July 30, 2014

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July 30, 2014

California Public Utilities Commission (CPUC) Orders On-Bill Repayment For Energy Efficiency and Other Demand-Side Projects

The California Public Utilities Commission (CPUC) recently ordered California investor-owned utilities (IOU) to implement on-bill repayment (OBR) programs by the end of the first quarter of 2013 to support “all types of demand-side investments.”  OBR enables building owners or occupants to repay eligible project obligations through their monthly utility bills. 

Unlike on-bill financing (OBF) loans, which are made by the IOUs under pilot program tariffs, OBR programs can be underwritten and funded by far wider array of third-party capital sources, including commercial lenders, investor funds and vendors.  Because default rates on utility bills tend to be low, OBR lenders/investors should be able to offer low finance rates, longer maturities and better terms as compared to conventional energy efficiency loans.  Repayment will be made through the IOUs’ billing and collections, meaning that the original owner/tenant will not be responsible for making payments after a sale of the property or after moving.

OBR programs are expected to be made available across a wide array of property types – governmental, institutional, commercial, non-for-profit and residential.  Program participation could come from a variety of funding vehicles including loans, energy service agreements and power purchase agreements.  Customers will pay a single monthly bill for both energy and OBR program payments that should be lower than their previous bills.  This “pay as you save” feature should enable greater market penetration across more property market segments.  In addition to IOU “back-office” support (billings and collections), OBR is linked to project performance measurement and verification by the IOU. 

The Environmental Defense Fund estimated that an OBR program in California could generate $2.7 billion of third-party investment per year, create 20,000 jobs and reduce annual CO2 emissions by seven million tons after five years.

© 2014 McDermott Will & Emery

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