This year, I have represented CUB on a state task force to identify consumer protections that would be needed for a new kind of clean energy financing: Property Assessed Clean Energy, or PACE, for residential properties. PACE allows property owners to make energy improvements by taking out loans that they repay through their property tax bills.
I’ve learned considerably through this process, and CUB has developed a list of issues that must be addressed to create a strong residential PACE program in Minnesota.
CUB strongly supports options to help consumers save money and reduce their energy emissions. We are happy to be working with stakeholders representing clean energy, financing, and senior and low-income consumers on the task force, and look forward to supporting financing options that adequately protect consumers.
With PACE, a property owner can get a loan to make energy improvements to their home, and pay off the loan via a new special assessment on their property taxes over as long as 20 years.
PACE financing is up and running successfully in Minnesota’s commercial market. However, residential lending is different, and there are significant consumer concerns that need to be addressed before PACE loans are made available to residential consumers – especially since PACE uses the tax collection power of a local government.
Earlier this year, the legislature suspended residential PACE, appointed the Residential PACE Consumer Protection Legislation Task Force, and asked the Task Force to provide its recommendations by January 2018.
You can read more about the need for consumer protections, and why CUB supported the bill that put a hold on residential PACE this spring, in an earlier blog.
• Residential PACE loans must be based on what consumers can afford.
A lender must verify that the homeowner can afford to repay the loan, taking into account the homeowner’s income, debt, expected expenses, and other concerns.
• There must be clear lines of accountability and oversight by the State of Minnesota.
Whatever protections are outlined in law will only be real to the extent that a government entity has the authority to enforce them, and only a statewide agency has the resources to do this well.
• It must be clearly disclosed to homeowners what they are signing up for.
Investing in energy improvements can increase the value of your home and reduce your energy bills, but homeowners must also understand the details and the risks.
It’s likely that a homeowner will have to pay off a PACE lien before selling or refinancing their property. A potential buyer will likely request either that a PACE lien be paid off or a property’s purchase price be reduced by the same amount. Moreover, Fannie Mae, Freddie Mac, and other federal agencies have said they won’t back mortgages with PACE liens, so many mortgage companies are understandably reluctant to accept PACE liens.
• Only reasonable energy improvements should be financed with PACE.
The National Consumer Law Center has shared horror stories of customers in California being charged for roofs, walls, windows, and other measures that are not cost-effective, and sometimes not even related to a home’s energy use. We don’t want Minnesotans to face similar problems.
Minnesota’s current law states that PACE can only be used for cost-effective energy efficiency, renewable energy, or electrical work to enable electric vehicle charging, and CUB agrees those are the appropriate purposes.
What specifically can be financed with PACE should be determined by a third party that doesn’t have a financial stake in the transaction. Cost-effective efficiency upgrades could be identified through an energy audit from a qualified, independent auditor, or simply by using the list of energy efficiency measures that the Department of Commerce has already determined are cost-effective for utility conservation programs.
• Consumers should be made aware of utility rebate programs and low-income financing options for which they qualify.
Nearly all Minnesotans can access rebates and discounts on energy-efficient products from their utilities. For people who qualify based on income, there are the Weatherization and Low-Income Home Energy Assistance Programs, as well as low-cost or free financing from the Minnesota Housing Finance Agency.
Contractors installing PACE-financed measures should be sure to collect any available utility rebates. And since income verification should already be a step in the approval of a PACE loan, homeowners should also be referred to any lower-cost programs for which they qualify.
A report from the Task Force is due to the legislature on January 15, and I expect a bill (or, more likely, multiple bills) will be introduced during the next legislative session to put consumer protections in place and lift the suspension on residential PACE. Stay tuned to this blog for updates.