PACE has a Pulse in Connecticut

By Dana Hall, Esq.

Commercial businesses in Connecticut have a new opportunity to finance energy improvements to the buildings they occupy with the new statewide Commercial Property Assessed Clean Energy (C-PACE) financing program. Carefully crafted to address the concerns of lenders, and to avoid a pending federal rule by the Federal Housing Finance Agency (FHFA) that will continue to plague the residential sector, C-PACE could break some of the barriers that prevent commercial property owners and their occupants from making the choice to invest in energy improvements.

First launched through residential pilot programs in California in 2007, Property Assessed Clean Energy (PACE) financing programs have spread across the nation and are now enabled in 28 states and the District of Columbia.[1] The contentious and some say revolutionary model uses tax lien financing to provide capital to property owners interested in financing energy improvements, and allows them to repay the loans through assessments on their property tax bills.[2]

In May, 2010, residential PACE hit a roadblock when the federal mortgage-finance agencies Fannie Mae and Freddie Mac, which together guarantee roughly half of U.S. residential mortgages, informed their sellers and servicers that their instruments prohibit loans that have senior lien status to a mortgage.[3] In June of that same year, the FHFA declared in a statement that PACE assessments are not valid and should be treated like “loans” that cannot be senior to mortgages.[4]

The State of California, several California counties and municipalities, and the Sierra Club in the Northern District of California brought suit in federal district court in California, and a formal rulemaking process was ordered.  In June, 2012, the FHFA announced their proposed rule which effectively maintains the current comatose state of residential PACE programs in the United States.  Thousands of public comments were received and the final rule is pending.

Despite these federal setbacks in the residential sector, PACE still has a pulse and may be showing real signs of life in the Connecticut commercial sector, with the nation’s first and only statewide commercial PACE program.[5] The enabling statute[6] designates the Clean Energy Finance and Investment Authority (CEFIA) as a statewide central agency for the program, charging them with the creation of standards and guidelines that all participating municipalities[7] must agree to.

C-PACE was carefully designed to address the concerns of lenders by requiring lender consent to participate, keeping the lien with the property regardless of ownership, and requiring the increase in property value resulting from the improvements to be counted as collateral. Approved projects must demonstrate a Savings to Investment Ratio (SIR) greater than one, so that the loan can be fully repaid from energy savings over the term. C-PACE also does not allow acceleration of the lien upon foreclosure, thus only the arrearage becomes due on a foreclosure sale.

Perhaps the most fascinating aspect of C-PACE is CEFIA’s assertions that the program is fully compatible with equity investment financing structures, such as power purchase agreements, and is encouraging developers who are bidding into the LREC and ZREC reverse auction program to also consider C-PACE as a financing tool. For more information on C-PACE, visit http://www.c-pace.com.



[1] To see all the jurisdictions that have enabled PACE programs, visit http://pacenow.org/pace-programs/.

[2] Tax lien financing has been used for decades to provide “low-cost long-term capital to finance improvements to private property that meet a public purpose.” See http://pacenow.org/about-pace/.

[3] See WSJ blog at http://blogs.wsj.com/developments/2010/05/17/fannie-freddie-freeze-out-energy-efficiency-loan-initiative/.

[4] An ongoing FHFA rulemaking process is addressing PACE issues, and PACE advocates are pursuing congressional action to restore residential PACE programs. See http://pacenow.org/about-pace/residential-pace-2/.

[5] See http://www.ctcleanenergy.com/YourBusinessorInstitution/CommercialPropertyAssessedCleanEnergyCPACE/tabid/642/Default.aspx.

[6] CT Public Act 12-2 passed on June 12, 2012. See http://www.cga.ct.gov/2012/TOB/s/pdf/2012SB-00501-R00-SB.pdf.

[7] As of this writing, the municipalities that have enacted Agreements to participate in C-PACE include Beacon Falls, Bridgeport, Durham, Hartford, Middletown, Norwalk, Simsbury, Stamford, West Hartford, Westport and Windham.





If you have any questions about the items discussed above, please contact Dana at dana@danahalllaw.com.


Dana Hall, Attorney at Law offers legal and regulatory support services for a range of clean energy clientele. Serving property owners and energy service companies, Ms. Hall uses her experience as an energy policy analyst and educator to add value to her clients' business operations. Additional information about Dana Hall, Attorney at Law can be found at danahalllaw.com.