Another Setback for PACE

PACE's goal of simple, easily accessible home energy finance hit another roadblock last month when a California judge held up distributing $30 million intended to help get local programs off the ground.

The legal dispute delays or slows PACE programs in 23 counties across the state. California has been among the leaders in PACE (Property Assessed Clean Energy) financing, with two-thirds of the state scheduled to have working programs by year's end.

Under PACE, homeowners borrow government money for home energy improvements and repay the loans as assessments on their property tax bills. Municipalities sell bonds to come up with the cash.

The legal wrangling pits PACE's two greatest constituencies -- energy-efficiency contractors and solar installers -- against one another. Both hope to benefit from the flow of government money.

In the suit, the Western Riverside Council of Governments, which represents 16 southern California cities, lays claim to $20 million of the $30 million in PACE funding. The group's application for the money was turned down because the region wants to make it easier for homeowners to install solar panels. In doing so, it rejects a state requirement that homes reduce energy use 10 percent or more with energy retrofits before considering solar. The requirement is typical of PACE programs.

The California Energy Commission instead awarded the money to San Francisco, Los Angeles, and the counties of Sonoma, Sacramento and Humboldt. The Western Riverside Council of Governments protested the decision, but was told it failed to appeal by the required deadline. It filed suit, and the court ordered its appeal to be heard.

Riverside County officials did not respond to several requests for comment.

The impact on the state is far reaching. Michael Levy, chief counsel for the California Energy Commission, said the 23 counties granted the money plan to leverage more than $370 million of tax credits, utility rebates and other funding to jumpstart energy retrofits at homes and businesses and create 4,353 jobs. The financial limbo also backs the state up against a deadline: the federal recovery act money paying for the PACE initiative needs to be distributed by Sept. 30 or be used for another purpose.

The dispute is only the latest to engulf PACE. In May, Fannie Mae and Freddie Mac roiled PACE efforts when the two mortgage lenders suggested they would shun homes with PACE payments, or liens. They fear a PACE loan would get priority over their mortgages in the event of a default.

The Fannie Mae and Freddie Mac letter put the brakes on PACE programs across the country, including in San Francisco, where officials stopped approving PACE applications this month.

The council of governments' dispute creates another layer of uncertainty. "It really dramatically impacts our program," says Johanna Partin, director of climate protection initiatives for San Francisco.

San Francisco kicked off the nation's largest PACE program in April and hopes to use the $2 million it won from the California Energy Commission to lower PACE interest rates to about 7 percent from an estimated 8.5 percent. (An even lower interest rate is planned for low-income households.)

The city found a small amount of money from another source to move ahead with its interest rate reduction effort. But the money filled the gap only because the city received a trickle of 20 PACE applications. It appears that the Fannie Mae and Freddie Mac controversy slowed interest.

A similar setback is facing John Haig, energy and sustainability manager for Sonoma County. Haig expected to use his $2.6 million award to lower the cost of energy audits, market PACE to residents, and get financial advice on selling bonds. None of this can take place.

"Not having the grant causes us difficulty in going to the next phase," says Haig. Sonoma's program continues with $1 million in municipal funding.

An even greater impact confronts the 14 counties of the CalforniaFirst initiative, which includes Sacramento County. The counties qualified for $16.5 million to kick off PACE, but now the efforts are on hold. "The level of uncertainty does cause tension across the program," says Peter Ucovich, a senior planner with Sacramento County's infrastructure finance section.

Ucovich says Sacramento isn't likely to begin approving homeowner financing until the Fannie Mae and Freddie Mac issue is resolved. But two hurdles are worse than one.

The California Energy Commission is to appear in court on Friday to attempt to free the money. But of course no one yet knows what the outcome of the hearing will be.

Talk to PACE officials across the state, and they say that the only acceptable resolution is one that will let the programs move ahead.