Daniel Niedzwiecki

October 21, 2011

On Thursday, October 13, Senator Bernie Sanders of Vermont announced that he plans to introduce new energy efficiency legislation. At a Senate green jobs subcommittee hearing, he discussed how the legislation would promote and expand the use of "on-bill financing." The term refers to a method that uses up front loans to pay for energy saving building renovations such as improved insulation. The balance is then paid off in installments through normal utility bills, ideally paying for itself over time. This announcement comes on the heels of several similar state initiatives.

This could have a twofold effect by easing costs to consumers in a down economy while also conserving energy and reducing greenhouse gas emissions. It could also promote the creation of "green" jobs stemming from the development and installation of such technology. Senator Sanders firmly believes the legislation should receive widespread support, calling the idea a "win-win-win."

Senator Sanders cited several studies and examples of similar legislative initiatives at the state level. Vermont, New York, and fifteen other state initiatives offer some form of "on-bill financing" or "on-bill recovery." For example, Governor Andrew Cuomo recently signed the "Power NY Act of 2011," which made New York the first state to offer this type of financial mechanism to encourage energy efficiency retrofitting. Vermont Governor Peter Shumlin is also planning a similar proposal in Vermont's new energy plan.

Several barriers exist however, that must be addressed by any new legislation. For example, people may be reluctant to bear the initial cost if they have no long term interest in the property. Also, The growing number of people who rent property have less of an incentive to take that first step. Additionally, there may be insufficient funding to cover the high up front costs of retrofitting a building. There are also issues of who qualifies for the new program and what types of technology they cover.

New York's example attempts to address some of these issues and provides guidance for crafting potential federal legislation. To deal with the funding issue, individuals take out a loan that is then paid back in installments on their utility bills. This new method, especially one at the federal level, could provide stronger financial backing. Utilities taking part in this program apply charges through their billing system and only extend themselves to a degree that is practicable. This does impose an initial limit on who can take part, but as long as the system works properly it can grow naturally. Furthermore, if the payments have not been fully paid before an individual leaves the property, the charges then carry over to the next person. While this does not address the issue short term renters buying in to the program, it does protect the utilities taking part.

Senator Sanders has not yet introduced his version at the federal level, but these same problems are likely to come up among others. There is also the likelihood that such a proposal will not receive uniform acceptance. One potential issue is whether this approach is better suited at the state or federal level. Regardless, the "on-bill financing" method appears to be gaining support. Bringing this proposal to the national stage can only serve to raise the level of discourse on issues such as supporting "green" technology and improving energy efficiency.

Sources:

Sanders Proposes Energy Efficiency Financing on Utility Bills, Bernie Sanders U.S. Senator for Vt. (Oct. 13, 2011), http://sanders.senate.gov/newsroom (conduct keyword search for article title).

Vermont Department of Public Service, Public Review Draft 2011 Comprehensive Energy Plan (2011), available at http://www.vtenergyplan.vermont.gov/.

Governor Cuomo Signs Power NY Legislation, N.Y. St. Governor Andrew M. Cuomo (Aug. 4, 2011), http://www.governor.ny.gov/press/08042011NYLegislation.

Power NY Act of 2011, 2011 N.Y. Sess. Law ch. 388 (A. 8510) (McKinney).

J. Cullen Howe, New York Law Provides Innovative Mechanism for Building Energy Efficiency Improvements, Climate L. Blog (June 28, 2011), http://blogs.law.columbia.edu/climatechange/2011/06/28.

Uyen Le, On-Bill Repayment: Understanding and Advocating for an On-Bill Repayment System (Jan. 26, 2010) (unpublished report, Massachusetts Institute of Technology), available at http://web.mit.edu/colab/resources/On-Bill_Repayment.pdf.