Qualified Energy Construction Bonds (QECB’s) CATEE Conference

1. Qualified Energy Construction Bonds (QECB’s) CATEE Conference December 18, 2013

2. What are QECB’s • Originally authorized by the Energy Improvement & Extension Act of 2008 • American Recovery and Reinvestment Act of 2009 (ARRA) increased allocation to $3.2 billion • Promote the use of alternative energy and energy efficiency • This authorization does NOT expire, no sunset • Used for projects that meet certain qualified conservation purposes and must achieve a 20% reduction in energy consumption • Taxable Debt • Federal Government will pay the issuing entity 70% of the “Qualified Tax Credit Rate” on date of funding. QTCR is published daily by Federal Reserve which offsets a large percentage (or all ) of the interest cost associated with the transaction • Typical effective interest rates anywhere from 0%-2% depending on credit strength • Bond issuance or private placement is acceptable

3. QECB Projects • 70% of allocation must be for public use, 30% of allocation MAY be used for a private activity • Representative projects include school improvements, energy efficiency, HVAC replacement, renewable generation, green community loan program, solar projects • Water conservation projects can possibly be done, but you need to be able to quantify savings of energy. Savings of water will not qualify • Maximum term is 20 years

4. QECB Allocation Process • Allocated to states based on population • Texas allocation is $252 million, one of the largest • Texas Bond Review Board hands out sub-allocations to local governments with populations in excess of 100,000 • School Districts not allocated, however they can request allocation from a local municipality or directly from Texas BRB • School District requests allocation from city or county in the form of a letter. City or County passes a resolution which passes the allocation to the School District. District then follows its normal process to authorize the obligation.

5. Texas Bond Review Board • Each state is different, process at BRB is evolving • Governor’s Office ultimately provides the approval • No movement while legislature in session • Each state has its own process and two deals have been done in Texas • Will run the deal past the SECO office • Will also rely on bond counsel to speak to the transaction • May not know about all issuances within Texas • Contact at BRB is Rob Latsha 512-475-4800

6. Process to Funding • It takes a number of months to do this, longer than a normal bond issue • Identify project which conforms to authorizing guidelines • Secure allocation through preauthorized entity or through sub-allocation or through the Texas Bond Review Board • School District can request allocation from Federal Government reimburses interest cost to qualifying school districts who implement energy conservation measures, obtain equipment develop curricula and/or train teachers • 10% of the proceeds must be spent within 6 months of issuance and all proceeds must be spent within three years of issuance

7. QECB Utilization – Selected States • AllocatedUtilized • Arizona $ 67 mm $ 16 mm • Arkansas $ 30 mm $ 0 mm • California $381 mm $275 mm • Colorado $ 51 mm $ 43 mm • Florida $190 mm $ 0 mm • Georgia $100 mm $ 5 mm • Illinois $134 mm $ 50 mm • Kansas $ 29 mm $ 29 mm • Louisiana $ 45 mm $ 30 mm • Michigan $104 mm $ 11 mm • Mississippi $ 30 mm $ 0 mm • Oklahoma $ 38 mm $ 0 mm • Washington $ 68 mm $ 40 mm • TEXAS $252 mm $ 16 mm • *As of October 2013

8. QECB Texas Allocation – Selected Entities • Houston, City of $ 23.4 mm • Harris County $ 16.9 mm • San Antonio, City of $ 16.9 mm • Dallas, City of $ 13.1 mm • Austin, City of $ 7.9 mm • El Paso, City of $ 6.4 mm • Denton County $ 4.2 mm • Brazoria County $ 3.1 mm • Corpus Christi, City of $ 3.0 mm • Plano City of $ 2.8 mm • Garland City of $ 2.3 mm • Lubbock City of $ 2.3 mm • Bell County $ 1.7 mm • Waco City of $ 1.3 mm • Unallocated BRB $ 43.4 mm

9. QCEB’s Underutilized • Stateand local govt’s need to work together to reduce uncertainty and risk on project qualification • Clear guidance from Federal Government • How to quantify 20% savings • Sub-allocations to local governments may be too small to make a dent in the project • Debt aversion at the local level • Other projects may super-cede energy conservation projects

10. 20% Savings Clarified • 20% Savings rule was a major impediment to implementation • IRS paper gave discretion to issuers • “Expected project energy savings can be determined using a “reasonable expectation standard” and do not necessitate ongoing energy use monitoring.” • Can use independent licensed engineer or other expert to certify the expectation of savings • Can use energy savings estimation tools including an ASHRAE Level III audit, or simulation • Freed issuers up, if you act in good faith, with a recognized methodology the IRS will not come after you or your project.

11. Contact Information Joshua Briggs Vice President Green Campus Partners, LLC 732.917.2322 | Office 720.448.3015 | Mobile • josh.briggs@greencampuspartners.com