BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Examine the Commission’s post-2005 Energy Efficiency Policies, Programs, Evaluation, Measurement and Verification, and Related Issues.
Rulemaking 06-04-010
(Filed April 13, 2006)
SMALL BUSINESS CALIFORNIA COMMENTS ON CA IOU
2009-11 PROGRAM APPLICATIONS
Introduction
Small Business California (SB-Cal) serves as an intervener in the above captioned proceeding and respectfully submits these opening comments on the 2009-11 Program Applications by the CA IOUs in the R.06.04.010 CPUC Energy Efficiency rulemaking.
Our Comments provide information on each IOUs’ progress with developing On Bill Financing (OBF). We provide as Attachment 1 to our Comments, the OBF related language in CPUC Decision 07-10-032 dated October 19, 2007 that mandated OBF for the IOUs’ 2009-11 programs. Attachment 2 provides the language offered by each IOU regarding OBF in their 2009-11 Program applications filed July 21, 2008. Referring to each IOU Application, SB-Cal suggests ways the Commission can help support and further each utility’s OBF efforts. We also suggest an approach for all the IOUs with a workforce development focus that could help maximize OBF installations, especially with institutional ratepayers.
SB-Cal notes that OBF is but one of a number of energy efficiency (EE) financing tools that will enhance the ratepayer return on PGC investment. The Huffman bill passage (AB811), supporting the “Berkeley” community lien based loan approach is particularly exciting and may offer a significant avenue allowing CA residents and businesses to “drill deep” with comprehensive energy efficiency and renewable energy.
As an active party in both R.01.08.028 and R.06.04.010, SB-Cal has worked to help develop OBF opportunities since 2004 through the regulatory process as well as working cooperatively with both IOUs and key stakeholders. CPUC D. 07-10-032 advanced this effort by mandating OBF for all IOUs beginning in 2009. Since then, SB-Cal has been actively involved with each IOU. In January and the spring of 2008, we held meetings with the IOUs’ OBF managers to encourage increased collaboration, including a statewide approach where possible to institutional OBF programs.
Other Utilities have Stepped Forward to Share Knowledge
Since much of SB-Cal’s OBF efforts in CA have been to promote successful east coast programs, we have received considerable help from utility OBF managers representing Connecticut’s United Illuminating (UI) , NStar serving Boston, and National Grid serving Massachusetts, Rhode Island and New Hampshire. In particular, Dennis O’Connor of UI has participated in numerous teleconferences generously sharing his experiences and continued development efforts in his area. As the UI program continues to grow while maintaining a default rate well under 1%, OBF is becoming an economic development “triage” tool in UI’s service area. Longtime small business UI customers with on time payment histories recently affected by current economic strains have benefited from OBF’s energy savings and product marketing via improved lighting (ambient and refrigeration display) and refrigeration controls, transforming a $2000 monthly utility bill to $1200 per month after the OBF loan is paid off. Simply put, the UI perspective is that the utility doesn’t so much risk default by providing financing as it does when businesses labor under the financial burden of excessive utility bills based on inefficient equipment. OBF helps to make those businesses economically healthier and thus helps to protect the integrity of the utility revenue stream and just as importantly, to maintain the value of the tax base in the community.
Nelson Medeiros from NStar of Boston takes a similar approach when it comes to developing working relationships with OBF installation firms. He spends significant time and resources organizing the contractors to accurately represent the interests of NStar’s ratepayers as they approach businesses to survey, sell and install the energy
efficiency measures that deliver the savings back to the businesses they engage. Mr. Mederios shared several of the ways NStar approaches contractor collaboration as a way to deliver value to everyone involved at a January 2008 meeting in Downey where CA IOU reps learned about his methods using financing as a workforce development tool. Through these and other information transfer methods, SB-Cal continues to collaborate with the IOUs as well as with other stakeholders to help successfully develop OBF in California.
OBF Common Threads and Caveats
Before addressing the IOU applications and each utility‘s progress with OBF, several matters deserve mention that significantly affect the success of OBF in CA. First, OBF projects aren’t complete until the last loan payment has been made. This means that the utility should be engaged throughout the loan period avoid defaults. It also means the ratepayer is each month measuring the value of their EE investment through what should be an equivalent amount of energy savings; thus resulting in a neutral monthly cash flow. Also, the EE installation contractor has a significant stake in making sure the installation is of high quality and that the customer realizes the benefits they were promised. Successful OBF programs help utilities meet savings goals in a cost competitive manner, and when customers realize savings without having to sacrifice cash flow, EE investments can quickly become a valid part of their business model. Further, when contractors successfully deliver OBF financed installations that deliver savings as promised, they gain an opportunity to grow their business in a more consistent manner than more limited EE utility-rebate program models. When a customer investing in EE via OBF is satisfied with the outcome, they are apt to provide a valuable referral for other customers, as well as investing again themselves to lower energy costs as new EE opportunities emerge. And last but not least, perhaps one other factor controls OBF outcomes most of all. Do the leaders of a utility offer top level support for OBF? Developing OBF programs requires significant cooperation and interaction between several internal utility departments to pull all the elements together that otherwise compete internally with other resources.
Overview on the IOUs OBF Application sand Programs to Date
Top Level Support
SB-Cal’s observations in meeting with CA utility personnel suggest that strong support from the upper levels of management for OBF substantially determines whether the OBF manager request to, for instance, the IT department for line item inclusion is given priority in the form of reasonable timelines and internal cost projections. During the last few years, the rate at which each CA IOU has moved forward in developing their financing efforts has differed significantly. While the ruling from the Commission in Decision 07-10-032 mandating OBF commercial and institutional programs beginning in 2009 is arguably clear, so to perhaps are the differences in the IOU application filings responding to that ruling. Our strongest hope is that empirical evidence demonstrating success with current active CA OBF programs will reinforce the argument that OBF can act to be a cost-effective use of ratepayer funds compared to other program designs. While we want to be clear that we don’t suggest any utility would fail to respond to a CPUC ruling, our Comments below addressing specific utility filings will attempt to encourage alternatives to present plans where we believe those alternatives are reasonable.
CA Difficulties
One example of this is illustrated by the requirement of the California Department of Corporations that creates the need for a minimum $5000 loan on OBF projects in order for CA utilities to receive an exemption that eliminates an otherwise unmanageable situation regarding licensing requirements. Similarly, California has significant climate differences compared to many other areas and this in turn determines what kinds of installations and paybacks are within reason. California Title 20 and 24 codes often determine savings levels that limit the potential for incentives to affect return on investment periods. Finally, the ability for utilities to develop bi-lateral contractor relationships may not be as robust as is evident on the east coast due to regulatory or other controlling factors. These kinds of considerations either limit or enhance how OBF in California can develop compared to other regions and so we hope they are taken into
account moving forward. We believe a deeper level of research on promising programs where these factors are taken into consideration may be worth pursuing.
PG&E
PG&E’s 2006-07 Energy Edge small business off-bill financing pilot program using a Third Party bank was a quick obvious failure and we believe PG&E made a good decision to shut it down when they did. Perhaps partly with Energy Edge in mind, PG&E made cost-effectiveness against other comparable program delivery mechanisms their benchmark value for agreeing to include OBF as a specific recommendation in 2007 when both SB-Cal and PG&E served on the panel which was one of three ( and being the other two), making formal recommendations to CARB regarding implementation of AB32. We strongly agreed with using that benchmark and while not enough data is in to be able to accurately measure the current OBF programs in CA against long running successful New England OBF programs, we believe PG&E would agree that Energy Edge was not cost effective and thus served as a valuable teaching tool for future small business financing program designs. PG&E has indeed chosen to deploy significant research efforts on OBF programs around the country as well for interviewing Institutional ratepayers about using OBF in an effort to be well grounded with financing efforts going forward.
PG&E has clearly demonstrated their willingness to participate with us in terms of planning internally as well as with other IOUs during the last year or so and we appreciate that and hope that has helped progress to continue. While the 2009-11 PG&E Application filings note PG&E will have OBF billing integration completed in 2009, emails we’ve received state 2Q 2009 as their specific target. Neither of these options seems be in compliance with Decision 07-10-032, the current schedule for the Commission ruling on the 2009-11 no earlier than April of 2009 may bring the latter choice within 60 days of reaching that target. We hope this is something PG&E will clarify in Reply Comments or other future filings with the Commission.
There are two other areas where we hope the Commission will support PG&E in moving forward in closer alignment with other CA IOUs.
The first involves OBF for taxpayer funded ratepayer or “Institutional OBF. Other IOUs either currently (SDG&E/SoCalGas), or beginning in 2009 (SCE) will likely offer OBF to Institutions using the “financing overlay” model where almost all incentive programs will offer OBF at 0% for up to 10 years and with loan amounts up to $250K per meter. As noted above, we believe Institutional OBF is one area where statewide consistency among IOUs would be very helpful, especially where state and federal projects are concerned. PG&E has instead chosen to begin exclusively with a focus on a finance approach aimed only at state buildings which has been suggested by CA Treasurer Lockyer’s office. We strongly agree there is significant potential merit in the Lockyer idea which aims to use bond money available in the near term to bundle projects with a minimum combined value of $5M each. The value we see here and for all IOUs is that the size of some state projects is very large and a number of projects could be above $100M which would strain even using ratepayer funds as the loan pool (see SDG&E OBF filing below). PG&E would not actually loan any funds using this plan but would act to serve as the collection mechanism using a line item on the utility bill where they would collect, report and disburse funds paid on each loan back to the state. We wish to state here our concern is in terms of time. SB-Cal called and discussed this opportunity at length with lead staff in Lockyer’s office. They noted support for the idea of working with PG&E as well as the minimum $5M size for bonded projects which require “bundling” by the state. We were not able to gain assurances that 2Q 2009 would be a reasonable timeframe within which to fully organize the project bundling process. At the same time, some OBF projects have already been completed on state properties in San Diego County. Noting the strong interest from Lockyer staff in investigating ALL potential avenues, especially where smaller facility manager driven state projects could more easily fit within the current OBF approach offered by SDG&E, we request the Commission ask PG&E to provide Institutional OBF in concert with the other IOU OBF program designs and to do so by 2Q 2009.
Commercial OBF, according to PG&E, will be addressed in sequence sometime in 2010 after the Lockyer approach is developed. We respect PG&E’s insistence that they want to succeed with OBF and are therefore making sure they gather all the information necessary to deliver that result. At the same time, we are aware of and have worked to
suggest to PG&E one Local Government Partner (LGP), and one Third Party (3P), implementer both of whom are already working with PG&E, are accepted for the 2009-11 cycle by PG&E and who both have expressed an interest in participating in an OBF pilot for small businesses. The LGP is located in an isolated area with few competing PG&E programs which may be ideal for a Pilot program approach. The 3P is willing to deploy perhaps a more challenging approach; using their existing small business delivery model in selected locations but with OBF and significantly lower incentives. Since this 3P normally offers onsite pre and post-inspections as well as many other quality assurance techniques in their current delivery model which should be very helpful in helping to avoid defaults, we believe this is an opportunity for PG&E to move ahead with OBF quickly in accordance with the plain language of Decision 07-10-032. Perhaps the unique advantage of this option is that it may help define the comparative cost-effectiveness parameters that PG&E called for including in the OBF language included in the AB32 ETAAC recommendations. We therefore request that the Commission require PG&E to investigate this or other compatible small business OBF pilot program approaches of their choosing and to implement a program to ratepayers no later than 2Q 2009.
We hope the in-depth research PG&E is conducting along with the continuing success of currently operating OBF programs in California and elsewhere will help to support PG&E’s willingness to implement OBF and we look forward to a continuing mutually supportive working relationship aimed at achieving success.
SCE
On November , 2004, Gene Rodrigues of SCE attended a meeting convened by then Commissioner Kennedy aide Brian Prusnek where all IOUs were represented and where we presented information about successful OBF programs, notably United Illuminating (UI), in CT. His immediate willingness to commit to a fact finding visit to that utility began a process that helped launch OBF programs in California where SCE is now very close to delivering the projected 3M kWh of savings they set as a target for their 2006-08 OBF Pilot Program. In fact, the SCE OBF effort, which is targeted at only small business ratepayers, managed to reach its goals within a shortened time frame beginning field
operations only in late 2007. SCE used an RFP approach choosing dedicated contractors. Refrigeration retrofit projects have contributed the bulk of the installations with lighting adding most of the rest. For 2009-11, SCE is offering application language suggesting they will align their program design with the SDG&E model to a significant degree, applying OBF as a “finance overlay” for other incentive programs. We have confirmation from a recent conversation with SCE the usage size limit for the small business portion will be up to 100 kW. This level may limit the success of their efforts and we suggest a higher kW limit may help include small businesses that are more energy intensive. As we’ve suggested above, and with knowledge that SCE personnel have been conferring with OBF managers in San Diego as well as reflecting on our own recent discussions with SCE, it seems the SCE Institutional OBF effort will closely align with the current SDG&E / SoCalGas approach. If our interpretation of the application language SCE provided regarding OBF holds true, we have every reason to believe SCE will match with their follow through the initiative demonstrated by Mr. Rodrigues back in 2004. We hope the Commission agrees and supports SCE in carrying out the full scale OBF enhancements they have requested funding to implement as soon as final applications are approved.
SDG&E
This Comment includes the 2009-11 Application language regarding OBF from each utility below. The SDG&E application has by far the highest OBF word count. However, the compilation we provide below does not include many SDG&E passages which repeat the inclusion of OBF as a financial tool for core, LGP and 3P programs. Sempra, which also includes SoCalGas, reflects the initial and continuing top level leadership support of OBF by weaving the strategy throughout their filings and we believe the application details speak for themselves. In fact, senior management made it clear to Mr. Spasaro from the beginning that OBF was not to be viewed as a pilot approach. Approved OBF projects for commercial and institutional ratepayers now approach the $2M mark. Early on, SDG&E realized the understanding of contractors about what OBF was and how to properly participate presented a significant challenge and began to arrange individual meetings with implementers to teach them the process. Now several contractors use OBF as their main sales tool. The list of contractors
interested in learning about and using OBF is growing. With that growth comes the part of the utility learning curve that addresses the need to make sure participating contractors are clear on the quality control issues that keep administrative headaches to a minimum and most importantly, minimize defaults. The need to develop trust based contractor relations combined with verification is considerably higher for OBF than with other program designs because On Bill Financing installations are simply not fully completed until the last loan payment is made by the ratepayer. This means savings to the ratepayer must be transparent and verifiable to the highest degree possible. Warranty based customer service by the contractor must be carried out properly. OBF contractors therefore do well by building customers not just sales. We believe this helps energy efficiency contractors grow in a more sustainable manner. When OBF contractors know that 0% financing is available, the ups and downs of various technology rebates aren’t the main driver for the sales force. The importance of customer referrals based on satisfaction is therefore more important and we believe that can help the energy efficiency “industry”, especially contractors addressing small to medium size businesses, mature and grow to be something that business owners and facility managers can view as an essential tool for managing operating costs.
There is one current OBF requirement that, if changed, several contractors have mentioned they believe would help OBF deliver a lot more installations. The $5000 minimum loan amount means that installations that do not meet that requirement cannot use OBF. We understand that the current exemption from the Corporations Board requires this minimum level of financing. Perhaps there may be an opportunity for SDG&E to establish a pilot program within the 2009-11 program timeframe where a $2000 minimum loan amount approach is assessed without breaching the current regulatory requirements.
We’ve had the closest continuous working relationship with SDG&E/SoCalGas in terms of OBF development, conferring since 2005 with Frank Spasaro, Taimen Tang, Jill McGhee and the rest of the OBF team throughout the process. There was a significant period of time up until late 2007 where Sempra was the only CA IOU with a program in the field and the learning curve was steep. Challenges remain but we appreciate the open approach they’ve taken in terms of communicating and sharing ideas with other CA IOUs
and we hope the Commission agrees. That willingness to lead was recently demonstrated during a meeting SB-Cal arranged with the federal Government Services Administration (GSA), where the Region 9 sustainability lead person offered strong interest in using OBF for SDG&E installations. Frank Spasaro attended that meeting and provided them with the answers they needed to plan for moving forward with Sempra. To the degree other IOUs pattern their Institutional OBF efforts to match the Sempra approach, this kind of outreach will likely help set the template for success across the state.
SB-Cal supports the Commission in approving the Sempra OBF planning and budgets for 2009-11 both for the programs themselves but also as an important component of the current strategic planning process.
Residential OBF
D. 07-10-032 directs the CA IOUs to conduct “an evaluation of the prospects for on-bill financing programs for residential customers” for the 2009-11 program cycle.
SB-Cal has requested the Commission support institutional OBF for taxpayer funded ratepayers as noted in D.07-10-032. We did that because as with small business OBF programs, we could point to both existing institutional OBF efforts as well as the obvious benefit of limited defaults in that area. Residential OBF may become an important part of utility customer financing efforts but until recently, we haven’t been able to point to residential OBF programs that combined long term success, mainly measured by a significant number of loans combined with few defaults. While pending research efforts will soon offer more details on residential OBF efforts with for instance, Manitoba Hydro offering one excellent example of a successful residential approach, significant barriers may exist in California making the development of this program model a challenge without more in-depth information on promising market strategies.
There are two other reasons that we’ve hesitated in asking the CPUC to support IOUs in developing residential OBF programs. We believe until there is more evidence CA IOUs have successfully mastered the deployment of commercial and institutional OBF, that attempting to add the distinct challenges of residential OBF development could tax utility resources to the detriment of all OBF programs. The second reason is AB811. This emergency legislation has passed the CA legislature and it means that all CA cities, not
just Charter cities can now roll out lien based “Berkeley” style financing for businesses and homeowners. Moreover, AB811 targets energy efficiency as well as renewable energy. The City of Palm Desert acted to advance AB811 in the legislature and is scheduled to vote to approve their program at the end of this month. If that proceeds as expected, the 200 applicant waiting list for that city will begin to accept and process applications.
We believe that both OBF and AB811 can now help Californians invest in energy efficiency and renewable energy like never before. We’ve had discussions with CARB regarding this and there may be reason to suggest that, as promised, AB32 will indeed drive positive economic development, in part, because energy efficiency and renewable energy investments return more dollars to the ratepayer than their cost Financing is one leveraging tool that can dramatically serve to enhance the scale of per capita participation we’ll need to reach the emissions reductions the AB32 calls for. Residential OBF may yet prove to be another valuable arrow in that quiver. For now, we ask the Commission to act quickly to support more in depth research of promising residential programs like Manitoba Hydro to assure there is a clear track towards success for a similar program design in California. At the same time, we urge the Commission to consider ways other cities in the state can quickly implement AB811 type financing. One starting point may be to ask representatives of Palm Desert, Berkeley and other cities interested in AB811 to participate in a workshop aimed at aligning utility incentives and marketing efforts towards this kind of energy efficiency and renewable energy financing approach. This may be a good opportunity to add demand response ‘kickers” as another driver to accelerate cities and property owners in those cities towards adopting AB811 programs, especially where transmission, peak load or other constraints are identified.
Using OBF Opportunities to Increase Workforce Development
We now suggest an approach for all utilities that may help to improve the chances for maximizing OBF installations, especially with institutional ratepayers.
While attending the GSA meeting and an earlier meeting we arranged with the CA Dept of General Services (DGS), with an eye towards seeing where hurdles needed to be addressed so both state and federal buildings in CA might take advantage of OBF to the
greatest degree possible, one issue for SB-Cal that we addressed is how to insure small to medium size contractors have the best possible chance to bid on institutional projects. GSA stepped up to suggest they would be happy to appear and provide assistance where utilities can gather OBF contractors. While there are challenges for smaller firms to get themselves “on the list”, this kind of assistance along with help from the Small Business Administration in the area bonding aggregation can also serve to grow the recognized professionalism for small to medium energy efficiency contractors. We hope a future opportunity may emerge where each utility might arrange all day contractor forums where the roles and responsibilities for participation in OBF opportunities would comprise the morning segment followed by sessions from GSA and DGE and perhaps county and city representatives offer sessions dedicated to helping contractors negotiate the steps needed to be included on the various lists used to request bids.
Summary
SB-Cal has worked to help develop OBF opportunities since 2004 through the regulatory process as well as working cooperatively with both IOUs and key stakeholders. Program Managers from other states with successful OBF programs have stepped forward to share their knowledge with CA IOUs. OBF installations are only complete when the last loan payment is made and therefore quality control is paramount. Top level utility support for OBF is a key driver towards success. California offers unique challenges for OBF that need to be addressed.
We request the Commission ask PG&E to provide Institutional OBF in concert with the other IOU OBF program designs and to do so by 2Q 2009. We request that the Commission require PG&E to investigate small business OBF pilot program approaches of their choosing and to implement a program to ratepayers no later than 2Q 2009.
SCE will offer OBF for small businesses up to 100 kW. This level may limit the success of their efforts and we suggest a higher kW limit may help include small businesses that are more energy intensive. SB-Cal supports the Commission in approving the Sempra OBF planning and budgets for 2009-11.
D. 07-10-032 directs the CA IOUs to conduct “an evaluation of the prospects for on-bill financing programs for residential customers” for the 2009-11 program cycle. While pending research efforts will soon offer more details on residential OBF efforts with for instance, Manitoba Hydro offering one excellent example of a successful residential approach, significant barriers may exist in California making the development of this program model a challenge without more in-depth information on promising market strategies.
We suggest an approach using OBF contractor contact opportunities to incorporate a small business workforce development strategy that may help to improve the chances for maximizing OBF installations, especially with institutional ratepayers.
Conclusion
SB-Cal appreciates the opportunity to offer these comments and looks forward to continued participation in the 2009-11 energy efficiency planning process.
August 28th, 2008
Respectfully Submitted,
HANK RYAN
By: /s/
HANK RYAN\
Hank Ryan
For Small Business California, a non-profit 501-c6 organization.
750
Capitola, CA 95010 Ave., #56
Tel: 510-459-9683
CERTIFICATE OF SERVICE
I certify that I have this day served the attached SMALL BUSINESS CALIFORNIA COMMENTS ON CA IOU 2009-11 PROGRAM APPLICATIONS
on August
, 2008 to all parties of record in this proceeding or their attorneys of record by electronic mail to those who provided electronic mail addresses, and by U.S. mail to those who did not provide email addresses.
Dated August 28th, 2008, at San Francisco, California.
Respectfully Submitted,
HANK RYAN
By: / s /
HANK RYAN
Hank Ryan
For Small Business California, a 501-c6 organization.
750 47 Avenue #56
Capitola, CA 95010
Tel: 510-459-9683
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Attachment 1
OBF related language in CPUC Decision 07-10-032
6.6. On-bill Financing
A June 27 ALJ Ruling asked parties to comment on the design, and costs and benefits of “on-bill financing” programs. “On-bill financing” programs allow customers to finance energy efficiency measures through their energy bills at low interest or no interest. In D.05-09-043 we directed the utilities to analyze on-bill financing as part of a larger effort to remove barriers to rapid deployment of energy efficiency measures. SCE, SDG&E, and SoCalGas have instituted pilot programs which are currently under evaluation in our EM&V process.
Parties’ Positions. SCE, SoCalGas and SDG&E have offered on-bill financing as part of their 2006-2008 programs. SDG&E and SoCalGas currently offer on-bill financing for non-owner occupied multi-family units, small businesses and local governments. SDG&E reports that its programs are increasingly successful and that it is optimistic about the potential for on-bill financing to achieve additional energy efficiency.84 SDG&E states that it is considering ways to expand the program to residential customers but has not yet determined whether California’s consumer lending laws present significant barriers. SCE reports that it also offers on-bill financing to small commercial customers as a pilot program. It states that before expanding this program it would need to assess the cost of loan defaults based on its pilot program and improve its customer billing system.
84 July 23, 2007, SDG&E Comments, p. 12.R.06-04-010 COM/DGX/jt2
D.05-09-043 observed that PG&E stated that it could not initiate an on-bill financing pilot because of limitations posed by its billing system. Here, PG&E expresses concerns that on-bill financing may present unacceptable risks to ratepayers who fund the program. It comments that large customers do not need access to financing and prior on-bill financing programs for small commercial customers have been too costly. PG&E believes on-bill financing opportunities for residential customers are very limited because of lending law restrictions and possible constraints in its billing system.
TURN, DRA and Small Business California support expanded use of on bill financing as a way to motivate energy efficiency investments by small companies. DRA states that on-bill financing is critical to realizing the market potential for energy efficiency investments.85 TURN would reduce funding for cash rebates in favor of on-bill financing and extend on-bill financing to residential customers. Small Business CA also advocates in favor of on-bill financing for small to medium sized businesses, observing that it would facilitate more comprehensive energy efficiency offerings by contractors. Conservation Services Group makes similar comments, noting the need for on-bill financing to promote investments in more efficient air conditioning equipment.
Discussion. On-bill financing allows entities who have limited access to financing to purchase energy efficiency measures provided by utility programs. While it may present some liabilities for ratepayers and additional program costs, more aggressive on-bill financing programs may eventually be cost effective and motivate investments that would not otherwise be made.
85 July 16, 2007, DRA Comments, p. 32. R.06-04-010 COM/DGX/jt2
We direct the utilities to create or continue on-bill financing pilot programs for small commercial customers. In addition, we agree with Small Business California that institutional customers, such as cities, counties and other taxpayer funded institutions may provide a low-risk opportunity to increase on-bill financing because such customers have a very low probability of defaulting on loans. We therefore direct PG&E, SDG&E, SoCalGas and SCE to propose on-bill financing programs for institutional customers for the 2009-2011 cycle and to continue to investigate programs for other sectors such as residential customers. In addition, we direct SDG&E and SCE to share the results of their
programs to date with Commission staff and other interested parties as part of the Strategic Plan and 2009-2011 portfolio development processes.
Findings of Fact
31. On-bill financing may promote cost-effective energy efficiency investments that may not otherwise be made.
32. Loans to government agencies are likely to present low risk of default.
33. SDG&E, SoCalGas and SCE have pilot on-bill financing programs for small business customers.
Conclusions of Law
25. The utilities should be ordered to create or continue on-bill financing pilot programs for small commercial customers, propose on-bill financing programs for government agencies and to assess the opportunities for on-bill financing programs for residential customers.
26. SCE, SoCalGas and SDG&E should be ordered to present evaluations of their respective on-bill financing programs as part of the strategic planning process.
INTERIM ORDER
IT IS ORDERED that:
11. SCE, SoCalGas and SDG&E shall present, as part of the strategic planning process, assessments of their respective on-bill financing pilot programs.
13. The utilities shall include in their applications for approval of 2009-2011 energy efficiency portfolios: (3) proposals for continuing or creating on-bill financing programs for small business customers and institutional customers, and an evaluation of the prospects for on-bill financing programs for residential customers, as set forth herein;
Attachment 2
2009-11 IOU OBF Program Application Language
PG&E 2009-11 OBF Related Language in the 2009-11Program Applications
Proposed Budget for 2009-11 – $24.96M
Specifically, by this Application and supporting Testimony, PG&E requests that the
Commission:
• Approve PG&E’s on-bill financing proposals;
• Order that IOUs can fully count energy efficiency savings that occur due to
PG&E’s on-bill financing activities or financing of energy efficiency through a
Utility Energy Service Contract (UESC);
E. PG&E’s 2009-2011 Portfolio Includes Plans for Reasonable On-Bill
Financing Proposals
PG&E’s on-bill financing (OBF) proposals will be designed to enable energy efficiency retrofit that may not otherwise be financially viable for eligible small commercial and institutional customers. D.07-10-032 ordered the IOUs to “create or to continue on-bill financing pilot programs for small commercial customers...;” to “propose on-bill financing programs for institutional customers [i.e., taxpayer funded institutions];” and “to continue to investigate programs for other sectors such as residential customers.” See pp. 89-90.
Consistent with this directive, for 2009-2011, PG&E is developing an OBF program for participation by state facilities (i.e., institutional customers). PG&E is also developing a pilot program for small commercial customers, and developing a plan for evaluation of an OBF program for residential customers in the future.
PG&E requests that the Commission explicitly clarify, in advance of 2009-2011 program EM&V activities, that energy efficiency savings that result from installations of energy efficiency measures purchased via on-bill financing, or other financing arrangements involving PG&E, will not be reduced or eliminated as free-ridership because the customer was motivated by the availability of financing. The Commission’s directive to offer OBF articulates that OBF will motivate customers to participate in energy efficiency programs where such customers would not otherwise have invested in energy efficiency. (See D.07-10-032, p.89.) To later disallow the savings that result from these financed energy efficiency investments, via the EM&V process, would be a perverse result. Accordingly, PG&E requests that the Commission order that energy savings that occur as a result of OBF or other financing offered or facilitated by PG&E7, will be fully counted and not discounted as free-ridership based on the financing motivation.
7 For example, PG&E may provide an on-bill line item for State Agency customers’ re-payment to the State of energy efficiency financing. Also, PG&E may facilitate energy efficiency financing for federal government agencies via a Utility Energy Service Contract.
c. Portfolio Includes Proposals for On-Bill Financing
The 2009-2011 EE Portfolio decision laid out several mandates relating to the financing of EE projects through on-bill mechanisms. Per the decision, PG&E’s required to:
1. Implement a program for institutional customers;
2. Pilot a program for small commercial customers; and
3. Perform an evaluation of the prospects for programs for residential customers.
PG&E is currently developing the billing functionality for line-item capability and will implement this functionality in 2009. This requires design changes to its customer billing system to allow monthly financing charges to be displayed, tracked and accounted for. PG&E is partially funding this effort using authorize energy efficiency funding from the 2006-2008 program cycle, with the remaining funding from the 2009-2011 program cycle. PG&E has estimated the additional Information Technology (IT) cost to implement OBF at approximately $6 million for 2009-2011. PG&E is requesting $4 million/annually in funding for offering or the buying down the interest of loans. The funding mechanisms for the OBF offering is not yet determined, and PG&E is considering all options including utilizing state revenue bonds for state facilities, partnering with financial institutions as third-party lenders, and leveraging EE program funds.
i. Proposal for Small Business and Institutional Customers– Include
Coordination With Efforts With Any Local Governments
The first planned phase of PG&E’s OBF effort will be a program for institutional customers. One program under consideration is a program under which the state of California would issue the bonds to finance viable energy efficiency retrofits or on-site renewable energy supplies that reduce the amount of energy used at specified state buildings. The design and installation services would be performed by contractors hired by the state agency responsible for the affected building or facility, or by the state agency itself. PG&E would provide the service of billing and collecting the costs of the retrofit from participating state agency buildings, and remitting payment back to the state of California. PG&E is developing the program details and IT functionality for line-item capability in preparation of offering the OBF program for institutional customers in 2009.
PG&E is currently conducting a customer needs assessment for institutional customers, which is scheduled to be completed by third quarter of 2008. PG&E's goal is to better understand customer needs within the institutional sector for OBF, and will design the program accordingly.
The second phase of the OBF program will be the development and implementation of a pilot program for small commercial customers. PG&E recently completed a benchmarking study on OBF programs in North America. PG&E identified 35 utilities with OBF programs and interviewed a total of 21 (17 IOUs, 1 municipal, 1 co-op and 2 wholesale) utilities. There were some consistent themes for current OBF programs which were considered successful according to the needs of that particular utility interviewed. For roughly 75 percent of the programs, financing was provided by the utilities, on-bill. Programs with low to near prime interest rates made up roughly 75 percent with almost 60 percent of the programs offering rebates/incentives in addition to financing.
Most successful programs started out small and focused on a customer segment with only one or two technologies financed. Overall, some of the indicators for programs that were either disbanded or are being phased out include 75 percent residential customers and bank funded with no rebate/incentive. Fifty percent of the utilities offered financing at over prime and 50 percent offered financing at prime.
As the benchmarking research suggests and similar to the institutional market, PG&E plans to conduct market research to better understand the needs of the segments within the small commercial market with hopes of creating a pilot program that has greater market penetration reaching customers who would not have participated in PG&E's energy efficiency programs without financial assistance. The research is scheduled to be completed in 2008. Upon completion, PG&E will design the OBF program for a customer segment within the small commercial market to launch by 2010.
ii. Proposal for Evaluation of On-Bill Financing Prospects for Residential Customers
Phase 3 of the OBF program will involve the evaluation of the residential market segment. After conducting market research focusing on institutional and small commercial customers, PG&E will evaluate the prospects of OBF for residential customers using a similar research methodology. PG&E will include in this research an
evaluation of the broader economic context, such as residential customer's debt load, ability to repay, effects of housing declines on credit worthiness and other factors which would affect the cost-effectiveness of an OBF program. PG&E plans to initiate this evaluation in 2009 and complete it by 2010. The goals of this research will be to:
1. Assess the level of interest for OBF with a focus on the overall potential of the program for residential customers;
2. Understand the drivers and barriers to participation for PG&E residential customers;
3. Collect behavioral data such as bill payment, bank relationship and associated financial experiences from PG&E residential customers;
4. Broadly classify the residential market into customer profiles segmented by indicators such as characteristics, lifestyles, values, behaviors and other differentiating qualities; and
5. Overall, gain a better understanding of the residential customer needs for OBF.
As currently envisioned, these objectives will require a qualitative research approach that will include one-on-one interviews, ethnographic observation and 6- to 8-person focus groups with PG&E residential customers. Residential customers will be recruited to represent the various segments of the residential market within the PG&E service territory.
Integration
The partnership team will also assist State agencies in efforts to employ other applicable utility programs. One reason the State has not taken advantage of IOU programs relates to the State’s budgetary constraints and spending approval processes. Feasible alternatives for funding such as the possibility of on-bill financing for small repair projects and equipment upgrades would assist the State in increasing energy efficiency.
SCE 2009-11 OBF Related Language in the 2009-11Program Applications
Proposed Budget for 2009-11 – 26.3M
5. Proposals For On-Bill Financing
a) Small Business and Institutional Customers
As guided by the CEESP, for 2009-2011, SCE proposes to build on the success of the On-Bill Financing (OBF) Pilot conducted during the 2006-2008 program cycle. In this
cycle, OBF was offered to qualified convenience store and small grocery store customers electing to participate in a direct install energy efficiency program. The pilot program required a minimum loan amount of $5,000 and a maximum loan term of five years.
The CEESP141 identified OBF as an option in many customer segments. Provided adequate eligibility standards and enforcement mechanisms are in place to limit risk to SCE’s ratepayers. SCE proposes to extend OBF as a financing option to qualified small commercial and institutional customers (including governmental) undertaking approved improvements.
141 California Energy Efficiency Strategic Plan, dated June 2, 2008, pp. 3-15 to 3-16, 5-16, and 12-7.
The On-Bill Financing Program (OBF) is a non-resource program that will offer zero interest financing for qualifying EE installations of lighting, refrigeration, and HVAC measures to commercial customers and governmental institutions. OBF will serve as a financing tool for participants. The 2009 - 11 OBF Program is a continuation of the 2006 - 08 pilot program although it no longer provides direct installations.OBF is a standardized non resource offering designed to be leveraged by multiple resource programs, rather than a targeted resource program as in 2006-2008. SCE proposes to offer an OBF financing option for the nonresidential retrofit energy efficiency programs under Business Incentive Elements (both calculated and itemized), as well as for many of the market segment programs implemented by third party contractors that will deliver calculated and itemized measures to specifically targeted market sub segments. OBF may become an important element in implementing the CEESP and deploying energy efficiency. The proposed 2009-2011 OBF program, an element of the Financial Solutions Element program, is a significant expansion of the 2006-2008 pilot with a proposed budget of approximately $26.3 million. In order to facilitate appropriate controls and tracking, SCE plans to set up a separate balancing account for the purpose of tracking the loans. However, all loans will be funded through energy efficiency funding, as set out in this Application. The operation of this account is
described more fully in Chapter VII, Revenue Requirements and Cost Recovery.
b) Proposal For On-Bill Financing For Residential Customers
In response to D.07-10-032 to further investigate the possibility of offering on-bill
financing to residential customers,142 SCE intends to conduct its investigation in collaboration with the other IOUs. At this time, SCE does not offer OBF loans to residential customers. Our initial investigation of the hurdles facing residential OBF includes:
• High-cost residential energy efficiency measures requiring financing have very long payback periods that are unlikely to meet the project payback limit required for OBF loans. Loans with a long payback are likely to increase the risk of defaults. For example, purchase of a four-ton 14- SEER unit in an average climate zone (zone 9) would cost $7,274 (after rebates), with a payback period of 55 years.
142 D.07-10-032, dated October 18, 2007, OP# 13, p. 144.
• SCE’s OBF loans are non-transferable and have to be paid in full at the time of account termination. These requirements have been put in place to reduce loan defaults and minimize administration costs. Since residential OBF loans are likely to have long paybacks, it is also likely that residential customers with such loans will not complete their monthly payments at the time of moving. The financial burden created by the necessity to pay the remaining loan balance in full at the time of moving may negate the
intended benefits of OBF, and make the program less attractive to residential customers.
• In California, residential financing has more involved lending laws than commercial lending laws. To comply with these California lending laws, there would be an additional administrative, reporting, and compliance cost that would further add to program costs and may need to be passed on to the customers. For example, SCE may be subject to obtaining a commercial lender license that requires a very large annual license fee and a bond. Currently, SCE has a finance lender license exemption for issuing commercial loans under Financial Code Section 22100 of the California Finance Lenders Law; a similar exemption would need to be obtained for residential consumer loans.
D. On-Bill Financing (OBF) Balancing Account
In compliance with D.07-10-032, SCE will continue the 2006-2008 OBF Pilot program as a part of the 2009-2011 procurement energy efficiency program. Advice Letter 2066-E, established the 2006-2008 pilot program, effective December 30, 2006. SCE
established the OBF loan program initially by funding the OBF loans from SCE’s working cash. SCE currently records the OBF Pilot Program expenses in the PEEBA.
As discussed in Chapter IV, the Commission in D.07-10-032170 requires SCE to continue to expand the OBF pilot program, increasing the customer base to include institutional customers. 170 D.07-10-032, Ordering Paragraph 13.
In order to continue the expansion of this program, SCE proposes to create a new interest bearing balancing account to “upfront” fund the OBF loans, tracking the OBF authorized funding revenue (i.e., requested in this proceeding) for the loans, actual loan disbursements and actual OBF loan repayments. SCE has included $20 million in energy efficiency funding requested in this proceeding over the 2009 through 2011 period to fund the loan portion of the program. SCE is requesting to begin to recover program funds through the Public Purpose Program Charge for use as the principal to fund loans to participating customers. The OBF Balancing Account will track only OBF loans and the repayments on all OBF loans. All other program expenses such as incentives, administrative expenses, and loan defaults will continue to be recorded in the Procurement Energy Efficiency Balancing Account. Upon approval to establish the OBF Balancing Account, SCE proposes to transfer the remaining loan balances from the
2006 - 2008 OBF pilot program from the PEEBA to the OBF Balancing Account.
XIV. Barriers and Solutions to Overcoming Barriers
Expanding the On-Bill Financing Program, which offers unique benefits to government departments by allowing them to retain rebates and cost savings from EE projects without having to upstream these financial benefits to the General Fund.
This triggers and expedites EE project adoption;
Availability of On-Bill Financing and EE Loan programs will provide customers with a great ability to consider both low and higher cost measures as part of a comprehensive EE project; The On-Bill Financing (OBF) Program
The On-Bill Financing Program (OBF) is a non-resource program that will offer zero interest financing for qualifying EE installations of lighting, refrigeration, and HVAC measures to commercial customers and governmental institutions. OBF will serve as a financing tool for participants. The 2009-11 OBF Program is a continuation of the 2006
- 08 pilot program, although it no longer provides direct installations.
Additionally, because the other IOUs plan to offer On-Bill Financing for the 2009 - 11 program cycle, SCE will coordinate with them to make program offerings similar, especially in areas where coverage overlaps.
The On-Bill Financing (OBF) Program
The CPUC directed that utility energy efficiency proposals should include on-bill financing as one of a variety of “promising options” to accelerate the penetration of energy efficiency measures. In response to this ruling, during the 2006-08 funding cycle,
SCE piloted an on-bill financing approach in a direct installation program for convenience and small grocery stores. Additionally, as part of the CEESP, FSE will explore expanding OBF to other DSM programs.
The OBF approach has the potential advantage of boosting EE program participation
levels by spreading dollars further, allowing replacement of more expensive equipment, and providing individual government departments’ new means of funding their EE capital projects.
Each program in the Financial Solutions Element will be implemented as follows.
The On-Bill Financing (OBF) Program
Much of OBF’s infrastructure has already been created through the 2006 - 08 pilot program. Thus, program ramp-up time will be brief. The process of billing and updating accounts will be close to being fully automated (in the billing system) by the start of the
2009 - 11 program cycle.
The program will maintain a financial account to provide funds for the portion of a project to be financed. On a monthly basis, customer payments towards the financed amount will be credited back to this account and reissued to other customers needing loans. Historically, the default rates of on-bill financing for business customers by other utilities have trended lower than the rates of normal loans. However, defaulted loans will be debited from ratepayer funds.
OBF will coordinate marketing efforts, including the distribution of materials, with other SCE Programs. Interested customers will be pre-qualified based on eligibility criteria and customer payment history. In addition:
• A strict quality control procedure will be established to make sure that the projects receiving on-bill financing are indeed capable of producing energy savings in the amount
anticipated. As part of the quality assurance process, the program may leverage a commercial audit as a pre-screening tool to ensure the reliability of savings. ( A “Market Marker” refers to an objective 3rd Party reference point (the financial investment community).
This “Market Marker” provides important additional informed evaluation of the credit-worthiness of Energy Efficiency projects and the appetite for third-party financing of these projects.
• When appropriate, OBF may consider bill neutrality. Bill neutrality is when monthly installment payments are equal to the monthly savings for the measures financed.
The duration and maximum amount of a loan may vary depending on the customer segment. SCE intends to coordinate with other IOUs to ensure that SCE's loan terms are similar to the terms they offer.
SDG&E 2009-11 OBF Related Language in the 2009-11Program Applications
OBF Language from Initial Testimony
2009-11 Budget - $9M (loan pool only)
• Our successful On-Bill financing program is being updated to make it even more attractive to small commercial and institutional customers by increasing the cap on loan value and lengthening the minimum pay-back period.
• The Governor’s Green Building Initiative set a goal of achieving 20% reduction in energy use in state buildings by 2015. SDG&E has been actively working with state agencies to achieve this goal but the progress has been slow due to financing and project planning hurdles. SDG&E has also expanded its On-Bill Financing program to offer up to $250,000 financing over 10 years to institutional customers to help address the financing hurdle and it has proposed the Green Energy Systems utility ownership option for major HVAC systems that are typical for many state buildings.
• We propose to increase the funding cap and repayment period for our On-Bill Financing to make it more attractive to a larger population of customers.
• Our integrated audits provide EE and DR recommendations in a coordinated package to increase their value to customers and our On-Bill Financing program can assist in the funding of the recommended projects.
4. Agricultural
SDG&E does not have a large agricultural customer segment but our programs appropriately support the Strategic Plan Vision for this segment. Our On-Bill Financing program has been expanded and will better match the financing needs of this segment.
C. On-Bill Financing and Other Financing Opportunities
The CEESP cites leveraging various financing opportunities in order to stimulate and expand investments in energy efficiency.25 SDG&E has been promoting financing options to its residential multi-family and selected commercial customer groups through its 2006-2008 On-Bill Financing (“OBF”) program. This program has had measurable success in 2006-2008 and with the information provided by evaluation results, SDG&E is proposing modifications to its OBF Program in 2009-2011 to improve program design and encourage more customers to participate.
SDG&E is also proposing changes to the funding mechanism.
Contractors have been the primary channel for customer participation and coordinating measure installation represents the most complicated process for the customer. The contractors using OBF as a financing tool, provided feedback on program requirements which SDG&E used to continually streamline the procedures to increase both contractor and customer participation.
Key accomplishments of OBF include:
• Completion of billing system to allow for monthly billing of loan charges
• Completed payment of projects to participating installation contractors
• Completed Contractor Kick-off meeting to introduce On Bill Financing
• Internal policies and procedures completed
• Successful On Bill Financing collaboration with Small Business Super Saver, Express Efficiency, and Energy Bid Programs
• 100% Inspection pass rate
• No loan defaults to date
• Successfully installed, financed and billed approximately 20 Institutional (taxpayer funded) sites
• Program Participation Statistics:
98 projects in financing process
$1,425,000 – Installed and completed
$341,490 – Approved from financing pending installation
35% taxpayer-funded customers
65% commercial business customers
3. Lessons Learned From the Implementation Phase
This program cycle provided SDG&E with the following key lessons:
• Customers who are aware of and qualify for On Bill Financing have been very eager to take advantage of the interest free financing to help with their capital constraints.
• Contractors who market OBF require additional training and guidance to navigate the financing requirements and process.
• Customers prefer to use a list of pre-approved Contractors who market energy efficiency programs.
• Contractors who market utility programs should be required (in writing) to maintain a high level of customer service, accuracy and timeliness.
• On-Bill Financing requires on-going collaboration with internal departments including: IT, Billing, Accounting, Technical Services, Incentive and Rebate programs as well as Customer Services.
• Coordination with Local Government Partnerships is key to driving energy efficient upgrades within institutional customer sites
4. EM&V—Process Evaluation Results
D.07-10-032 OP 11 states, “SCE, SoCalGas and SDG&E shall present, as part of the strategic planning process, assessments of their respective on-bill financing pilot programs.” A formal EM&V “process evaluation”29 of SDG&E’s OBF program was conducted early in the implementation of the program. While the conclusions of this study were based on few participants, the study results and program recommendations from the study, and subsequent actions taken, are summarized below.
SDG&E recently expanded project eligibility for institutional customers during 2006-2008 program cycle to help ease financial and time constraints that frequently delay equipment installation. KEMA Process Evaluation of SDG&E’s 2006-2008 Non-Residential Energy Efficiency Programs, available on
http://calmac.org/publications/SDGE_FINAL_Report_-_Volume_I_of_III.pdf
• In general, it appears OBF customers are satisfied with their participation in the program. Customers interviewed did not issue any complaints with the OBF program.
Their expectations were met concerning several topics with respect to the loan payback period, program measure offering and program staff. Customers realized they could not easily find a zero percent financing program from another source.
• Hidden fees can create out of pocket expenses for customers. Some contractors are charging various clean up and disposal fees to OBF participants. In the event of an additional fee, customers do not have a clear mechanism to adjust their loan by the amount of the additional cost.
Action taken: SDG&E’s on-going training and vendor participation guidelines have addressed this issue and customers are made aware that all costs should be included in the loan agreement at the time of signing.
• Contractors are an important factor in convincing participants to enroll in the OBF program. The results of the in-depth interviews show that contractors have considerable influence on customer decisions.
Action Taken: While vendors are not under contract with SDG&E, vendors are required to sign a vendor agreement in order to participate in On-Bill Financing. OBF representatives verify the customers’ vendors prior to signing loan agreements.
• Skepticism exists around real vs. stated energy savings. Many small businesses are concerned about the accuracy of stated energy efficiency savings. Coupled with economic barriers, implementation of energy efficiency measures can be challenging at the very least. Convincing uncertain customers about the future benefits of energy efficient technologies and practices is still a challenge for the OBF program.
Action Taken: OBF representatives calculate projects based on pre-inspections and the scope of work submitted by vendors on the customer behalf. The entire project scope and
summary is then shared with the customer and the vendor prior to signing the loan agreement.
The following are recommendations presented in the study:
• Establish and publish an approved contractor list. Providing an approved contractor list will increase the accountability of contractors with the OBF program and encourage contractors to perform quality installations. OBF should list only the most qualified contractors with a proven track record of success.
Action Taken: SDG&E has developed a mandatory vendor agreement specific to vendors who market and participate in On-Bill Financing. Vendors must agree to standards ,milestones, and quality installations.
• Recommend customer-contractor inventories immediately after measure installations. To protect against simple contractor oversight and to aid the verification of measure installation, customer should conduct a thorough post-installation inspection of their equipment alongside the contractor. This ensures that the equipment and the agreed upon equipment totals, especially for lighting, are correctly installed. The post-inspection will also aid in identifying equipment problems as early as possible.
Action Taken: Due to bill impacts of OBF projects, all sites are pre- and post-inspected.
SDG&E Quality Assurance inspectors expedite post-installation site inspections. All payments (rebate/incentive/project) are withheld pending a thorough accounting of measures and hours of operation.
• Provide information on helping contractors market non-energy benefits.
Highlighting the additional advantages of energy efficiency beyond cost at the point of sale can weigh heavily on a customer’s purchasing decision. This can include environmental benefits, reduced wear and tear, avoidance of health violations, increased quality of air, improved light color and temperature, lower maintenance costs, improved worker productivity, and taking advantage of a zero percent financing before the efficiency upgrade becomes a code and out of pocket expense.
Action Taken: SDG&E will include in collateral materials information regarding non4 energy benefits.
• Consider extending the five-year loan payback requirement. The five-year loan payback requirement is crowding out OBF participation for non-lighting projects.
Program participation is substantially lower than previously forecasted. When project payback periods exceed the five-year maximum under OBF, customers have no choice but to go with the Express Efficiency program only or not install energy efficient measures at all.
Action Taken: Through this Application, SDG&E is requesting to raise loan maximums to $250,000 and extending loan terms to 10 years or useful measure life for institutional customers only for the 2009-2011 program cycle.
5. Investigation of Other Financing Strategies
SDG&E investigated other program strategies statewide and energy efficiency financing programs in the New England area. While program offerings and concepts are relatively consistent, eligible customers, loan funding sources and processes vary somewhat across programs.
Key successful strategies include:
• Interest-free or low interest loans
• Managing default for ratepayers by:
󲐀 performing credit checks (or payments history with utility)
󲐀 Allowing only low-risk customers to qualify (municipalities, etc.)
󲐀 Aiming for bill-neutrality
󲐀 Non-transferable loans
• Reducing administrative burden by maintaining a loan minimum
6. Proposed Program Changes
OBF provides interest-free, unsecured, on-the-utility-bill financing for purchase and installation of qualified energy efficiency measures offered through various rebate/incentive programs offered by the Utility. Currently, OBF contains the following guidelines:
• 10% reduction of rebate/incentive;
• Loan amount: $5,000 to $50,000 per meter;
• Five-year maximum loan term;
• Up to $5 Million of loan funds from utility working cash available during 2006—2008;
SDG&E is proposing the following specific changes to the 2009-2011 OBF program: (To support the proposed program changes, SDG&E proposes to revise Rule No. 40 On-Bill
Financing Program to delete the stipulation that rebates/incentives will be reduced for OBF participants. This revision will be submitted within 30 days of CPUC approval of this proposal.)
(1) Reduced Rebate: SDG&E proposes to eliminate the reduced rebate requirement for comprehensive projects (e.g., lighting-only projects will continue to be discounted, unless additional measures are included)
(2) Loan Cap: SDG&E is proposing to raise the loan cap from the current $50,000 to $250,000 for “Taxpayer-funded Institutional Customers,” and to increase the loan maximum to $100,000 per meter for all other qualifying business and multi-family owner customers. Higher loan ceilings could better accommodate more comprehensive projects per meter; however, it could also increase size of potential defaults. Since it is not likely for taxpayer-funded Institution Customers to default, SDG&E believes that a higher loan ceiling and longer payback periods than other customers are appropriate.
The longer payback period would likely increase maintenance cost per loan, however, more comprehensive energy efficiency projects may take place in government facilities as a result. SDG&E will carefully monitor and analyze actual defaults as they occur and make any necessary modifications to minimize default while still encouraging comprehensiveness.
(3) Loan Term: SDG&E is proposing to increase the maximum loan term to 10 years, or the useful life of the measure (whichever is shorter), for Taxpayer-funded Institutional Customers only. The maximum loan term of five years for all other qualifying customers will be retained.
(4) Loan Pool: SDG&E proposes to create a new two-way balancing account for the loan pool, funded at $9 Million from a refundable non-Public Purpose Program funds. For the 2006-2008 program cycle, the loan pool funding was borrowed from SDG&E’s working cash as a way to jump-start the program. Now that SDG&E has a better sense of the loan funds needed to support the program, SDG&E proposes to establish a ratepayer-funded loan pool to meet the anticipated demands during 2009-2011. Once established, this loan pool is expected to be sustainable, as the loan repayments will be recycled to fund additional loans (i.e., a “revolving” fund). Also, at the beginning of 2009, as part of the
efforts to transition OBF loan pool from utility working cash to ratepayer funding, SDG&E intends to transfer the remaining loan balances of existing loans to the newly created ratepayer-funded loan pool. SDG&E requests $9 million for this loan pool: $1.5 million to account for transition from utility working cash to ratepayer funding at beginning of 2009 and $2.5 Million each year over the three years from 2009 to 2011. No loan cap is proposed for this loan pool as SDG&E believes that OBF is contributing to a cost effective portfolio by providing positive support to energy efficiency rebate/incentive programs and should be allowed to grow as needed. This will create a sustainable loan pool with non-Public Purpose Program ratepayer funds since the loans are intended to be paid back and (minus defaults), the loan pool should not be a “cost” to the EE programs. Loan defaults, on the other hand, are costs to the program and will be charged to PPP funds with corresponding credits to the loan pool through accounting entries as they occur. To track the loan pool funding, SDG&E proposes to establish the On-Bill Financing Balancing Account (OBFBA). The OBFBA is an interest bearing, two-way balancing account, which will track the difference between ratepayer funding and actual loans provided to customers participating in SDG&E’s OBF program. The two-way balancing account will afford SDG&E the flexibility it needs to ensure the loan program will adhere to the requirements of its commercial lender's license exemption. If approved, SDG&E would file a Compliance Advice Letter within 90 days of the effective date of the decision on this program to establish the OBFBA. Cost of loan defaults will be charged to Post-2005 Gas Energy Efficiency Balancing Account (“PGEEBA”), Post-1997 Electric Energy Efficiency Balancing Account (“PEEEBA”), or Advanced Metering and Demand Response Memorandum Account (“AMDRMA”) respectively depending on the type of projects funded by the defaulting loan.. The authorized funding will be collected through gas transportation/electric distribution rates and allocated to customers based on Equal Percent of Base Revenue (“EPBR”) for SDG&E gas, and a System Average percentage Change (“SAPC”) methodology for SDG&E electric. The balance in the OBFBA will be amortized as necessary to recover any under-collections associated with actual loan funding above the authorized annual funding requirements embedded in rates in connection with SDG&E’s annual regulatory account balance update filing for gas transportation/electric distribution rates effective January 1 of the following year.
After repayment of all loans and termination of the On-Bill Financing Program, the disposition of the over-collection balance in the OBFBA will be refunded to ratepayers in connection with SDG&E's annual regulatory account balance update filing or address the balance in the SDG&E's next energy efficiency proceeding.
7. Residential Financing Opportunities
D.07-10-032 Conclusion of Law 25 states, “…The Utilities should … to assess the opportunities for on-bill financing program for residential customers.” First, it is important to note that SDG&E does offer OBF to certain multi-family (“MF”) residential customers (i.e., MF owners who do not reside on premise). While this is certainly a limited portion of the residential market, SDG&E was hoping this would allow it to preliminarily gauge residential demand for OBF.31 Spasaro testimony, A. 05-06-011, page 10.
So far, no inroads have been made into this market segment. Nonetheless, SDG&E will continue to offer OBF to this customer segment, and include the multi-family market segment in its continuing investigation of residential financing options.
Second, consumer/residential financing has more involved lending laws than commercial,
which appear to be an administrative burden to comply with, including: lending law timelines, Fair Credit Reporting Act, loan statement format requirements versus utility bill design, Truth in Lending Act, Fair Debt Collection Act, Safeguards Rule, and loan repayment terms. The extensive reporting, disclosure, and compliance requirements associated with consumer debt potentially increases program administration costs.
Third, offering OBF more broadly to the residential market raises certain issues.
Residential energy efficiency project payback periods tend to be very long and not likely to meet the project payback limit required for OBF loans. Increasing the payback period requirement to allow more projects to qualify could result in risky loans, as the risk of defaults increases with longer loan terms.
Another potential issue for residential markets is the non-transferability of OBF loans. This is another program requirement intended to reduce defaults, and minimize administration costs, as the utility has no credit or payment information on the new owner of the financed equipment. In addition, the alternative of requiring the loan to be paid in full upon moving could very well counteract the benefit of the “no upfront capital cost” and make the program less appealing to residential customers. Furthermore, it could even
increase default rates, especially in a down real estate market where many people are forced to move due to inability to meet mortgage obligations. SDG&E believes that controlling defaults is especially important in the residential markets based on results of other utility residential financing programs, some with default rates up to 20%.
While SDG&E is subject to the commercial versions of those laws, they appear to be less onerous than the consumer lending laws. The Department of Corporations in its Release 60-FS (“Release”), issued on 7/14/2006, determined that the investor-owned utilities are not “engaged in the business” of a finance lender or broker under Financial Code Section 22100 of the California Finance Lenders Law (“CFLL”) when making commercial loans under the conditions described in the Release.32 Therefore, the IOUs are not required to obtain a finance lender or broker license under the CFLL when engaged in these financing activities “for energy efficiency purposes.” Without this commercial lender license exemption from the Department of Corporation, SDG&E may have been subject to a potentially large annual license fee (and a bond). The Release specifically noted that it did not apply to consumer lending.
The above considerations are related to SDG&E’s opportunities to being a financial lender for the residential segment (The Release sets specific limitations to lenders, borrowers, and loans with respect to financing programs offered by the public utilities. As stated on page 2 of the Release, the exemption is specific to commercial, non-residential customers including governmental agencies and owners of residential multi-family units who do not live on the premises and that loans are not to be used for personal, family or household purposes.)
However, SDG&E promotes other types of financing for residential customers. SDG&E is one of the major sponsors of “The Energy Loan”, a Fannie Mae special product developed to provide homeowners with an unsecured finance option for specified energy efficient home improvements. This program is administered by Viewtech, an experienced lender with utility-sponsored programs in the nation and has been instrumental in the development of contractor quality control standards and processes; developing unique and proprietary quality control techniques specific for service-conscious utilities. Additional information on this program can be found at http://www.energyloans.org/main.htm. SDG&E will continue to include multifamily
housing in its OBF offering and will continue to investigate financing programs for residential markets. Two main options are being considered and evaluated:
• AB 811: This legislation would allow cities to use the property tax bill and “assessment districts” to create a way for property owners to finance qualifying energy efficiency and photovoltaic equipment (via the California Solar Initiative program). SDG&E strongly supports AB811 as a way to more broadly finance energy efficiency equipment, and plans to promote it after it is signed into law.
• Partnering with a bank/ financial institution: SDG&E is researching the possibility of partnering with banks or other funding institutions to offer energy efficiency financing to residential customers. Partners may help to minimize utility risk and lower transaction costs while offering financing options to customers and projects outside SDG&E’s current commercial lender license exemption from the Department of Corporations.
8. Additional Financing Options
a. CEC’s Energy Efficiency Financing Program
In additional to SDG&E’s activities above, SDG&E will also work with customers to take advantage of the CEC’s Energy Efficiency Financing Program provides financing for schools, hospitals and local governments through low-interest loans for feasibility studies and the installation of energy-saving measures.
b. Issuing “Energy Efficiency” Bonds
As noted above, if AB 811 is signed into law by the Governor, it would allow cities to use the property tax bill to create a way for property owners to finance qualifying energy efficiency and photovoltaic equipment (via the California Solar Initiative program). AB 811 was initiated by the City of Palm Desert as a way to help achieve the ambitious energy savings goals of the Palm Desert Demonstration Partnership program (with SoCalGas and SCE). SDG&E strongly supports AB811 as a way to more broadly finance energy efficiency equipment, and plans to promote it with other cities after it is signed into law. Once approved, cities would offer bonds though “assessment districts” (the source of the loan funds), and then offer their constituents low-interest loans that could be paid back on their property tax bills. The key target market would be residential property owners. While these bonds/loans would be available to solar PV equipment, it would be SDG&E’s intent to focus on energy efficiency measures in support of SDG&E’s goals.
The On-Bill Financing option is designed primarily to facilitate the purchase and installation of comprehensive, qualified energy efficiency measures by customers who might not otherwise be able to act given capital constraints and/or administrative and time burdens. It is designed to build on the success of the 2006-2008 program cycle offering.
SDG&E proposes to establish a $9 million sustainable loan pool from non-PGC ratepayer funds to fund loans during 2009, 2010 and 2011. Participating customers who install comprehensive projects to address all feasible end uses will be eligible to receive a full rebate or incentive from the participating rebate/incentive program(s) and to finance the balance of comprehensive, qualified energy efficiency and demand response measures. Lighting-only projects will receive a reduced rebate from the rebate or incentive programs. Loan is not transferable. Partial or non-payment of loan could result in shut-off of utility service and turned over for collection.1
On-Bill Financing - Program Features
 Interest-free, unsecured loans
 Non-Institutional customers3: loans offered per meter from $5,000-$100,000 with a maximum five year loan term (3 Non-Taxpayer-funded non-residential customers and owners of multifamily units who do not reside on the premises)
 Institutional4 customers: loans offered per meter from $5,000- $250,000, with a maximum loan term of ten years or useful life of measure(s) (whichever is shorter)( 4 Tax-payer funded government institutions)
 Monthly payment on a term loan will be billed on the participating customer’s utility bill.
 No penalty for early repayment
On-Bill Financing - Project Eligibility
 Non-residential customers (including institutional customers) and owners of multifamily units who do not live on the premises.
 Must have continuous utility service with SDG&E for at least the 24 immediately preceding months in the same business and with a minimum of 12 months of energy
usage history at the current site.
 Must have received no disconnect notices in last 12 months and have no deposit on
hand or pending.
 Measures and/or equipment must be installed at the meter of the account holder of
record in which the loan is being made.
 Project must meet terms and conditions of one or more rebate/incentive programs
offered through the Utility
 Project must meet “simple payback” criterion
 Actual energy savings are used to calculate payback period
 Loan term is tied to the payback period
 Maximum loan term for tax payer–based Institutions is 10 years; for all other projects is 5 years.
In accordance with the California Energy Efficiency Strategic Plan, the On-Bill
Financing option will increase comprehensive participation in energy efficiency programs across sectors and local government partnerships, while addressing untapped energy efficiency potential. OBF will focus on quality audits and installations to address all feasible end-uses. Furthermore, Institutional entities that may have limited participation traditionally in energy efficiency programs due to capital constraints and long budget cycles will be targeted for energy efficiency measures and financing.
Proponents advocating for the inclusion of on-bill financing options in overall utility portfolios argue that the availability of this type of program allows more customers to participate in energy efficiency programs.
(Most TP, LGP and SDG&E Core programs include OBF as a financing option as the example below demonstrates – SB-Cal has NOT included every example in the SDG&E filing so as to keep this document at a reasonable length. )
Balboa Park Energy Efficiency Program
Balboa Park is the nation's largest urban cultural park, and is home to 15 major museums, renowned performing arts venues, and the world famous San Diego Zoo. Originally defined by two grand "World's Fairs" (1915-1916 and 1935-1936), the Park now has more than 3.5 million visitors annually. Most of the institutions in Balboa Park lease their buildings from the City of San Diego, and many have antiquated lighting and Heating Ventilation and Air-Conditioning (HVAC) systems. This program would provide technical assistance and project management guidance for all of the institutions in Balboa
Park to upgrade their existing lighting and HVAC systems. The SDG&E On-Bill-Financing program will be an integral part of the financial success of this project. The Balboa Park Cultural Partnership (BPCP) has stepped forward to help coordinate energy efficiency activities. The City will leverage outreach with the institutions and work with the BPCP to assist with the technical aspects of the energy efficiency upgrades. This program would interact with all City departments that are responsible for facilities maintenance. As these energy efficiency measures are implemented, the self sustaining marketing of the improvements will promote energy efficiency throughout Balboa Park.
On-Bill Financing - Program Features:
o Interest-free, unsecured loans
o Non-Institutional customers3: loans offered per meter from
$5,000-$100,000 with a maximum five year loan term
1 Per Rule No. 40 On-Bill Financing Program
2 Proposed new features including maximum and minimum loan amounts and loan term are tentative - pending approval
3 Non-Taxpayer-funded non-residential customers and owners of multifamily units who do not reside on the premises
o Institutional4 customers: loans offered per meter from $5,000- $250,000, with a maximum loan term of ten years or useful life of measure(s) (whichever is shorter)
o Monthly payment on a term loan will be billed on the participating customer’s utility bill.
o No penalty for early repayment
On-Bill Financing - Project Eligibility
o Non-residential customers (including institutional customers) and owners of multifamily units who do not live on the premises.
o Must have continuous utility service with SDG&E for at least the 24 immediately preceding months in the same business and with a minimum of 12 months of energy usage history at the current site.
o Must have received no disconnect notices in last 12 months and have no deposit on hand or pending.
o Measures and/or equipment must be installed at the meter of the account holder of record in which the loan is being made.
o Project must meet terms and conditions of one or more rebate/incentive programs offered through the Utility
o Project must meet “simple payback” criterion
o Actual energy savings are used to calculate payback period
o Loan term is tied to the payback period
o Maximum loan term for tax payer–based Institutions is 10 years; for all other projects is 5 years.
SoCalGas 2009-11 OBF Related Language in the 2009-11Program Applications
2009-11 Budget - $TBD
(Much of the language in the SDG&E filing is repeated in the SoCalGas filing and is not included for that reason)
The CEESP cites leveraging various financing opportunities in order to stimulate and expand investments in energy efficiency.21 SoCalGas has been promoting financing options to its residential multi-family and selected commercial customer groups through its 2006-2008 On-Bill Financing (“OBF”) program. This program has been successful implemented in 2006-2008 and with the experience gained as well as the information provided by study results of other successful OBF programs, SoCalGas is proposing modifications to its OBF Program in 2009-2011 to improve program design an encourage more customers to participate. SoCalGas is also proposing changes to the funding mechanism. Additionally SoCalGas is exploring other financing opportunities including potentially partnering with financial institutions to increase financial assistance to customers, especially hard-to-reach customers.
PY 2006-2008 OBF Program
SoCalGas proposed a robust OBF pilot effort for the 2006-2008 program cycle, which was approved by the Commission in D.05-09-043. The OBF pilot was originally envisioned to be implemented in two phases: Phase I was intended to be a two-year effort covering the initial development of the program, including making changes to the billing systems, creating marketing materials and efforts, and rolling out the program. Phase II
21 California Energy Efficiency Strategic Plan, June 2, 2008, page 3-8.
was envisioned as a proposal for the “next generation” of OBF that would be based on the learning experience of Phase I.22 Phase II was intended to address:
• Program participation & Incremental Energy Savings Achieved
• Customer acceptance & Overcoming Market Barriers
• Program design criteria
• Key Accomplishments & Lessons Learned
• Proposed Program Changes
• Assess Risks/Issues for Next Generation Program
• Determination of Level and Source for a Future Loan Pool
• Investigation of other program strategies
Due to unforeseen issues that occurred during the development and “beta” testing periods, SoCalGas requested and received approval for an extension of Phase I until the end of 2008.23 Additionally, that extension deferred the Phase II “proposal” to be included as part of the 2009-2011 program filing (contained herein).
22 Spasaro Testimony, A.05-06-011, page 6. 23 Advice Letter 3753, effective 7/13/07.
2006-2008 Program Summary and Results
The OBF Program Phase I included using a manual system and fine-tuning of the program’s operational requirements. The automated billing process was developed concurrently. SoCalGas met this program’s milestones. Most notable, the automated billing system was operational in September 2007. This success was due to the commitment of several internal SoCalGas departments, Billing, IT, Accounting, Customer Services, Technical Services, and Customer Programs to provide a fully functional OBF process and system. Account Executives have been the primary channel for customer participation and coordinating measure installation. The Account Executives and customers provided feedback on program requirements which SoCalGas used to continually streamline the procedures to increase both customer satisfaction and participation. Key accomplishments of OBF include:
• Completion of billing system to allow for monthly billing of loan charges
• Internal policies and procedures completed
• Successful On Bill Financing collaboration with Express Efficiency and Business Energy Efficiency Programs
• 100% Inspection pass rate
• No loan defaults to date
• Successfully installed, financed and billed six gas-only projects
• Program Participation Statistics:
󲐀 8 projects in financing process
󲐀 $184,550 – Installed and completed
󲐀 $86,870 – Approved from financing pending installation
󲐀 25% commercial customers
󲐀 37.5% agricultural customers
󲐀 37.5% industrial customers
Lessons Learned From the Implementation Phase
This program cycle provided SoCalGas with the following key lessons:
• Customers who are aware of and qualify for On Bill Financing have been very eager to take advantage of the interest free financing to help with their capital constraints.
• On-Bill Financing requires on-going collaboration with internal departments including: IT, Billing, Accounting, Technical Services, Incentive and Rebate programs as well as Customer Services.
• SoCalGas’ gas-only OBF Program faces special challenges, for instances, most projects have very long lead time, often takes months, sometimes more than a year, for a project from planning to installation.
• Most gas-only applications have very long payback periods based on energy savings. This limits access to gas-only OBF to only the most cost effective gas projects such as heat exchange project, industrial process improvement projects, retro-commissioning projects, or greenhouse curtain projects.
• There is a lack of lighting equivalent in gas projects in terms of qualifying payback periods for OBF, therefore SoCalGas’ gas-only OBF has not been able to attract many contractors/vendors to participate in OBF. However, those vendors whose cost effective gas equipment can meet the payback period requirement have shown enthusiasm in utilizing OBF to help encourage their customers to undertake energy efficiency upgrades.
• Coordination with Local Government Partnerships is key to driving energy efficient upgrades within institutional customer sites.