Financing Energy Efficiency for Municipal Electric Utility Customers in North Carolina

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Energy efficiency finance programs can help electricity customers to save money on their electric bills, have more efficient homes and offices to live and work in, reduce greenhouse gas emissions from energy production, and promote workforce development, job creation, and economic growth in local communities which may be very much in need of these benefits.

In the Old North State, electricity customers are generally served by one of three kinds of utilities: Investor-owned utilities (IOU’s), co-operative utilities (co-ops), and municipal electrical utilities (munis). As part of the its energy and sustainability financing programs, the Environmental Finance Center at the UNC School of Government is now working on the Rural Community Energy and Economic Capacity Building Program, funded through a grant from the U.S. Department of Agriculture’s Rural Community Development Initiative (RCDI), to research and develop ways to help electricity customers in three small towns in northeastern North Carolina to have greater access to energy efficiency (EE) financing alternatives. Two of these three towns have their own municipal electric utilities.

This brings us to the key questions of this blog post: What are utilities already doing in North Carolina to promote and finance EE for their customers? What other alternatives exist? And why does this matter in the first place?

Energy Efficiency, Workforce Training, and Economic Development

Let’s take that last question first. As the EFC has blogged about previously, successful energy efficiency financing programs can have a variety of benefits for local communities:

  • Dollar savings to individuals and organizations
  • Energy savings that also reduce CO2 emissions
  • Local jobs created, workforce training, and economic development

Taking the first point, if electricity customers use energy efficiency financing programs to install EE measures in their homes / offices / buildings, they will start saving on their electric bills. However, a good EE financing program must be structured to help them with the up-front cost of the retrofits, and their ability to pay back any loans that may be involved. Secondly, since much electricity remains carbon-based, any energy usage reduction from such a program will necessarily reduce some of the greenhouse gas emissions associated with energy generation. And finally, the work being done on site to do the initial energy assessments, perform the energy efficiency retrofits, etc., will generate more work for energy assessors, contractors, and others in the business world. This will necessitate training these people in how the EE financing program works so that they can work hand in glove with local governments, funders, and end-use customers. In addition, the availability of funding for energy efficiency may help communities to attract new investment, new construction, and other economic growth opportunities.

Eastern North Carolina, ElectriCities, and Duke Energy

In eastern North Carolina, there are 32 cities and towns with their own municipally owned and operated electrical utilities – a considerable example of public power in operation. (Over half a million people are served by the 32 eastern N.C. and 19 western N.C. municipal electrical utilities.) These 32 municipalities banded together several decades ago to form the North Carolina Eastern Municipal Power Agency (NCEMPA) to coordinate their efforts and pool their resources, such as for the purchase of electric power collectively, which they can then resell to their local municipal customers. These 32 municipal electrical utilities also have their interest advocated for and services provided to them by ElectriCities of North Carolina, Inc., which provides:

…customer service and safety training, emergency and technical assistance, communications, government affairs and legal services. Through consolidation of these services, members save their customers the expense of administering these functions locally.

ElectriCities also provides management services to the state’s two municipal Power Agencies: North Carolina Municipal Power Agency Number 1 (NCMPA1) and North Carolina Eastern Municipal Power Agency (NCEMPA). Most member cities have been in the electric business for 100 years or more.

In the past couple of years, an effort by the NCEMPA members, supported by ElectriCities, to negotiate the sale of their generation assets to Duke Energy was successfully completed, allowing the NCEMPA members to retire a significant portion of their debt. Thus, NCEMPA members were able to pass on the savings to their own customers. (The 32 eastern N.C. municipal electrical utilities retain their transmission and distribution (T&D) assets, hence they still sell power at retail to their end-use customers.)

In order to promote energy efficiency, ElectriCities offers its members the chance to request energy assessments of residential homes, and businesses, through an existing program where a member city/utility contacts ElectriCities to request that an energy assessor come to the local community to do a number of assessments. These energy assessments can then serve as a basis for the customer to do energy efficiency projects – but how to pay for it? What is currently available in eastern N.C. for municipal electricity customers?

Some of the NCEMPA members (especially in the larger communities) offer rebate programs. For example, the city of New Bern, N.C., has a program for rebate credits on customers’ electric power bills for existing homes. First, a credit of $100 per ton per unit, for a maximum of $400, is offered per energy efficient central heat pump with heat strips for replacement units. The program also offers a $150 rebate credit per high efficiency electric water heater.

New Bern also has an electrical load management program where customers may have load switches installed on their HVAC systems and/or their water heaters. While participation in this program is voluntary, if the customer wishes to receive the aforementioned electricity rebates, they must sign up for the load switch program for their new equipment. The load switches are not used every day by the electrical utility, but only during periods of peak demand (usually on hot summer afternoons or on cold winter mornings). Water heaters are cycled off, but are designed to keep water hot for several hours after the power is turned off. Compressors on heat pumps in cooling mode and central air conditioners are cycled off for 7½ minutes each half hour of the peak demand. The indoor fan is not cycled allowing cooled air to be circulated. Heat pumps in heating mode have their auxiliary heat strips cycled off. The compressor is not cycled and will continue to heat.

While the load switch program is primarily designed to help the electrical utility manage wholesale power purchase costs associated with coincident peak demand, the end use electrical customer receives savings on their bills by participating. For each month of the year there is a $5/month rebate for a water heater, and a $5/month/unit rebate for heat pumps paid June through September. Heat strips earn a $5/home/month rebate for December and March and a $10/home/month rebate for January and February. Other NCEMPA members such as Elizabeth City, Edenton, and Hertford, among others, have similar load switch credit programs. However, such programs as the rebates and load switches programs mentioned here are limited in nature. How may eastern N.C. public power providers offer additional energy efficiency finance programs to their electricity customers?

Additional Possibilities for Energy Efficiency Financing Programs

This is a larger topic and will be a subject for subsequent blog posts. But in short, some of the main alternatives for a municipal electrical utility in eastern North Carolina may include:

  • Energy efficiency direct loan programs – The municipality may elect to loan money to its electrical customers for the purpose of helping them afford energy efficiency retrofits on homes or businesses. However, in so doing, the municipality likely would assume the full cost of financing and associated risk. Perhaps a grant opportunity could be found, but if not, current North Carolina law does not appear to permit local governments to themselves take out loans from a bank or other funder for the purpose of promoting energy efficiency.
  • Property Assessed Clean Energy (PACE) programs – In theory, this alternative is available to North Carolina local governments, but only on the commercial side, since the statewide enabling legislation essentially does not permit residential PACE activity at this time. However, no N.C. communities are currently engaged in commercial PACE that we are aware of, due several potential challenges.
  • On-Bill Finance (OBF) and On-Bill Repayment (OBR) – This option has real potential for eastern N.C. municipal electrical utilities, and we are continuing our research on helping one or two of them develop such programs. Under OBF, the utility itself typically puts up all of the capital needed (from ratepayer capital through the electric enterprise fund, or taxpayer capital through the general fund, etc.). Under OBR, a third-party funder (bank, credit union, etc.) puts up the needed capital, and the electrical utility serves as a pass-through for a surcharge on the customer’s electrical bill to help repay the funder across time. However, some funders may need credit enhancements from local communities in order to agree to offer such a program.
  • Loan Loss Reserve Programs – This option may work well in combination with OBR, where the local community makes some capital available to help ensure against losses, within certain limits, that the lending institution may face under and OBR program. The EFC has in the past helped communities in Virginia, Florida, Hawai’i, and elsewhere, design and implement loan loss reserve programs.

Through the Rural Community Energy and Economic Capacity Building Program, and other projects, the EFC is excited to continue research on and support for such energy efficiency financing programs in eastern North Carolina, and beyond.

David Tucker is a Project Director at the Environmental Finance Center at the UNC School of Government.

Cover image source: http://www.genesys-project.eu/wp-content/uploads/2014/06/Energy-Savings.jpg

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