Energy Savings Warranty: AN OVERVIEW

1. Energy Savings Warranty: AN OVERVIEW

2. AGENDA • Current Warranty Insurance Market • Benefits of Warranty Insurance • Structuring Coverage Limits • Premium and Deductible Structure • Example • Underwriting Requirements • Key Policy Provisions: • Description of Main Insuring Clauses • Important Definitions • Notable Exclusions

3. CURRENT WARRANTY INSURANCE MARKET There are currently no other insurers providing energy savings warranty coverage in Canada. In the mid 1990’s, Munich Re and Travelers wrote some Energy Savings Warranty Coverage, but the lack of government policy, incentives and available financing the energy efficiency retrofit business fizzled. Current conditions including government support and increased awareness of the need to become a more sustainable society has driven the need for deeper retrofits on existing buildings. It is perfect timing. 3

4. BENEFITS OF WARRANTY INSURANCE Provides financial security that savings will be achieved providing greater certainty capital will be available to repay unsecured financing Helps to justify capital expenditure of energy efficiency measures being installed - Facilitates decision making by reducing perceived risk and resistance at management level Increase in energy efficiency measures = lower GHG’s May be able to remove balance sheet liabilities and other obligations: Free of parental guarantees 4

5. Policy Structure: Policyholder(s) – Engineering and Installation firms, jointly Additional Insured – Project Owner Coverage: 1 Year Policy with individual projects (through next 12 months) endorsed individually. Policy term extends through end of all endorsed project guarantee terms for up to a 10 year period Policy written on A rated paper. Limits (up to): $50,000,000 Policy Term Limit $50,000,000 Lifetime Serial Aggregate Each individual project added by endorsement with a specific sub limit and self insured retention for each STRUCTURING COVERAGE LIMITS

6. PREMIUMS & DEDUCTIBLES • One-time premium per project equaling 2% to 5% of the total guaranteed energy savings for the project. • Minimum earned premium for master policy, plus any engineering and broker fees. Each project endorsed on master policy will erode deposit premium until additional premiums are incurred • Pricing is determined based on: • Project Length • Contract Size • Engineering and installation firm’s Experience • Projected Savings vs. Guaranteed Savings • Deductible is typically 10% of the loss

7. EXAMPLE The client installs LED lighting etc. and currently has a master policy in place in order to provide ease of underwriting when adding projects. The initial premium paid was $25,000. not including taxes and fees. Their initial project was the installation of LED lighting in an office building, with terms as below;Projected Savings - $100,000. annuallyTerm of coverage – 5 YearsProject Sub-Limit - $500,000.Deductible applied annually - $10,000.Project Premium - $17,500 (3.5% of limit)Applicable Fees: $1,000. – Engineering Inspection Fee $1,750. - Brokers Fee (10%)The additional subjectivities that may apply are:-         Review of final contract-         Completion of project-         Inspection and approval of project by Insurer following project completionThe master policy premium is taken into consideration with remaining credit of $4,750. (not including taxes)

8. INSURING CLAUSES Energy Savings Warranty pays for claims arising out of a shortfall in annual savings achieved from the installed efficiency measures on an annual basis Claims the Engineering and Installation firm (Insured) is contractually obligated to pay in the event savings from the installed measures are not achieved The warranty backstops the savings guarantees made by the Insured in the installation contract between the Insured and the project owner Failure to measure and verify the savings in installed measures as set out within the energy savings performance contract and as advised to the insurer will result in denial of claim under the policy Reporting Requirements; the Named Insured must provide to the insurer on a quarterly basis a copy of all reports provided to a project owner as set out in the energy savings performance contract and related documents, as well as submit a quarterly report to the insurer for each project on the policy demonstrating actual performance compared to performance levels required to achieve the guaranteed annual measured savings amount. Non-cancellable in the event of Insured bankruptcy 8

9. IMPORTANT DEFINITIONS Insured Measures: The energy and water system improvements or modifications specified on a Project Endorsement to this policy and further described in the Energy Services Performance Contract identified on the Project Endorsement that will be undertaken as part of a Project Baseline Assumptions: The set of parameters that describes both the Energy and Water Units consumed in the baseline period calculations included in an Energy Savings Performance Contract, as well as conditions that caused that consumption to occur, including, but not limited to, the type, frequency, and intensity of use of a facility; seasonal temperature averages; Measurement & Verification: The procedures, formulae, process, and requirements set forth in each energy savings performance contract specified on the project endorsement to the policy in force for measuring and verifying the energy or water units consumed at a facility during a policy year. 9

10. IMPORTANT DEFINITIONS Definition of Loss: In the event the Actual Annual Measured Savings Amount is less than the Guaranteed Annual Measured Savings Amount, the difference between the two amounts is a Loss under the policy. Separate Loss calculations will be made for each Project insured under the policy. However, if an Energy Savings Contract provides for the application of Prior Year Savings, the Prior Year Savings will be applied to reduce the Loss to the fullest extent permitted under the Energy Savings Performance. Claim Valuation: A. The Guaranteed Annual Measured Savings Amount for each Project insured under this policy in the Dollar amount, for each policy year, set forth in the table in Section C of the project endorsement for that Project B. The Actual Annual Measured savings amount for each project insured under this policy is the sum of the following calculation for all category of Energy or Water units identified in the Table Section C of the project endorsement for that project resulting from the implementation and commissioning of the Insured Measure: Measured Savings * Cost/Unit

11. IMPORTANT EXCLUSIONS Any loss damage or expense arising from measures not installed or maintained in accordance to the manufacturers guidelines Any loss, damage or expense arising from defective products installed Any loss, damage or expense arising from direct damage, casualty or settling of the building in which the insured measures are installed Any loss, damage or expense where the measurement and verification process has not been followed. Any loss, damage or expense resulting from loss of or interruption of an outside service such as water, gas and electricity. Any loss, damage or expense resulting from change in occupancy calendar, hours or set points at a facility or any modifications, additions or increased to occupied space within the facility which increases the use of energy and/or water at the facility by 3% or more. **(This exclusion applies where the overall loss reported does not take the above changes into consideration when calling on the policy for coverage. In the event any of the above changes occur, notice should be sent to the Insurer at the time of the change, and in the event of a loss, the changes will be taken into consideration in order to provide a fair settlement. ) 11

12. IMPORTANT EXCLUSIONS Important exclusions continued… Any liability or loss, damage or expense arising out of or in connection with any actual or alleged violation of any federal, provincial or local laws or regulations Any liability for loss, damage or expense relating to any punitive or exemplary damages howsoever caused Breach of contract Claims arising after the policy term has ended Pollution By Laws Any loss, damage or expense from civil commotion, riot, war or terrorism. 12

13. UNDERWRITING REQUIREMENTS Energy Savings Warranty Application Underwriting Process: (Below required for all firms participating in the coverage) 3 – 6 years of financial statements – Preferably audited Management Bios Project History References Sample Contracts Individual Project Underwriting Review of project baseline energy audit, energy savings measurers, equipment to be installed and Measurement and verification plan Upon underwriting approval of project the Insurer will issue a representation letter subject to certain conditions that the project will be endorsement once construction is completed 13

14. CLAIMS REPORTING The Named Insured must notify the Insurer immediately upon learning any information, including any information from the Additional Insured, which could give rise to a claim or loss under the policy. In the event the Named Insured becomes bankrupt, insolvent or ceases operation, the Additional Insured may provide notice of loss. * Measurement & verification and reporting requirements must be maintained by the Additional Insured in order to comply with the provisions in the policy, No claims may be made under the policy unless made in writing to the company within three (3) months after the end of the policy year. 14

15. QUESTIONS / CONTACTS Jones Brown Inc. 480 University Ave., Suite 1100, Toronto, ON M4K 1G9 www.jonesbrown.com 15