Turning Down the Heat: A Collaborative Effort to Reduce Energy Bills

By Rory McIlmoil, Appalachian Voices, and Jen Weiss, Environmental Finance Center at UNCNorthCarolina

There’s no doubt about it. June was HOT. And while extreme temperatures in both summer and winter can make outdoor activities unbearable, they can also send electric utility bills skyrocketing across most of North Carolina and place high demands on the state’s electric utility infrastructure. As heating and cooling equipment are pushed to the max, the demands are made even more significant due to inefficiently insulated and poorly weatherized houses which can cause homes to lose cool air as quickly as it is generated. But the cost to weatherize a home can make energy efficiency improvements unaffordable – particularly for homeowners who are already burdened with basic housing costs that can outweigh their limited income. With the aim of providing these homeowners with a solution that will reduce their energy bills and improve home comfort, a collaborative working group has recently been formed by leading energy advisors in the Southeast. Working with multiple stakeholders across the state, the North Carolina On-Bill Working Group seeks to facilitate the development of programs that educate homeowners about energy efficiency and put financing easily within reach for all income levels.

The Challenge: High Energy Costs

High energy costs can be particularly challenging to lower income residents. According to the U.S. Energy Information Administration, the average North Carolina resident spends $3,714 annually on energy costs. With a median household income of $46,334, this equates to 8% of a residents’ annual income. This is nearly three times the national average of 2.7% in 2012. In rural communities where median household income tends to be much lower, averaging $22,000, energy expenditures as a percentage of household income can be 17% and higher. This situation is only going to get worse as it is predicted that energy costs will continue to rise in the coming years. Energy efficiency improvements for North Carolina residents can alleviate the impact of current and future energy costs, thereby providing much needed economic relief. Unfortunately, many homeowners cannot afford the upfront cost to weatherize their properties or purchase energy efficient appliances that will reduce their energy bills at a time when it is needed most. North Carolina residents of all income levels need access to streamlined and simple energy efficiency finance programs that can help to reduce energy costs and make energy more affordable.

A Solution: Utility On-Bill Programs for Energy Efficiency Financing

Fortunately, proven models exist that expand access to financing for energy efficiency improvements for everybody, including those who may not qualify for loans under traditional underwriting criteria. Known as “on-bill” programs, these financing models provide a mechanism whereby the upfront cost of energy saving improvements and equipment is funded by the electric utility or a third-party financier, and ratepayers are able to pay down the cost through a monthly payment on their electric bill. Depending on the structure of these programs and the initial source of capital used to finance the program, on-bill programs offer a number advantages to consumers, particularly low-income consumers. Advantages include expanded access to capital for consumers at all income levels and performance-based repayment schedules that align the monthly payback with the projected savings achieved which results in a net savings for the participating consumer. In other words, even with the new charge added to their electric bill, the customer will still pay less on an annual basis than they would have without the improvements. Additionally, on-bill programs can be structured so that they are available to homeowners, renters and businesses.

Partners in Efficiency: North Carolina’s Rural Electric Member Cooperatives

Together, North Carolina’s 26 electric member cooperatives (co-ops) provide electric service to rural areas in 93 of the state’s 100 counties, account for 23.7% of total electric sales in North Carolina and provide service to roughly 937,000 members. Many of the electric co-ops and municipal utilities serve rural communities, characterized by rate payers with lower than average median household incomes and limited access to low-cost financing. In fact, a 2014 study of census data found that these utilities serve the highest concentrations of low-income communities across the Southeast, making cooperative and municipal utilities key stakeholders and powerful allies in addressing this issue. Dedicated to improving the lives and communities of those they serve, many co-ops have developed or are exploring energy efficiency finance programs. It is the goal of the North Carolina On-Bill Working Group to support all of North Carolina’s electric co-ops who are interested in developing an on-bill program for their own members.

About the North Carolina On-Bill Finance Working Group

The North Carolina On-Bill Finance Working Group, a collaborative partnership between Appalachian Voices (AV), the Environmental Defense Fund (EDF), the Environmental Finance Center at UNC-Chapel Hill (EFC) and the Southeast Energy Efficiency Alliance (SEEA), has been formed to work with North Carolina co-ops and community stakeholders to provide the education and support resources needed to establish on-bill programs for their ratepayers and expand access to energy efficiency across North Carolina. The Working Group seeks to provide rural cooperative utilities in North Carolina with the tools, resources and technical assistance needed to implement on-bill energy efficiency programs that reduce energy use, improve living conditions and create jobs in rural North Carolina communities.

As the Working Group ramps up our efforts, we will be reaching out to electric cooperatives, community partners and other stakeholders to identify the needs and challenges faced by co-ops, and work toward solutions that facilitate the development of new on-bill programs throughout North Carolina that maximize the benefits for both co-ops and their customers. If you are interested in learning more about the North Carolina On-Bill Working Group or supporting our efforts, send an email to [email protected].

Rory McIlmoil is the Energy Policy Director at Appalachian Voices.  Jen Weiss is a Senior Finance Analyst at the Environmental Finance Center at UNC-Chapel Hill.