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Leveraging Prop 39 Planning

May 2014 Think Tank: Local districts share what they've been doing 


Pictured above is a ceramics studio in a LEED Silver community college building. Designed by Aedis, it uses solar tubing and an abundance of operable glazing to let natural light and ventilation in. We've helped many of our clients implement energy efficient measures to preserve their general fund.

If sustainable projects like this can help preserve the general fund; then can State funds for energy efficient projects become an investment with a recognizable payback?

Prop 39 and was designed by the CA Energy Commission to transform the way Districts think about facility improvements using a common Real Estate term called Savings to Investment Ratio (SIR).
 
Problem #1: Prop 39 does not provide enough money to solve all of the energy woes.
  • Creative Problem-Solving:  It may be a way to jump-start thinking about viable energy efficient projects and a long-term mindset for reducing energy use, over time.
     
  • Critical Thinking: Look at the ‘Big Picture’ of facility management and building lifecycle in addition to the energy requirements of specific systems (i.e. HVAC systems). Use high-return improvements to offset low or no-SIR projects. Prop 39 was not meant to “stand alone”. Look for grants and rebates to augment your SIR. On-bill financing with your utility may be one answer. Non-Profit revolving loan funds, and the State’s RLF.
     
Problem #2: State is leaving facility maintenance/cost management to the Districts.
  • Information Technology: Need to find/develop a system that will help track all of the information and aggregate the data. There are many software options that do exactly what CEC is asking you for and will serve capital planning needs long after Prop 39 is gone.
What some school districts had to say about Prop 39:

Campbell Union School District: Their current goal is 90% reduction in energy use at the end of the school year and they are heavily invested in solar. 
  • What they've learned through their Prop 39 Process:
    • Because the Prop 39 funding is spread over a 5-year period, it makes it difficult to do large projects all at once. Districts will probably invest in smaller upgrade projects over time.
Dublin School District: The District is already fairly efficient in energy consumption and are currently looking to fund and upgrade systems that would be helpful to the M&O over the long term. Most of the data for the District has been collected, but needs to be put together into the expenditure reports. 
  • What they've learned through their Prop 39 Process:
    • County has provided helpful workshops throughout the process.
    • Looking to replace exterior light fixtures with LED and some HVAC units.
    • Creating a 5-year master plan, but submitting in 1-2 year increments for flexibility in funding and the ability to change/adjust projects and resubmit.
Kramer Project Development Company: This firm manages several local school districts.
  • What they've learned through their Prop 39 Process:
    • For Charter Schools, each school is treated as an individual LEA so all the money must be focused into the one school.
    • Districts want to do envelope work (i.e. windows) but because we live in a mild climate, finding that the SIR is low. Having to look for other projects that have a higher SIR to apply for funding.
    • Also hard to find projects that meet CEC standards because they have changed in the last few years.
Highlights of Discussion on Leveraging Funding

Are Districts considering PPA models for PV funding?
  • Best Option: Take Capital funds to pay for PV. Savings from this investment go back into the general fund which can then be used for teachers and textbooks.
  • Districts are obviously trying to reduce energy costs, but in addition, also trying to generate electricity.
Is it possible to borrow money at 51% and then invest it into energy efficiency projects? (where the return is 15-25%)
  • Depends on where the District falls in the process of energy efficiency upgrades. At some point, the return drops. An un-improved school from the 60’s has a lot of opportunity whereas a school that has been slowly upgrading and maintaining energy efficient projects has less opportunity
How can non-profit funding for energy investment help leverage the funds for Prop 39? Can there be a revolving fund? Can schools get financing from private non-profit sources?
  • It is possible to borrow money at 5% for some projects because the return could be as high as 25%. But it is more complicated with third-party investment. Hard to evaluate the actual return with the risk of future circumstances.
  • Something to consider: there are 2020/2030 horizons for net-zero buildings.
  • AB758 is pending building legislation for retrofitting buildings to a very high energy standard or net zero energy.
How should we invest in projects now, considering these future requirements?
  • There are retrofit triggers that will only become stricter as these horizons approach. (i.e., Cal Green)
  • Need to consider master planning and life cycle costs
  • Prop 39 is present and shorter-term, but will hopefully kick start ideas and mindsets that will be helpful in the future.
Because net-zero buildings will be required in the future, do we build now for the present or future requirements?
  • School Districts think differently. The priority is to educate/teach kids.
  • Financially, the priority is to maximize the general fund to pay for teachers/programs/textbooks. Prop 39 is ‘free money’ that can be invested in energy efficient projects, whose savings will then be paid back into the general fund.
How do you fill out the expenditure report to get the money from the CEC to turn it into borrowed money?
  • Go after Prop 39 money, but then go to a third party bank/investor and use that money as leverage to invest in other projects. There is provision for doing this in the Prop 39 literature, and this idea/concept was one of the intentions of the original writers of Prop 39.
 
For a full transcript or to schedule a consultation, please feel free to reply to this email or contact our Communications Manager, Gwendolyn Torres: 408.300.5144.
 
Copyright © 2014 Aedis Architects, All rights reserved.


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