GVEA Prepares for Pilot On-Bill Financing Program
By Brian Kassof
At its February meeting the GVEA Board took another step toward creating an On-Bill Financing (OBF) program—meant to expand members’ access to renewable energy and improved energy efficiency—when it heard the recommendations of its member Task Force. Responsibility for creating a pilot OBF program based on these recommendations now goes to a working group led by GVEA staff, which will present its completed proposal to the Board for approval. The soonest GVEA’s pilot OBF program could begin is the end of 2022.
On-Bill Financing is a type of program where utilities provide low- or no-interest loans to help customers make energy upgrades to their homes or businesses. It takes its name from the fact that loan repayments are included on the customer’s monthly bill. OBF programs help customers who lack sufficient savings or may have difficulty securing traditional loans to make upgrades that will lower their overall utility bill.
While the GVEA Board approved the Task Force’s general recommendations, GVEA staff have raised a number of issues, such eligibility rules for the program, the types of improvements that can be funded, and administrative issues, that still need to be resolved. Once the Board approves the final version of the pilot program, a number of hurdles still need to cleared, including approval of certain aspects of the program by the Regulatory Commission of Alaska (RCA) and the completion of an upgrade of GVEA’s computer systems. These factors may delay the start of a pilot program until sometime in 2023.
Why an OBF Program?
OBF programs have become popular in the United States over the past 20 years, with over 110 utilities now offering some form of OBF. These programs create more equitable access to energy upgrades for utility customers, allowing those without access to regular forms of credit to make improvements such as purchasing more efficient appliances, upgrading a building’s insulation, or installing renewable energy generation systems such as solar panels. The resulting savings in energy costs offsets the monthly loan repayments, meaning that the customer is able to make the upgrades at little or no cost.
While there was a short-lived OBF program offered by the Matanuska Electric Association in the 1980s, no Alaskan utilities currently offer such programs, and GVEA is the only Alaskan utility actively developing one. In 2018 the Alaska Legislature passed a law, HB 374—“On Bill Financing of Energy Improvement”—enabling Alaska utilities to create OBF programs.
For more information on OBF, see AETP’s Explainer on the topic https://www.akenergytransparency.org/onbill-financing
GVEA has been working on an OBF program since its Board appropriated $200,000 of permanent equity for a pilot project in May 2020. The GVEA Board then asked members of its Member Advisory Committee (MAC) to create a task force to design an OBF program for the utility. After over a year’s work the OBF Task Force submitted its final report to the Board in December 2021. Two members of the Task Force, Matthew Mund and Alison Carter, made a presentation to the Board based on the report at the February 2022 GVEA Board meeting.
According to the Task Force’s report, the main goal of an OBF program at GVEA would be “…to increase equitable access for members to renewable energy, energy efficiency, and beneficial electrification projects.” Success in meeting this goal would be measured by three metrics: Saving customers money, making renewable energy and efficiency upgrades affordable for more members regardless of income level or credit rating, and reducing overall energy consumption. Other possible benefits of the program include improving air quality, reducing carbon dioxide emissions, and load balancing.
On-Bill Tariff
A key Task Force recommendation is that GVEA pursue a specific type of OBF program known as “On-Bill Tariff.” On-Bill Tariff programs are similar to other types of OBF, but the funds advanced for the energy upgrades are classified as “equipment improvements,” not as loans, and repayment is made through a new monthly service fee (tariff) added to the bill. Because it is not considered a personal loan, On-Bill Tariff funding can be connected to a meter rather than an individual. The Task Force was drawn to this option because it is more accessible to renters (a group who make up between 25% and 40% of GVEA’s customers). On-Bill Tariff is also attractive to customers who may move before the improvement is paid for or who are worried about the impact of a loan on their credit rating.
Although interest in starting an OBF program at GVEA was spurred in part by the passage of HB 374, the Task Force ultimately decided that the rules set out by the bill were too restrictive. In particular, they were concerned about its exclusion of renters and restrictions placed on landlords. As a result, the recommendation to pursue an On-Bill Tariff was made, in part, because the Task Force believes that such a program would not be subject to the rules established in HB 374. It argued that Alaskan utilities already have the ability to create tariffs to recover the cost of energy savings investments, an interpretation supported by both GVEA staff and outside experts. Establishing a new tariff would still require the approval of the RCA, which oversees utilities.
The Task Force’s report lays out the basic parameters that would apply to both pilot and regular programs. Funding for the pilot program would come from the funds approved in 2020. Additional funding for a regular program would come from a no-interest loan through the U.S. Department of Agriculture’s Rural Energy Saving Program (RESP), which is intended to facilitate OBF programs. Using RESP funds would allow participants to repay the cost of the improvement without any interest (plus a small fee to cover administrative costs). As per RESP rules, the repayment period for a project could not exceed 10 years.
The Task Force recommended against creating a list of energy upgrades eligible for support, as is done in some OBF programs. They instead suggested four criteria be used to evaluate what types of projects could be funded. The first is whether or not a technology has already been proven to work in interior Alaska. The second is whether it is cost and energy efficient. For example, although air heat pumps are growing in popularity in other parts of the state, the Task Force cited a presentation by the Cold Climate Housing Research Center that concluded that heat pumps were not suitable for the Interior at current electricity prices. The third criterion is whether or not a project is eligible for funding through another program, such as the Interior Gas Utility’s Conversion Program. Lastly, energy savings from the project would need to be sufficient to offset full repayment within 10 years.
Rather than focus on the credit history of customers applying to participate in the program, the Task Force proposed using two factors to decide if a project should be funded. The first is an energy audit to determine if the savings created by an upgrade would offset the monthly repayments. The second factor is if the structure being improved would remain usable until the improvement was paid for. The Task Force suggested that residential and small business customers be given priority in an OBF program, since larger businesses have access to other sources of credit. In his presentation, Mund noted that defaults on OBF loans have not been a significant problem for other programs. He also said there are mutual risk pools GVEA could join to minimize any financial risk posed by defaults.
Lastly, the Task Force recommended that the administrative costs associated with the program be levied as a one time fee on participants, so that the program did not effect the bills of other GVEA members. Neither a pilot or a full-scale program will require GVEA to borrow money at interest. The pilot program will use the money appropriated from permanent equity, while a full-scale program would use a no-interest RESP loan. As a result, neither should impact the bills of other GVEA members.
Staff Reactions
In his presentation Mund acknowledged that the Task Force’s work was mainly conceptual and could not account for many of the details and specific challenges of implementing the program. This had become evident in August 2021, when GVEA staff saw a draft of the report and raised numerous concerns. A memo listing 14 of these was sent to the Task Force in September 2021. The Task Force, together with GVEA Board members Gary Newman and Todd Adams, met twice with members of the GVEA staff in the fall of 2021, in order to try to address some of their concerns. After some discussion, it was decided that the Task Force lacked sufficient knowledge of GVEA’s internal operations to address these concerns in full. They decided it would be best to submit the report in its current form, and to address questions raised by staff afterwards.
Staff concerns touched on a number of issues. While they agreed with the Task Force’s argument for an On-Bill Tariff program, staff members had a number of reservations about the idea of connecting the loans to meters rather than individual customers, although there did seem to be some openness to doing so under certain conditions. They also indicated a number of possible complications that may arise from including rental properties in the program. Other areas of concern included a lack of limits on the types of improvements allowed, whether there should be a cap on the cost of projects, and the workload associated with administering the program. Staff members also questioned whether the RCA would allow administrative costs to be borne solely by participants.
Next Steps
Several members of the GVEA Board, including Chair DeLong, praised the dedication and hard work of the Task Force’s members, and thanked them for their efforts. The Board then assigned the job of working out the details of the pilot OBF program to a working group composed of GVEA staff and several Task Force members. This group will work to reconcile the Task Force’s recommendations with the concerns raised by staff. While the working group’s proposal will focus on the specifics of a pilot program, it will also lay out the basic guidelines and expectations for a future regular program. The GVEA Board will need to approve the working group’s recommendations for a pilot program before it begins.
There are several other factors that will also delay the start of the pilot OBF program. One is the need to apply to the RCA for approval of a new tariff for the program. Receiving RCA approval could take as long as nine months, if the RCA chooses to open an investigation, something that GVEA staff believe is likely.
Another factor potentially delaying the beginning of an OBF program is GVEA’s anticipated upgrade of its computer systems. Abigail Dillard, GVEA’s Director of Member Services, said at the meeting that she did not think it made sense to make changes to the current software, which is about to be replaced, to accommodate an OBF program. Dillard estimated that the customer service and billing software updates should be complete by October or November 2022. Board Chair Tom DeLong expressed a hope that the working group would have its recommendations for the pilot program ready by the time the software updates were complete.
Once all these conditions are met, GVEA will launch a pilot OBF program, using the $200,000 of permanent equity approved in 2020. This pilot program would run for a yet to be determined period of time, and then be reviewed by the GVEA Board. If the Board then decides to pursue a regular program, it would need to approve any revisions to the rules deemed necessary based on the experience of the pilot program. GVEA would then apply for an RESP no-interest loan. There is currently no timetable for the transition from the pilot to a regular program.
A Long Process
The Task Force’s report is only the latest step in a long process that dates back to 2018. Support among GVEA members for an OBF program began to grow that year after the passage of HB 374. According to Lisa Baraff, Program Director at the Northern Alaska Environmental Center (NAEC), several local groups, including the Fairbanks Climate Action Coalition’s Renewable Energy Working Group and NAEC, played an important role in organizing support for the program. They helped educate interested GVEA members and, later, members of the GVEA Board, on OBF programs, providing them with information and connecting them with nationally-recognized experts, such as Holmes Hummel of Clean Energy Works. Hummel later consulted with the OBF Task Force. Baraff cites a presentation on OBF by Chris Woolery of the Mountain Association at the January 2020 Just Transition Summit in Fairbanks as a catalyzing moment in building support for an OBF program at GVEA. A 2020 Alaska Center for Energy and Power report on ways to reduce GVEA’s CO2 emissions discussed several ways in which an OBF program could help to achieve these goals. Support for an OBF program also received a boost with the start of the Solarize Fairbanks initiative in late 2019.
In May 2020 GVEA’s Board formally approved the funds from permanent equity for a pilot program. After consulting with staff, in September 2020 the Board turned to the MAC for assistance in designing the pilot program. The MAC formed its OBF Task Force the following month. Its initial members were Ben Loeffler, Korene Long, Alyssa Norris, Matthew Mund, Russell Johnston, and Alison Carter (Norris and Long later left the Task Force, while Bobbie Ortiz joined). The Task Force was asked to develop a plan that included defined goals and objectives, the types of loans to be offered, the types of projects should be eligible, and consequences for late or missed payments.
The Task Force’s efforts were slowed early on by a misunderstanding about the scope of its work. The Task Force understood the Board’s request to be for the outlines of a very narrow, limited OBF pilot program. Their initial report to the Board, submitted in December 2020, reflected this. The Board’s response in February 2021 suggested it was expecting a broader discussion—in particular, Board members wondered why technologies such as renewable energy systems and electric vehicle chargers were not included in the OBF program. They also asked for a clearer set of goals and objectives for the overall project. The Task Force subsequently met with Board Chair DeLong in March 2021, to clarify its charge. At this meeting, DeLong asked the Task Force to focus on making recommendations for a full-scale project. The Task Force spent the summer of 2021 meeting, conducting research, and consulting outside experts on OBF programs. The attempts to reconcile staff concerns with the draft report in the fall of 2021 further delayed its final submission, which occurred in December 2021.
The Task Force’s report, along with supporting documents, are available in the GVEA member book for its February 2022 meeting: https://gvea.com/wp-content/uploads/2022/02/February-22-2022-Member-Book.pdf
