Energy Efficiency Upgrades in Buildings
- Immediate net savings (20% of estimated savings immediately accrue to customers)
- Value of 100% of savings accrue to customers once all utility costs have been recovered
- More comfortable and healthier buildings
- No upfront cost, no debt obligation, no new liens on property
- Lower exposure to energy rate increases
The PAYS® system is designed to cap the cost recovery charge at 80% of estimated savings. This means that the customer will enjoy net savings that are at least one-quarter (1/4) of the cost recovery charge until cost recovery is complete, at which point the customer will receive 100% of the savings.
Any upgrades that improve the performance of the customer’s energy uses would be eligible.
Some utilities require that eligible measures must be affixed to the property.
This scope can be narrowed to energy efficiency and demand response upgrades only at first, and then broadened to include other smart grid solutions including on-site storage and distributed renewable energy.
Among those upgrades that are eligible, only those that are found to be cost-effective will qualify for investment based on the rules described in following Q&As:
- Is there a maximum duration of charges based on the useful life for upgrades?
- How should the cost-effectiveness of the upgrades through an opt-in tariff program be evaluated?
- What is the portion of the estimated savings from the utility’s upgrade investment that the customer keeps?
- Lower energy and demand costs of wholesale supply
- Deferred investment in peak power
- Address hot spots and service to areas constrained by delivery capacity
- Reach under-served market segments, including renters and low-moderate-income households
- Improved customer satisfaction
- Low cost, market-based options to attain clean energy and carbon pollution targets
- More productive local economy with less resource waste
In the PAYS system, the maximum duration of the estimated period for cost recovery is typically 80% of the estimated useful life of the upgrades –- or the duration of a full parts & labor warranty, whichever is longer. For building efficiency upgrades, that period is typically around 12 years.
The cost-effectiveness of the upgrades should be evaluated by a site specific cost-effectiveness analysis. To determine which upgrades would meet the threshold for immediate net savings for customers, the analysis performed for each site includes (A) the cost of installing the upgrades, (B) less the utility’s rebates and/or incentive payments, (C) the utility’s cost of capital, and (D) estimated savings for customers based on current rates.
The PAYS system does not guarantee a certain level of energy savings. The margin between savings estimates and tariffed charges (i.e. the 20% immediate net savings allocated to customers) assures customers they will save more than they pay. PAYS is designed to assure customers that the cost recovery charges will stop if the upgrades fail to perform or all costs are recovered, whichever comes first. If the upgrades do stop working at no fault of the customer, the utility will suspend charges, arrange for repair or replacement, and if necessary, the utility can extend the cost recovery period to take those additional costs into account.
Investments in efficiency upgrades made through a tariffed on-bill program are tied to the meter, not to the person holding the account. The utility recovers the costs for those upgrades with a fixed charge on the meter, regardless of who occupies the property. The terms of the tariff apply to service at that meter until the utility’s costs are recovered.
The utility only invests in upgrades that are cost effective, and the threshold for cost effectiveness includes a significant net savings requirement. That means the fixed charge for cost recovery will be less than the estimated savings on an annual basis. The fixed charge does not increase when rates increase, creating additional value for the upgrades. As a result, a successor customer will receive the benefits of an improved building and receive a lower bill than would otherwise be due for the energy services at that site.
The successor customer (whether renter or owner) will enjoy the net savings from the investment, and until cost recovery is complete, the customer will likewise be obligated to pay the fixed, on-bill charge, which is significantly less than the estimated annual savings. Due to the on-bill payments made by the prior customer(s) served by that meter, a successor customer will have fewer billing cycles remaining until cost recovery is complete, at which point they will enjoy 100% of the savings.
The utility only bills for service when the meter is active. If a site is vacant, the meter may be shut off, in which case cost recovery will resume when a successor customer opens an account at that site. If the utility misses cost recovery due to inactivity at the meter, the utility can extend the cost recovery period to collect the missed payment cycles. If the cumulative period of inactivity extends beyond the continued functioning of the upgrade, the utility may choose to charge-off the investment as uncollectible.
Yes. It is essential that customers who choose an opt-in tariff program be eligible for the same rebates that are available to customers through rate-based programs in order to avoid creating a reason for customers to not opt in to the tariff.
The average scale of investment in cost-effective energy efficiency upgrades at a site depends on the type of site, weather zone, the energy use equipment in the building, the utility’s cost of capital, and the useful life of the upgrades being undertaken. For residential energy efficiency upgrades undertaken through on-bill programs in Kansas, Kentucky, and Arkansas, the average cost of all cost-effective energy efficiency upgrades at a site are in the range of $6,000-8,000.
Yes. The tariff terms are not affected by a change in occupant behavior or occupancy. The upgrades eliminate energy waste and continue to reduce usage at the location compared to what would have been needed to serve the occupant’s end uses. The tariff does not preclude occupants from using any amount of energy for any purposes they choose, which is an important consumer protection.
Yes, there are cross-subsidies from customers in the opt-in tariff program to non-participants. Two categories of benefits include avoided demand costs and deferred capital requirements.
- Utility systems with weather-driven peak demand can reduce peak demand by investing in energy efficiency upgrades to weather-driven loads as part of their investments in whole building energy upgrades.
- Utility systems with distribution circuits or substations that are reaching load capacity can defer investment in expansion with deliberate focus on energy efficiency upgrades in areas served by those assets.
Non-participants pay only what is warranted for the benefits of the PAYS program, and PAYS does not produce “free riders” because customers pay for 100% of their cost for the most cost effective upgrades.
No. Even while possible, disconnection for non-payment is unlikely because the electric bill at that site is lower as a result of the investment in efficiency upgrades.
Yes. Once approved as a tariff, the PAYS charge will be covering costs for an essential utility service, subject to the same disconnection rules as a regular bill.
See: 04 NCAC 11 R12-11 (“Disconnection of Residential Customer’s Electric Service,” which refers simply to the bill and defines payments as “delivery of the amount due to a company.”
Before the utility can upgrade a property, the owner must consent. In the same agreement, the owner agrees to disclose to successor renters or prospective buyers that the utility has made improvements that result in savings for the account holder at that site. The agreement provides the owner with language that can be added to a lease agreement, for example.
The How$mart® program offered by Midwest Energy is the largest and longest-running residential tariffed on-bill program using the PAYS system. Midwest Energy has reported that 85% of its general membership gave the cooperative a high score for customer satisfaction, compared to 97% for participants in the How$mart® program. Similarly, the cooperative reported that 68% of its general membership gave the cooperative a high score for value compared to 96% for How$mart® participants.
The Southeast Energy Efficiency Alliance published The Utility Guide to Tariffed On-Bill Programs, the most definitive current resource (as of January 2020) in the field on this program model.
Previously, Energy Efficiency Institute, Inc., the creator of PAYS, produced a Decision Tool for Utility Managers at the request of Roanoke Electric. That valuable resource is also still available online: www.roanokeelectric.com/pays