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August 13, 2012

On the Horizon in Ohio: Is There Potential for Funding Energy Projects Through Innovative “On-Bill Repayment” Mechanism?

A Green Strategies Bulletin

“On-bill repayment” (OBR) is a legislative initiative that may be gaining momentum in Ohio. OBR is a method for financing energy efficiency and renewable electricity generation projects through a homeowner’s or business owner’s monthly utility bills. Not to be confused with on-bill financing, projects funded under OBR programs are financed by third-party investors or lenders and are not financed directly by utility companies or ratepayers. OBR permits customers to repay the investor or the lender through payments added to its monthly utility bill instead of direct payment to the investor or the lender.

Through OBR, customers can theoretically avoid the need to make a significant upfront capital investment because the third-party investor or lender pays the upfront cost of a new or retrofitted energy project and agrees to be repaid over time with interest. By extending repayment obligations over a sufficient period of time, an OBR customer’s monthly payments can be structured to be less than the expected savings of utilizing more efficient and updated technology, thereby resulting in customer savings from day one.

OBR programs operate much like personal or business loans and must be repaid in full when a customer relocates. In addition, in the event that a homeowner or business fails to pay their energy bill, the utility would follow all standard procedures for resolving disputes over unpaid energy bills. See a fact sheet from the Environmental Defense Fund (EDF) that provides an example of how an on-bill repayment program would operate for a homeowner.

This past spring, the California Public Utilities Commission evaluated proposed policies for OBR and has moved closer to creating a statewide program. Other states are considering following in this same direction. Like other states, there may be potential for OBR in Ohio.

OBR shares some similarities with the financing mechanism known as “Property Assessed Clean Energy” (PACE). As adopted in Ohio and other states, PACE allows alternative energy and energy efficiency improvements to be repaid through an assessment on a property owner’s property tax bill. See Bricker & Eckler’s recent article on PACE financing. In the case of PACE, the property itself acts as security for the financing to help drive down interest rates because delinquent assessments may be foreclosed upon in the same manner as delinquent real property taxes. With OBR, the ability of the utility to cut the power for lack of repayment would mitigate risk for lenders and investors and may enable lending at low interest rates.

At this time, various stakeholders are considering how on-bill repayment may help businesses in Ohio.

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