Over the past few years, many companies still reeling from the market downturn have cut costs by laying off employees, implementing hiring freezes, and slashing benefits. But in 2009, Blount International, a Portland, Oregon-based manufacturer of forestry, garden, and construction industry equipment, looked at saving money through energy efficiency.
Through a partnership with Energy Trust of Oregon, a local nonprofit, Blount was able to complete seven energy efficiency projects in 2010 alone. Through new initiatives, such as training its staff on how to analyze their energy
bills and implementing no- or low-cost energy improvements in its plants, the company is saving $227,805 per year in electricity. Energy Trust of Oregon is part of a small but growing family of
sustainable energy utilities (SEUs)—indivi
dual, nonprofit utilities that distribute affordable, low-carbon energy services.
The First SEU:
Efficiency Vermont was the first SEU, established in 2000 after being approved by the state’s Public Service Commission. The concept was developed Blair Hamilton and Beth Sachs, through their company Vermont Energy Investment Corporation (VEIC), as a means of administering financing programs, offering technical services, and coordinating the services of banks, energy service companies, and other providers, as well as related government programs. The end goal is to make energy efficiency easier to administer and access.
After the Vermont model proved that SEUs could reduce costs and provide consistent services (Vermont’s energy usage has declined 1% per year since 2000), other states followed suit. In the last decade, Oregon, Ohio, Delaware, Wisconsin, and most recently, the District of Columbia have created stand-alone entities to oversee energy efficiency programs and to act as one-stop shops for energy efficiency.
“I like the SEU model because we have a group that is solely devoted to saving energy and doing it as cheaply and effectively as possible,” said John Savage, commissioner of the Oregon Public Utility Commission, which created the Energy Trust of Oregon in 2002.
States that have adopted the SEU model are seeing returns on their investments. Energy Trust of Oregon has saved utility payers nearly $800 million since the program’s inception in 2002. Similarly, Wisconsin’s Focus on Energy SEU has saved residents and businesses more than $319 million annually in energy costs since 2001.
Most SEUs are funded through a surcharge on ratepayers’ utility bills. But some states are considering a “self-funding model” (i.e., bonds) that wouldn’t rely on customer surcharges. Energize Delaware, that state’s SEU since 2008, plans to issue a $70 million bond to pay for a number of energy efficiency projects. Through the bond offering, businesses will be able to borrow money to complete energy efficiency projects, and they’ll use the cost savings to repay the SEU. “The idea is the amount that you are saving is greater than the amount you pay,” said Collin O’Mara, Secretary of the Delaware Department of Natural Resources and Environmental Control, which helps oversee Energize Delaware.
Although ratepayers would certainly prefer that someone else pay for their SEU, issuing bonds presents its own set of challenges, said O’Mara. “It’s a new model, so we are working with the ratings agencies and other entities to make sure that as a nonprofit we have the credit worthiness to make sure that bondholders have the confidence that they are going to get repaid.” Still, O’Mara thinks it’s worth it. “The average government is spending five to fifteen percent on energy efficiency, so every dollar we don’t have to pay on energy is another dollar that you can use on another service, or is a dollar you don’t have to raise.”
State and local governments that are working with SEUs believe they have greater flexibility in finding alternate forms of funding, or using current funds to solve specific issues, in ways that utility-run or state-run programs do not.
That flexibility, in large part, led the District of Columbia to create an SEU in November 2010. “We think the SEU will be able to leverage the investment that D.C. has made and increase the amount of financing available to do this work,” said
Christophe A. G. Tulou, director of the District of Columbia Department of the Environment (DDOE). “We are hoping they will be better at seizing opportunities and jumping on them in terms of working with private financiers and others to leverage the investment the District is making.”
Seeing the Light
The challenge for SEUs—particularly those that are funded through customer surcharges—is convincing those customers that they’re saving in the long run. “The biggest challenge in running a program in this industry is really helping people see the invisible,” said Scott Johnstone, executive director of VEIC. “Unless you are looking for it, you don’t necessarily see the loss of energy through your walls. And if you don’t see it, you don’t necessarily understand the impact on your wallet.”
Getting that message across is the goal of every SEU, said Elizabeth Miller, commissioner of the Vermont Department of Public Service. “VEIC and Efficiency Vermont have done a great job of marketing,” she said. “But we do have to keep the conversation going, to not just show the benefit of the charge, but to make sure there continues to be robust demand from homeowners and businesses.”
To ensure the continued success of SEUs, state and local governments have come up with some very specific performance benchmarks—along with bonuses and penalties. Vermont’s Department of Public Service assesses Efficiency Vermont on a variety of performance metrics annually. “From the very beginning, Vermont held back millions of dollars to be paid only if VEIC’s performance was verified,” said Michael Dworkin, one of the architects of Efficiency Vermont, who is director of the Institute for Energy and the Environment and a professor at the Vermont Law School. “That’s unusual in state contracting.”
The District of Columbia also got creative with its performance metrics, tying economic growth and job creation to energy efficiency. In its first year, D.C. expects to create 33 jobs. After the start-up period is over, that number is expected to escalate to almost 100. Other metrics include investing 30% of program funding on low-income-housing solutions, reducing energy use by 1% per year, and assuring that 50% of funding is invested locally.
The flexibility that states have in dealing with third-party SEUs is an obvious benefit, said Jolene Sheil, director of the Focus on Energy program with the Public Service Commission of Wisconsin. Her state switched from a state-run program to a hybrid state/nonprofit model in 2007.
Earlier this year, Wisconsin put out its SEU to bid again, and Sheil said it was a much easier process without having to comply with all the specifics of government request for proposals. Although the Commission still abided by government guidelines, it had the freedom to post its request for proposals on websites outside the state’s own vendor system, specifically ones that specialized in energy efficiency services.
In March the state contracted with Shaw Environmental and Infrastructure, a private company, to replace Wisconsin Energy Conservation Corporation, to run Focus on Energy. The state is transitioning now, Sheil said.
Will New Jersey Be Next?
The flexibility states have in working with SEUs could lead more cash-strapped states to join the movement. Lee Solomon, president of the New Jersey Board of Public Utilities, says his state is considering creating an SEU, but has concerns about how to fund it.
“We have gone through some tough times, and New Jersey was hit harder than most,” Solomon said. Already 25% of ratepayers’ bills go to non-energy services, which include efficiency. For this reason, he said, the state has concerns about using the ratepayer model. The alternative is issuing a bond, which comes with its own pitfalls. “The problem is you are creating debt for the state or whatever entity is selling the bond,” Solomon said. “And the size of the bond would have to be substantial.”
While officials in New Jersey continue to discuss the possibilities, which also include a revolving loan program for energy efficiency programs, Solomon emphasizes that regardless of hard times, something needs to be done. “The goal is to shrink the burden on ratepayers, because they are paying some of the highest energy prices in the country,” Solomon said. “But energy efficiency also has the greatest return on investment for economic development. It creates jobs, generates growth, while at the same time contributing to the environment.”
Posted on: August 1st, 2011