Missouri utilities moving ahead with on-bill energy efficiency financing

Ameren is proposing a Pay As You Save program that would spare customers the upfront cost of energy efficiency projects.

WRITTEN BY Karen Uhlenhuth May 29, 2020

Missouri’s largest electric utility plans to offer 1,000 of its customers access to energy efficiency improvements minus the often substantial upfront cost. 

Instead, Ameren Missouri will pay the initial cost and then add a small portion of it to the customer’s monthly bill. In theory, the customer’s total bill goes down because energy savings exceed the repayment charge.

The on-bill repayment concept is known as Pay As You Save, or PAYS, and Ameren and Missouri’s two other investor-owned utilities are in various phases of developing or considering programs at the urging of state regulators. 

Ameren filed a document with regulators in mid-May asking permission to offer the funding mechanism on an experimental basis for 12 months starting Jan. 1, 2022. Evergy is working out the details of a 12-month pilot that state regulators approved in January as part of a broader energy efficiency program. Company spokesman Damon Smith said the PAYS experiment will take place before the end of 2022. Liberty Utilities-Empire District is considering moving ahead with a pilot as well, said spokesperson Jillian Curtis.

Utility commissioners became interested in the on-bill repayment system a few years ago after lobbying from the state’s Office of Public Counsel and Renew Missouri, a nonprofit clean energy supporter. Regulators required all three utilities to hire a consultant to evaluate the on-bill repayment protocol. The consultant, the Cadmus Group, said PAYS could work well for all three of them.

Although the PAYS approach has been lauded for removing obstacles that seem to keep renters and people with low incomes from investing in greater efficiency, Ameren will not specifically seek out those customers. Rather, it will target the funding at customers with the greatest potential to reduce their energy usage — those who use the most energy, said Bill Davis, the company’s director of energy solutions.

He imagines someone “possibly older, who has electric heat of some kind, probably outdated. Probably there is very little ceiling insulation in this home, and probably very little air sealing around the windows and doors. Probably not a lot of LED lighting.”

PAYS works financially only for properties that are highly inefficient at the start.

“You have to generate enough energy savings to pay for the upgrades,” Davis said. The PAYS protocol is very specific: It will cover only those improvements where the installed cost of the measures does not exceed 80% of the estimated bill savings over 80% of the lifetime of the measures. The other 20% of the monthly bill savings goes to the payer of the electricity bill, whether an owner or renter.

Although properties with lower potential for savings might be considered, Davis said the bill-payer in those cases probably would have to make a modest monthly payment toward the upgrades rather than getting a small refund.

In the case of his example above, Davis said, “if you would go to an air-source heat pump and insulation and upgrade to LEDs, that would generate tremendous savings that would more than cover the cost over time.”

The program budget includes $5 million to cover the cost of upgrades and related services, an additional $500,000 for more of the energy efficiency rebates the company already offers to all of its customers, and $1.5 million for administrative costs.

While some utilities seek out investors to provide funds for PAYS programs, Ameren will take on some additional debt to fund the pilot, according to Davis.

“If this grows,” he said, “it is an issue we’d need to explore further.”

He said the pilot’s budget is expected to cover the costs for about 1,000 of the company’s 1 million customers.

Once a customer has been accepted, an administrator hired by Ameren will make it all happen. If it finds no structural issues, it will conduct an audit, a blower-door test and determine potential savings and the most impactful measures.

If the property owner wants to proceed, the administrator will recommend specific measures, hire a contractor and schedule and pay for the work from the $5 million it is borrowing for the purpose. Ameren then will put a small line item on the customer’s monthly bill until the work has been paid for. One of the unusual aspects of PAYS is that it is not a conventional loan. No credit check is required. The outstanding bill stays with the property, and falls to whatever occupant or owner pays the electricity bill. Ameren owns the upgrades until they’ve been paid off.

Pay As You Save is structured to almost assure a reduced monthly utility bill because it allows upfront funding only for upgrades that in most cases are guaranteed to result in savings that exceed their cost, meaning the total monthly bill in the vast majority of cases is less after the upgrades than before they were made.

Outside of Missouri, PAYS programs are in effect at 18 utilities, mostly rural electric cooperatives, in eight states. Two utilities that have reported good success are Midwest Energy, a co-op in Hays, Kansas, and the Ouchita Electric Cooperative in southern Arkansas.

There are on-bill repayment systems similar to the trademarked PAYS system. Georgia Power, an investor-owned utility, a couple weeks ago got permission from state regulators to proceed with an on-bill repayment program that resembles PAYS. It is part of that utility’s latest integrated resource plan. It is geared at people with low incomes.

In Missouri, Ameren’s pilot will merely be a “proof of concept” and, if adopted on a long-term basis, PAYS could be modified to target renters and low-income households, said Geoff Marke, chief economist for the state’s Office of Public Counsel and a longtime PAYS enthusiast. Those populations have not benefited from efficiency on the scale of people with higher incomes and their own homes. Marke thinks PAYS could change that.

He also envisions PAYS playing a significant role in Ameren’s very fluid supply and demand balance. The utility is crafting an integrated resource plan, due this fall, that will have to address the future of two large and dirty coal-burning plants, the Rush Island Energy Center and the Labadie Energy Center. Last September, a federal judge told the company to make amends for violations to the Clean Air Act by installing scrubbers at both coal-fired plants. The bill likely would be well in excess of $1 billion. Some observers contend that Ameren has been slow to respond.

Marke sees a “perfect storm” on the horizon. Rather than make a huge investment in the two coal plants, he said the company should look to renewables and ways to reduce demand for electricity. “Something like PAYS,” he said, “could be a very attractive option.”

ABOUT KAREN UHLENHUTH Karen spent most of her career reporting for the Kansas City Star, focusing at various times on local and regional news, and features. More recently, she was employed as a researcher and writer for a bioethics center at a children’s hospital in Kansas City. Karen covers Iowa, Missouri, Kansas, Nebraska, North Dakota and South Dakota.