Greens Want Energy Bubble Loans from CPUC

MARCH 30, 2012

By WAYNE LUSVARDI

California is getting strapped for cash to continue to pay for subsidies for economically infeasible solar power and energy efficiency projects for homeowners and small businesses.

So the Environmental Defense Fund has concocted a proposal to the California Public Utilities Commission called “On-Bill Repayment.” This program would have electricity users pay for such energy upgrades in their monthly electricity bills.  The upfront money for energy upgrades would come from loans through commercial banks instead of government subsidies.

On-Bill Repayment will not provide homeowners or businesses with significant costs savings but will provide green jobs.  The green marketing of On-Bill Repayment is so slick that even the naïve energy writer at Forbes magazine online has been duped by this proposal.

On-Bill Repayment will also provide banks with a source of loans that have no demonstrable benefit to borrowers. This is just what California does not need.  It would create yet another government financing bubble that, like subprime home purchase loans, would benefit banks and contractors but provide only inflated benefits to property owners.  On-Bill Repayment has the same markings as the housing bubble all over it.

Energy Loans Would Benefit Only Banks and Contractors

As for property owners — yippee!  They would get an expensive energy system with a useful life of maybe 20 years that produces power at maybe two to 10 times the cost of natural gas or hydropower. During the 20 years, the property owners will get no real energy cost savings. It is widely known that solar energy is not economically feasible without subsidies.  But the energy loans will run with the properties even if the properties are sold.

The only conceivable benefit would be to the property owner after 20 years when the loan is paid off.  But by then any solar panels would either be less efficient due to wear from weathering or technologically obsolescent due to newer technologies.

Once again, the only property owners they could stick with such boondoggle energy improvements and deadweight loans would be lower-income families who would likely be unknowledgeable about the touted energy benefits. Most commercial property owners would be too knowledgeable to have such loser improvements on their buildings.

And the banks wouldn’t want to hold such “loser loans” and would want to dump them into the secondary loan market.  Sound familiar?  This is what happened with “subprime mortgages.”

And once On-Line Repayment loanswere shifted to the secondary loan market, they would be prone to being “sliced and diced” as subprime loans were by Freddie Mac and Fannie Mae.  Once each loan was divided up among many secondary lenders — paradoxically called “securitization” — it would be nearly impossible to foreclose.

This is the situation we’re facing today with the secondary lenders holding billions of dollars of bad mortgages on their books that are dragging down the economy and government budgets at the same time.

Moral Hazards of Energy Bubble Loans

On-Bill Repayment programs will also create what are called “moral hazards” in economics.  It will provide a perverse incentive for energy contractors to inflate their calculations of energy savings.

And banks won’t be able to judge whether the energy savings are real or fabricated. But banks will also have a perverse incentive to make such loans, especially if government has quotas for energy loans– as it did for “anti-redlining” loans under the Community Reinvestment Act. So look for an “anti-greenlining” lending law to be floated by politicians if On-Bill Repayment programs are approved by the CPUC and California legislature.

Political Opportunism and AB 998

California State Sen. Kevin de Leon, D-Los Angeles, has already floated Assembly Bill 998 to authorize On-Bill Repayment financing for energy improvements. There will be a hearing on AB 998 on April 17 in the California Senate chambers.

De Leon is touting that AB 998 will create 20,000 jobs and save 7 million tons of C02 per year. But at whose ultimate expense when the loans go bad? It will be low-income property owners and local school districts that will ultimately suffer from such bubble financing of energy loans.

According to Wikipedia, de Leon has been a Spanish language teacher and an advocate for “more funding for low-income neighborhoods, more school construction, and health insurance for children.”  But there won’t be any cash for public schools or health care if we keep financing boondoggle real estate and green energy bubble loans.  But politicians only look at the short term of getting re-elected.

Apparently, we have learned nothing from the collapse of the national bank financing system in 2008. Opportunist legislators are still clamoring for bubble financing to create jobs and provide banks with loans that do nothing for property owners but stick them with a liability.  Green energy advocates have no conscience about proposing bubble financing for deadweight energy efficiency improvements. And banks will have to comply with probable new energy loan quotas to keep their banking charters in the state of California or face penalties for discrimination.

As we can plainly see with the proposal for On-Bill Repayment of green energy improvements, perverse incentives for “greed” start out as well intentioned and slickly marketed proposals by government and low income or green advocacy special interest groups, not with banks.  Banks will be prone to being corrupted but want to keep their bank charters. Banks will protect themselves against loss by secondary financing and slicing and dicing loans among many lenders to spread the ultimate losses.  But bubble financing for green energy will poison the banking system and ultimately state and local school district budgets.

Such is the state of civilization in California circa 2012 under the leadership of green Gov. Jerry Brown, who invented solar energy subsidies in the 1970’s.

 

 

9 comments

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  1. queeg
    queeg 30 March, 2012, 10:15

    The young and dumb in California really believe…someone else will pay for my upper middle class lifestyle!!!!

    After all this bleeder alternative energy pap is enacted your frozen TV dinner will be 8 bucks….you will pay 6 bucks for a small ice cream cone….your refrigerator will be a canned food storage unit!!!

    Reply this comment
  2. larry 62
    larry 62 30 March, 2012, 13:47

    Got one of those Jerry Brown solar subsidies in 1978 . It paid for half of my solar heating system for my pool. I thought it was pretty cool at the time, but looking back at it, not so much.

    Reply this comment
  3. Wayne Lusvardi
    Wayne Lusvardi 30 March, 2012, 20:50

    Larry 62
    Solar hot water heating is legitimate use of solar technology and solar hot water heating too. I was once a coordinator of a solar hot water heating project.

    But solar voltaic for electricity requires a subsidy.

    Thanks for the comment.
    WL

    Reply this comment
  4. cacheguy
    cacheguy 31 March, 2012, 06:17

    I believe the correct bill number is SB 998.

    Reply this comment
  5. Wayne Lusvardi
    Wayne Lusvardi 31 March, 2012, 10:12

    Thanks for the correction – it is Senate Bill 998

    Reply this comment
  6. queeg
    queeg 31 March, 2012, 22:50

    Try and get certified repair parts and warrantied repairs on solar contraptions….and legit repairmen far and few afield!

    ..

    Reply this comment
  7. YJ Draiman for Mayor of LA
    YJ Draiman for Mayor of LA 3 April, 2012, 01:19

    PAY AS YOU SAVE Energy conservation financing program

    The program will allow participants to purchase and install energy efficient products
    And equipment (or “measures”), with no up-front cost. These measures can include modifications to lighting, heating, cooling, other energy efficient electric, gas and non-electric equipment and systems. Major measures promoted: lighting, weatherization, water saving devices and clock thermostats in both electric and non-electrically heated homes and businesses. We should also accept a variety of measures (provided they pass the Program qualification. This can apply to any conservation method, renewable energy systems (solar, photovoltaic, geothermal, wind), electric, gas and water.
    Primary goals should be lighting retrofits, motor retrofit, HVAC efficiency, insulation and attic fans, windows, energy efficient appliances, water conservation equipment and techniques, rainwater harvesting, utilization of gray water, landscaping for energy conservation.
    HOW DO WE PROPOSE TO FINANCE THE COSTS: There is no up-front cost to the participants? Instead, the utility pays all initial costs associated with the purchase and installation of approved measures. (We must keep the costs competitive and reasonable)
    Then, an Energy Finance Charge (EFC) is calculated and added to the ember’s/customers monthly utility bill until all costs are repaid.
    A fund will be set up and the payments will reimburse the fund monthly.
    Calculating the Term: Financing charge amounts itemized on the monthly utility bill should be based on two thirds of the estimated savings that will come from the measures installed.
    This way, the monthly charge should be designed to be less than the savings realized on each bill once the new measures are installed and implemented.
    If customers wish to pay off their Financing charges balances quicker (which in some cases they do), up to one hundred percent (100%) of the savings can be used to form the basis of their monthly Finance charge amount.
    Payments Linked to Meter (not customer): The payments are always linked to the service location, not to the customer. So if an Energy Financing Charge (EFC) participant moves or sells, the new owner continues making the payments for the duration of the payment term, unless the previous owner/tenant chooses to pay off the obligation before selling or moving.
    Also, the payments include a small percentage risk mitigation adder (5%) to protect the utility from bad debt risks associated with some portion of participants’ failure to pay.
    To protect the utilities and their broader membership/customer base against other potential risks, three key requirements are included in the EFC program for those that choose to participate:
    • Maintenance: All measures must be maintained in place and in good working order during the entire repayment period – the utility will help arrange for repairs, but any associated costs will be added to the EFC on the utility bill, or will extend the payment term to ensure recovery of these additional charges.
    • Disconnection: All payments must be made on time – EFC charges are treated like other charges on the utility bill that are subject to service disconnection for non-payment.
    • Disclosure: If the home or business is sold or rented, disclosure of the remaining monthly EFC payment amounts must be made to the potential purchaser or tenant (since they will be taking over the remaining payment obligation), unless the current owner chooses to pay the balance off before the sale or rental.
    This proposed program – managed efficiently, will advance and expedite our reduction in the use of energy and resources in an expedited manner and reduce our dependence on foreign energy sources.
    It will also promote an economic boom in the geographical areas where such program is implemented.
    by: YJ Draiman, Energy analyst – Revised 5/31/2008.

    PS. San Diego Gas & Electric offers up to $50,000 financing foe energy efficiency implementation over a 5 year period added to your Utility bill.

    Reply this comment
  8. C
    C 3 April, 2012, 18:16

    Comparing the costs of green energy to other grid power is a misnomer because:

    1) Coal, natural gas, oil and nuclear all receive massive government subsidies that dwarf those of the renewable energy industry and bring down their costs making most cost comparisons used by these industries complete falsehoods

    2) Most straight cost comparisons fail to account for added costs of dirty energy to the country

    3) NatGas, Oil and Uranium are all rapidly diminishing resources that only have a few decades left of availability

    Reply this comment
  9. nowsane
    nowsane 17 April, 2012, 16:13

    Fine Mr. C.,
    1. Let’s eliminate all the subsidies in total, and then see how poorly solar compares.
    2. To what dirty energy costs are you referring?
    3. We have more than 100 years of coal reserves as well as natural gas, on the land, not even considering offshore. The Simon-Ehrlich Wager, http://en.wikipedia.org/wiki/Simon%E2%80%93Ehrlich_wager
    demonstrated that commodities have consistently declined in price over time. That trend continues today, as prices start to creep upward, innovation and entrepreneurship kick-in and new sources are found, or substitutes are found. Right now an Italian is working on cold fusion and natural gas has all the makings of a total replacement for nuclear AND coal, http://bit.ly/HNszZw
    with no federal mandate, if the feds get out of the way, as have for the last 3 yrs!

    Reply this comment

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