Targeting and
Winning with
Qualified
Energy
Conservation
Bonds
ARRA Sales
Training
January 4, 2010
What We’ll Cover Today
 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
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Johnson Controls
Qualified Energy Conservation Bonds – Overview
The American
Recovery and
Reinvestment Act of
2009: Expanded the
allowable bond volume
to $3.2 billion
The Energy
Improvement and
Extension Act of
2008: Authorized
the issuance of
Qualified Energy
Conservation
Bonds (QECBs)initial limit $800
million
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
Alabama
Alaska
American Samoa
QECB Allocation
State or Territory
$48,364,000 Kentucky
$7,120,000 Louisiana
$673,000 Maine
QECB Allocation
State or Territory
$44,291,000 Ohio
QECB Allocation
$119,160,000
$45,759,000 Oklahoma
$37,787,000
$13,657,000 Oregon
$39,320,000
Arizona
$67,436,000 Maryland
$58,445,000 Pennsylvania
Arkansas
$29,623,000 Massachusetts
$67,413,000 Puerto Rico
$41,021,000
$103,780,000 Rhode Island
$10,901,000
California
$381,329,000 Michigan
$129,144,000
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
District of Columbia
$6,140,000 Montana
$10,037,000 Texas
Florida
$190,146,000 Nebraska
$18,502,000 US Virgin Islands
Georgia
$100,484,000 Nevada
$26,975,000 Utah
Guam
$1,826,000 New Hampshire
$64,476,000
$252,378,000
$1,140,000
$28,389,000
$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
$202,200,000 West Virginia
$18,824,000
Illinois
$133,846,000 New York
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
Top 25 Allocations
$899,000 Total Allocation
$3,200,000,000
QECB Allocations - Virginia
Municipality Name
Allocation
SMIS
Loaded
Opportunity
Status
Business
Assignment
General
Background
Example
Sales
Assignment
Comments
QECB
Fairfax County
Virginia Beach City
Prince William County
$10,512,656 No
$4,554,143 Yes
$3,764,598 No
Chesterfield County
$3,130,521 Yes
Henrico County
$3,030,414 Yes
Loudoun County
$2,903,590 No
Active
Solutions
Solutions
Joint selling with APS Tom
Joint selling with APS Tom
Scheduling combined
meeting to demonstrate
leveraged funds approach
Norfolk City
$2,470,542 Yes
Active
Solutions
Joint selling with APS Tom
Chesapeake City
$2,290,975 Yes
Active
Solutions
Joint selling with APS Tom
Arlington County
$2,134,764 No
Scheduling combined
meeting to demonstrate
leveraged funds approach
Scheduling combined
meeting to demonstrate
leveraged funds approach
Richmond City
$2,093,745 Yes
Active
Solutions
Joint selling with APS Tom
Newport News City
$1,892,936 Yes
Active
Solutions
Joint selling with APS Tom
Hampton City
$1,533,382 Yes
Active
Solutions
Joint selling with APS Tom
Scheduling combined
meeting to demonstrate
leveraged funds approach
Scheduling combined
meeting to demonstrate
leveraged funds approach
Scheduling combined
meeting to demonstrate
leveraged funds approach
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
Commonwealth Sub
allocation is
7
Active
Scheduling combined
meeting to demonstrate
leveraged funds approach
Johnson Controls
$1,067,136 Yes
$35,249,046 Tracking
Active
Solutions
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 allocates QECB bond volume to State Treasurers
State Treasurers allocate QECB issuance capacity to Qualified
Issuers
Qualified Issuers sell taxable QECBs as a 17 year bullet to investors
Bond proceeds are used to fund a Qualified Energy Conservation
Project
The issuer pays a taxable coupon semi-annually to the investor and
repays principal at the end of 17 years
U.S. Treasury pays issuer the lesser of the taxable coupon rate or
70% of the tax credit rate
Sales Strategy
Energy Conservation Projects
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 development
Efficiency/energy reduction
measures for mass transit
• Energy efficiency education
campaigns
• Green communities programs
QECB.pdf
Green Community Projects
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 waterreducing, or other efficiency measures.―
Example: Unsecured Commercial EE Loan Program
Rules
• 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
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
QECB Considerations
Who owns the QECB
program for the state?
What actions should
they take if there is
an underutilization
of QECB in their
state?
How to determine
how much QECB
has been utilized in
their state?
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Johnson Controls
What is the deadline
for communicating
the municipalities
intention for the
allocation?
What is done with
unused or
unallocated funds?
Voice of the Customer
Account:
Genesee County, Michigan
George Martini
Finance Director
JCI Account Leadership:
Daniel Mack
Energy Solutions Account Executive
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Johnson Controls
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
Successful Implementation
Abundant Power
Charlotte, North Carolina
Larry Ostema
Managing Partner
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Johnson Controls
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
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
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Johnson Controls
Optimal Structure – Abundant Power Solutions
State Bond Approval Authority
State Bond Allocation Authority
Bond Purchaser(s)
Bond Approval
Loan Loss Reserve
QECB Allocation
$
State Economic
Development Authority
$
Abundant Power SPE
City/County
Obligor/Energy
Underwriter
$
Guarantee
Payment
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ESCO
Green Community Program Lending
Market Strategy – Abundant Power Solutions
$200M Funding Opportunity
for QECB Bonds to Fund
Commercial Green
Community Programs
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Johnson Controls
• 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
Questions & Wrap Up
22
Johnson Controls