Small Business Energy Advantage (SBEA) Private Capital Plan November 2016
Outline • Overview • SBEA Program • CT Energy Efficiency Fund • Loan Portfolio Statistics • Underwriting Criteria • Potential Program Structure • Program Workflow/Operations • Loan Servicing
Overview ▪ SBEA Program commenced in 2000 and benefits from enhancement/support from the Connecticut Energy Efficiency Fund (“CEEF”) ▪ Loans are predominantly funded by Utility capital, with additional “C&I” self- funding provided from CEEF in 2014 ▪ In 2016, the CT Utilities and CT Department of Energy and Environmental Protection (“DEEP”) approached CT Green Bank (“Green Bank”) to explore options for funding the SBEA Program with private capital. – The goal is to obtain lower cost of capital while retaining similar origination (unsecured loans, utility bill payment history) and servicing processes (on-bill repayment). – The SBEA Program will continue to access to CEEF funds to provide both interest rate buy-downs (customers loans at 0%) and loan loss reimbursement. 3
SBEA Program Summary The SBEA loans are: ▪ available to commercial and industrial, including municipal and state, customers with an average 12-month peak electricity demand between 10kW and 200kW located in Eversource and UI distribution territory; ▪ up to $100,000 for commercial and industrial customers and up to $500,000 for municipal customers: – UI allows municipal customers to take out up to $500,000 in SBEA loans annually; – Eversource allows municipal customers to have up to $500,000 in cumulative SBEA loans outstanding at any given time; ▪ 0% interest to the borrower; ▪ up to 48 months in tenor; ▪ repaid on the electric bill; and ▪ available for eligible efficiency improvements (both electric and gas measures) including lighting upgrades, HVAC, refrigeration, and gas-saving measures 4
CT Energy Efficiency Fund Credit Enhancements & Support ▪ The Conservation & Load Management (“C&LM”) Plan set up under Connecticut General Statutes § 16-245m and § 16-32f provides for certain credit enhancements and support to the SBEA program from the Connecticut Energy Efficiency Fund (“CEEF”). These include: – Loan loss reimbursement of all losses incurred as part of the SBEA program – Interest rate buy-down to 0% so SBEA customers face interest-free loans – Recovery of administrative expense ▪ CEEF is funded by a surcharge on electricity rate payers in CT, along with the Regional Greenhouse Gas Initiative (“RGGI”), and the Independent System Operator-New England’s (“ISO-NE”) forward capacity market – Est. fund income of $192.7m in 2016, $206.0 in 2017, and $203.9 in 2018 – Not part of CT General Fund, i.e. doesn’t fall under general CT State Budget – CEEF disbursements are regulated by the Public Utilities Regulatory Authority (“PURA”) 5 5
CT Energy Efficiency Fund Credit Enhancements & Support ▪ CEEF is a virtual fund which sits on the utilities’ balance sheets ▪ Loan loss and interest rate buy-down reimbursement will be disbursed to SBEA LLC from the utilities – Anticipated budgets for loan losses and interest rate buy-down are estimated annually and transferred to the control of SBEA LLC at the commencement of each year – Annual true-up whereby any loan losses or interest rate buy-down in excess of the budget in a particular year will be recovered by an adjustment to the budget in the following year. 6
Proposed Regulatory Change The CT Green Bank is working with utilities’ legal and regulatory staff to determine the best approach to request DEEP and/or PURA assurances that: Existing CEEF credit enhancements and support features available to the utilities and included in their annual CEEF budgets for interest rate buy downs, loan losses, and administrative cost recovery will be made available to the Green Bank SBEA LLC and its private capital providers; and In the event that the SBEA Program is discontinued or CEEF funding is reduced and/or eliminated, funding for the enhancements and support features will continue to be available via CEEF or recovered via ratepayers in another manner during the “wind-down” period.
Historical & Projected SBEA Loan Origination Volume Annual Loan Volume ($) Eversource UI Projected (UI + Eversource) $35,000,000 $30,000,000 Jump in 2014 volume due to CT Public Act 13-298 $25,000,000 providing framework for increased C&LM spending $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Note: utility data has been pro-rated to include Sep-Dec 2016 volumes; 2017-2020 loan volumes assume 3% annual growth in loans originated 8 8
Seasonality of Loan Origination Monthly Loan Volumes $25,000,000 20.0% 18.0% $20,000,000 16.0% 14.0% $15,000,000 12.0% 2016 2015 10.0% 2014 $10,000,000 8.0% 2013 6.0% 2012 4.0% $5,000,000 % 2.0% $0 0.0% Note: utility data has been pro-rated for Oct-Dec 2016 9 9
Pro-Forma SBEA Facility Sizing Estimated Facility Volume Facility Volume $100,000,000 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Assumes annual loan origination growth of 3% and loan repayment based on 4- year tenor for all newly originated loans. 10 10
2016 YTD Loans by Sector Loan Volume % by Sector Other 24% Office / Retail 30% Gymnasium 3% Grocery / convenience shop Auto Related 5% 10% Restaurants 5% Schools Warehouse Industrial / 8% 6% Manufacturing 9% Note: data is for Eversource loans only, representing roughly 75-80% of total CT SBEA loan volume. YTD as of 9/30/2016. 11 11
2016 YTD Loans by Customer Type Total Loan Total Loan No. of Average Loan Volume ($) Volume (%) Loans Amount ($) C&I $12,340,609 86% 795 $15,523 Municipal $1,968,355 14% 68 $28,946 Total $14,308,963 100% 863 $16,580 Note: data is for Eversource loans originated in 2016, YTD as of 9/30/2016. 12 12
Loan Underwriting Criteria Commercial & industrial customers must meet the following criteria: Eversource UI Bill Payment History No more than 4 late payments in 12-month period, or 2 in 6-month period Must have an electric account and Must have an electric account and been in been in business for at least six Account History business for at least 1 year months, though may require at least 1 year Loans over $45,000 require credit Credit Check N/A check; financing approved if credit deemed ‘low risk’ Must be current on electric bill and must not have any special payment Other arrangements 13 13
Low Loan Write-offs • Annual write-offs average less than 1% of annual loan volumes 20 10.0% Higher than average write-offs 18 9.0% in 2004-2005 due 16 8.0% to backlog of 14 delinquent loans in 7.0% prior years that 6.0% 12 were not being 10 tracked/sent to 5.0% collections Millions 8 4.0% 6 3.0% 4 2.0% 2 1.0% 0 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Annual Loan Volume [left axis] Annual Loan Losses [left axis] Loan Losses as % of Loan Volume [right axis] 14 14
SBEA Potential Program Funding Structure 15
Recapitalized Program Workflow Green boxes represent minimal supplemental steps to include SBEA LLC in overall program workflow. Diagram is based on UI process.
Loan Collections Process ▪ Repayment is on-bill, loan payment included as a separate line item ▪ In the event that payment amount does not fully cover both electricity and loan, then funds are applied to the electricity portion of the bill first. ▪ Collections process in the event of non-payment: Action Timing Eversource Customer receives phone call 60 days past due Customer receives delinquency letter 90 days past due Account details sent to collection agent 120 days past due Loan is written off and losses recovered via CEEF 150 days past due Action Timing Account receives shut-off notice Utility bill 33 days past due Account sent to UI If paid, no further action 60 days past due commercial representative If unpaid after second follow-up Any time after 60 days past due to follow-up. attempt, the loan is removed and UI losses recovered via CEEF. If customer moves with unpaid balance greater than $25, 45 days after move out date account sent to a third-party collection agency. The loan is included but if deemed uncollectible, it is removed and recovered through CEEF. 17
Contacts Laura Fidao, Senior Manager Chris Magalhaes, Senior Manager Laura.Fidao@ctgreenbank.com Christopher.Magalhaes@ctgreenbank.com (860) 263-0125 (860) 257-2177 Anthony Clark, Senior Manager Bert Hunter, EVP & CIO Anthony.Clark@ctgreenbank.com Bert.Hunter@ctgreenbank.com (860) 257-2888 (860) 257-2174
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