EECLP Webinar #5: On-Bill Financing -- Text Version

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Below is the text version of the EECLP Webinar 5: On-Bill Financing, presented in January 2015.

Odette Mucha:
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Hello and welcome to the webinar. Today we will be discussing the Energy Efficiency and Conservation Loan Program and on-bill financing. You'll hear experts from the electric cooperatives and the U.S. Departments of Agriculture and Energy.

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Today is webinar 5 of a six-part series. And our speakers today include Gerard Moore from USDA's Rural Utilities Service; Curtis Wynn, the CEO of Roanoke Electric Cooperative; Sherry Jackson, member services coordinator for North Arkansas Electric Cooperative; Greg Leventis from Lawrence Berkeley National Laboratory; and I'm your host, Odette Mucha from the U.S. Department of Energy.

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As I mentioned, this is webinar No. 5 of a six-part series, and so we hope you'll join us for next week's webinar, or the next and final webinar, which will be on January 22, and in that webinar we'll be discussing solar programs. So before we begin, I just encourage you all to submit your questions using the dashboard to the right of your screen. We will get to questions at the end, and so feel free to submit them throughout the presentations.

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Alright, and with that, on to our first speaker, Gerard Moore.

Gerry Moore:
Thanks, Odette, and hello. My name is Gerry Moore. I am with the U.S. Department of Agriculture. I work in the Rural Utilities Service, called RUS. Specifically, I am in the Electric Program. I want to remind you that we recently added energy efficiency as a new eligible activity for RUS loan funds. The Energy Efficiency and Conservation Loan Program, also called EECLP. These loan funds became available in February of 2014. This new purpose allows eligible RUS borrowers to relend RUS loan funds to their consumers. This relending is for the purpose of helping consumers realize energy efficiency in their homes and businesses. Here are a few facts about the new EECLP to keep in mind, as well. Energy efficiency upgrades must be within the borrower's service territory. These upgrades are to be located on the consumer side of the electric meter. RUS borrowers can charge an interest rate to their consumers for these loans. Startup costs of up to 5 percent of the loan amount are available to help get an EE program under way. Loan terms are based on the useful life of the upgrades. Now, we all know having a more energy efficient home or business can help consumers save money. Electric cooperatives have an excellent relationship with their consumers. In fact, cooperative consumers are members of the co-op. They already have an established financial relationship with the cooperative through their monthly electricity bill. This unique relationship makes on-bill financing for energy efficiency a very popular approach for EE programs. Now this series of webinars was designed to help the potential RUS borrower understand efficiency programs in rural areas and get exposure to some best practices associated with energy efficiency. We hope the information provided here helps you and we look forward to your feedback. Can I have the next slide?

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OK, so I've given you just a very brief overview of EECLP. There is so much more to discuss. If you have a chance, please take a look at our website for more information and consider applying for an EECLP loan. We'd love to talk to you about it. Thank-you, and now back to you, Odette.

Odette Mucha:
Thank-you, Gerry.

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Alright, on to our next speaker, Curtis Wynn.

Curtis Wynn:
Thank-you, Odette, and again, I'm Curtis Wynn. I'm here from Roanoke Electric EMC to talk about our program. And we've called it the Upgrade to $ave Program. And we've got a lot of support from an EMC that has done quite a bit of work in programs in Kentucky and Kansas, the Energy Efficiency Institute, who has been very supportive of our efforts to get this program launched. Next slide, please.

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Just to give an overview of the Upgrade to $ave Program, I want to just outline the major components, the major players in our program. First, if you start at the top and just go to your left, you have the capital provider; as Gerry has already said, the USDA is the provider. And they provided the capital for this program. In our program, we're looking at about $6 million, and that is going to come to our utility, Roanoke Electric. In the design of our program, we are fortunate to have a 501(c)(3) organization that we're tasking to be the program operator for our program, so that there's a separation between the cooperative and who will actually operate the program. The Roanoke Center is the name of the organization that's our 501(c)(3), and they will work with entities, the certified contractors who will be actually doing the upgrades to the home. Also involved in this is something called a measure assessor, someone who's certified to go out and do blower-door testing as well as the duct testing to make sure that the proper insulation and sealing and all of that is done to the homes and the businesses that we'll be working with in this project. Now once the contractors go out, the project is authorized to be signed off by the measure assessor, the certified contractors will go out and complete the work. And again, that has to be overseen by the program operator. After the work is completed, they'll send an invoice to the Roanoke Center. Next, the member has to agree and sign off that the work is to their satisfaction, and they'll let the people at the Roanoke Center know that they authorized the charges that we've been charged. Of course, the contractor's going to send their invoices to the program operator. The member is going to let the program operator know that they're satisfied with the work. And that will give us the signal to go ahead and pay for those measures that a contractor has done. And from that point, it's the member's responsibility to repay the utility on their bill. And I'll talk a little bit more about how that works in a later slide. But the member will pay the utility over time for the measures that were done. And of course, we have the obligation to pay the Rural Utilities Service back for the loan that we received from them to do this work. So that's somewhat of an overview. If you can go to the next slide.

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So what are some of the major considerations that we have in the program in order to for this to work? We felt like some of the key points here were that it has to be an offer that works. And I'll talk more about that. We have tried other programs in the past that did not work, that were on-bill financing programs. So this has to be something that will work and that the member will say yes to. And also, we are targeting members who this will work best for. These are members who we feel have the best chance to see savings, immediate savings, on their utility bills. And there are a number of agreements in place, but there are strict guidelines that we're putting in place between the member and the cooperative, the member and the contractor, as well as if there's a landlord situation, there are agreements for those situations, as well. I mentioned briefly about the inspections. There is a lot of attention paid to doing the inspections once the work is completed. We will not inspect all of the work, but there is going to be spot-checking; at least 10 percent of the jobs that are out there will be inspected for the projects approved, and at least 20 percent of the completed projects will be inspected. And if it becomes necessary, we will go out and do physical inspections on a lot more of the work, if it becomes a necessity. The members are going to let us know if they're satisfied with the work. We feel that there has to be clear communication of things that can be said and cannot be said, so that there's not a misinterpretation between what the program can do and what the member understands. And we want to resolve all of the issues and questions before we take actions, again, to reduce the amount of confusion that the program would have. These are major considerations that we've thought about. Next slide, please.

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So getting 1,000 members to say yes is our goal over the next five years, 200 members per year. All of the targeted measures that we're going to work with are the ones that will have the highest effectiveness. And these are the members who are using the most electricity, that have the greatest opportunity for savings, especially with days like today, when it's real cold. Of course, that's -- having programs like this in place has not been enough in the past, and we feel that the other offers didn't work that we put in place because it didn't have all of the nice components that this program has, to take all of the financing burden off of the member and allowing the cooperative to handle more of that burden for the member. Any time you have a weak link in a chain, of course, that's going to impact the entire chain. So nothing works if you still have barriers. And that's what we've learned in past efforts that we have put in place to try to get members to say yes to these types of offers. Next slide, please.

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So, how does an offer that works -- how does that work? So in our program, of course, the member has to be pay nothing up-front, because the cooperative is using its good faith in credit that the USDA Rural Utilities Service, we're able to offer, make an offer that we're going to show the members an immediate improvement in their cash flow. And the typical situation that we're requiring is that for any measure that is successful in this program, after the measures are done, the repayment to us will not exceed 75 percent of the savings that we've produced through some very calculated and structured methods of doing measurement and verification to make sure that's in place. If the member moves or the measures fail, or are not repaired, their payment obligations will end, as long as they have fulfilled all of their responsibilities, which we will clearly communicate to the member. Again, the Roanoke Center will oversee this process. Now in this program, the great thing about it is that the member does not incur any debt. They don't have any liens or any type of loan. One of the things that we're really excited about, that's been a real challenge for us in our service territory, has been how do you deal with renter situations, landlord situations, where the member doesn't own the property? And it's been very difficult to get landlords to help the member reduce their energy cost, because they're not willing to put those investments in the properties that they're renting. This program really takes care of that, and it's going to be a big plus for our members, I believe. Next slide.

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So the Upgrade to $ave does -- if we were speaking in terms of what would we say to our members, this gives you somewhat of a snapshot of what the members would hear, either coming from the electric cooperative or from the contractors who will also be very involved in marketing this program. We're able to reduce their energy bills and make their home more comfortable with measures that effectively cost them nothing up-front. This is how it works. The energy saving measures are installed in their building, and they have to pay nothing. Once the work is completed, Roanoke EMC will pay for the installation, then a fixed charge is placed on their electric bill that is significantly less than the estimated energy savings for those measures. Again, there's no loan, no lien, no debt associated with this transaction, just lower bills. And if the member follows their responsibilities, when you leave this home, or if the measures fail, or if it's not repaired to their satisfaction, their obligation to pay ends. We fall short on our responsibilities. We're putting some pretty strong guarantees in this. Next slide, please.

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So what are the targeted measures? Targeted measures are -- it means, what are the things that we will do for this program? Of course, it's pretty obvious that we can't fix all of the homes, and we can't make improvements to homes that don't have what we consider at least a 10-year lifespan that's remaining on the home, because most of our repayment obligations are going to go as high as 10 years. So we're putting that stipulation in place. We're targeting those measures that are most likely to produce savings and bring more comfort to the homes. And we've looked at our higher-end users to try to identify those members that fall into that category. Now specifically, to things that we will do, and that our measure assessors, those certified professionals that will go out and do the blower-door and the duct testing, will identify measure packages for our members that fall into one of or all of these four or five things that are listed here. They must have 2014 energy efficient ENERGY STAR® heat pumps. We'll replace those or include those as part of the measure. Air and duct sealing. Capping attic insulation with proper ventilation. Floor insulation. And providing LEDs for any of those fixtures that have at least three hours of operation in a given day, 38 watts replacements. And replace showerheads for those showers that are at least eight minimum minutes per day, eight minutes per day of usage. One additional thing that we're adding to our program is something called copayments. With copayments, sometimes the measures do not necessarily fall into our formula and this is when the member can make a choice to actually invest in the measures to make the numbers work. And if that happens, that is not an obligation that the cooperative is involving itself with. So the members will pay that portion of the package, and they're up-front payments that are made directly by the member to the contractor. And the copays also ensure that there's sufficient savings for successor customers who inherit the obligation to pay. It makes that more attractive to anyone who comes behind that member. So that's how -- those are the target measures that we will include in our program. Next slide, please.

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So for more members to say yes, we think that for contractors what this means is that they don't have to market. We're saying that we're going to touch 1,000 members that are potentially their customers, that they don't have to market. This business will come to them. They're really excited about that. There's going to be an increased economic activity in our region, in our service territory. We hope to have more satisfied members with lower bills and more comfortable homes. And it also means that a successful program that meets its goals will allow us to keep our promises to our members, which is to address those pocketbook issues that they may be facing. That's what it means to members who say yes to this program. Next slide, please.

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So in summary, what an offer that works means through this exciting program is that it needs to solve all of the barriers. Many of the ones that we weren't able to solve in the past. Each time an offer that works is compromised by any of the program partners, the benefits to the members and the other program partners is compromised, as well. So we're stressing through some very regimented training and certifications that this is very important. Each program partner needs to know their essential role and to do their work well, so that no one has to be penalized because of their lack of work. And we've put in place some required certifications and penalties for contractors, so that they are aware if their work is not successful or done well, how it affects the success of the overall program. And they have an incentive to do excellent work in the program. Next slide, please.

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Finally, we see that getting into a program like this is going to really provide benefits for Roanoke Electric. One is going to be a lower demand cost. Less inefficient heat strips, kicking in on days like today, lowering our cost of energy. In North Carolina, we are required to satisfy Renewable Portfolio Standards, to come up with REPs. These energy savings that we're doing through this program are going to count toward that program and require us to make less investments than other projects like solar projects or wind projects. So we see this as a win-win. And overall, we feel that we'll have increased member satisfaction through the program. And I guess, next slide, I guess we'll have questions later, so that really concludes my part of it.

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And I look forward to answering any questions later.

Odette Mucha:
Thank-you, Curtis. Before we move on, I should also mention that Roanoke and North Arkansas, our two main speakers today, are the first two approved applicants to the EECLP. So we're very excited to hear from them. Your questions are flooding in, so please continue to send those in. And one other question that came up was, are these slides going to be available later? And yes, they will be. We're recording this session, and so you can have access to that on the Energy Department's YouTube page, and we have a link coming up later in the presentation.

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OK, up next we have Sherry Jackson. So take it away, Sherry.

Sherry Jackson:
OK. Thank-you. I am Sherry Jackson, the member service coordinator here at North Arkansas Electric. And you can go to the next slide.

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I'll just give you a background of North Arkansas Electric. We are located in the north-most part of Arkansas. It was zero degrees when I woke up this morning, so I think we're up to 25 now. Having incorporated in 1939, we are in the process of planning our 75th anniversary celebration at this year's annual meeting. So we might want to invite everybody to our big party in June. We serve more than 36,000 billed accounts and have a density of 70.41 members per mile of line. So we consider ourselves a little rule. We are one of 17 distribution co-ops in Arkansas, and we receive our power from our statewide Arkansas electric cooperative. And we have a lengthy background in promoting energy conservation and efficiency. In the late 1980s, we were one of the first co-ops in the nation to take advantage of USDA RUS funding for ERC -- or for energy resource conservation loans. And today, we have loaned almost $12 million for energy efficiency upgrades, mostly to our residential member homes. So that has already been a very successful program here, and I'm proud to have played a large role in that for the last 10 years. Go to the next slide.

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So in October, a few months after we submitted an application, Agriculture Secretary Tom Vilsack announced that we were one of two electric co-ops in the nation, as she mentioned, approved for USDA funding under the new Energy Efficiency and Conservation Loan Program. And the other, of course, being Curtis and Roanoke Electric Cooperative. So we were approved for $4.6 million. So again, this new energy efficiency program is replacing our existing ERC loan program, and as such, we are very similar -- or we're using a very similar application and loan process as we have in the past. Next slide.

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So we'll begin the loan application process with these requirements. That loans are available to qualifying members based on an Experian credit report and their payment history with us. And also, employees are eligible provided they've been employed with us for at least six months. The loans are going to carry an interest rate of one-half a percent above our RUS loan interest rate. And so we're currently offering 3 percent interest rate to our members. Loans are available to residential, commercial, industrial, public, community buildings and facilities, and structures used in agricultural operations such as poultry houses and dairy barns, and any other loans that are deemed suitable for the program. Potential savings are considered when approving these applications. Loans are not going to be provided to refinance existing loans or to finance structures that are currently under construction. Additionally, we will not service any equipment that we're financing. However, we will include the financing of heat pump service contracts by licensed HVAC dealers installing the equipment. Next slide.

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Loans are documented by an application, copy of a warranty deed, which is the legal property description, current energy audit, current credit history, and a note security agreement. And additional items listed may be requested if the need be. Next.

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Very much like our previous ERC program, we've established four different primary types of loans for items financed, including heat pumps. Geothermal will be financed for 12 years with the board approval of any loans exceeding $20,000. And with both geothermal and air source, we do require the blower-door test and an energy audit recommending the appropriate size unit. Companies other than North Arkansas Electric can perform the blower-door test, and the borrower may select any dealer of their choice, but they must be licensed with the state of Arkansas. Additionally, we strongly recommend that the dealer selected has a valid liability and worker's compensation insurance. Air source heat pumps with a minimum SEER of 14: We're requiring one step above the national SEER available just to increase efficiency. Many times our members are going with 15, 16 SEER units for more efficiency. Air source heat pumps will be financed for eight years. In the energy efficiency program, we'll also make loans available for energy efficient lighting and LED installation or lighting upgrades. Financing goes for five years, and the minimum loan amount is set at $500 with no maximum at this time. Next screen.

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Lastly, we'll offer loans for various weatherization measures, including and not limited to ENERGY STAR windows, ENERGY STAR doors, ceiling, floor or wall insulation, water heaters with a 91-percent or greater efficiency. We have a huge marathon water heater program here at North Arkansas Electric, and then are promoting some heat pump water heaters, as well. And then some roofing. Next slide.

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As I mentioned, a blower-door test is required on all heat pump installations to determine if there are any additional measures that would be cost-effective in reducing the overall energy consumption of a structure. And then we ask that borrowers agree to a possible follow-up inspection of the measures installed within six months after the closing of their loan. So installation of equipment cannot begin until the loan is approved by us. And we are notifying members of their approval by sending them a letter, and we include a copy of that letter for their contractor. Once approved, their contractor may proceed under the authority of the borrower, and once completed, all invoices are submitted back to us to prepare the loan papers. After the loan is closed, a check is written and sent to the borrower, who is responsible for paying any of their contractors. And we do not advance funds without assurance that work has been properly completed. All loans made through our program adhere to all state and national regulations. Next slide.

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Like Curtis, we do file a lien with the Secretary of State and the county where the property lies. We charge the member a $50 filing fee to cover the cost of both filing and then releasing those liens when the loan is paid in full. Scheduled loan payments are billed monthly, and then statements of principal and interest are forwarded to the borrower in January of each year. We don't freely sign loan subordination agreements, however, circumstances may arise where we can reach an agreement with the financial institution and/or joint borrower to do so. And at that point, circumstances that will be taken into consideration include the current balance of the loan, the loan-to-value ratio of the property, income-to-debt ratio of the customer, the credit-worthiness of the customer, and the character of the customer. So after all of that is reviewed, we may go ahead and subordinate if we feel the need to do so. The next paragraph looks a little bit repetitive, so go ahead to the next slide.

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Based on our previous loan program we expect the majority of our loans to be for air source heat pumps, followed by weatherization improvements. And as you can see here, there are some of the forecasted numbers that we presented to RUS in our application. We probably expect to -- hope to finance about 76 heat pumps the first year. And that's basically it.

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That concludes my presentation, and on the last slide I have my contact information so anybody can feel free to contact us for more information.

Odette Mucha:
Great. Thank-you so much, Sherry.

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And our next speaker is Greg from Lawrence Berkeley National Laboratory.

Greg Leventis:
Hi. Thanks so much. I appreciate it, Odette. Thanks, Odette, and thanks to USDA and DOE for this great webinar series. My name is Greg Leventis. I work at Lawrence Berkeley National Laboratory, where I focus on paying for energy efficiency. I'm actually from South Carolina originally, and when I was growing up I got my electricity from Black River Electric Cooperative. And when I was home for Christmas, I was lucky enough to bump into Herb Lair, who is the previous CEO there. Last summer, I co-authored with some colleagues of mine a major technical report on on-bill financing, on financing energy improvements on utility bills. And for folks thinking about starting an on-bill program, this will identify the key program design options available to you and the tradeoffs among them. Next slide, please.

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Today I'm going to talk about the report motivation we've had, our approach and our objectives. I'm going to give a quick overview of what the on-bill program landscape that we found looks like, and then I'm going to focus on four key on-bill program design considerations that we identified. Next slide, please.

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So states are putting in place really ambitious energy efficiency savings goals, and the program budgets to meet these goals are not going to be sufficient. So a lot of them are looking to finance and to leverage those program budgets. But there's a catch. And that's that in order for financing to deliver that leverage, it has to drive demand. And in order for it to drive demand, we have to believe that today people are not investing in energy efficiency because they don't have access to financing -- either sufficiently attractive financing or financing at all. Now, if on-bill products paid back at higher rates than off-bill products, that could warrant increasing loan terms and decreasing interest rates, which makes a more attractive financing. It could also warrant increasing access to these financial products. And so that, in a nutshell, is why there is more -- we're seeing a lot of increased interest in financing in general, on-bill specifically. So we saw this increased interest. We decided to do a review of existing programs in order to provide a context and insight for new programs. And our objective was to provide an updated review of current experience with on-bill programs and offer actionable insights on key program design considerations. And the way we did this was, we reviewed previous studies and literature, and we also did what we think is the most extensive collection of on-bill data to date. We collected data on 30 programs and did detailed case studies on 13 of those programs. Next slide, please.

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And what we found is that co-ops have been really very involved in this, from ARRA grantees in Georgia to the South Carolina Help My Home pilot, to Midwest Energy in Kansas, to the many participants in TBA's Energy Right Solutions program, and also to, for example, North Arkansas Electric Cooperative. And we also found that there's been a lot of activity. The beginning of last year, on-bill programs were operating or said to operate in at least 25 states. Several of these programs had been operating for multiple decades. And the 30 on-bill programs in the report delivered over $1.8 billion to over 200,000 participating consumers. The takeaway here is that on-bill financing has a track record. There's decades of experience in a lot of these programs, and they've done significant volume. So we looked at performance next, and here I'm talking about the default rates. And there are some important caveats to the data, which we describe at length in the paper. And that's why we stick to default rate ranges and medians. What we found is that the program lifetime default rates for programs in the study range from 0 to 3 percent. And this is positive evidence, because even 3 percent is low compared to other forms of consumer debt, like where we find default rates in the high single digits or low double digits. And you have to remember that this is over nearly $2 billion of financing and in some cases programs that (inaudible) multiple financial cycles. And importantly, it's also true these default rates are true across all different program design options that I'm going to discuss. And finally, there is a lot of concentration -- approximately 90 percent of historical on-bill activity is accounted for by just five initiatives. So it shows that while leading programs have been quite successful, others have either struggled or they relatively haven't done much volume yet. Next slide, please.

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Now I'm going to focus on the four key program design considerations we identified. And those are, one, where does the money come from? How do you capitalize these loans? What's the capital? Two is, how is the product structured? And specifically I'm talking about where the disconnection is allowed, or whether the loan is attached to the meter or attached to the person or property. The third is, who is eligible for the loans? How do you underwrite these people? How do you figure out who is credit-worthy? And finally, what can participants finance with this loan? So what measures are eligible, when it comes to on-bill financing? Next slide, please.

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Actually, you can keep going. Next slide.

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Alright. So first I'm going to talk about where does the money from. And since this is a series on EECLP, I'm just going to say two quick things, basically, about funding. One is that I find there's often confusion about on-bill financing versus on-bill repayment. And I think that this comes from the fact that on-bill lending in general is often referred to as on-bill financing, but when people are talking specifically about on-bill financing, they mean products that capitalize on loans with either taxpayer money -- so something like the EECLP or ARRA funds -- with utility shareholder money, or with ratepayer capital. Whereas, when you're talking about on-bill repayment, you're talking about products that capitalize their loans with private capital. That's non-utility investor capital. And an important finding from the paper is that a lot of program administrators want to figure out how to access capital markets to scale these programs. And we found that on-bill repayment programs are accessing private capital through a number of different pathways. You see three of them right here. But we also saw a number of on-bill financing programs that did significant volume. So there are multiple ways to scale these programs. Next slide, please.

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Next: How is the product structured? Next slide.

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And here we're talking about -- starting off with two different features. First is disconnection. Can a borrower have their power disconnected for not paying their on-bill loan? The idea is that this would lead to lower default rates. People don't like to have their electricity turned off. And some folks think that allowing disconnection on these on-bill loans only drives the default rates on these products down to where they're in line with nonpayment rates for utility bills. The next is meter attachment. Is the loan the debt of the person or property, or is it structured as a tariff and attached to the meter? And this can address a lot of barriers that Curtis was probably referring to earlier, like long paybacks, split incentives. And it can possibly mean that these loans could survive foreclosure or bankruptcy. Next slide, please.

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We found that only 1 percent of on-bill lending has been done for products structured as on-bill tariffs. So it's a very new structure. And you can see this in the right-hand pie chart here, but as you can see on the left-hand pie chart, the number of programs that are using these on-bill tariffs make up almost a quarter of them. So it seems like it's a growing structure. We also found bankruptcy or foreclosure survival for these loans is not yet determined, because ultimately that is a decision that a judge is going to make in a bankruptcy court. And the first bankruptcy cases involving on-bill loans have not been decided yet. Another important point is that disconnection value in ensuring participants make their loan payments is also uncertain. The evidence we have, although not conclusive, does not support that idea. OK, next slide, please.

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Next is who is eligible. How do program administrators determine the credit worthiness of applicants for these loans? Next slide.

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So we found that programs used a number of different approaches to underwriting their applicants. We classify them into these four categories. Traditional underwriting standards, which, these are just basically traditional metrics, traditional criteria like minimum FICO score, maximum debt-to-income level. Then expanded underwriting, where you have the same metrics as the traditional underwriting but they relax the criteria. So for example, instead of a 640 minimum FICO score, they might approve somebody who has a minimum FICO score of 600, and this would be done to try to approve more applicants. Next is alternative underwriting standards. And this is looking, just underwriting an applicant by looking at the utility bill payment history. And this can have a number of different advantages. First off, it can allow many more people to be approved for these loans than the other types of underwriting standards would allow. And it can also save a lot of time and a lot of money, because underwriting can be expensive. So we found that a lot of co-ops have taken this approach to doing alternative underwriting. And then finally, there is hybrid underwriting standards. And this is just where the program administrator uses an alternative underwriting and then blends it with parts that are traditional or expanded underwriting standards. Next slide, please.

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And the goal here is to balance the need to responsibly underwrite these loans -- that is, deliver capital to a set of customers that's able and willing to repay that capital -- while recognizing that repaying on the utility bill may lead to lower default rates than repaying off the utility bill. And the big takeaway here is that the type of underwriting did not have as big an effect on default rates, but it does seem to have a big effect on application decline rates. Programs that use alternative underwriting decline fewer applicants than other approaches. So for example, using alternative underwriting is associated with lower applicant decline rates, but its default rates are similar to those for the other underwriting approaches. Next slide, please.

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Finally, what can I do with an on-bill loan? What measures are eligible for financing? This requires balancing the objectives of enabling or driving demand for energy efficiency, or renewable energy or other measures, with a range of other program design or policy goals, such as market transformation or job creation. Next slide, please.

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And when it comes to eligible measures, program administrators basically have three major considerations here. The first is, what types of measures should be allowed for financing? For example, efficiency, renewable energy. The second is, should single measures be allowed, or should the program administrator push for comprehensive upgrades? And finally, utility bill impact. And here I'm specifically thinking about bill neutrality. Alright, next slide, please.

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So first, the types of eligible measures. As you can see in the left-hand graphic here, 12 of the 30 on-bill programs limited eligibility to just efficiency improvements. No other measures were allowed. But others allowed renewable energy, water efficiency measures, and even non-energy measures. And oftentimes for small businesses and middle-income households, allowing non-energy measures is critical to driving energy efficiency as an option. However, they don't deliver energy savings, and so program administrators have to grapple with the tradeoffs there. Next, single measures versus comprehensive measures. Now some policymakers and some program administrators, they want to drive participants to adopt multi-measure, comprehensive energy improvements that are typically associated with deep energy savings. Others permit participants to finance single measures, like boiler replacements, to balance their energy-saving goals with other goals like higher job creation, for example, that might come from single-measure programs that could achieve higher participation levels more easily or quickly than comprehensive retrofit programs. And the big takeaway we came with in the report here is that those programs that have done a lot of volume have done one of three things. They've either: 1) Focused on market transformation in a single technology, and here for example I'm talking about TVA and heat pumps. 2) They've allowed customers to finance basically anything energy-related, and here I'm talking about Manitoba Hydro -- if you look at the second of the pie chart on the right here, at Manitoba Hydro, 90 percent of their loans are for single measures like windows or doors, 3) They provided large financial incentives. And in Connecticut, United Illuminating and Connecticut Light and Power have a small business energy advantage program that offers 0 percent financing and rebates of up to 50 percent of project cost. Finally, I want to talk about bill neutrality, utility bill impacts. Now some on-bill programs have required that expected energy savings from energy improvements have to offset 100 percent of the project cost, and this is known as bill neutrality. And it should mean that these loans should be cash-flow neutral for participants and that should be more attractive for participants, and it should provide a consumer protection. This is the idea. Although there's no definitive data either way, the on-bill programs in this study that require bill neutrality have on average achieved lower historical volume than those that don't. And the challenge is that the requirement screens out a lot of projects from qualifying for loans. And it can also limit attractiveness for consumers that Curtis referred to, having people do copays. And we've seen that with a lot of programs that have bill neutrality, because if they can't get everything they want, then they can copay for something else. And finally, because savings estimates often are a lot different from actual energy savings, there's uncertainty as to whether bill neutrality can act as a strong consumer protection. And so that is what I wanted to say about those. Next slide, please.

Next slide:
There again are the four key program design considerations that we talked about, and if you go to the next slide, it has a number of different resources.

Next slide:
There's the report, and you can read just the executive summary or the case studies. They're broken out separately. There's also the Department of Energy's Financing Solutions Center, and also the link to the SEE Action website, which has a bunch of great resources. And that is it for me. I've one more that has my information, if you want to get in touch with me.

Next slide:
I'd be happy to answer your questions. Thanks so much, Odette.

Odette Mucha:
Great; thank-you so much, Greg.

Next slide:
OK, so, before we take questions, I have a quick plug from our friends at the Environmental and Energy Study Institute. They wanted me to let you all know that they have an on-bill financing project assistance available for you. So EESI is a nonprofit organization and they're providing free assistance to co-ops and public utilities that are interested in implementing on-bill financing projects. So we encourage you, if this is something you're interested in but need a little bit of help or you have a few more questions, EESI is available. So you can contact, in the blue box there, you see John-Michael Cross, and his contact information is listed. So we hope you take advantage of that opportunity. Alright. Now we're on to questions.

Next slide:
So we've gotten many, and we'll get through as many as we can in the next 10 minutes. We'll start off with one question and I think this is a question for Curtis and for Sherry. And the question is, what are some of the key challenges in starting or transitioning from an existing program to the new program using RUS funds?

Curtis Wynn:
Sherry, do you want to go first, or do you want me to take it?

Sherry Jackson:
Our transition is just relatively simple here, because we've been doing it for 20-plus years and we've pretty well kept it similar. So I can't say that we've got a lot of challenges right now.

Curtis Wynn:
I think our biggest challenge is really, before we got into this program, we were trying to use bank credit union financing, and getting people -- getting our members to actually -- I didn't say it in my presentation, but we're from a very low-wealth area, and credit issues are pretty major. I don't see it as a challenge. I see it really as more of an opportunity, because this program is going to open that up. But the real challenge, if it's successful, is making sure we have the procedures in place and that we execute on the procedures with the contracting community to make sure that they do the work as we prescribed it.

Odette Mucha:
Alright. So this question might be for everyone. In your experiences, what have been the major barriers to participation for on-bill programs? And some examples are, is it that there's not enough economic incentive, is there a lack of trust, is it that the process is too complex, or has it been hard to advertise, etcetera?

Curtis Wynn:
Again, ours have been pretty (inaudible) has been the big problem with us.

Greg Leventis:
This is Greg. The first thing I would say is, we were just talking about it at the beginning; the demand has to be there to begin with, and then financing can answer questions if there is demand there. And the reason people aren't able to get to those efficiency improvements is because they lack access to financing. That sounds like what the case is in Curtis' jurisdiction, for example.

Sherry Jackson:
One of the factors in North Arkansas Electric is that -- and like I said, we're used to doing this for quite some time now -- but we have such a quick turn-around. And so that's what makes the members come to us. Because we can approve the loan within 24 hours if their heat is out or something. It doesn't take very long, and they can be having their new equipment installed. So we just try to make it a fast process for the members.

Odette Mucha:
Great. This question might be for Gerry. If a utility applies to USDA for this program, how long is the approval process, and also, is the process competitive or are all utilities approved if they meet the requirements?

Gerry Moore:
OK. So what is the time? It's a brand-new program, so I couldn't give you a good gauge. But I tell you, we do focus a great deal on these types of loans, because they're new and we want to make sure that they go through quickly. I guess it would depend. If it was a utility that is a borrower presently, then it can go pretty fast. And it depends on what type of program they're looking at. Are they looking at relatively a few million dollars, or are they looking at a hundred million dollars? That's going to impact how long that takes. But if they are a borrower, it's pretty quick. It would be probably less time than you would spend if you were looking for a distribution loan, let's say. And with early adopters they're helping us work out the kinks so that we can get this to be very good. Because relative to our infrastructure loans, these are simple loans. And it's a new loan process, so you know, there are kinks to work out. But I say relatively fast if you are a borrower. And are they competitive? No. We have typically about three to five billion dollars per year to loan out for the Electric Program at the Rural Utilities Service. And of that three to five billion, energy efficiency is now just an eligible purpose. There is no cap on it. There's no set amount that has to be loaned. It is just -- if a borrower comes to us and they have their financials in order, they can get that money for energy efficiency or many, many other purposes. So there's no competition there.

Odette Mucha:
OK, great. And the next question may have been in response to Curtis' presentation. They're asking, can the loans only be used for energy efficiency improvements, or can the money also be used to make building envelope repairs?

Curtis Wynn:
Right now we're focusing on the five measures that we talked about, that I showed on the slide. That's not to say that as we get further along into the program, there are other eligible things that can be done. And that's more where the guidelines would determine what else you can do. But we've decided that for our program, we're going to focus on these areas for the simplicity of managing it.

Gerry Moore:
I might add that as far as eligible activities, we considered, based on comments from the public, something called pre-retrofits. I think anybody who does an energy efficiency program might understand what that means. Sometimes it's hard to insulate a wall or a floor that doesn't exist or its integrity is challenged. So it is -- if the borrower chooses to fund these type of activities, pre-retrofits, meaning you can shore up the actual infrastructure before you do the energy efficiency upgrade -- that is eligible from a financial standpoint. The co-op makes that decision, though.

Odette Mucha:
OK.

Curtis Wynn:
Also, we're going to use other USDA programs to support that, like the 504 programs. So we're not going to use these funds to try to do some of the major stuff.

Odette Mucha:
OK. Another question for you, Curtis. If a member moves out before the loan is fully paid off, is the remaining balance taken care of by the utility, or is there a charge on the new member at that electric meter?

Curtis Wynn:
That's a very good question. It is very fundamental to the program. That charge remains with the location. And we're putting provisions in place so that the next person that comes will be notified that this home, the improvements are there, and since they're going to be the person that's going to benefit from those, they will be responsible for making the payments. The benefit for them is that they don't have the entire note to pay off. They'll catch it midstream or at whatever point. So it will be transferred to the next person.

Odette Mucha:
OK. And another one: Does Roanoke guarantee the annual savings?

Curtis Wynn:
There's no guarantee. We will use the measurement verification process, but for the ones that we're going to choose, we'll have pretty good certainty that they will provide the savings. So it's really a judgment call on our side on the front end to make sure we make good selections of the homes that we'll do the measures for.

Odette Mucha:
Alright. We've got many more questions coming in, and I'm afraid we won't get to them all. But we can send around a Q&A sheet via email, so you can all have specific answers to your questions. And let me see if we can find one more. This one is for Sherry. What are the typical costs of a home retrofit, and what's the scope of work for a typical job?

Sherry Jackson:
From what we've seen in the past it's been mostly, our biggest loans are for the installation of air source heat pumps. And so again, we like to encourage our members to install the most efficient heat pump, the higher SEER rating, but generally, six to seven thousand dollars would probably be an average loan for a heat pump only.

Odette Mucha:
OK, great. Well, unfortunately, that's all the time we have for today.

Next slide:
I want to thank you all for joining us and give a big thanks to our presenters. As I mentioned, we'll send out a Q&A sheet via email. If you have any additional questions, feel free to email us at se@ee.doe.gov. And copies of the presentation can be found on our website as listed here: energy.gov/rpsc. And we'll also be posting recordings of these webinars on the Department of Energy YouTube page. And those should be up in the next few days, so keep an eye out for that. Finally, we hope you'll join us for the next and final webinar in the series, which will be an overview of solar programs. And that will be on January 22. So you'll need to register using the link there. And we hope to see you then. Thanks again, and we hope you all have a great day.