La Plata Electric Association (LPEA), an electric cooperative serving 32,000 members in southwest Colorado, began accepting applications for its “On-Bill Financing Program” in September 2016. This program allows LPEA members to borrow funds for residential and commercial energy efficiency retrofits, with no upfront costs and at low interest rates. Co-op members then repay the loan through their monthly power bill. LPEA’s program is one of the latest examples of a larger trend of on-bill programs sprouting up across the country.
Co-op members can borrow up to $7,500 at 3.95 percent interest, for a maximum repayment period of six years. There are no associated loan fees, applications fees, or upfront costs. In the first two months of the program, seven loans have been approved for a total of $43,660.
First Southwest Bank, a local community development finance institution (CDFI), is LPEA’s financial partner for the On-Bill Financing Program. Because Colorado electric co-ops cannot lend to members under favorable terms (per Colorado state law), First Southwest Bank provides the actual loans. Providing energy efficiency loans to co-op members is in line with the bank’s CDFI mission to support economic development in rural areas and in its business territory, as the loans support contractor jobs and create savings for participants. The bank also sees the program as an opportunity to increase its visibility with LPEA members as it opens a branch in the co-op’s service territory. To offer a lower interest rate for the program, First Southwest Bank collaborated with the Colorado Housing and Finance Authority’s Green Colorado Credit Reserve Program to set up a 15 percent loan loss reserve. This loan backstop helps manage default risk from program participants, allowing for below-market rates without the need for liens or collateral.
LPEA’s On-Bill Program relies on the co-op member to identify the energy measures that need to be financed. No energy audit is required, though the co-op does offer free walk-through assessments. After the member applies for the program online or in-person, LPEA grades the application based on the member’s utility bill payment history for the last two years. The loan application is then passed onto First Southwest Bank, which checks the applicant’s credit scores. But Dennis Svanes, LPEA's CFO and the manager of its on-bill financing program, notes, “If someone has an excellent bill payment history with La Plata, but a bad FICO score; the loans will most likely be approved.” When the application is approved, LPEA projects the potential energy savings by reviewing the planned efficiency measures to be installed, past energy usage, and the size of the home or business. The co-op member then uses the loan to pay for labor and materials.
Svanes understands on-bill programs well, as he used to run one as a general manager of KEM Electric Cooperative in North Dakota. In fact, his father took out KEM Electric’s very first on-bill loan when the program started in 1981, in part to finance new energy efficient windows and insulation.
Under the On-Bill Financing Program, LPEA funds a wide range of whole-house energy improvements. This includes attic insulation, crawlspace insulation, air sealing, duct sealing, LED lights, weather-stripping, caulking, air-source heat pumps, high-efficiency electric water heaters, and other Energy Star rated appliances. Rebates offered by LPEA can also be included to reduce loan cost, and, as previously mentioned, the co-op offers free energy assessments. Svanes says, “The design objective of the On-Bill Financing Program is to reduce a co-op member’s energy consumption. So as long as an energy measure reduces energy, La Plata will consider it.” The program does not, however, fund renewable energy measures, such as roof solar panels. As Svanes explains, “we want to first focus on energy efficiency retrofits, and then renewable energy, as when a home is adequately retrofitted, it would cost less to put solar panels on the roof.”
In early 2016, EESI met with LPEA staff at a conference, provided EESI-produced on-financing materials, and answered questions. Along with other resources, EESI’s materials provided the basis for LPEA’s On-Bill Financing Program.
Author: Miguel Yanez