Ryan R. Warburton Partner warburton@ballardspahr 801.531.3072

1. C-PACE FINANCING AND THE UTAH ASSESSMENT AREA ACT(2014 Utah Governor’s Energy Development Summit) Ryan R. Warburton Partner warburton@ballardspahr.com 801.531.3072

2. OVERVIEW/STATUTORY REQUIREMENTS • Utah’s Assessment Area Act (Utah Code Annotated § 11-42-101 et. seq.) authorizes assessment bond financing for energy efficient improvements and renewable energy systems on commercial and industrial properties. Financing of this type is known asCommercial Property AssessedClean Energy (“C-PACE”). DMEAST #10832620 v1

3. OVERVIEW/STATUTORY REQUIREMENTS 2. What types of energy efficient improvements may be financed under C-PACE? • Energy efficiency upgrades, which include improvements permanently affixed to commercial or industrial real property that are designed to reduce energy consumption. This includes insulation, windows, doors, automatic energy control systems, heating, ventilating or air conditioning systems, caulk, weatherstripping, light fixtures, daylighting systems, low-flow toilets and showerheads, timer or timer systems for hot water heaters and rain catchment systems. • Renewable energy systems which include products, systems, devices or interacting groups of devices that are permanently affixed to commercial or industrial real property that produce energy from renewable resources. Examples of renewable energy systems that may be financed under C-PACE include photovoltaic systems (solar panels), solar thermal systems, wind systems, geothermal systems and microhydro systems. DMEAST #10832620 v1

4. OVERVIEW/STATUTORY REQUIREMENTS 3. Who can apply for C-PACE financing in Utah? • Owners of real property used for commercial, mining, industrial, manufacturing, governmental, trade, professional, a public or private club, a lodge, a business or another similar purpose. • Owners of residential property may not apply unless the residential property contains four or more rental units. DMEAST #10832620 v1

5. OVERVIEW/STATUTORY REQUIREMENTS 4. What are the basic steps in obtaining C-PACE financing? • Property owner determines it has a need for energy upgrades and creates a list of the costs. • Property owner contacts the local entity (i.e. a city or county) in which the property is located to inquire about C-PACE financing. • If the local entity is able and willing to proceed, the local entity creates a voluntary assessment area and issues and sells assessment bonds. • Proceeds from the assessment bonds are used to pay for the costs of the energy improvements. DMEAST #10832620 v1

6. OVERVIEW/STATUTORY REQUIREMENTS • Property owner agrees to make assessment payments to repay the local entity over a period of time not to exceed 20 years. • At the time the bonds are issued, an assessment lien (a first-priority lien) is placed on the property owner’s property benefitting from the energy improvement. This assessment lien remains on the property until the property owner repays the local entity in full. • The local entity does not guaranty or credit enhance the bonds so a property owner must have its own credit quality for a third party to buy the bonds. DMEAST #10832620 v1

7. OVERVIEW/STATUTORY REQUIREMENTS 5.What minimum requirements doesa property owner need to meet to be included in a voluntary assessment area? A property owner must: Obtain the written consent of each person or institution holding a lien on the real property to benefit from the energy improvement; Provide evidence that there are no delinquent taxes, special assessments, or water or sewer charges on the real property; DMEAST #10832620 v1

8. OVERVIEW/STATUTORY REQUIREMENTS Provide evidence that the real property is not subject to a trust deed or other lien on which there is a recorded notice of default, foreclosure, or delinquency that has not been cured; and • Provide evidence that there are no involuntary liens (i.e. mechanic’s liens) for services, labor or materials furnished in connection with the construction or improvement of the real property. DMEAST #10832620 v1

9. PROCESS FOR ISSUING ASSESSMENT BONDS IN A C-PACE FINANCING What steps does a local entity need to take in order to issue assessment bonds for a voluntary assessment area? Local entity provides each property owner in the proposed voluntary assessment area a list of service providers authorized to install the energy improvements or approves the proposed service provider offered by the property owner. Local entity obtains a waiver and consent from each property owner in the proposed voluntary assessment area. As set forth in the waiver, the property owners in the voluntary assessment area agree to waive the notice and public hearings required in a traditional assessment area financing. DMEAST #10832620 v1

10. PROCESS FOR ISSUING ASSESSMENT BONDS IN A C-PACE FINANCING Local entity adopts a resolution designating the voluntary assessment area. Within 15 days following the adoption of the resolution, the local entity must record the resolution and file a notice of proposed assessment that lists the properties in the proposed voluntary assessment area with the county recorder. Local entity files a notice of assessment interest with the county recorder which describes the properties to be assessed by legal description and tax identification number. Local entity adopts an assessment ordinance to levy the assessment and adopts a bond resolution approving the terms of the assessment bonds to be issued. DMEAST #10832620 v1

11. FEATURES OF C-PACE FINANCING Are assessment bonds federally tax-exempt? Interest on assessment bonds issued to finance energy improvements for property owned by private businesses are likely not excluded from gross income for federal income tax purposes. However, a subsidy may beobtained by using QualifiedEnergy Conservation Bonds(QECBs). DMEAST #10832620 v1

12. FEATURES OF C-PACE FINANCING 2. How long does a property owner have to repay the assessment levied against its property for a C-PACE financing? The local entity that issues the assessment bonds may allow the assessment to be paid in installments over a period not to exceed 20 years. The actual period of time over which the installments are to be paid will be determined by the local entity and will be based on the reasonable useful life of the energy efficient improvements and/or the best interests of the local entity and property owners. DMEAST #10832620 v1

13. FEATURES OF C-PACE FINANCING 3. What happens to an assessment lien if the real property to which it attaches is sold after the financing is complete? If real property subject to an assessment lien is sold, the assessment lien remains on the property and the buyer purchases the property subject to the assessment lien unless arrangements are made to pay the assessment in full prior to the purchase date. 4. May assessment bonds be issued to refund prior bonds issued by a local entity? Yes. Assessment bonds may be used to refund other obligations if the prior obligations were issued with the intent to be refunded by assessment bonds. DMEAST #10832620 v1

14. FEATURES OF C-PACE FINANCING Can assessment bonds be issued as variable rate bonds? Yes. If assessment bonds are issued as variable rate bonds, the local entity issuing the bonds must specify the basis upon which the rate will be determined over the life of the bonds, the manner in which and schedule upon which the rate will be adjusted and a maximum rate that the assessment bonds will carry. DMEAST #10832620 v1

15. FEATURES OF C-PACE FINANCING 6.What happens if a property owner in a voluntary assessment area fails to make an installment payment on an assessment when due? If an installment of an assessment is not paid when due, the local entity that issued the assessment bonds may sell the property subject to the assessment for the amount due, plus interest, penalties and costs. In addition to other rights and remedies, the local entity which issued the assessment bonds has the option to accelerate payment of the total unpaid balance of the assessment. DMEAST #10832620 v1

16. FEATURES OF C-PACE FINANCING 7. Is a local entity able to include all the costs it incurs in connection with an assessment area in the assessment levied against property owners? Utah’s C-PACE legislation allows the local entity’s overhead costs to be included in the assessment levied, as long as those overhead costs do not exceed 15% of the sum of (i) the cost of acquiring or constructing the energy efficient improvement, (ii) the reasonable cost of utility services and operation and maintenance costs of the energy efficient improvements and (iii) any fees charged by the local entity to pay for the costs of connecting the energy efficient improvements to publicly owned utilities. DMEAST #10832620 v1

17. FEATURES OF C-PACE FINANCING Overhead costs include costs incurred by the local entity in connection with an assessment area for appraisals, legal fees, filing fees, financial advisory fees, underwriting fees, placement fees, escrow, trustee, and paying agent fees, publishing and mailing costs, costs of levying an assessment, recording costs and all other incidental costs. DMEAST #10832620 v1

18. FEATURES OF C-PACE FINANCING Can capitalized interest on assessment bonds be included in the assessment levied against property owners? Yes. Capitalized interest can be included in the assessment levied within a voluntary assessment area designated in connection with the financing of energy improvements. DMEAST #10832620 v1

19. OTHER LEGAL ISSUES IN A C-PACE FINANCING Can energy efficient improvements to property owned by governmental entities be financed through C-PACE? While the statute suggests that energy efficient improvements to government owned property may be financed through C-PACE as long as the governmental entity owning the property voluntarily enters into a voluntary assessment area, there is case law in Utah that suggests that an assessment lien may not be placed on property owned by a governmental entity. Governmental entities may raise issue other types of bonds to satisfy their needs. DMEAST #10832620 v1

20. OTHER LEGAL ISSUES IN A C-PACE FINANCING Can counties designate a voluntary assessment area that includes properties located within the boundaries of a city located within the county? A local entity may only designate an assessment area that is within that local entity’s “jurisdictional boundaries.” The jurisdictional boundaries of a county are the boundaries of the unincorporated area of the county. This means generally that a county may not designate an assessment area that includes properties located within the city’s boundaries DMEAST #10832620 v1

21. OTHER LEGAL ISSUES IN A C-PACE FINANCING 3.Can two or more local entities enter into an interlocal agreement that gives one interlocal entity the power to designate an assessment area which includes properties located within the boundaries of the other local entities? Under Utah’s Interlocal Cooperation Act (Utah Code Annotated § 11-13-101 et. seq.), any two or more public agencies may enter into an agreement with one another for “joint or cooperative action.” This suggests that Local Entity A could, under an interlocal agreement, give Local Entity B the power to designate an assessment area and issue bonds to finance properties located within Local Entity A. DMEAST #10832620 v1

22. OTHER LEGAL ISSUES IN A C-PACE FINANCING 4. Can any other improvements in addition to those included in the definitions of “energy efficiency upgrade” or “renewable energy system” be financed under C-PACE? The definitions of “energy efficiency upgrade” or “renewable energy system” allow for other improvements approved by the local entity to be financed under C-PACE. In order for other improvements to be approved, however, a local entity would likely need some proof or assurance that the improvement to be financed has energy efficient propertiesor is related or necessary for the energy financing. DMEAST #10832620 v1

23. Questions? DMEAST #10832620 v1

24. Ryan R. WarburtonPartnerwarburton@ballardspahr.com801.531.3072 DMEAST #10832620 v1