Legislature(2017 - 2018)BARNES 124
03/16/2018 03:15 PM LABOR & COMMERCE
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HB 374-ON-BILL FINANCING OF ENERGY IMPROVEMENTS 4:06:46 PM CHAIR KITO announced that the final order of business would be HOUSE BILL NO. 374, "An Act relating to on-bill financing by an electric or gas distribution utility for certain energy efficiency and conservation improvements." 4:07:06 PM ROB EARL, Staff, Representative Adam Wool, Alaska State Legislature, presented HB 374 on behalf of Representative Wool, prime sponsor. He paraphrased the sponsor statement [included in committee packet], which reads as follows [original punctuation provided]: HB 374 would allow a utility to voluntarily create an on-bill financing or on-bill repayment program to help customers finance energy improvements. The improvement must utilize renewable energy or include switching to a more efficient device or fuel that does not increase greenhouse gas emissions. This legislation will be particularly useful as the Interior Energy Project expands its reach and a large number of Fairbanks residents choose to convert from oil to natural gas to heat their homes. The on-bill financing program allows a utility customer to borrow money for an energy improvement and then repay it through a "meter conservation charge" on their utility bill. A customer's utility bill, even with the meter conservation charge, is often immediately lower due to savings in energy costs due to increased efficiency. Examples of energy improvements that would qualify under HB 374 include: adding solar panels to a house; converting to a cleaner burning wood stove; and converting a boiler or furnace to natural gas. Weatherization projects such as upgrading windows or insulation would not quality under this legislation. HB 374 allows for utilities to create either an "on- bill financing" or an "on-bill repayment" program. Under the former type of program, the utility provides the capital for the loan to the customer and under the latter a third party financial institution would provide the capital. A utility may recoup all of their costs associated with the program through a line item on the bill of a customer who has elected to utilize the program for an energy improvement. The balance of the costs on an on- bill financing agreement may be recovered by the utility when a property is sold. HB 374 provides an optional tool for utilities and their customers to lower energy costs and improve air quality in Alaska. 4:10:10 PM REPRESENTATIVE SULLIVAN-LEONARD asked how the transactions would work if she decided to put a wind turbine on her property. MR. EARL answered the electrical company would have to implement the program. He suggested it may engage a bank and if wind turbine was included in the options for things that can be financed, the utility would act as "pass-through" for the repayment. He said there would probably be an additional charge on the utility bill to repay the costs. He said it's not specified in the bill what the rate of interest on repayment would be. REPRESENTATIVE SULLIVAN-LEONARD surmised the whole premise is to lower electricity costs. She asked how the bill would lower costs. MR. EARL explained the lending institution has extra assurance that if the loan is behind, the utility will shut off power to the customer. He gave the example of a $5,000 improvement with a 10-year loan, at 3 percent the payment added to the monthly bill would be around $48. He said once the charge is paid off, the total bill would almost certainly be lower going into the future. 4:14:02 PM GENE THERRIAULT, Alaska Industrial Development and Export Authority (AIDEA); Interior Energy Project (IEP), testified in the hearing on HB 374. He said Alaska Energy Authority and AIDEA had worked together with Interior communities for a more affordable, cleaner source of fuel. He informed the Property Assessed Clean Energy Act (PACE) legislation put in place to target businesses and the on-bill mechanism of HB 374 has many of the same attributes of the PACE legislation. He explained the monthly bill would be used as a means to recapture a loan payment for converting property to natural gas or solar panels. He said that by attaching or borrowing the strength of that relationship, it could lower rates of default. He added lower default leads to lower interest rates. MR. THERRIAULT referred to a working group that was set up in the Interior to examine ways of incenting customers to avail themselves of the mechanisms for transferring to natural gas. He said the participants were asked to bring in recent bills and then answer questions. He stated he was surprised that an on- bill repayment mechanism was more popular than a lower interest rate for a loan. He said the ability to finance an improvement on their property and enjoy the benefit of the improvement and pass on the obligation attached to the meter to the next owner was popular. MR. THERRIAULT spoke to research done with the Rural Utilities Service (RUS) program at the United States Department of Agriculture (USDA) for federal funds that could provide financing to the consumer. He said he was surprised to find that on-bill financing was proposed as a way to ensure low default rates associated with the lending. He said if the federal program was to offer low interest money, it would want to ensure it is involved in low risk lending. MR. THERRIAULT said a lot of arrangements made between the parties would be put down in contracts to ensure that the utility passes on the repayment to the lending institution. He stated that on behalf of AIDEA and IEP, it is an important tool for utilities. He spoke to further research on other states' approach to on-bill financing and on state statutes to determine if legislation is absolutely necessary. He indicated Alaska state statute is silent on the issue. He said the proposed bill would clarify in state law that on-bill financing is available on a voluntary basis. 4:22:06 PM JOMO STEWART, General Manager, Interior Gas Utility, testified in support of HB 374. He thanked the sponsor for the legislation. 4:22:43 PM ALEC MESDAG, Director, Energy Services, Alaska Electric Light and Power (AEL&P), testified in support of HB 374. He explained this bill will provide a valuable tool, particularly among consumers that have limited options. He surmised the proposed bill wouldn't create an initial decrease in bills but that there is still a lot of value in it. He suggested there is a tendency to underestimate comfort as a defining factor. He stated updating windows may not directly decrease bills, but the added comfort would impact how high the heat is kept. He mentioned it would be important to review how fuel switching is defined in the proposed bill. He suggested it may be useful to include some language to grant discretion to utilities to preclude certain measures that could be a detriment to the system. 4:27:14 PM REPRESENTATIVE JOSEPHSON asked how the sponsor would know about what AEL&P would accept as a conservation measure. MR. MESDAG said his concerns were very system-specific, so it would need to be a general allowance. 4:28:16 PM CHAIR KITO opened public testimony on HB 374. 4:28:35 PM STUART COHEN, Interfaith Power and Light, testified in support of HB 374. He said Interfaith Power and Light was attempting to implement a program that replaces inefficient oil and electric heating systems with air source heat pumps. He explained a heat pump is like an air conditioner and can reduce heating bills by 40 percent to 70 percent. He said it costs about $4,100 to install. He said they are used in China because the systems are cheap. He spoke to modelling in Juneau, Alaska, on 8,901 private buildings. He said if Juneau, Alaska, were to convert all 8,901 buildings in the model, the energy savings would amount to nearly $10 million a year. He said the company who carried out the modelling said that quick finance system is crucial. He said that for those with a low income, it could be hard to come up with the money for a heat pump. He said the proposed bill, by enabling third party financing, would reduce the risk for both borrower and lender. 4:32:47 PM CEAL SMITH, Alaska Climate Action Network, testified in support of HB 374. She stated her organization is very happy to see the proposed bill. She mentioned the language in the proposed bill is not clear regarding weatherization. 4:35:43 PM CORY BORGESON, CEO, Golden Valley Electric, testified in support of HB 374. He stated his is a not-for-profit electric utility. He said he thinks the proposed bill is "fairly broad." He indicated he was not certain that Golden Valley "would jump into this," but that there are opportunities to provide financing for its consumers to move into renewable energy products. 4:37:45 PM CHAIR KITO held over HB 374.