Mass Save® HEAT 0% Loan Program

How it is Motivating MA Homeowners

October 16, 2012 ACI New England

Carl FawcettDirector of Financing Programs

HEAT LOAN PROGRAM

Sponsored by:

2006-2012 HEAT Loan Statewide Resultsthrough September 2012

• 15,914 closed loans• $131.7M+ financed Energy Efficiency improvements• $8,164 average loan size over last 5 years• 60-90% range of loan approvals of applicants by

lenders• 47 banks and credit unions participating• 80% of financing for heating system upgrades

One of the most successful financing programs for energy efficiency improvements in America

Origins of HEAT Loan Program• 1986-1990+ Original HEAT 0%

residential financing program funded by oil overcharge dollars awarded the Commonwealth of Massachusetts from a federal court case

• Program directed by DOER using local organizations across the Commonwealth to provide customer and technical support

Son of the Original HEAT• 2005 - MA Heating Energy Assistance and Tax Relief

Act signed into law. Act included tax credits to help MA residents with skyrocketing energy costs

• One provision earmarked funding from residential ratepayer-funded energy efficiency programs for a low interest loan program pilot for residential customers

• Loans under this pilot were intended to help customers weatherize homes and install efficiency upgrades to their heating and hot water systems

HEAT Pilot in 2006• DOER decided the Mass Save residential program

would operate this pilot• No similar financing program in the U.S. at that time• Many program details to work out, including creation

of lender network, who would provide customer support, and what measures would be eligible for financing

• Working group of staff from DOER, participating utilities, and CSG created framework

• Pilot launched winter 2006

Green Communities Act of 2008• Legislation made HEAT loan

financing program a permanent part of the Mass Save residential program

• Loan product helps incentivize residential efficiency adoption and assists households to overcome cost barrier posed by large capital investments

Statewide HEAT Loan OrganizationSponsor/Territory Administrative VendorNSTAR (gas and electric) CSGNational Grid (electric only) CSGCape Light Compact Rise EngineeringWestern Massachusetts Elec. HoneywellNew England Gas HoneywellFitchburg Gas and Electric Unitil

Characteristics of HEAT Loan Pilot For comparison with current program:• Pilot offered 0% and 3% loans depending on income

(80% Median)• Small number of participating lenders (1-20) • Maximum loan $15K, Minimum loan $2K• Central AC was not eligible• Heat loss calculation was required for heating system

replacements• No fuel switching was allowed• Only occupant owners of 1-4 unit properties

were eligible to apply for financing

2012 HEAT Loan Program: Eligibility• Applicants must have valid residential account

number with a sponsoring utility or Cape Light Compact

• Must have had a Mass Save Home Energy Assessment (HEA) for 1-4 unit properties (see also condo eligibility)

• Applicant can be occupant or non-occupant owner• Municipal electric customers who heat with NSTAR

Gas, Columbia Gas or New England Gas may apply; National Grid Gas DOES NOT participate

• A “One Loan One Shot” program (some exceptions granted by utilities)

Loan Options for CustomersEligible Customer Type Loan

AmountLoan Term

Owner Occupied Micro Loan $500-$2000 24 Months

Owner Occupied Standard Loan $2001-$25,000

Up to 84 Months

Non-Owner Occupied Rental Property Loan

$5,000-$25,000

Up to 84 Months

3 Types of HEAT Loans

Some Loan Details • Loan approval is not guaranteed; customers are eligible to

apply once they receive a HEAT Loan Authorization form from loan administrator

• 47 credit unions & regional banks currently participating • Lender determines loan approval or denial • Loan approval based on credit and debt-to-income ratio• Most loans unsecured; some lenders offer secured loan• Most terms are 7 years (except for Micro Loans)• Maximum loan amount is $25,000• All loan amounts are net any utility rebates

Lending Results:Preliminary results from survey of participating lenders

Averages from the survey:• 86% of loans are approved• 755 Av. FICO score• 665 Av. minimum FICO score• .55% Default rate• 1-5 Day processing time for

loans by lenders(many lenders offer same-day

processing)

As of April 2012:Some Condo Units Eligible for HEAT Loan

• All residential electric, and natural gas, individually metered condo units may apply

• Master-metered condos in complexes are NOT eligible • Condo complexes that heat with oil or propane, are NOT

eligible to participate• Lighting and insulation upgrades for condo units are

provided by the utility’s multifamily program - treat the whole complex

• This program addition is a new opportunity for contractors installing heating, hot water and air conditioning systems

Eligible MeasuresHEAT Loan provides financing for energy efficiency improvements that meet program minimum standards

– Insulation and/or air sealing upgrades– Single-pane window replacements– Efficient heating systems– Air source and geothermal (ground source) heat pumps– Ductless mini-split heat pumps/AC– Thermostats – Domestic hot water system – Solar hot water systems – Central Air Conditioning installed with QIV (New or replacement)– Note: efficiency requirements for heating and DHW upgrades are the same as

the GasNetworks, Mass Save propane/oil and Cool Smart rebates.

Heating system & DHW: 11,601

Weatherization: 1,575

Windows: 2,103

Central AC: 228 (6 months)

Measures Financed Since 2006

Residential HEAT Loan Process (Abbreviated)

Mass Save Audit verifies Customer’seligibility to participate in HEAT Loan

Program reviews and authorizes proposals;

Customer closes loan with Lender.Two-party check made in name of Contractor;

Lender gives check(s) to Customer

Customer receives authorization and receives list of Lenders, applies for

pre-approval

Customer signs check over to Contractoronce work completed and passes inspection*

Customer calls Utility and requests a MassSave Audit; audit is performed

Customer solicits contractor quotes

Verification Inspection

Application Checklist:A very important part of the heat loan folder.

It outlines all of the steps to the program.

Intake form

Contractor Proposal

Authorization Form

Two-party Checks Issued by Lenders, Net any Rebates

Closed Loans by Year

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2006 2007 2008

2009

2010 2011 2012

Trends: VolumeVolume of loans closed has increased every year• Adding new measures such as central AC widens pool• Increased marketing by Mass Save utilities and

lenders; increase in contractor referrals• More word of mouth referrals by customers as

program matures• Participating customers increase with addition of

micro loans and loans for non-occupant owners• Large increase in customers participating in the

residential efficiency programs in the last 3 years due to program expansion

Average Loan Size by Year

$3,649,346 $5,087,889 $7,428,164 $19,095,819 $27,609,119 $31,975,388 $36,877,7212006 2007 2008 2009 2010 2011 2012

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Average loan amount

Trends: SizeReasons for loan size increasing:• Additional measures now available• Whole-house approach motivates

customers to do multiple measures• Minimum efficiency requirements

for equipment increased over time, encouraging customers to invest upfront in more expensive and higher efficiency equipment

2006 2007 2008 2009 2010 2011 2112$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

Growth of HEAT Loans

2012

Contractors can. . .help customers master HEAT loan steps

Proposals you provide customers should include: • Make, model #, and AFUE of equipment being proposed• Clearly stated details of equipment to install• Itemization of any non loan-eligible work, such as oil tank

removalIf you present several options, have the customer note which one

they are choosing. Encourage them to read HEAT Loan steps and minimum standards for their improvements.

If central AC is being proposed, provide a Manual J version 8 load calculation and AHRI certificate.

Become familiar with equipment efficiency requirementsfor HEAT Loan and rebate programs.

For Minimum Requirements for Energy Efficient Measures, Steps, and

Minimum Efficiency Standards: see MassSave.com/heatloan

Contact Information:• MassSave.com/heatloan• HEAT Loan Support Line: 1-800-696-8077 for

National Grid and NSTAR territories• Fax: 508-836-3181 (CSG)• Email: MAHTLoan@CSGRP.Com• Carl Fawcett, Director of Financing Programs for CSG:

carl.fawcett@csgrp.com or 1-800-696-8077