We spoke with Mark Cayce of Ouachita Electric Cooperative and Marshall Cherry from Roanoke Electric Cooperative on how they have implemented tariffed on-bill programs, HELP PAYS and Upgrade to Save respectively. Both utilities use the Pay As You Save® (PAYS®) system and third-party administrators to support their programs.
Tariffed On-Bill is a model where the investment in the energy performance of homes and buildings is recognized as a system reliability investment and the utility utilizes their established authority to add tariffs for system investments to consumer bills as the collection mechanism.
A tariff is not categorized as a loan to the customer. Therefore, it does not add to the debt profile of the property owner the way a bank loan would. The investment in energy savings is tied to the meter of the physical property and it is transferable with the sale of the property.
A notable benefit of this model is that it can be utilized by renters and is more easily accessible for customers with limited credit or low credit scores.
What was the motivation to start a tariffed on-bill program?
Mark: We initially started looking at this in 2013 because we wanted to see what we could specifically do to help our residential members. Things were getting tough in our region and we have a high percentage of low-income and senior members who couldn’t always pay their bill. We have always given advice on weatherization, and had tried financing programs for upgrades to insulation and duct-sealing, but we couldn’t reach the people that needed to lower their bills because of financial limitations and many of those members lived in rental properties or apartments.
Marshall: Our board learned about the concept about 4 to 5 years ago. Our board of directors has always been interested in finding ways to be more inclusive through energy efficiency financing tools. We serve one of the most economically distressed areas of the state and country. We’re in the first congressional district, one of the poorest districts in the U.S. As a co-op, it’s our mission to serve the community and address these needs.
What has been the business impact of your tariffed on-bill program?
Mark: In 2015, the Energy Efficiency Institute and Clean Energy Works contacted us about tariffed on-bill. I could immediately see the benefits. We could use our cost of capital, which isn’t available to individuals, to create the tariff. It’s not a loan, it’s an investment we’re making in their property. There’s a big difference in that. Alongside Cyrus Bhedwar from SEEA, we worked with the Arkansas Energy Office to secure a $100,000 loan loss reserve. The NC Sustainable Energy Foundation also added a $50,000 loan loss reserve. We haven’t had to collect on any of it, but knowing that we have that backing, made starting the program feel less risky. We wrote a tariff to collect on-bill, sent that to the public service commission in the fall of 2015, and it was approved in 2016 without any changes. After the first year, we had invested in almost $3 million in local member homes.
With weatherization and HVAC, we’re averaging an 18% reduction in demand across all members. Some are as high are as 30-40%. Adding solar moves the savings up to 70-80%. Overall, our cost of power has decreased. For every residential project completed, we’re seeing a 1.5 to 2 MW reduction for peak demand. Because we’ve done 700 projects and added solar, we’ve reduced our summer peak by about 30%. These, and other factors, all contributed to OEC implementing a 4.5% rate decrease on February 1, 2020.
Marshall: It’s made a big impact from a member satisfaction standpoint. We’re reaching more member-owners and making them more comfortable in their homes. We have a found a methodology to address some of the barriers like landlords, individuals not wanting to take on additional debt, or those with credit issues. That has given us a high impact tool to place in our kit that we can use to respond to high bill concerns and helps us do additional outreach. It has also really supported our operating costs. We’re learning that in many cases, our users are high contributors to our peak demand. We are experiencing savings during peak events. It’s showing an internal rate of return. Although we’re selling fewer kwh, we’re experiencing lower demand on the system. The more we can bring the demand down, the more we can flatten our energy sales through any given month and our price point is cheaper and we’re in a better position to sell affordable energy to our member-owners.
What has been the community impact of your tariffed on-bill program?
Mark: We required local contractors, so that we’re investing in our members, but we’re also investing in the community. We’ve spent almost $5 million in investments, and the majority of it, over $2.5 million, has gone directly to local contractors. We also have nonprofits, schools, senior centers, and the county jail participating in the HELP PAYS program. We’re working on the county courthouse right now. Rural schools and rural cities have the same challenges as our residential members with limited access to capital and state budgets that don’t allow for improvements. At the Arkansas Law Enforcement Academy, they were working with a 1960’s boiler system for their heating and cooling in the dorm. We replaced it with mini split heat pumps. We also converted all of their lighting to LED. The state was considering if they wanted to move the training facility somewhere else, and that helped us guarantee that we can keep them here. The academy has about 50 jobs, but also hundreds of cadets come through every year.
Marshall: Overall, we hear great remarks from our member-owners who participate. In many cases we’ve installed new heat pumps; we’ve converted from a propane unit to an electric heat pump. So, there’s good quality of life, comfort, and savings, that they wouldn’t have been able purchase otherwise.
We’re also learning that the local contractors have a kindred spirit when it matches up against the co-op business model. When I hear them say they want to do what’s best for the member, that really lines up with our values. Our contractors go above and beyond to provide quality service. They see the bigger picture and opportunity. We have about $3 million invested in our community. There are contractors who are able to benefit from that investment. They can add employees to help with this work. As their bills decrease, member-owners have more disposable income available to reinvest back into the community. Those two elements support the local economy.
What advice would you give to other utilities exploring tariffed on-bill financing?
Mark: I think they should really look at it. I know their members want it; they know their members need it. They can benefit their members and their own co-ops by bringing that service. By cutting peak demand, we can reduce new plants being built. We’re looking at two coal plants being shut down in the next 7-8 years that don’t have to be replaced. That’s a good thing; that keeps costs down. I think there’s a lot of reluctance and fear with other utilities to jump in the way we have. It’s tough to change. But I’m seeing that a lot of co-ops are considering things now they wouldn’t have four years ago. I think the demand from the consumers is driving that. We’ve gone from an attitude of selling as much electricity as we can to an attitude of serving our customers as best we can. They get lower bills, we get lower costs, everyone wins.
Marshall: Well, I’d say a couple of things. Tariffed on-bill is an opportunity to add another high impact program to your toolkit. We all have high bill complaints. It’s a good response you can provide through data and the losses are very minimal. By applying it as a tariff to the bill, the tariff stays with the location until we’re made whole. It’s a high impact program, and there are companies that are shovel-ready to help get you started. It’s a challenge to manage a tariffed on-bill internally. Along with the intellectual property with the PAYS® model, the work we’re doing with companies like EEtility make the difference. The more companies providing operator services with value systems aligned with the co-op business model will be the pathway forward. We’ve had some great support, even with loan applications to make sure we’re in a good position to receive the line of credit, or legally to make sure we’re in compliance in rolling out a tariff on the bill. A lot of different layers of support have helped us make the program mainstream.
SEEA recently published a tariffed on-bill financing guide for utilities. You can read the report here.
Energy conservation codes are making a comeback.
Commercial and residential buildings are energy hogs that consume more than 40% of all energy produced in the United States. Almost a third of this is wasted. Since their inception in the 1970s, energy codes have stemmed these losses and reduced the footprint of America’s building stock. They are one of the few tools available to ensure that the spaces where we spend most of our time are constructed to minimum acceptable standards for comfort, cost, and quality. Although mostly unknown outside of the building industry, these codes matter; a lot.
After two decades with only small gains, in the early 2000s the newest model energy codes—those regularly developed by organizations like the International Code Council (ICC) and ASHRAE as examples for policymakers—began to significantly improve in efficiency with each version. A home built to the 2012 residential code developed by the ICC, for instance, is 32% more efficient than a home built to the standard from just six years earlier. These gains may seem abstract, but they mean that a homeowner will pocket anywhere from $218 to $1,588 each year, saving between $4,763 and $33,105 over the life of a typical mortgage.
In recent years, however, this progress has stalled again. Since the peak in 2012 new model codes have only been marginally more efficient than their predecessors. The 2018 and 2015 versions of the residential energy code developed by the ICC combined are less than 3% more efficient than the 2012 edition. Meeting the 2018 code will only save $20 to $59 each year—ten times less than the savings that accrued in the previous six-year cycle. Although there were still plenty of improvements to be made, by 2018 it looked as if model energy codes might relapse to the stagnation of the 1980s and 1990s, when efficiency gains were few and far between.
This decline was reversed in December 2019 after International Code Council voters supported strong energy efficiency standards for the 2021 code. These voters, who are local government representatives, approved new requirements that include pathways to zero energy, preparations for building electrification, more efficient insulation, home charging infrastructure for electric vehicles, more stringent lighting requirements, and first-of-their-kind standards for water heaters. The new code also provides builders with more flexibility than ever before by allowing them to choose from a series of efficiency configurations to demonstrate compliance. These and other measures will make new buildings more efficient than ever before. Even more significant, they have given new life to a code development process where only minimum improvements in efficiency were becoming the rule.
This is not the end of the story, however. In order to fully realize the new opportunities made available by the 2021 code, state and local policymakers must write these standards into law. This will take the partnership of utilities, manufacturers, retailers, builders, and residents to collectively support cutting-edge energy codes that will reduce the energy footprint of America’s buildings, lower costs, and elevate quality.
Questions? Contact William Bryan, built environment project manager