Energy Efficiency Advocates Optimistic About Loan Program

Developers of a plan to bolster energy and water efficiency in Texas say they've made major progress.

A diverse coalition that includes environmentalists, city officials, bankers and contractors is trying to encourage commercial and industrial property owners to invest in projects that would cut their utility bills and slash carbon emissions. The approach, known as Property Assessed Clean Energy, or PACE, addresses the biggest barrier to efficiency investments: initial costs that can take years to recoup.

“We've had some support from people saying PACE is going to save our small towns," state Rep. Jim Keffer, R-Eastland, said Tuesday during a panel at the South by Southwest Eco conference in Austin. He added: “We have this opportunity now to do something good for the building, good for the environment, good for the future. There’s no part of the state that couldn’t and shouldn’t be a part of this program.”

Keffer sponsored legislation in 2013 allowing local governments to set up PACE programs. Gov. Rick Perry signed the bill into law after it passed with overwhelming support.

PACE allows commercial and industrial property owners to use a property tax lien to finance energy efficiency upgrades like solar panels and water recycling systems. PACE programs bill an owner through the lien and forward payments to a private lender. Under a smooth-running program, property owners pay less than what they save on their energy bills. If a property is sold, the new owner inherits the debt — a rule meant to further reduce the risks of investment.

Supporters say attaching the loan to the property benefits banks by connecting them with lenders with low risks of defaulting.

“This gets treated like taxes – you have to pay it,” Charlene Heydinger, a lawyer leading the coalition, called Keeping PACE in Texas, said during the panel discussion.

Reducing energy use in Texas’ aging and commercial and industrial buildings could make a major dent in the state’s carbon output, helping it comply with President Obama’s carbon reduction plan.

In 2011, Texas industries accounted for half of all energy use throughout the state, and commercial buildings guzzled nearly 13 percent of all energy used in Texas — the nation’s biggest energy-consuming state by far.

Under a federal Environmental Protection Agency proposal, Texas would need to slash carbon emissions by as much as 195 billion pounds of carbon dioxide in the next 18 years, according to a Texas Tribune analysis.

Last May, Keeping PACE in Texas developed what it calls “PACE in a Box,” a model it hopes many of the state’s 254 counties and more than 1,200 cities will adopt. Though local governments are free to design a PACE program however they choose — or can opt not to offer one at all — the group is encouraging consistency as a way to reduce overhead costs.

In August, the Lower Rio Grande Valley Development Council voted to become the PACE administrator for Cameron, Hidalgo and Willacy counties, if each government votes to join.

Heydinger said her group has also heard interest elsewhere, including Travis and Williamson counties; the cities of Paris, Longview and Waco; in the Houston area; and around the Dallas-Fort Worth area.

Thirty other states allow similar financing plans, though most apply only to energy, unlike in Texas. Most of the states have stumbled, largely because of the objections of mortgage regulators, which have feared that PACE liens would take precedence over mortgages if a homeowner defaulted. And in California, observers say the PACE program there has suffered from a patchwork of rules across cities that have discouraged investors from financing projects statewide.

Heydinger says her group has learned from those challenges, and says the Texas effort was the country's first to involve input from all parties it would affect.

“This is likely the first bill you’ll ever see that had the Environmental Defense Fund and Dow Chemical supporting the same bill,” she said.

PACE supporters say the program’s biggest remaining challenge is to explain to skeptical local officials how the program works.

"It’s now getting the word out — that’s the biggest issue we have right now,” Keffer said. “This is not a mandate. This is not a rebate. This is not a picking-winners-and-losers type of thing.”