low-cost financing: overview » introduction » special assessment programs » on-bill financing
On-bill financing programs allow borrowers to pay for energy-efficient improvements through monthly or annual installments on an existing utility bill. Depending on program guidelines, energy-efficiency measures may be selected from a list of approved upgrades, or as the result of recommendations following an energy audit.

Like PACE programs, the contractors or whoever will complete the energy-efficiency upgrades receive upfront payment from the program sponsor, although repayment occurs through utility bills, rather than payments to the local government. Because of this arrangement, the cost of the improvements and the post-improvement savings cancel each other out on the same statement -- a potential benefit as compared with property assessment financing, which requires homeowners to pay a special assessment on a tax or other municipal bill but accrue savings on a separate utility bill.

Public benefit funds may be used to capitalize on-bill financing programs or to establish a loss reserve fund to cover late or default payments; however, while utilities or public entities integrate the billing for these programs, they do not typically serve as a lender or a guarantor of program costs -- a role outside of most utilities' purview. Instead, loan portfolios can be managed by an array of institutions or through public-private partnerships, some of which may also provide upfront funds. Failure to pay the assessed fee may trigger the same penalties as failure to pay standard energy usage charges. [1]

While administered by utilities, states and localities can facilitate adoption of on-bill financing through several channels, as described in a policy brief from the Alliance to Save Energy:
  • Require public utility commissions to assess the feasibility and desirability of establishing on-bill financing programs
  • Adopt legislation to establish public benefit or other funds to capitalize on-bill financing programs
Solutions in Action
Midwest Energy is a customer-owned energy cooperative based in rural Kansas. Available to Midwest Energy's 88,000 electric and/or gas customers, the How$mart program enables consumers to pay for investments in energy-efficiency, including insulation, sealing, and heating and cooling systems, through a charge on their utility bill. Both homeowners and renters (with landlord permission) may participate in the program. Participants receive a free home energy audit, which is used to determine the most cost-effective improvements.

The program covers the upfront cost of the improvements; however estimated savings must be greater than the monthly surcharge. (Not all improvements identified in the audit yield sufficient savings to be eligible for How$mart financing -- where estimated savings fall short of the improvement costs, residents may "buy down" the balance by paying for the difference on their own. [3] In the event that the initial homeowner moves, the payment obligation transfers to the new owner.

The program was initially offered as a four-county pilot, and opened to all Midwest Energy customers in the summer of 2008. As of June 2010, some 400 customers had enrolled in the program.
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An interagency task force between the U.S. Departments of Energy
(DOE) and Housing and Urban Development (HUD) has been convened to explore, among other things, the possibility of extending DOE's loan guarantee authority to include the residential sector, a step that could help to encourage institutional participation in an on-bill and minimize the risk that any defaults would result in higher charges for other customers. [2]

Potential barriers to participation in an on-bill financing program

Two utilities in New Hampshire, New Hampshire Electric Cooperative and Public Service New Hampshire, implemented an early on-bill financing program, now named Smart$tart. (The program originally applied to residential customers, but is now available to commercial customers only.) As reported in a policy brief from the Alliance to Save Energy, a survey conducted 18 months after inception identified several potential barriers to participation, including:
  • Homeowners' concerns about the implications of on-bill financing obligations as they relate to the property's resale potential and attractiveness to prospective buyers
  • Reluctance to take on responsibility for maintenance of complicated new equipment, and associated costs
  • Penalties associated with non-payment energy-efficiency assessments, including disconnection of service

Photo credit: Mark Ballogg, Ballogg Photography, Inc.; courtesy of Landon Bone Baker
Another barrier, which was not identified in the report, relates to the complexity of administering an on-bill financing program for families undertaking whole-house green retrofits that include multiple utilities (gas, electric, and water) and billing systems.

Solutions in Action
NYSERDA's On-Bill Financing Program

The Power New York Act signed into law in August 2011 includes a provision authorizing the use of on-bill recovery for residents to finance home energy retrofits. The on-bill financing option is an addition to the Green Jobs Green New York (GJGNY) program created in 2009, and will be administered by the New York State Energy Research and Development Authority (NYSERDA). The legislation requires that all combination gas and electric corporations with annual revenues greater than $200 million in billing and collection must enact an on-bill financing option.

The primary funding for the on-bill financing program will be provided by a revolving loan fund created by the original GJGNY legislation. This fund was created using a portion of New York's Regional Greenhouse Gas Initiative (RGGI) funds (RGGI is the 10-state cap-and-trade agreement established in 2008). There is $26 million in this revolving loan fund designated for two residential financing programs: 1) the Home Performance with ENERGY STAR Loan Program, launched in November 2010, and 2) the on-bill financing program.

The legislation requires that the on-bill recovery program is operational by summer 2012. For updates on the development of this innovative program, click here.

Click on the links below to learn more about special assessment programs:

Work with utilities to offer on-bill financing, allowing customers to pay for energy improvements and realize energy savings on one statement

Offer Property Assessed Clean Energy (PACE) financing programs that tie payment for energy-efficient improvements to the property

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Offer special assessment programs that allow the costs of energy upgrades to be repaid through existing utility and municipal bills and largely offset through lower energy usage

Other pages in this section:

Make available energy efficient mortgages, which fold the cost of energy-saving upgrades into a new mortgage or refinance

Provide interest rate buy-down programs
and other low cost loans to lower borrowing costs for energy-efficient improvements

[1] Paying for Energy Upgrades Through Utility Bills. [PDF] By Matthew Brown. State Energy Efficiency Policies: Options and Lessons Learned - A Series of Briefs. Washington, DC: Alliance to Save Energy.
[2] Secretaries Donovan and Chu Announce Partnership to Help Working Families Weatherize Their Homes. February 27, 2009. Press Release. Washington, DC: U.S. Department of Housing and Urban Development.
[3] CEP Conversations: Michael Volker of Midwest Energy, and their award-winning How$mart energy efficiency program. 2008. Blog Entry. Climate and Energy Project Blog.