No Catch: Lower Electric Bills Pay for High-Efficiency Retrofits

by Kyle Massey  on Monday, Sep. 11, 2017 12:00 am   7 min read

Linda Hodges kept looking for the catch.

Her utility had a remedy when she was “bawling and squalling” over her $600- a-month summer light bills, but Hodges had a suspicious mind.

Ouachita Electric Cooperative Corp. in Camden offered to seal up her 1,300-SF home, stuff it with insulation and install a high-efficiency 4-ton heating and air system. And here’s the kicker: It would also arrange $11,000 in financing without charging a nickel out of pocket. Payments would be applied to her bill, and even so, the bill would drop.

“When something seems too good to be true, you ask what are they gaining?” said Hodges, an ex-nurse sidelined by strokes who now runs a nonprofit and nurtures her grandchildren from her home outside Louann.

And what was the catch?

“I couldn’t find any,” Hodges said. “I even asked about the interest, but at 4.5 percent it was about half of what the contractor’s own finance program” was charging in interest outside the co-op’s initiative.

OECC’s PAYS program — for Pay As You Save — has erased the doubts of landlords and homeowners alike, retrofitting close to 300 homes at a cost of $1.5 million since April 2016. Unlike earlier energy-efficiency programs, PAYS offers big improvements like HVAC units, which are paid for by an individualized surcharge on power bills that are still lower than members had been paying.

Efficiency auditors found enough leaks in Hodges’ home to equal a four-foot-square hole. “Now that was shocking, but they also explained that my air unit was too small,” she said. “It was struggling and using too much power, and despite all that, and several window units, we still couldn’t get comfortable.

“That’s the thing. If I have to pay $600 a month on electricity, I shouldn’t sweat.”

Over the next six weeks or so, contractors she picked from an OECC list “sealed my windows and my doors, added attic insulation, removed all the window air, put in efficiency light bulbs and placed a new efficient heat pump,” said Hodges, a compact and clear-spoken woman despite her two strokes. No longer nursing because of liability issues, she runs an anti-hunger nonprofit, South Arkansas Pantry Fillers.

“In July 2016, my light bill was $620. In July 2017, it was a little less than $300. But above all — the most important thing — is I was comfortable,” Hodges said. “And I can cook now in the summer and buy groceries; we don’t have to eat out, which is expensive for eight people. So the savings goes past just your electric bill.”

The program has provided efficiency retrofits for more than 5 percent of the co-op’s residential customers, according to Norma Beaver, Ouachita’s member services manager.

The key is an innovative financing structure that uses an on-bill tariff, or electric rate, applied to a specific electric meter. If members move, the rate remains with the house or apartment, and new residents benefit from the upgrades and continue making the payments.

The result, as the trade publication Utility Dive put it, “is instant on-bill savings for the customer and a decreased load for the cooperative.”

Innovative efficiency finance programs like PAYS are active in only a handful of rural electric cooperatives nationwide, but the idea is spreading. South Central Arkansas Electric Cooperative has a similar plan pending before the Arkansas Public Service Commission, according to PSC Executive Director John Bethel.

OECC’s version has already cut bills for hundreds of its members, including public schools, Southern Arkansas University-Tech in East Camden, the Calhoun County Courthouse and the municipal building in Hampton, as well as the Arkansas Law Enforcement Training Academy. SAU-Tech’s savings, largely the result of far more efficient lighting, are expected to reach as much as $90,000 a year.

No Credit Check or Collateral
OECC serves about 9,500 electric meters in south Arkansas — including a fair number of renters and mobile-home dwellers, precisely the kind of relatively low-income, dispersed members who reap the greatest benefit from efficiency.

“There’s no credit check and you don’t have to have collateral,” CEO Mark Cayce said. The only requirement is paying your electric bill. The co-op is also working on a plan to serve mobile homes, which are problematic because their very mobility complicates the fixed-tariff model.

Other than that hitch, Cayce says, the program is off to a roaring start.

“It’s important for our membership that we provide the financing,” Cayce said. “We had done sealing and insulation work since 2014, but the tariff approved by the Public Service Commission allowed us to begin with heating and air.”

The average cost per home is about $6,000, Cayce said, and bills have been going down by 30 to 40 percent. “We apply up to 80 percent of the efficiency savings to the loan, and residents get at least 20 percent of the savings until payoff” — on average about 10 to 12 years.

After that, the customers “get 100 percent. We pay up front and put that on the bill as a fixed charge. Our own employees inspect the auditors’ and contractors’ work before those folks get paid.”

The program’s lender is the National Rural Utilities Cooperative Finance Corp., a nonprofit finance unit created and owned by America’s electric cooperative network.

When projected electric-bill savings aren’t quite big enough to cover the repayment installments, a co-payment is required from co-op members. Co-pays were required in 22 of 91 single-family retrofits in 2016, averaging just over $1,000 apiece, about one-sixth of the overall cost.

OECC works largely with local HVAC contractors, including Dean’s Heating & Air, Duncan Service Co., Hampton Heating & Air, Keithley Heating & Air, Southern HVAC and Weaver Heating & Air. The program’s retrofit contractors are Seal Energy Solutions of North Little Rock; 3e Ark LLC and PDC Construction, both of Little Rock; and B4 Contracting LLC of Camden.

“We’ve always advised our members on efficient use of electricity,” Cayce said. As a member-owned electric cooperative, OECC has no profit motive. “Our biggest expense is our own power supply, and half of that cost comes from peak demand charges,” he added.

“If we can help our members make energy-efficiency improvements, it lowers their utility bill and lowers our cost of power. This benefits all.”

Before the PAYS program, the co-op had a small lending program for retrofits, but those loans required collateral and home ownership, and most members were left out. After PAYS financing became available, 72 of 78 single-family members invited to participate without co-pays in 2016 accepted, and 46 of 61 accepted even with co-payments.

Landlords were even more enthusiastic. Unanimous, in fact: All 82 units in multifamily complexes that were offered the program in 2016 accepted, including 17 units that required co-pays. Even more apartments have been retrofitted so far in 2017.

One happy landlord is Mike Sherman, who manages the Ken’s Discount Building Materials store in Camden but is also founder of Bussman Partners, along with his wife, Lisa, and Delean and Karen Bussell. Bussman Partners owns five fourplex buildings in East Camden, and OECC’s program was a godsend for rehabilitating them.

“They sealed the doors and windows, checked the AC ducts, put in new LED lights and new central heat and air units that are as efficient as you can get,” Sherman said. “This was probably around $200,000 worth of improvements, and will be paid off through tenants’ electric bills.”

Sherman said the apartments, which rent for about $400, “had been really neglected” when Bussman bought them more than two years ago. “The first thing we did was put new roofs on all of it, and our next thought was to seal it up.”

Sherman saw signs promoting OECC’s program, then learned more from the co-op’s website. “The replacement of heating and air units was a large expense that we knew we had coming, and with the program’s help with that, we’ve been able to make other improvements,” he said. “Our turnover is way down, and we have 19 of the 20 apartments rented out now. Tenants with lower utility bills are happier, and more are staying put. I’d wholeheartedly recommend the program to any landlord.”

Smaller Retrofits Draw Praise
On the homeowner side, the savings seen by Hodges, the former nurse, are certainly on the high end. But residents who saw more modest results still champion the program.

Jacqueline Dunn, a quick-witted project director for the Southwest Arkansas Resource Conservation & Development Council, works from home in her 2,400-SF home a dozen miles north of Camden.

Her savings weren’t dramatic but she is far more comfortable, and the retrofit was inexpensive. “They put 12 inches of insulation in the attic, sealed the leaks and put in efficient CF [compact fluorescent] light bulbs,” she told Arkansas Business, smiling in OECC’s conference room in Camden. “My highest bills were like $180 a month, and now, including the payment, they’re about $120.”

Instead of running window-unit air conditioning, she now gets by with ceiling fans inside her well-shaded home on Arkansas 7.

“They did a marvelous job. Having a 35-year old home, I thought there’s no way I can pay thousands for renovations. But now everything’s changed. I encouraged my brother, and now he’s going through the program.”

‘An Innovative Approach’
The Pay as You Save program is largely the brainchild of Holmes Hummel, a Stanford Ph.D. and founder of Clean Energy Works, a nationwide promoter of efficiency finance programs. Cayce also gives credit to the state PSC for seeing merit in the program and unanimously approving the meter-specific rate in February last year.

Bethel, the PSC director, said in an email that PAYS is “an innovative approach to achieving significant energy efficiency improvements in hard-to-reach segments of Ouachita’s member owner base. ... It is my understanding that Ouachita has experienced a positive response from its members.”

Participation by residents has more than tripled since PAYS replaced the co-op’s previous efficiency program, known as HELP, according to full-year 2016 data. Cayce expects more than 500 homes to have entered the program by the end of this year.

“Oh, I wish I could say it was my idea, because it serves us well, too,” Cayce said. “By using a tariff to provide energy-efficiency improvements, we knew that would work, and that rental homes and apartments would qualify.”

Whether homeowners or renters, residents get quick savings, and property owners get improved equipment and cozier spaces.

“Our goal is to get to all of our permanent residences, and maybe in five years we can get 75 percent to 90 percent complete,” Cayce said.

Cayce isn’t the only one hoping the program eventually reaches almost everybody on OECC’s system.

“It’s just a real blessing for just about anybody,” said Hodges, the Louann homeowner. “Here’s one way to look at it: That $300 light bill I told you about, down from more than $600? It also included my payment back.”

 

 

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