Inclusive Utility Investments: Tariffed On-Bill Programs

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On this page:

• Examples from the Field
• Program Characteristics
• Reaching Underserved Communities
• Roles and Responsibilities
• Getting Started

Tariffed on-bill (TOB) programs, also referred to as inclusive utility investment (IUI) programs, enable a utility to pay for cost-effective energy efficiency or other clean energy upgrades at a customer site. The utility recovers those costs through a fixed, site-specific charge on the customer’s monthly utility bill that is less than the estimated savings from energy bill reductions.

These types of programs, unlike on-bill loan programs, are accessible to all customers because they do not require consumer credit or income qualification; there is no required upfront cost to the customer; and the cost recovery is associated with the meter rather than an individual. These attributes help make building energy upgrades accessible to renters, energy-burdened households, those who lack capital or credit, and those unwilling to accept a personal debt obligation to pay for the upfront costs of clean energy upgrades – all of which can be significant barriers to consumer investments in improvements.¹

Tariffs describe the terms of cost recovery for a utility investment, and they are an obligation assigned to the customer at the utility meter; they are not a loan to the customer.² Until the utility’s costs are recovered, the cost recovery charge at a site applies to future residents at that location, who also continue to benefit from the upgrades. In the Pay As You Save (PAYS®) system, an example of a TOB program design, a homeowner is obligated to notify a prospective buyer or renter of the installed energy upgrades and the terms for cost recovery that apply to the site.³.

The PAYS® system incorporates consumer protections such as requiring that upgrades and the associated monthly charge must not entail new debt or liens for the participant, and that upgrades may not be repossessed. In these ways, PAYS® is designed to be effective for reaching low- and moderate- income (LMI) customers.⁴ The PAYS® model outlines several important consumer protections that enable participants to realize the savings of the investment through lower energy bills, even as the utility recovers its costs.⁵

Like on-bill financing and repayment approaches, the upgrade investment is recovered over time with a portion of the energy saving realized on the utility bill. Eligibility for these programs may be determined by reviewing a customer’s utility bill and payment history, but some programs prohibit this by design. Utility bill data can be used to find households that are good candidates for the program, such as homes with high energy usage relative to their size. These customers are more likely to have inefficient homes and/or equipment that could be candidates for more cost-effective investments. These data can also be used in conjunction with payment history to identify customers struggling to pay their bills, which can be an indicator of high energy burden.⁶

Inclusive utility investment / tariffed on-bill programs can support a variety of energy-saving measures. The extent of the upgrades depends on a variety of factors that determine cost-effectiveness, which includes upgrade costs, estimated savings, and availability of other incentives, rebates, or funds for an optional co-payment. The program model has most often been applied to energy efficiency investments that have high upfront installation costs. Common measures include attic insulation; air or duct sealing; lighting improvements; heating, ventilation, and cooling (HVAC) upgrades; and water heater upgrades, among others. Renewable energy technologies such as solar photovoltaic (PV) installations and electric vehicle (EV) charging stations and industrial motors also have potential to be included in tariff on-bill programs if (1) the savings are significant and persistent enough to generate a value stream greater than the cost of the improvement, and (2) the tariff includes a path to ownership for the site owner.

These programs are applicable to several underserved markets, including rural single-family homes, manufactured housing, and the multifamily sector. Tariffed on-bill programs have been used to provide energy efficiency improvements in Kansas, Kentucky, Hawaii, Arkansas, Tennessee, North Carolina, South Carolina, Missouri, Minnesota, New Hampshire, Virginia, Georgia, and California, as well as other states where the programs are accessible to households of all income levels. As of 2023, 30 utilities have implemented or are in the process of implementing a tariffed on-bill program.⁷

Inclusive utility investment / tariffed on-bill programs generally share the following key features:

• The utility makes energy efficiency and/or renewable energy investment at the site and recovers that investment over time through energy bill savings with a tariffed charge to the customer on the monthly utility bill.
• Until the utility’s costs are recovered, the tariff applies automatically to existing and future customers at an upgraded site because the upgrades are part of the services to that metered location.

Inclusive utility investment / tariffed on-bill programs may be administered by the following entities:

• Utilities typically develop a tariffed on-bill program or work with third parties to administer the program. Utilities often prioritize attention to a specific type of upgrade or customer segment and will identify sources of capital.
• Local governments can work collaboratively with utilities to establish tariffed on-bill programs and may provide complementary funding for technical assistance or start-up costs for program administration. Local governments may also issue debt to help develop programs for municipal utilities.
• State governments and utility regulators – Utilities must seek approval from their regulators in state or local agencies for a utility tariff. Regulatory approval can be supported with consumer protections built into the program design.
• Housing finance authorities may be given the authority to administer programs, working with the utilities and other state entities.
• Third parties, such as a benefit corporation, may administer programs, overseen by utilities and their regulators.

Credit enhancements may be administered by the following entities:

• Local and state government agencies can establish a credit enhancement fund or program to absorb loan risk and encourage private lenders to provide attractive loans to commercial, industrial, residential, or nonprofit sectors to support energy efficiency and renewable energy markets or products.
• Third-parties or private lenders can issue loans for clean energy improvements and are responsible for administering the loans on behalf of the government funder. Lenders often work with local and state government agencies to ensure that financial tools are designed to target key sectors (e.g., LMI communities) successfully.

Examples from the Field

Ouachita Electric Cooperative – HELP PAYS ®, Arkansas

• HELP PAYS began as an on-bill loan program called Home Energy Loan Program, and later converted to a more inclusive tariffed on-bill program based on the PAYS® system (2016–present).
• The utility invests in weatherization, HVAC system upgrades, demand response equipment like smart thermostats, and on-site solar systems. It serves single-family, multi-family, and non-residential customers.
• Residential participants have seen an average monthly gross electricity reduction of 20%,⁸ resulting in an average cost-recovery period of 12 years.

Midwest Energy Cooperative How$mart®, Kansas

• Midwest Energy launched the program in 2008.⁹
• The utility serves residential and small commercial businesses.
• The utility invests in energy efficiency improvements, such as insulation, air sealing, new heating and cooling systems, and commercial lighting.
• The utility partners with the local Weatherization Assistance Program to combine these services. The annual cost-recovery fee paid by participants cannot exceed 90% of estimated savings.

Roanoke Electric Cooperative – Upgrade to $ave, North Carolina

• The utility launched the program in 2015 with outreach focused on single-family and manufactured homes
• The utility invests in energy efficiency home upgrade measures including weatherization and HVAC replacement and demand response measures including Wi-Fi thermostats and water heater load control switches.
• The program has enrolled more than 10% of the utility’s residential customer base, approximately half of which require repairs before full upgrade. Over the lifetime of the upgrades, the estimated net present value to the utility of the upgrades installed to date is $3,047 per home and $1 million for the program.

Ameren Missouri – Pay As You Save®, Missouri

• Ameren Missouri, an investor-owned utility, launched a $15 million program based on the PAYS® model in 2021 to serve single-family residences.
• The utility invests in energy efficiency home upgrade measures such as high-efficiency HVAC systems, attic insulation, duct and air sealing, and LED lighting.
• Utility regulators have approved inclusive utility investments to have the same earnings potential as any other utility capital investment.¹⁰

Program Characteristics

Here are the typical characteristics of tariff on-bill investment programs.

Program types	Inclusive utility investment via tariff with on-bill cost recovery
Target sectors	Residential: Homeowners, Renters; Multifamily; Manufactured housing; Nonprofit; Transportation
Potential funding sources	Utility capital markets; federal loan programs; state energy or housing programs
Security required of borrower	N/A, no consumer debt
Repayment mechanism	Utility bill
Funding needs	Typically, sponsors must provide a moderate level of funding to initiate a program that can reach a large number of participants
Enabling legislation requirement	Not required

Reaching Underserved Communities

Tariffed on-bill programs allow utilities to invest in energy upgrades while also eliminating loan default risk for both the resident and the utility because the transaction does not involve making a consumer loan. Inclusive utility investment programs like PAYS®, which do not place debt on consumers, make home energy upgrades accessible to all qualifying customers, including LMI households and renters, without credit checks, upfront cost, or debt obligation. Effective programs direct utility investment to customers with the highest energy savings potential, which are frequently the most distressed homes occupied by customers facing high energy burdens and the most barriers to accessing upgrades.

When developing a financial program to overcome upfront cost barriers, considering the needs of underserved communities early in the process can help decisionmakers create a comprehensive program and incorporate consumer protections. Decisionmakers can evaluate how and to what extent marginalized communities and considerations of equity have been included in the policymaking process for developing a program by considering the following questions:¹¹

• Have marginalized communities, consumer protection organizations, and organizations serving marginalized communities participated meaningfully in the policymaking process?
• Does the policy help address the impacts of inequality or inequity, or does it widen existing disparities?
• How will the policy increase or decrease economic, social, and health benefits for marginalized communities?
• Does the policy make clean energy more accessible and affordable to marginalized communities?

Many of the financing programs covered in this Clean Energy Financing Toolkit for Decisionmakers resource can provide specific benefits to underserved communities through increasing access to clean energy (e.g., lower energy bills, upgraded equipment, improved comfort). However, financing programs that put additional debt on customers could place LMI households at an increased risk if adequate consumer protections are not in place. For example, customers could face penalties for failing to repay program funds, including having their power shut off, adverse credit scores, and in some instances losing their homes. Decisionmakers can implement consumer protection frameworks to address these concerns, including increasing awareness, analyzing the applicant’s ability to pay, and requiring disclosure of financing costs. Considerations for consumer protections are specific to each program.

Roles and Responsibilities

Tariffed on-bill programs have been initiated by a variety of activities, including state legislation, orders originating from a public utility commission for utility adoption, negotiations between investor-owned utilities and stakeholders such as consumer advocates or a city government to settle a utility rate case, and proposals by individual utilities. Utility regulators are responsible for regulatory oversight for tariffed on-bill programs. Utilities must seek approval for a utility tariff from their regulators or oversight boards.

Once approved, the utility is typically responsible for program design and implementation, although most have chosen to hire a third-party program operator to assist in these processes. Utilities are also responsible for sourcing capital for the energy upgrade investments. Investor-owned utilities can source funds from capital market providers; municipal utilities may seek to obtain funding through the municipal bond market; and rural electric cooperatives may draw funds from the U.S. Department of Agriculture’s Rural Utility Services or from cooperative banks that serve the industry. Some investor-owned utilities have used pilot program funds for energy efficiency, and some have expressed a desire to use their usual sources of private equity and debt in the future.¹²

Getting Started

• Determine regulatory or statutory hurdles to establishing a tariffed on-bill program and create a roadmap to clear identified hurdles.
• Determine if the program will be administered by the utility or a third party.
• Develop consumer protections in advance of implementation, including cost-effectiveness screening, cost recovery terms, notice to successor customers, target technologies, project types, sectors, and standards for communicating on-bill project benefits.
• Consult program resources like the ENERGY STAR Home Upgrade Inclusive Utility Investment Resource Center and program managers at the utilities running tariffed on-bill programs. Engage key stakeholders to help inform the development of the policies, procedures, regulations, and guidance for tariffed on-bill programs.
• Determine the components of site-specific TOB cost recovery charges, which should include the utility’s existing rate, estimated savings, rebates or incentives, and the upfront investment.
• Implement a feasibility analysis to consider the value of site-specific energy upgrades and the estimated number of program participants in priority market segments, such as those in the top quartile for energy intensity or located in underserved areas.
• Determine financial market needs for enhancement, how to provide support, and potential lending partners that will serve as a trusted network. Determining an approach to credit enhancement, funding levels, and repayment processes will provide input for the program budget.
• Develop an initial program budget for program administration and any potential sources of funds, if needed. If utilizing PAYS®, include the cost of licensing the intellectual property of PAYS® in the program design and budget.
• Determine customer eligibility, program size, program administration, and tariffed charges.
• Implement software and billing systems to manage TOB programs efficiently and effectively.
• Develop procedures for program evaluation and measurement to analyze project savings and program quality. Consider the implementation of software and tools that can facilitate this analysis.
• Identify a network of certified contractors from which the program participant can draw who are familiar with the program requirements.
• Develop a robust outreach plan to inform customers about the program, including engaging community organizations, social services agencies, nonprofit organizations, and community action agencies, in addition to direct outreach from the participating utility.

While there are many government institutions that are able to consider these issues and oversee programs for energy project loans, establishment and oversight of these types of programs are typically a core mission for green banks or RLF program administrators.

References and Footnotes

¹ U.S. EPA. 2019. Clean Energy Finance: On-Bill Programs.

² In TOB programs the upfront investment by the utility is not a loan to the customer inhabiting a building. Instead, it is a utility investment that is recovered through a special tariff, or tariff rider, that is “attached to the meter” and serves the building. TOB programs discussed here are distinct from on-bill repayment (OBR) programs where the role of the utility is essentially that of bill collector for a non-utility third party, and from on-bill financing (OBF) programs, where the utility itself is the lender. For information about on-bill financing, see the On-Bill Financing profile in this toolkit.

³ There may be licensing fees associated with using the intellectual property of PAYS®.

⁴ EEtility. 2020. Pay As You Save® (PAYS®).

⁵ Southern Environmental Law Center. 2021. Review of National Consumer Law Center’s Tariff On-Bill Recommendations in the Context of the Pay As You Save® System’s Built-In Consumer Protections.

⁶ ACEEE. 2017. On-Bill Energy Efficiency.

⁷ EPA. n.d. Inclusive Utility Investment.

⁸ OptiMiser. 2018. Ouachita HELP PAYS® Residential Energy Efficiency Program Evaluation.

⁹ Midwest Energy. 2012. Midwest Energy’s How$mart Program Receives $1 Million USDA Loan.

¹⁰ Missouri Public Service Commission. 2020. PSC Approves Agreement Extending Ameren Missouri’s Cycle 3 MEEIA Plan.

¹¹ Governments, agencies, and nonprofits have developed equity lenses and frameworks to ensure that issues of race and equity are incorporated throughout policy-making processes. These questions draw from the following frameworks: Institute for Energy Justice, “Section 2 – Energy Justice Scorecard”; City of Seattle, “Racial Equity Toolkit”; and Higher Education Coordinating Commission, “Oregon Equity Lens.”

¹² Missouri PSC Order Approving Stipulation and Agreements, File No. EO-2018-0211.