financing. 1.5 Program Administration CSCDA has hired a third-party administrator (the Program Administrator ), initially Renewable Funding LLC (also doing business as Renew Financial) to administer the Program. The Program Administrator will review applications and provide marketing and customer service through a website, email, and telephone. 1.6 Local Participation In order for a property to participate in the Program, (1) the city in which the property is located (or the county if the property is in unincorporated territory) must adopt a resolution to join the Program, (2) the city or county must be a member of CSCDA, and (3) CSCDA must have established the Program in the county jurisdiction. Those counties and cities that are interested in participating in the Program or that would like additional information should email info@californiafirst.org. A current list of participating cities and counties is available at https://californiafirst.org/aboutcaliforniafirst/over-300-commercial-participating-areas/. 1.7 Definitions and Acronyms The following terms used throughout the remainder of this Handbook will have the meanings given to them below. Appraiser A designated Member of the Appraisal Institute (MAI), certified by the Society of Real Estate Appraisals (SREA), or a comparable qualified professional. ASHRAE American Society of Heating, Refrigeration and Air-Conditioning Engineers Assessment Total dollar amount of the lien placed on the property to fund the installation of improvement, including project amount, closing fees, and interest calculation. Assessment Contract - A contract between CSCDA and the owner of a participating property pursuant to AB 811 Authorized Improvements Has the meaning given to it in Section 2.4.1, Authorized CaliforniaFIRST Program Handbook 3

Improvements. Building Permits - The formal approval of building plans by the designated government agency as meeting the requirements of prescribed codes. It is an authorization to proceed with the construction or reconfiguration of a specific structure at a particular site, in accordance with the approved drawings and specifications. Covered Jurisdiction means the territories of cities and counties adopted into the Program by resolutions by the Commission of CSCDA. CSCDA California Statewide Communities Development Authority, a joint exercise of powers agency duly organized and existing under the Constitution and laws of the State of California. CSI California Solar Initiative EUL means effective useful life of the Authorized Improvements. Non-Residential means commercial, industrial, agricultural, large multi-family residential (five or more units) and other non-residential use Notice of Assessment The filing that the Program records with the county in which the parcel/property is located that memorializes on title the assessment contract obligation. Notice to Proceed Formal communication from the Program Administrator that the financing for a project has closed and the project funds have been escrowed or are ready for distribution. PACE Property Assessed Clean Energy Pooled financing - financings that involve contractual assessments of a number of properties Program - the CaliforniaFIRST Program. Program Administrator A third-party administrator hired by CSCDA to administer the Program in the County Property The real property (e.g., parcel) on which the Authorized Improvements are installed and that is subject to the lien. In the case of a multiple parcel property, each individual parcel may be addressed separately by the Program. Property Owner The record owner(s) of the fee title to the Property Real Property - Any structures or improvements that are attached to the land and not movable Reservation Period The period of time during which a funding reservation is effective Stand-Alone Financing a financing that involves the contractual assessment of a single property State The State of California CaliforniaFIRST Program Handbook 4

1.8 Future Program Changes CSCDA reserves the right to change the Program and its terms at any time; however, any such change will not affect your existing responsibility to pay the Assessment obligations agreed to in an executed Assessment Contract. Your participation in the Program will be subject to this Handbook and other documents signed as part of the Program. If any provisions of this Handbook are determined to be unlawful, void or for any reason unenforceable, then that provision shall be deemed severable from the Handbook and shall not affect the validity and enforceability of any remaining provisions. 1.9 Program Contact Information Program Address Program Website Program Email CaliforniaFIRST 1221 Broadway, 4 th Floor Oakland, California 94612 www.californiafirst.org info@californiafirst.org Program Phone Number (888) 865-7990 Program Fax Number (510) 379-5300 CaliforniaFIRST Program Handbook 5

SECTION 2 NON-RESIDENTIAL PROGRAM INFORMATION 2.1 Program Details The section below outlines the Program parameters for eligibility and participation of Non- Residential properties. 2.1.1 Property and Project Eligibility Criteria In order to receive financing from the Program, a Non-Residential property, its property owner(s), and its proposed project must meet the following basic requirements. 2.1.1.1 Property Requirements a. The property to be improved with the Authorized Improvements (the subject property ) must be located in a Covered Jurisdiction and must be eligible to pay property taxes. b. The subject property must be Non-Residential property. c. The property owner must obtain the written affirmative acknowledgment of existing mortgage lenders whose consent is required for further encumbrance. The Program will provide templates for this purpose but it is the property owner s responsibility to obtain consent from the mortgage lender(s). The owner must submit a copy of the mortgage lender s written affirmative acknowledgment with the Final Application. d. All owners of the fee simple title to the subject property, or their legally authorized representatives, must sign the Program documents. Therefore, before submitting an Initial Application please ensure that all owners (or their representatives) of the fee simple title to the subject property will agree to participate in the Program on the terms set forth in this Handbook. e. The financed improvements must be Authorized Improvements and must be installed by an appropriately licensed contractor (see Section 2.1.3). f. The property owner must further agree to participate in surveys and Program evaluations, which may include access to utility bill usage information. g. The property owner must certify that it (and its corporate parent if the property owner is a single-purpose entity) is solvent and that no proceedings are pending or threatened in which the property owner (or the corporate parent, as applicable) may be adjudicated as bankrupt, become the debtor in a bankruptcy proceeding, be discharged from all of the property owner s (or corporate parent s, as applicable) debts or obligations, be granted an extension of time to pay the property owner s (and the corporate parent s, as applicable) debts or be subjected to a reorganization or readjustment of the property owner s (and the corporate parent s, as applicable) debts. The property owner CaliforniaFIRST Program Handbook 1

must also certify that the property owner (or any corporate parent if the property owner is a single-purpose entity) has not filed for or been subject to bankruptcy protection in the past three years. h. The property owner must be current in the payment of all obligations secured by the subject property, including property taxes, assessments and tax liens and have had no delinquencies within the past 3 years (or since taking title to the subject property if it has been less than 3 years). The Program Administrator may review public records, including the real property records, to verify compliance with this requirement. CSCDA reserves the right to make allowances for certain property tax payment delays that do not reflect financial distress. Properties that are currently appealing a property tax assessment will be reviewed, and eligibility for the Program will be determined on a case-by-case basis. Property owners must also certify that other properties that they own are current and in good standing with their obligations. i. There must be no notices of default or foreclosure, whether in effect or released, due to non-payment of property taxes or loan payments filed against the subject property within the last 5 years (or since ownership, if less than 5 years). Exceptions may be granted on a case-by-case basis. j. The property owner must have no involuntary liens, defaults or judgments applicable to the subject property. The Program may review public records, including the real property records and court documents, to verify compliance with this requirement. A property owner with an involuntary lien(s), default or judgment may be allowed to participate in the Program if it can demonstrate an acceptable reason for the lien, default or judgment and a path for resolution along with supporting documentation. k. The assessed value of the property plus the value of the Authorized Improvements to be financed by the Program must be equal to or greater than the sum of (i) the total private property debt including mortgages and equity lines of credit secured by the property, (ii) the principal amount of any Program indebtedness attributable to the property, and (iii) the aggregate principal amount of any fixed assessment liens or special tax debt on the property (e.g. combined lien-to-value ratio equal to or less than 100%). If the property does not pass the above test with the assessed value, a property owner may, at its own cost, use an appraised value determined by an Appraiser or market value calculated according to a method identified by the Program. Property owners with properties that have a mortgage(s) should approach the mortgage lender(s) for consent prior to ordering an appraisal, in case the mortgage lender has a specific appraisal requirement. l. The total sum of all items appearing on the property s annual property tax bill including annual ad-valorem property taxes, special taxes and CaliforniaFIRST Program Handbook 2

assessments, in addition to the contractual assessment to be levied in connection with the Program, may not exceed 5% of the property s market value. For the purposes of demonstrating value for this requirement, the Program May allow market value to be measured using assessed value plus the cost of the Authorized Improvement. If the property does not pass the above test with the assessed value, a property owner may, at its own cost, use an appraised value identified by a Program-approved Appraiser or market value calculated according to a method identified by the Program. Property owners with properties that have a mortgage should approach the mortgage lender for consent prior to ordering an appraisal, in case the mortgage lender has a specific appraisal requirement. m. The project amount to be financed is typically capped at 25% or less the assessed or appraised value of the property, whichever is higher. CaliforniaFIRST offers flexibility on this requirement where the property strongly meets other eligibility criteria. Specialty properties may have more stringent lien-to-value (LTV) requirements. n. The property owner must certify that it is not party to any litigation or administrative proceeding of any nature in which the property owner has been served, and that no such litigation or administrative proceeding is pending or threatened that, if successful, would materially adversely affect the property owner s ability to operate its business or pay the contractual assessment when due, or which challenges or questions the validity or enforceability of the Assessment Contract or any other documents executed by property owner in connection with the Program. o. The Program typically involves issuance of bonds by CSCDA for the Program. The bonds are secured by a contractual assessment. However, CSCDA also utilizes other financing tools permitted by California law. It is important that property owners pay their contractual assessment and other property-related obligations in full on a timely basis or risk property foreclosure. Consequently, the Program reserves the right to request additional information in its sole discretion and to deny applications based on any information that reflects on the likelihood that a property owner may not pay its contractual assessment. 2.1.1.2 Project Requirements a. The property owner must commission a professional energy and/or water audit on the property that corresponds to the types of Authorized Improvements the owner is seeking to finance. The audit must meet ASHRAE Level 2 standards or be a comparable energy analysis (i.e. identify projected energy savings, cost savings, and project costs). The audit must be conducted on the property within the 36 months prior to the submission of the Initial Application. b. The property owner will be encouraged to participate in appropriate CaliforniaFIRST Program Handbook 3

state and local incentive programs to the extent the subject property is eligible for such programs. c. Projects must have an EUL of at least five years. The financing term may not exceed the EUL of the installed Authorized Improvement. If a project includes multiple products with various terms, the financing term will be determined by summing the dollar value of products under each term and selecting the term associated with the greatest value. If requested, the Program Administrator reserves the right to approve a shorter assessment term than the EUL of the Authorized Improvement to be installed. d. Only permanently affixed, new Authorized Improvements can be financed through the Program. Remanufactured, refurbished, used or new equipment transferred from a previous location are not eligible. Previously installed products are not eligible for Program financing, unless the property owner is pursuing refinancing and documents that PACE financing was a strong consideration in the initial decision to install the projects. e. Projects must reduce energy or water usage, or generate clean power for the property or, where available, contribute to seismic strengthening. f. The project will be reviewed for compliance with California Environmental Quality Act ( CEQA ). Property owners with projects that do not comply or are not exempted from this requirement will be asked to perform an individual CEQA environmental review before becoming eligible for financing. See Section 2.4.1 for additional information on specific Authorized Improvements. 2.1.2 Compliance with Existing Mortgages The obligation that secures CaliforniaFIRST financing is recorded on the participating property s title as a Notice of Assessment. Many mortgage and loan documents limit the ability of a property owner to encumber property. Property owners should confirm with any mortgage lender that participation in the Program will not adversely impact their rights with respect to any existing loan documents, or require them to prepay their contractual assessment. The Program will provide mortgage lender acknowledgment templates, but property owners are responsible for addressing issues with existing mortgage lenders. 2.1.3 Eligible Contractors The Program encourages property owners to research, check the bonding limits of, and receive bids from multiple contractors before signing a contract. The Program is not responsible for determining the appropriate equipment, price or contractor. By establishing contractor eligibility criteria, the Program is not recommending a particular contractor or warranting the reliability of any such installer. The Program is a financing program only. Neither CSCDA nor the Program Administrator will participate in the resolution of any dispute between the property owner and their installer, contractor or equipment manufacturer. CaliforniaFIRST Program Handbook 4

2.1.3.1 Licensing and Insurance. Contractors must (i) demonstrate compliance with all applicable State and local licensing laws, (ii) be in good standing with the Contractors State License Board, and (iii) possess the license or licenses required by the State for the Authorized Improvements they install and any other work they perform. Contractors must be sufficiently insured and bonded. 2.1.3.2 Permits. Contractors shall obtain all required building permits including requirements for Title 24 and the installed Authorized Improvements must successfully pass the final building inspection. The property owner is solely responsible for all Authorized Improvements installed on the property, including the selection of any contractor(s), energy auditor(s), or equipment. Any performance-related issues are the responsibility of property owner and the contractor(s). Neither CSCDA, the purchaser of bonds or other financing mechanism issued by CSCDA, or the Program Administrator is responsible for the performance of the products. Completion of all city and county permitting and inspections are the responsibility of property owner and the contractor. 2.1.3.3 Participation in Rebate Programs. Contractors are encouraged to participate in State incentive and rebate programs, as available, and meet the requirements of such programs. 2.1.4 Eligible Project Lenders Project lenders must generally meet basic qualification criteria, including that the lender is one of the following: 1. An accredited investor as defined by Rule 501(a) promulgated under the Securities Act of 1933, as amended; or 2. A qualified institutional buyer as defined in Rule 144A under the Securities Act of 1933. 2.2 Finance Details 2.2.1 Financing Structure The Program will use either a Stand-Alone Financing or a Pooled Financing (each such term defined below) to finance projects. 2.2.1.1 Stand-Alone Financing. A Stand-Alone Financing is a financing that is secured by the contractual assessment of a single property. The Stand-Alone Financing structure permits each project to customize transaction timing, interest rate, and payback term. 2.2.1.2 Pooled Financing. Pooled Financings are financings that are secured by contractual assessments of a number of properties. The pooling process requires standardization of financing terms such as interest rate. The sizing of the financing may take some time an aggregation period during which projects accepted into the Program will receive a financing reservation. A property owner may proceed to install its project with confidence that financing will be available only after receiving a Notice to Proceed. Pooled financings may be undertaken when A) multiple, lower-cost projects are aggregated into a single financing or B) a property owner wishes to finance projects on multiple properties. Pooled financing may present a more cost-efficient transaction for such projects. It enables the projects to be aggregated with a pool of similar projects in order to share transaction costs. 2.2.2 Financing Cost; Interest Rate CaliforniaFIRST Program Handbook 5

The following terms are helpful in understanding the Program s financing structure. Financing Cost. An amount equal to (i) the principal amount received through the Program, (ii) interest on the principal amount financed through the Program and (iii) initial and on-going program expenses. Principal Amount. The amount equal to all project costs that the property owner may choose to finance through the Program, which may include costs associated with implementing the project such as permits, audit expenses, closing fees, a deposit to a debt service reserve fund (if required) and capitalized interest (see Capitalized Interest below). Interest Rate. The rate of interest on the financing tool utilized by CSCDA to calculate contractual assessment repayment amounts, and may vary based on project lender. Capitalized Interest. Interest that is financed by the Program. Depending on when a project s financing is closed, it may not be possible to place the contractual assessment on the county s property tax bill until the following tax roll cycle. Where such delay occurs, the interest payments that the property owner would have paid in the first tax year are capitalized into the principal amount or is otherwise calculated into the repayment obligation. Debt Service Reserve Fund. A debt service reserve fund is used to cover shortfalls in debt service payments. Not all transactions will require a Debt Service Reserve Fund. One-Time and On-going Program Administrative Fees. One-time and on-going administrative fees cover the costs to operate the Program. One-time administrative costs may include 1) application fees, which are paid directly by the participating property owner and 2) closing fees, which are included in the total financed amount. Annual administrative costs are collected as part of the contractual assessment installments on the property tax bill. The fees for any specific project will be disclosed and agreed to prior to financing. Fees may vary based on the project size and financing structure. 2.2.3 Important Legal Terms 2.2.3.1 Repayment Terms. Following execution of the Assessment Contract and recordation of the Notice of Assessment, the property owner will be obligated to pay the contractual assessment on the terms specified in the Assessment Contract. 2.2.3.2 Project Lender Financing Terms. Capital sources used as project lenders may impose additional underwriting terms and fees on property owners and contractors beyond those described in this Handbook. 2.2.3.3 Contractual Assessments. A property owner must pay the agreed-upon contractual assessment regardless of their financial circumstances, the condition of the property, or the performance of the Authorized Improvements. No property owner should apply for financing if they are not certain they can pay the contractual assessment. The failure to pay the Assessment in full will result in financial repercussions, including penalties, interest and, potentially, foreclosure of the property. If an escrow account is used to pay semi-annual property taxes, participants must notify their escrow company of the contractual assessment payments. The escrow agent may need to increase monthly payments to the escrow account by an amount equivalent to the applicable CaliforniaFIRST Program Handbook 6

participant s annual contractual assessment divided by 12 months. 2.2.4 Amounts that can be Financed The current minimum amount that can be financed is $200,000 and is subject to capital market appetite as determined by the Program Administrator. The Non-Residential Program may make exceptions for lower amounts that are above $50,000. The Program will only authorize funding requests in an amount equal to the final cost of installing the Authorized Improvements (including any energy audit fees, if applicable) (see Section 2.4.3 Participation in Rebate/Incentive Programs ) plus the additional items identified in this Handbook, such as administrative costs and fees. The funding limits are per parcel per financing request. Maximum funding limits will also be limited as described in Section 2.1.1.1, Property Requirements. 2.2.5 Administrative Fees In order to receive financing, property owners must agree to pay various administrative and financing fees that may vary given the type of financing structure involved and the size of the project, among other factors. One-Time Fees 2.2.5.1 Application Fees. Application fees are currently waived. Property owners interested in applying for financing should check with the Program Administrator prior to submission of an Initial Application to ensure that the waiver provision is still in effect. 2.2.5.2 Closing Fees. Closing fees can be included in the financed amount and depend on financing structure and project size. Closing fees include program management, project underwriting, legal document preparation and review, lien recordation, and funding disbursement as well as other transaction related project fees. 2.2.5.3 Optional Closing Fees. Optional closing fees may vary based on additional services requested by the property owner and the county in which the project is located. Optional closing fees must be specifically related to project design, installation, or capitalized interest. 2.2.5.4. Service Fees. Participating Non-Residential property owners may voluntarily elect to contract for additional services to assist with project scoping and review, finance structuring or mortgage lender negotiation. The exact costs for these services will vary from project to project and depending on the firm(s) the property owner elects to use. 2.2.6 On-Going Fees. On-going fees which pay for preparation of the assessment installment bills, preparation of continuing disclosure reports, monitoring project funds, tracking delinquencies, and fees charged by the County for the collection of the contractual assessment installments on the County property tax bill will be factored into the contractual assessment installments. 2.3 Application and Financing Process The application and financing process will vary depending on the type of financing structure used (Stand- Alone Financing or Pooled Financing). 2.3.1 Overview of Stand-Alone Financing Application and Financing Process Because it is customizable to the needs of specific projects, the Stand-Alone Financing CaliforniaFIRST Program Handbook 7

application and financing process may vary greatly from project to project. The basic framework is described below. Step 1: Submit an Initial Application. Property owners complete and submit an application to establish the Program eligibility of the property and project. This stage requires only a high-level description of a proposed project so that basic eligibility can be established prior to the property owner spending more significant funds on project scoping. Step 2: Initial Reservation and Project Scoping. Once the Program has reviewed and approved the Initial Application, a Conditional Reservation will be issued. The Conditional Reservation lets the property owner know that the property meets basic underwriting criteria. The property owner can then expend funds to develop and scope a project. A Conditional Reservation will last 90 days before expiring. Step 3: Final Application. A property owner will submit the Final Application when the details of the project are known, including an accurate estimate of financing costs. Step 4: Application Assistance and Approval. The Program will assist property owner in putting together the Final Application. Final Applications meeting Program requirements will be approved. Step 5: Financing Closing. The assessment contract obligates the property owner to the financing terms. Once executed the Program will execute financing documents with the capital source, either a bond issuance, an assignment of contractual assessment or other authorized financing mechanism, and a lien will be placed on the subject property. Step 6: Project Installation. Once the financing is closed, the Program will confirm with the property owner that the funds are in a trustee account and that project installation may begin. Step 7: Funding Disbursement. Upon completion of installation or significant portion of the installation, property owner submits a Funding Request along with verification materials. Following successful verification, the Program will distribute funds to the property owner. Funds may be distributed directly to the contractor at the request of the property owner. See Section 2.3.4 of the Handbook for information on progress payments. CaliforniaFIRST Program Handbook 8

Applicant 1. Submit Initial Application Program 2. Receive Initial Application & provide Initial Reservation 3. Receive Initial Reservation & provide additional information for Final Application 4a. Assist Final Application development 4b. Submit Final Application 5. Financing Close 6. Installation 8. Repay tax assessment on property taxes 7. Disbursement of Project Funds *The Program process flow will vary from project to project. 2.3.2 Overview of Pooled Financing Application and Financing Process The Pooled Financing application and financing process aggregates financing for multiple parcels. Its defining characteristic is its aggregation period during which the Program receives commitments from property owners to proceed within a pre-approved interest range but does not provide financing until the volume of projects needed for a cost-effective financing is reached. The basic framework is described below, although may vary greatly from one financing to another. Step 1: Submit an Application. Property owners complete and submit an application to establish the eligibility of the property and project. Step 2: Funding Reservation. Applications that are approved by the Program are provided a Funding Reservation. The Funding Reservation is a conditional commitment by the Program to provide financing and obligates the property owner for the principal financed amount at a not to exceed interest rate. If the not to exceed rate cannot be achieved when the financing is ready for completion, the issuance will be cancelled or delayed. CaliforniaFIRST Program Handbook 9

Step 3: Aggregation Period. During the aggregation period, the Program will pool the contractual assessment obligations of many projects in an effort to structure and size a favorable financing. The aggregation period may last 90 days or more. Because financing is not guaranteed, it is important that property owners not enter into private installation agreements with contractors or begin construction during this period. Step. 4: Financing Completion and Notice to Proceed. At the conclusion of the aggregation period, CSCDA will complete the financing if it can be completed at or below the not to exceed interest rate. If the financing is successful, property owners will receive a Notice to Proceed with their projects, notice of final administrative and financing costs, and contractual assessments will be levied. Step 5: Project Installation. Upon receiving a Notice to Proceed, property owner enters into a contract with project contractor(s) and the project is installed. The installation contract is a private agreement, and neither CSCDA nor the Program Administrator guarantees or vouches for installation workmanship and product. See Section 2.3.4 of the Handbook for information on progress payments. Step 6: Funding Request and Funds Distribution. Upon completion of installation, property owner submits Funding Request along with verification materials demonstrating property compliance with the Program. Following successful verification, the Program will disburse funds to property owner. 2.3.3 Application Process The application process can initially be completed on-line or via a paper application. The process may be slightly different depending on the type of financing structure. See sections 2.3.1 and 2.3.2 above. All approved or denied applications will receive a confirmation email with the name and contact information of a program processor indicating the status of the application. Any questions, concerns or disputes will be handled by the Program Administrator. 2.3.3.1 Initial and Final Application for a Funding Reservation; Approval or Denial; Application Fee a. Initial Application. All property owners interested in applying to the Program must submit an on-line or paper initial application. This step does not require any additional documentation. b. A Final Application must be submitted along with the other items described below. c. Application Documentation 1) Final Application 2) Contractor bids/estimates 3) Executed Lender Acknowledgement of Contractual Assessment (if applicable) 4) Appropriate energy and/or water audits or assessment 5) Estimates of eligible incentives CaliforniaFIRST Program Handbook 10

6) Term sheet from an eligible project lender (see Handbook for details) that will act as the project investor and will supply the capital for the financing of the project 7) Copy of most recent mortgage statement (if applicable) 8) Utility Information Customer Release form (optional) 9) Property Owner Acknowledgement of Program Terms 10) Contractor Acknowledgement of Program Terms 11) Power of Attorney, Corporate Resolution and/or Articles of Incorporation (as applicable) 12) Title Report 13) Appraisal (if applicable) d. Application Fee. The property owner must pay an application fee (Sec. 2.2.5) when it submits an application. If the application is approved but the property owner does not meet the funding requirements or decides not to utilize the Program funding, the fee may not be refunded. The application fee may be waived at the beginning of the program. Approval or denial will be based on the eligibility requirements listed within this Handbook as well as any capital provider requirements. The Program reserves the right to (1) provide exception approvals where applications represent sound credit/underwriting risk and (2) deny applications that may conform to this Handbook but otherwise present an unsound credit/underwriting risk. Submission of an application does not guarantee that a property owner will be approved for Program participation. If the property owner proceeds with installation before notification by the Program Administrator that the financing has closed and that the funds are in an escrow account, the property owner risks incurring the cost of installation without the benefit of Program financing. Program financing also requires that projects, upon installation, conform to the Program s project verification/quality assurance process (see section 2.4.2). 2.3.4 Financing Transaction Closing and Installation 2.3.4.1 Assessment Contract. After submittal of the application documents, the program will prepare the associated Assessment Contract and deliver them to the property owner. Within 7 calendar days thereafter, the property owner must review, sign (if they are correct and if not, have them corrected), and submit to the Program Administrator, the following: 1) An executed Assessment Contract. 2) An executed Property Owner s Closing Certificate. 3) If applicable, a Property Owner Counsel Opinion Letter (uncommon). 2.3.4.2 Non-Completion; Expiration. Once the project has been funded and the Program issues a Notice to Proceed, approval will be effective for approximately 360 calendar days (the reservation period ) or as determined in the Assessment Contract. Property owners that receive Program approval must have a qualified contractor complete installation of the Authorized Improvements on the subject property and complete funding disbursement within this period. Failing to have a qualified contractor complete the installation of Authorized Improvements on the subject property within the reservation period may result in expiration of CaliforniaFIRST Program Handbook 11

Program reservation and approval. Property owners may request to extend the Program reservation period prior to its expiration. An extension fee may be required. 2.3.4.3 Cancellation. Once the assessment contract is executed, a property owner may not cancel the financing without paying Program Fees incurred plus (if financing has closed) a prepayment fee identified in the assessment contract. 2.3.5 Funding Request and Disbursement 2.3.5.1 Funding Request. After the installation of the project, a property owner must complete and submit the funding request by submitting the following Project Verification Documents: 1) A signed final permit inspection from the applicable city/county building department for applicable projects 2) A final invoice from all contractors, with an invoice cover sheet 3) Photos, receipts or other evidence of work in progress 4) Mechanic s lien release 5) A Payment Assignment Form, if the payment is to be assigned to the contractor 6) Wire information 2.3.5.2 Funding Request Amount. All funding requests will be deemed final upon submission of the required documentation listed and may not be subsequently changed. 2.3.5.3 Disbursements. The Program will approve the issuance of a check or wire to the property owner (or the contractor, if the property owner instructs the administrator to pay the contractor directly) after it has received all required documentation from the property owner, and after it has confirmed compliance with the eligibility requirements. See section 2.3.5 on potential Progress Payments. At the time of a final payment, any mechanic s liens on the property must be released. 2.3.6 Progress Payments The Program will consider approving progress payments on a case-by-case basis. In general, the Program may agree to make progress payments before the installation of the Authorized Improvements is complete if certain criteria are met, which may include (i) the amount financed exceeds $100,000, (ii) total project installation time exceeds 90 days, (iii) the amount of each progress payment is at least 20% of the approved finance amount, (iv) percentage of progress payment must be equal to or less than percentage of work completed on the project, or (v) the installation contractor has provided a Performance Bond to the property owner(s). With each progress payment distribution request, contractors must provide documentation as to costs incurred. The Program may withhold up to 25% of the amount financed for final disbursement to occur upon completed project installation in conformance with Program requirements. While the Program generally performs progress payments as a courtesy, it reserves the right to charge a fee where a project s progress payment needs are uncommonly onerous. Property owner may be liable for a progress payment service fee of $150 upon a showing that either (1) the progress payment request is for an amount under $50,000 or (2) where there are more than 4 progress payment requests for the same financing. Where a CaliforniaFIRST Program Handbook 12

progress payment service fee is charged, the property owner may pay it out of pocket or the Program will add it as an additional administrative expense on parcel s next annual property tax bill. 2.3.7 Transfer or Resale of Property If the property is sold prior to the end of the agreed-upon contractual assessment period, the new owner will assume the contractual assessment obligation unless otherwise negotiated. In the case of a property owner owned system (e.g. not a lease), ownership of any Authorized Improvements on the subject property will transfer to the new owner at the close of the real estate sale. Authorized Improvements financed through the Program may not be removed from the property until the Assessment Contract expires. Program participants agree to make all legally required disclosures about the existence of the contractual assessment lien on the property in connection with any sale or transfer. 2.4 Technical Details 2.4.1 Authorized Improvements In order for property improvements to be eligible for financing through the Program, the Authorized Improvement must have an EUL of five years or longer, be permanently affixed to the real property or building and have the capacity to reduce energy or water usage, or generate clean power for the property or, where available, contribute to seismic strengthening. The type of eligible projects may be reduced or expanded by amendments to AB 811 or related legislation. The financing term may not exceed the EUL of the installed Authorized Improvement. (See Sec. 2.1.1.2). Eligible measures that have been identified by the property owner in their Final Application and approved by the Program in the Final Reservation are described as Authorized Improvements. 2.4.1.1 Common Measures. The Program has an extensive list of common energy efficiency, energy generation, water conservation property improvements (or measures), seismic strengthening improvements, electric vehicle charging infrastructure and other improvements that are eligible for financing, which can be found in the separate Authorized Improvements List document. 2.4.1.2 Custom Measures. The Program will also consider, on a case-by-case basis, other measures (custom measures) that do not appear in the Authorized Improvements List. Such custom measures may require additional technical review by the Program likely at additional cost for the applicant. 2.4.1.3 No Loading Order. Property owners are not required to install energy efficiency measures prior to the financing of renewable energy measures. 2.4.1.4 New Space Additions. For additions of new spaces, or conversions of existing, unconditioned spaces, only a portion of the project may be eligible for financing through the Program. New construction costs are eligible for Program financing to the extent permitted by law. 2.4.1.5 Responsibility for Authorized Improvements. The Program is a financing program only. By establishing the Authorized Improvements List, the Program is not recommending or warranting any particular improvements. None of the Program staff, CSCDA, or any of its employees or its agents is responsible for the measures or their performance. CaliforniaFIRST Program Handbook 13

Property owners are solely responsible for the measures installed on their property. Should there be any unsatisfactory performance or other system-related issues that arise during or after installation, the property owner must address those directly with the responsible contractor according to the terms of the contract between the two parties. CSCDA, the purchaser of any bonds or assignments issued by CSCDA, and the Program Administrator do not endorse contractors who register with the Program, any other person involved with the installed products, or the design of the products, or warrant the economic value, energy savings, safety, durability or reliability of the Authorized Improvements. 2.4.2 Quality Assurance 2.4.2.1 Demonstration of Energy Savings. The Program requires properties seeking to finance energy measures through the Program demonstrate the expected energy savings benefit of those measures. This requirement may be accomplished through a qualified energy audit or alternative energy assessment that the Program Administrator will consider on a caseby-case basis, informed by mortgage lender and project lender requirements or preferences. The Program is not liable for any delays or issues with the utility interconnection of renewable energy generation systems. 2.4.2.2 Energy Audit Standard. Energy audits assist property owners to identify and prioritize building-specific improvements and savings. To be eligible for energy financing, properties must have an ASHRAE 2 audit or a similar energy analysis. Solar-only projects should at a minimum have annual energy production estimates for the financing term. The program allows substantial flexibility in meeting the energy audit standard and, upon property owner request, will consider any professional analysis that may be more cost effective. 2.4.2.3 Quality Assurance Inspections or Audits. The Program may require that a quality assurance inspection or audit be completed prior to the release of funds. If so, the property owner may be asked to pay an additional fee to cover the expense of quality assurance. 2.4.3 Participation in Rebate/Incentive Programs The Program encourages participation in applicable rebate and/or incentive programs. 2.4.3.1 Benefits. Rebate and incentive programs reward participants with cash payments or tax credits for implementing measures that reduce energy (or water) usage, thus reducing a property owner s project cost. Netting out rebates and incentives reduces the total financing amount available to a property owner through the Program. Leveraging such existing programs also helps reduce overall program costs by providing credible savings projections, quality control and assurance, and project inspection services at no additional cost. 2.4.3.2 Availability of Rebates/Incentives. Property owners seeking financing through the Program are encouraged to participate in rebate or incentive programs (if available to them) if installing measures covered by those programs. 2.4.3.3 Consequences of Nonparticipation in Rebate/Incentive Programs. Because rebate and incentive programs can act as a third-party check for the Program on the validity of the property owner s measures and their likely energy savings, participation in such programs CaliforniaFIRST Program Handbook 14