CITY COUNCIL TRANSMITTAL

JACKIE BlSKUPSKI MAYOR SUSTAINABILI1Y DEPARTMENT OFFICE of the DIRECTOR VICKI BENNE1T DIRECfOR CITY COUNCIL TRANSMITTAL Da te Received ' Mt~ I~, 1AJ I ( Date sen t to Council: ~ 2 fr?./o I K TO: FROM: Salt Lake City Council Erin Mendenhall, Chair Vicki Bennett Sustainability Department DATE: May 18, 2018 SUBJECT: Commercial Property Assessed Clean Energy CC-PACE) Program Participation Agreement STAFF CONTACT: Tyler Poulson Sustainability Program Manager tyler.poulson@slcgov.com I 801.535.7259 DOCUMENT TYPE: Resolution RECOMMENDATION: The Administration recommends that City Council adopt the provided Resolution relating to a C-PACE Local Entity Participation Agreement (the "Participation Agreement") between Salt Lake City Corporation and the Governor's Office of Energy Development (OED). The resolution requests and authorizes OED to conduct a C-PACE program and district (the "Utah C-PACE District") and the Participation Agreement allows OED to offer and administer Utah C-PACE District within city limits and perform all of the duties described in the Participation Agreement. BUDGET IMPACT: None BACKGROUND/ DISCUSSION: Issue Origin The City has a number of ambitious community energy, air quality and climate change goals. These goals include transitioning to net-100% renewable electricity for the entire community by 2032 along with reducing energy-related greenhouse gas emissions 80% by 2040. Both of these targets are detailed in a Joint City Council-Mayor Resolution adopted November 1, 2016 (Resolution No. 33 of 2016). Details on the resolution plus the associated "Climate Positive 2040" implementation plan are available online at slcgreen.com/climatepositive. Roughly 60% of emissions tracked in the community's annual carbon footprint are related to electricity and natural gas used at non-residential sites, including commercial and industrial properties. Reducing energy waste through efficiency and conservation plus the adoption of cleaner technologies like renewable SALT LAKE CITY CORPORATION 451 SOUTH STATE, ROOM 148 P 0 BOX 145470, SALT LAKE CITY, UTAH 84114-5470 WWW.SLCGOV.COM TEL:801-535-6470 Page i of 14

energy and electric vehicles are all keys to mitigating carbon pollution. Commercial Property Assessed Clean Energy (C-PACE) financing was created to better connect property owners, managers and tenants nationally with funding opportunities for onsite energy projects and can help advance energy goals locally in Salt Lake City. Department of Sustainability staff has been tracking C-PACE policy and programming prior to it being first enabled in-state via Utah Senate Bill 221 1 (Assessment Area Act Amendments) in 2013. Most recently, rules and requirements regarding C-PACE were streamlined with the passing of Utah Senate Bill 273 2 (Energy Development Amendments) in 2017. S.B. 273 authorized the creation of a statewide C-PACE District administered by OED and expanded the list of eligible project types to include seismic upgrades and other items. The legislation also eliminated the need for bonding as the sole project funding mechanism and allowed a local entity to assign an energy assessment lien to a third-party lender in order to streamline the financing process. The Administration is recommending that Salt Lake City Corporation opt-in to the OED administered Utah C-PACE District. The Administration requests that City Council adopt the provided resolution (Exhibit B) authorizing OED to conduct the C-PACE District in Salt Lake City in accordance with the Participation Agreement (Exhibit A). C-PACE Financing Explained Property Assessed Clean Energy (PACE) financing originated in California in 2005 and was based on many traditional features of public financing, most notably the use of voluntary assessments to secure debt financed by municipal bonds. C-PACE is a version of PACE financing that was specifically tailored for use by commercial and industrial property types. C-PACE is authorized for use in Utah, but PACE for residential properties (R-PACE) has not been enabled legislatively. C-PACE financing has grown in popularity as governments strive to meet community energy goals and simultaneously encourage economic activity facilitated by this form of financing. Benefits of C-PACE depend on the specific property owner, property type and the improvement measures financed. However, longer loan repayment periods, zero down financing, an ability to transfer the debt obligation with property sale, along with other unique characteristics have made C-PACE a viable financing mechanism for a wide range of project types. Financeable projects typically include energy efficiency improvements, renewable energy installations, electric vehicle charging infrastructure and other items as allowable on a state-level or other jurisdictional basis. Certain energy improvements, such as renewable energy, often offer longer-term financial payback. C-PACE loans can often be structured to allow for positive cash flow from day one for these projects with costs repayable over long periods of time, such as up to 30 years under Utah law. Use of property liens to secure the debt is another important feature of C-PACE financing. This structure allows property owners to transfer the lien and repayment obligation, along with the physical improvements made to the property, as part of future sale. C-PACE liens are senior to those of the mortgage holder, helping enhance the attractiveness and security of the debt, and mortgage holder consent must be provided, when applicable. Under Utah C-PACE District, the capital provider will facilitate the lien process by filing, recording and assigning the energy assessment lien as needed. In addition to traditional commercial and industrial property types that are eligible for C-PACE in Utah, multifamily rental properties with five or more units can also utilize the program. Financing can be leveraged for improvements to existing properties and also certain investments in new construction. For 1 Utah Senate Bill 221, Assessment Area Act Amendments (adopted 2013). https://le.utah.gov/~2013/htmdoc/sbillhtm/sb0221.htm 2 Utah Senate Bill 273, Energy Development Amendments (adopted 2017). https://le.utah.gov/~2017/bills/static/sb0273.html Page 2 of 14

new construction, eligible improvements can be financed as long as the building is designed to exceed the current international energy conservation code required in Utah (2015 IECC, ASHRAE 90.1-2013) by at least 5%. A complete list of eligible improvement types along with C-PACE rules and requirements are available in the User Guide 3 published at UtahCPACE.com. Utah C-PACE District and the Participation Agreement C-PACE is now authorized in over 30 states across the U.S. and each state has its own unique rules, including allowable types of projects and financing structure. The passing of S.B. 273 in Utah authorized the creation of a statewide C-PACE District administered by the Governor s Office of Energy Development, but local governments must authorize program administration within their jurisdiction. This structure of a centralized C-PACE administrator has proven successful in other states and helped encouraged the adoption of S.B. 273 in Utah. The legislation also increased the scope of eligible project activities to include seismic upgrades, natural gas line extensions and a number of other energy-related improvements such as electric vehicle charging infrastructure. The Governor s Office of Energy Development has selected Sustainable Real Estate Solutions to act as the program administrator for Utah C-PACE District. This firm provides information and a wide range of services to all stakeholders associated with C-PACE transactions, including contractors, property owners, property developers, mortgage holders, capital providers and local governments. In order to fund these services, a program administration fee equal to 3 percent of the project finance amount (not to exceed $90,000 per project) is applied to each financed project. The program administrator will provide an invoice for the fee to the capital provider as part of the transaction. Utah C-PACE District was publicly launched May 1, 2018 and is available to administer all necessary steps associated with C-PACE once authorized in a local jurisdiction. Salt Lake City Corporation must execute a Local Entity Participation Agreement (Exhibit A) with the Governor s Office of Energy Development in order to opt-in to the program. Utah Code Section 11-42a-106 requires that a governing body, in this case the City Council, adopt a Local Entity Resolution (Exhibit B) requesting and authorizing OED to administer Utah C-PACE District locally. Utah C-PACE District is prepared with appropriate staffing and expertise to facilitate use of C-PACE financing within Salt Lake City limits. Utilizing a central administrator authorized to coordinate programming statewide provides the benefit of a single point of contact for contractors, property owners, property developers, mortgage holders, capital providers and other stakeholders interested in leveraging C-PACE. Utah C-PACE District can offer consistency and experience with the financing process for all parties and can likely increase the amount of transactions processed for properties in Salt Lake City. The City could attempt to offer and administer the program internally, but current staffing levels and a lack of experience with C-PACE transactions are both barriers to moving forward. Additional City staff, financial resources and time to develop a program would all be necessary if the City were to desire to administer the program internally or hire its own third-party program administrator. This approach would create discontinuity for stakeholders between Utah C-PACE District and a program separately managed by the City, while also sacrificing some of the economies of scale associated with statewide programming. Next Steps The Administration recommends that City Council review and adopt the provided Local Entity Resolution. City personnel as well as staff from OED are available to answer questions and participate in City Council meetings. 3 Utah C-PACE User Guide Version 1.0. Published May 4, 2018. https://utahcpace.com/municipalities/municipalities-how-it-works/ Page 3 of 14

PUBLIC PROCESS: No formal public input has been gathered on whether or not the City should opt-in to Utah C-PACE District. However, numerous parties including property owners and managers, finance providers and energy firms have expressed an interest in C-PACE locally in recent years and encouraged the City to directly offer or allow this type of program through a third-party administrator such as OED. The Salt Lake City Sustainability Department has engaged staff from other departments and solicited input on this transmittal, including review by the City Attorney s Office, City Treasurer s Office, Economic Development and RDA. Page 4 of 14

Exhibit A Local Entity Participation Agreement THIS C-PACE LOCAL ENTITY PARTICIPATION AGREEMENT (the Agreement ) is made and entered into as of the day of, 2018, by and between, a body corporate and politic of the State of Utah (the Local Entity ), and the GOVERNOR S OFFICE OF ENERGY DEVELOPMENT (OED), an independent body corporate and politic of the State of Utah responsible for the C-PACE District (the C-PACE District ) established under Utah Code Chapter 11-42a (the Statute ) (each a Party and collectively the Parties ). RECITALS WHEREAS, Utah Code Section 11-42a-103 established commercial property assessed clean energy financing in the State of Utah; and WHEREAS, Utah Code Section 11-42a-106 established the C-PACE District, and OED, through the C-PACE District, as its administrator facilitates financing for eligible building improvements to commercial, mining, manufacturing, public/private club, lodging, industrial, agricultural, and multifamily properties (with five or more rentable units) by using a voluntary energy assessment to provide security for repayment of the financing; and WHEREAS, Utah Code Section 11-42a-106 directs OED to establish and administer the C-PACE District but stipulates that the C-PACE District may only operate within a local entity if the governing body of the Local Entity (the Governing Body ) has made a written request of the C-PACE District to conduct projects in the Local Entity s geographical area; and WHEREAS, the Governing Body has made such a written request by adopting a resolution substantially in the form attached hereto as Exhibit B, authorizing OED to conduct the C-PACE District within the geographical area of the Local Entity; NOW, THEREFORE, for and in consideration of the mutual covenants and agreements set forth herein and in order to effectuate the purposes of the Statute, the Parties agree as follows: Section 1. Definitions (a) Energy Assessment Lien means a lien on property within an energy assessment area authorized by the Statute, as further defined in Utah Code Section 11-42a-102. (b) Commercial Building means any commercial or industrial real property, including residential buildings containing five or more dwelling units for rent. Page 5 of 14

(c) Eligible Improvements means one or more energy efficiency, renewable energy, battery storage, electric vehicle charging infrastructure, hybrid transport device, seismic upgrade, and/or hybrid transport device improvements, made to Participating Property, as specified in Utah Code Section 11-42-102. (d) Participating Property means a Commercial Building that is eligible to participate in the C- PACE District. (e) Program Guide means the rules and regulations promulgated by OED to implement the C- PACE District pursuant to the Statute, as the same may be amended or supplemented from time to time. Section 2. Obligations of OED. (a) Program Requirements. Pursuant to the Statute, OED: (1) shall develop a Program Guide that governs OED in administering the C-PACE District and a User Guide that provides recommended best practices to C-PACE stakeholders. OED may serve as an facilitator for the purpose of securing state or private third-party financing for Eligible Improvements pursuant to the Statute; and (2) shall receive and review applications submitted by property owners within the Local Entity s geographical area for financing of Eligible Improvements, and approve or disapprove such applications in accordance with the Statute. (b) Project Requirements. If a property owner requests financing through the C-PACE District for improvements under the Statute, OED shall impose guidelines and criteria to ensure that the proposed improvements are consistent with the purpose and requirements of the Statute. (c) Assessment and Financing Agreement for Project. The party providing the financing (the Capital Provider ) may enter into an Assessment and Financing Agreement with the owner of Participating Property (the Assessment & Financing Agreement ). The Assessment & Financing Agreement shall clearly state the amount of the voluntary energy assessment (the Voluntary Energy Assessment ) to be levied against the Page 6 of 14

Participating Property under the Statute. OED and the Capital Provider shall disclose to the property owner the costs and risks associated with participating in the C-PACE District, including risks related to the failure of the property owner to pay the Voluntary Energy Assessment provided for in the Assessment & Financing Agreement. The Capital Provider shall disclose to the property owner the effective interest rate on the Voluntary Energy Assessment, including other fees and charges imposed by OED to administer the C-PACE District as well as any fees charged by the Capital Provider. The property owner must be informed that each Eligible Improvement, regardless of its useful life, may be bundled with other such improvements on the Participating Property for purposes of assessment and paid for over the assessment term. (d) Establish Voluntary Energy Assessments and Assessment Units. With respect to each Voluntary Energy Assessment placed on a Participating Property, OED shall determine from the Capital Provider and property owner the amount of the Voluntary Energy Assessment. OED shall approve the specifics of the applicable Voluntary Energy Assessment including, without limitation, the amount of the Voluntary Energy Assessment, term, interest rate and repayment dates in accordance with the Statute. In no event shall the amount of any Voluntary Energy Assessment exceed the limit placed within of Utah Code Section 11-42a-204. (e) Filing Assessment with County Recorder. Upon the execution of an Assessment & Financing Agreement, the Capital Provider, on behalf of the Local Entity, will be responsible, in collaboration with the Local Entity, to (i) file and record such energy assessment lien in the public land records of the Salt Lake County Recorder, (ii) assign such lien, and (iii) amend such liens from time to time. (f) Delegation. OED may delegate its powers under this Agreement to a third party to assist in administering and directing the operation of the C-PACE District. Section 3. Obligations of the Local Entity (a) Promotion of Program; Assistance for C-PACE Financing. (b) The Local Entity shall use good faith efforts to assist OED in marketing efforts and outreach to the local business community to encourage participation in the C-PACE District, such as including C-PACE District information on the Local Entity s website, distributing an Page 7 of 14

informational letter from appropriate Local Entity officials to local businesses regarding the program, and conducting one or more business roundtable events. Section 4. Obligations of the Capital Provider. (a) Billing and Collection of Energy Assessments. Upon assignment of the energy assessment lien to the Capital Provider, the owner of the Participating Property will make all assessment payments directly to the Capital Provider pursuant to the Assessment & Financing Agreement, and the Capital Provider will be responsible, subject to and in accordance with the terms of the Assessment & Financing Agreement, for all billing, collection, enforcement and administrative duties in respect of each of the assessment payments and the lien. Section 5. Term and Termination. The term of this Agreement shall commence upon the date first written above. This Agreement shall be in full force and effect until all of the Voluntary Energy Assessments have been paid in full or deemed no longer outstanding. Section 6. Default. Each Party shall give the other Party written notice of any breach of any covenant or term of this Agreement and shall allow the defaulting Party thirty (30) calendar days from the date of its receipt of such notice within which to cure any such default or, if it cannot be cured within the thirty (30) days, to commence and thereafter diligently pursue to completion, using good faith efforts to effect such cure and to thereafter notify the other Party of the actual cure of any such default. The Parties shall have all other rights and remedies provided by law, including, but not limited to, specific performance. Section 7. Miscellaneous Provisions. (a) Amendment and Termination. (i) Except as otherwise set forth in this Agreement, any amendment to any provision of this Agreement must be in writing and signed by OED and the Local Entity. (ii) Either Party may terminate this Agreement with 60 days notice to the other Party for cause or convenience. (iii) Amendment of this Agreement by the Parties shall not infringe on any rights, obligations, Page 8 of 14

duties, or otherwise of any other third party or entity that is not a specified party in this Agreement, to include but not limited to capital providers, lien holders, and property owners. (b) Severability. If any clause, provision or section of this Agreement is held to be illegal or invalid by any court, the invalidity of the clause, provision or section will not affect the remaining clauses, provisions or sections, and this Agreement will be construed and enforced as if the illegal or invalid clause, provision or section has not been contained in it. (c) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute but one and the same instrument. (d) Notices. All notices, requests, consents and other communications shall be in writing and shall be delivered, mailed by first class mail, postage prepaid, or overnight delivery service, to the Parties, as follows: If to the Local Entity: [Salt Lake City Corporation] c/o With a copy to: Local Entity Attorney If to OED: C-PACE District c/o Utah Governor s Office of Energy Development P.O. Box 144845 Page 9 of 14

Salt Lake City, UT 84114 Attention: Shawna Cuan With a copy to: (f) Applicable Law and Venue. This Agreement and its provisions shall be governed by and construed in accordance with the laws of the State of Utah. In any action, in equity or law, with respect to the enforcement or interpretation of this Agreement, venue shall be in the district courts of Salt Lake City, Utah. (g) Entire Agreement. This instrument constitutes the entire agreement between the Parties and supersedes all previous discussions, understandings and agreements between the Parties relating to the subject matter of this Agreement. In the event of any conflict between the Program Guide and this Agreement, the terms of this Agreement shall control. (h) Headings. The headings in this Agreement are solely for convenience, do not constitute a part of this Agreement and do not affect its meaning or construction. (i) Changes in Law or Regulation. This Agreement is subject to such modifications as may be required by change in federal or Utah state law, or their implementing regulations. Any such required modification shall automatically be incorporated into and made a part of this Agreement on the effective date of such change, as if fully set forth herein. (j) Third-Party Beneficiaries. It is specifically agreed among the Parties that they do not intend by this Agreement to create a third-party beneficiary hereunder, or to authorize anyone not a party to this Agreement to maintain any claim under this Agreement. The duties, obligations and responsibilities of the Parties to this Agreement with respect to third parties shall remain as imposed by law. Page 10 of 14

(k) No Waiver of Rights. A waiver by any Party of the breach of any term or provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either Party. (l) No Waiver of Governmental Immunity. Nothing in this Agreement shall be construed to waive, limit, or otherwise modify any governmental immunity that may be available by law to the Local Entity or to OED, their officials, employees, contractors, or agents, or any other person acting on behalf of the Local Entity or OED. (m) Independent Entities. The Parties shall perform all services under this Agreement as independent entities and not as an agent or employee of the other Party. Nothing contained in this Agreement is intended, or shall be construed as, in any way establishing the relationship of co-partners or joint ventures between the Parties, or as construing either Party, including its agents and employees, as an agent of the other Party. Each Party shall remain an independent and separate entity. Neither Party shall be supervised by any employee or official of the other Party. Neither Party shall represent that it is an employee or agent of the other Party in any capacity. Page 11 of 14

IN WITNESS WHEREOF, the Local Entity and OED have each caused this Agreement to be executed and delivered as of the date indicated above: SALT LAKE CITY CORPORATION By: Attest: City Recorder APPROVED AS TO FORM: Senior City Attorney UTAH GOVERNOR S OFFICE OF ENERGY DEVELOPMENT By: Laura Nelson, Executive Director Attest: NAME, Recording Secretary Page 12 of 14

Exhibit B - Local Entity Resolution SALT LAKE CITY RESOLUTION NO. of 2018 A Resolution Requesting and Authorizing OED to Conduct the Commercial Property Assessed Clean Energy District (C-PACE District), within Salt Lake City ( City ) RECITALS A Resolution requesting and authorizing OED to conduct the Commercial Property Assessed Clean Energy District (C-PACE District), within Salt Lake City. WHEREAS, Utah Code Section 63M-4-401 establishes the GOVERNOR S OFFICE OF ENERGY DEVELOPMENT (OED), an independent body corporate and politic of the State of Utah, and Utah Code Section 11-42a-106 establishes the C-PACE District and provides for the creation of new energy improvement financing, which the District has named C-PACE or Commercial Property Assessed Clean Energy. WHEREAS, pursuant to Utah Code Section 11-42a-106, OED may only establish and administer the C-PACE District in Salt Lake City if the City Council of the City requests it do so. WHEREAS, the City Council wishes to request and authorize OED to administer projects through the C-PACE District in Salt Lake City. WHEREAS, OED and the City have agreed on the terms of the C-PACE Local Entity Participation Agreement in the form attached hereto (the Participation Agreement ). NOW THEREFORE, be it resolved by the City Council of Salt Lake City, Utah as follows: SECTION 1. OED is hereby requested and shall be authorized to conduct the C-PACE District in Salt Lake City in accordance with the Participation Agreement. The City Council hereby adopts the above recitations as findings of the City Council. Page 13 of 14

ADOPTED by the City Council of Salt Lake City, Utah on this day of, 2018. SALT LAKE CITY COUNCIL By Chair ATTEST AND COUNTERSIGN: City Recorder (Seal) APPROVED AS TO FORM Salt Lake City Attorney s Office Date: By: Boyd A. Ferguson, Senior City Attorney HB_ATTY-#67652 Page 14 of 14