Pay-as-you-save: Arkansas cooperative harnesses innovative financing to fund efficiency
Ouachita Electric Cooperative says a new on-bill tariff could fund efficiency upgrades at the majority of homes in its small service territory within five years.
Ouachita Electric Cooperative in southwest Arkansas is a small, rural service territory. Many residents are low-income; homes are spread out, and there are a number of renters and members living in mobile homes.
It is the kind of area where efficiency upgrades could do the most good, significantly lowering bills and usage, but its member-customers are often the least-situated to take on those investments. By the end of this year, however, the cooperative will have performed energy audits at 10% of the homes in its service territory. And could reach nine out of every 10 homes it serves within five years.
Ouachita has embraced an energy efficiency financing method known as Pay As You Save (PAYS), which uses an innovative method to fund retrofits. Rather than loan the money to pay for an improvement, and saddle the customer with debt, the PAYS method uses an on-bill tariff that is tied to the the home's meter. There are some specific metrics that must be present, including payoff length and whether a member co-pay is needed, but the end result is instant on-bill savings for the customer and decreased load for the cooperative.
"The program continues to do well for us," said Ouachita General Manager Mark Cayce. "We will have over 500 homes that will have participated in it by the end of the year, which is a big number for us."
Utility Dive spoke with Cayce last year shortly after Ouachita began using the PAYS model. The cooperative has now published the 2016 results and compared them to an older loan program. To sum it all up: participation tripled.
A formal report will be released in September, but an initial assessment shows the cooperative's investment in residential efficiency upgrades has tripled, as has the number of customers reached.
Holmes Hummel, founder of Clean Energy Works, an organization that advocates for this type of financing, said there is growing interest and in the model and both cooperative and for-profit utilities in several states are considering adopting the practice. And they are looking at ways to broaden its reach beyond efficiency.
"The front-running utilities in the field are expanding their inclusive financing programs for energy efficiency to support more applications that create value with demand response," Hummel said. Those new investments could include smart thermostats, water heater switches and even the possibility for on-site storage.
Utilities in Missouri, Arkansas, Tennessee and North Carolina are "conducting due diligence or taking steps to offer inclusive financing through a tariffed on-bill program."
The Arkansas Public Service Commission unanimously approve Ouachita's filing of the opt-in tariff in February of last year, and within 90 days the utility was phasing out the older loan program known as HELP. The new program, HELP PAYS, allows Ouachita to qualify customers regardless of income, credit score, and renter status. Customers see immediate savings, the utility gains a low-risk path to cost recovery and gets help reducing peak load. Once the recovery period is over, all the upgrades belong the the owner.
Ouachita's territory includes almost 9,500 meters, but fewer individual members.
"Our goal would be to get to all of our permanent residences," said Cayce. "We're going to be over 500 by end of year and we have about 5,000 permanent residents. So we'll have completed 10% of all housing in our service territory in just two years."
"We're hoping these numbers will continue to increase, and maybe in a five years period we can get to 75% to 90% percent."
From April through December 2015, the older loan program served 70 members — all in single-family homes. But over the same period last year, HELP PAYS upgrade offers were accepted by 118 members in single-family homes, 82 units in multifamily housing, and two commercial customers.
"We're probably not doing as many this year as last, mainly because we don't have any apartments to include, which can get you some large numbers very quickly," Cayce said. "But it's still continuing to grow. We're not seeing any slowdown."
With the dog days of summer now bringing the heat, Cayce said the program is likely to see another bump.
"We'll get another burst this week, since new bills went out for July, which would be the highest bills of the summer. That stimulates everyone to call and sign up."
Other positive signs for HELP PAYS, compared with the older loan program: Ouachita's analysis shows the average size of each investment, and the total investment made by the co-op, increased significantly.
The 70 single family HELP loan projects completed during the same 2015 period was almost $2,300; 2016 investments through HELP PAYS averaged $5,600.
In 2015, the HELP program financed upgrades to the tune of $500,000. Last year, the on-bill tariff pushed that number to $1.5 million.
Getting the word out
A three-fold increase in efficiency investment is a big leap. But while large utilities are increasingly focused on outreach, using customer data to effectively target their messages and programs, Cayce said his small cooperative did relatively little.
"We haven't really been doing a lot of marketing. We advertise in our magazine, which goes to every member. And we do some local advertising, but that's pretty much it. We're small enough, and in this part of the world it's still word of mouth," said Cayce. "That's what has been successful for us. There's no large media."
"We're in an area where we only have five meters a mile and neighbors still talk to each other," he said.
The PAYS model aligns well with the cooperative structure, where profits are reinvested or shared with member-owners. Their small size allows for a quick assessment of the program's efficacy and the individual bill tariffs that are its engine.
It is difficult to imagine a large investor-owned utility performing energy audits for 10% of its customers in just two years. Ouachita did it with only three auditors.
"Most of out auditors are coming out of Little Rock," said Cayce. "It's difficult to find qualified auditors that live in south Arkansas. So we've been bringing them in, but we try and use as many local contractors as we can. We want to reinvest everything in our community, if we can."
It amounts to a house-by-house effort. Apartment buildings are somewhat different — closely grouped, shared infrastructure and similar equipment. "But every single house is unique," said Cayce. "Which is why there is an energy audit performed at every home. Depending on age of the house, equipment and condition of the structure, the measures that are taken are different every time.
On average, the upgrades are knocking peak demand down by 1.5 kW per household, amounting to about $15 in monthly savings back to the cooperative. The utility has had smart meters for more than a decade, and can go back and compare peak load for individual homes to verify the results. But Cayce said that some upgrades are so substantial that there is little doubt they will reduce usage.
"We know those savings are going to be there, but we want to verify it," he said.
The mobile home challenge
Roughly 30% of Ouachita's customers live in manufactured, or mobile homes, but it is a segment the cooperative is still discussing how to approach.
"We have a lot of manufactured homes, and we have [worked with] several," Cayce said. "But we have not included them in everything just because of the nature of mobile homes. We are trying to come up with some solutions."
Equipment replacement would work the same as in an apartment or single-family home, and while replacing insulation is limited by the structure's size that also can be completed. But the PAYS method ties the cost of the improvements to the home — and mobile homes can be mobile.
"We have some other requirements, that they have some kind of equity in the property that stays there, if we make an investment. But there is not a universal program for mobile homes at this point," Cayce said. "We want to make some requirements that the structure is permanent to the location because with the PAYS tariff we're actually investing in the location and we need to get a return on the money we invest."
Ouachita will look up to 12 years out, to recover its investment, with the cooperative recovering up to 80% of the estimated savings and the remainder staying with the member. It applies a 4.5% cost of capital, and if an upgrade does not meet those requirements then in some instances a member could make a down payment to shorten the payback.
The homes Ouachita upgraded last year were, on average, 40-years old. There are a lot of inefficient homes and apartments in its service territory, meaning large savings opportunities. Upgrades for single-family homes returned annual energy savings of 30%. Apartment dwellers, a difficult-to-engage segment, saw energy savings climb even higher at 35%.
"Hopefully, we will be a model that other utilities can follow to adopt similar tariffs," Cayce said.
Correction: The headline has been updated to reflect the concept "Pay-as-you-save." And the post has been updated to clarify the $15 monthly savings and how much the cooperative estimates to save.
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