Energy in 30: Inclusive Utility Investment programs

Tune in to Energy in 30, hosted by David Meisegeier. In this episode, hear from Donna McLoughlin of Duke Energy and Nick Bafaloukos of ComEd on the Tariff On-Bill Financing mechanism, which is also known as Inclusive Utility Investment. Together, we discuss how these programs can sit alongside existing utility energy efficiency programs.

Topics in today’s episode include:

• Navigating stakeholder confusion around Inclusive Utility Investment programs.
• How Duke Energy is partnering IUI with energy efficiency programs for customer-focused flexibility.
• How ComEd is leveraging diverse IUI measures for maximum customer savings.
• Essential advice for utilities launching Inclusive Utility Investment programs.

Full transcript below

David: Hi, y'all. Welcome to Energy in 30. I'm David Meisegeier, and we'll use the next 30 minutes to explore how utilities in the industry are reacting to forces that are shaping new offerings for customers in order to meet decarbonization goals. On this episode of Energy in 30, we're diving into the Tariff On-Bill Financing mechanism, which is also known as Inclusive Utility Investment. I'm joined by Donna McLoughlin of Duke Energy and Nick Bafaloukos of Commonwealth Edison.

Donna developed new customer solutions for Duke Energy's residential customers. She's worked in the energy industry for 15 years, delivering energy efficiency, demand response, and digital solutions to residential and small business customers. Most recently, Donna was responsible for overseeing the design and launch of Duke Energy's Inclusive Utility Investment program, called Improve & Save. And Nick has been with Commonwealth Edison for seven years, where he's led a number of initiatives that help customers better manage their energy use, save money, and do right by the environment. Currently, Nick is involved in shaping the design of ComEd's Inclusive Utility Investment program, and also serves as co-chair on the Smart Electric Power Alliance's Inclusive Utility Investment Task Force. Welcome, Donna and Nick.

Nick: Hey, thanks, David.

Donna: Hi, David. Thanks for having us today.

Overview of Inclusive Utility Investment programs

David: So excited to have you both on. We've discussed on previous episodes how we're in the midst of decarbonizing our economy, and that we need to do it in a way that brings everyone along, not just those who can afford it. Financing, and particularly Inclusive Utility Investment, or IUI, is one mechanism that utilities can use to help their low and moderate-income customers with this transition. But before we dig in, let me briefly explain Inclusive Utility Investments for those who might not be familiar with it.

IUI enables utilities to provide upfront capital to pay for energy improvements at customers' homes and businesses, and then recovers their cost through a fixed charge on the participating customers' utility bills. The investment is based on estimated savings from the improvements, and repayments are made through a tariff that is tied to the meter, not the customer. Because IUI is not an actual loan, it can be leveraged by all customers, regardless of their credit score, and it even works for customers who are renters. So, now that we've defined it, Donna, Duke Energy recently launched the Improve & Save program. Could you tell us why Duke Energy decided to implement an IUI program, and give us a high-level overview of it?

Donna: Thanks, David. So, Duke just implemented our Improve & Save program, which we're very excited about. It allows us to help customers who might not otherwise be able to make improvements to their home, like replacing an HVAC unit, improving their attic insulation or air sealing, or even installing a heat pump water heater, due to the heavy upfront cost of those improvements. We are excited about this program, because, like I said, it does help remove that barrier for customers. It's also something that our stakeholders that are very interested in energy efficiency across our states are interested in as well.

David: Very cool. And Nick, ComEd is still in the commission stakeholder engagement process for the Equitable Energy Upgrade Program, or EEUP. So, you're not as far along, but could you tell us about EEUP and what you hope to accomplish with it?

Nick: Yeah. Certainly, David. So, I guess for starters, no new utility program can't be launched without its own acronym. So, ours is Equitable Energy Upgrade Program. Rolls right off the tongue. Similar to Donna, as far as what we're asked to do by our commission, it's really to adopt a program that allows customers to finance energy projects through their electric utility bill. And it should be modeled after the Inclusive Utility Investment framework. So, really similar to Donna, and similar to other utilities out there that have a similar mandate. At ComEd, we're asking ourselves a couple things as we design this. One, how can we do the most good with such a program, because it is different and unique. And then, second, how can we deliver a program that's also cost-effective, helps generate real bill savings for our customers, and then also deliver it in such a way that it's an easy process for customers to get through, given all the complexities that a program like this can involve.

Unpacking the challenges of Inclusive Utility Investment programs

David: That's probably the understatement of the session here. IUI is complex. It's, I think for customers, and maybe even for utilities staff, like in other parts of the business, hard to understand what this program's all about. How have you guys found that within your utilities? Have you found a lot of head-scratching? Has there been a lot of embracement? Both internally and externally with customers? More for Donna, who's got some customer-facing experience now, but Donna, do you wanna go first on that one?

Donna: Sure. So, I think one of the biggest challenges that we've had in getting the Improve & Save program off the ground was really helping our internal stakeholders understand what it is. You know, they were like, "Wait a minute. So, we're gonna own the equipment? Is the customer gonna own the equipment? What happens if the customer moves? What happens if the customer doesn't pay?" And so, people really struggled to understand what it meant to allow the customer to pay for these improvements over time as part of their electric bill.

And so, really coming up with a concise way to explain the program to all of the various stakeholders inside of Duke Energy was key to helping us get this in front of our customers. And the customers have surprisingly had fewer questions than our colleagues did. I think we're very early in the process. But so far, the customers seem to be embracing and understanding the fact that they pay over time as part of their electric bill, and that if they, in the case of North Carolina, if they move out, that the person who moves into the home and will start to receive those benefits, those savings benefits, will assume the payments. So, so far, the customers seem to have a lot more clarity than our internal stakeholders do.

David: And that could be a credit to the fact that you have worked through the complexity, and simplified the messaging with the marketing, and made it more digestible for your customers. But that is interesting. Nick, how are you finding things?

Nick: It's a bit of déjà vu from Donna here at ComEd. First question is, "What is this?" And the question came both internally, and also from stakeholders, since Inclusive Utility Investment, at least in our territory, wasn't really talked about until a recent piece of legislation passed a couple years back. The next quick follow question was, "Well, don't we already do that?" And so, here, we have an on-bill finance program. We have a very robust energy efficiency portfolio. We've got a variety of other smaller type programs that we had to ask the question, "How is this different?" and then simultaneously ask, or start to answer, "How would they work together?" And that piece is what we're finding interesting, aside from the, as you can imagine, typical questions around how do you design this, what measures do you include, and the like.

Navigating stakeholder confusion around Inclusive Utility Investment programs

David: You know, that's actually a really good point. And I'm curious about both of your perspectives. How do you implement an IUI program that in many ways replicates, certainly, existing utility programs, maybe your own programs that you already have, how do you do that in a way that isn't cannibalizing your existing programs, isn't confusing to, you know, customers?

Donna: That's a great question, and I think that was actually one of the really exciting parts of developing this program, was at the very beginning, we struggled with that same question, Nick. And so we spent a couple months, I'd say a better part of two months, actually spending time with our product owners, spending time with our customer experience teams, spending time with our marketing teams, and really trying to understand those products. I found, as someone who's developed these products, who's been a customer and has used these products, and as someone who's just kind of in the know as to what our product suite is, how little I actually knew at the time we started. Because the products are continuously evolving, the customers are continuously providing us feedback, and we're tweaking and making improvements.

So, we spent the better part of, like I said, two months just really sitting down and understanding how we could work with those products, and how it might be confusing to the customer to understand the differences. In the end, we actually have, in some cases, our home energy audit, that's an important part of our journey. We have partnered with our home energy audit program. So, it's one and the same to the customer. And then, in another phase, where the measures themselves are part of another energy efficiency product, we partnered with that product. So, we kind of consider our Improve & Save program a bundle, if you will. And that's how we've been able to think about it. Interested to see if it will resonate with the customers, or if there'll be confusion if we have to make tweaks.

David: Cool. Nick, what about you?

Nick: Yes. So, the short answer is we're still working through it. We haven't cracked the nut. We have a couple guiding principles, though, and these are things that we've stated internally, and fortunately, the third parties and interested stakeholders that are helping us think through this are thinking along the same lines. One is, we shouldn't use this program to subvert a program that a customer could get something for free or heavily discounted. And so, internally, we like to use a term called braiding. And it's, you know, one of those utility type of terms that says, you know, not...when all programs don't necessarily live under the same umbrella, how do you make that transparent to the customer? So, don't let how we organize and run our programs cause a customer to go through more effort to learn about them or get the benefits.

And so, examples, for us, we have a pretty robust weatherization program. We would wanna make sure that that program is brought in, and is included as any part of project that would fall under our Equitable Energy Upgrade Program, and not be financed as part of the program, but still be included as part of it. A big piece for us, too, is around solar, since we have a pretty robust solar market, how to make sure all the renewable energy credits, DG rebates, investor tax credits, and the like, make sure those get applied before having any of the program cost get included as part of the project. And that gets even more interesting when you think about all of the changes that have been happening of late with the Inflation Reduction Act and all the similar federal programs. It just really makes us have to think hard, and say, "How do we keep this simple for a customer, but also make sure they get the maximum value out of it, by pulling together these various programs?"

How Duke Energy is partnering IUI with energy efficiency programs for customer-focused flexibility

David: Yep. Yep. Those are great points. Donna, you said something that I wanna highlight, because I think it's pretty unique. At least I haven't seen it with other utilities doing IUI programs. And that is, you have treated, I'm not sure the right way of saying this, so you're gonna correct me here, but you've treated the Tariff On-Bill or the Inclusive Utility Investment as a structure, almost, like it's a mechanism. It's like a recovery mechanism. But you don't have a program designed to it. And then, as you said, you have other programs that you could marry up to it, and when you put the two together, you get, in this case, your Improve & Save program. So, that's the Tariff On-Bill, and I can't remember your other existing program. Can you describe maybe that a little bit, because I really think that's a pretty innovative way of approaching it.

Donna: Yeah, sure. So, when we thought about the Tariff On-Bill concept, we needed a structure. We needed a way to be able to say, "Hey, these charges are tied to the premise, not to the customer themselves." These charges will stay with the residents, and persist if a renter moves in." All of those things, that go around just having the charge on the bill. And we found that we wanted the flexibility to be able to offer the customers the energy efficiency improvements that are relevant to them over time. And we don't know what all of those are going to be in two years, three years. We have some views of what we hope they might be, but maybe it could be solar for us. Right now, solar is not an energy efficiency measure in the Carolinas, but maybe that could happen over time, and we could offer solar.

So, we were really looking for a way to establish the basic rules and framework around these charges that would appear on the customer's bill, and allow us the flexibility to respond to our customers' needs and the technology changes that are happening. And so, what we've done is we've created, like you said, David, this Tariff On-Bill construct, and then we partner it with our energy efficiency program. So, all of the energy efficiency incentives, measures, reporting, those reside within the energy efficiency program. And then the Tariff On-Bill kind of governs the rules of how you run a Tariff On-Bill program.

David: Which is a very cool way of doing it. Did Duke come up with that come construct, or was that from the regulators?

Donna: We came up with it. It was really interesting how it came about. As with all innovation, I thought it was really fun. It was messy. So, we had this idea at first that we'd like to keep them separate. And so, when we first started out, we had the notion, let's just figure out what it means to have Tariff On-Bill, and then let's figure out the energy efficiency pieces. And then as we got into it, we really started lumping them together. We started thinking about it more as the Tariff On-Bill for an HVAC, for attic insulation and air sealing. And we started running all of our utility cost tests and things, thinking about it as that bundle. And then we were like, "Wait a minute. This isn't gonna give us the flexibility over time." And so we actually had to unwind it. So, I think, as true with a lot of innovation, we started out with a vision of it being separate. We got in, we kind of bundled it all together, and then we had to rip it back apart at the end, and I think we ended up with a better construct because of that.

Establishing your IUI position to regulators and stakeholders

David: And how did the regulator, how did they handle it? Like, from their perspective, they were probably originally thinking, "Oh, you're gonna do a TOB program," or an IUI program, and then you come back and say, "Well, we're actually wanting to do it in two pieces with, you know, structured the way you just explained it. Did they question it? Were they understanding and accepting?

Donna: We had really great support from our regulators and our community stakeholders in developing the Tariff On-Bill program in North Carolina. And so, what we found was that there was a lot of conversation, a lot of dialogue before the filing. And we talked through the pros and cons of this structure. And so, I think that ultimately, the regulators obviously were supportive. They approved the program in a very timely manner in North Carolina, but there was a lot of conversation leading up to the filing, to think through this construct. So I would say that, in a way, they were an engaged stakeholder in the process, as much as they could be.

Innovative integration: How ComEd is leveraging diverse IUI measures for maximum customer savings

David: Very cool. And Nick, I wanna jump back to something you talked about, solar. But not just solar. I think traditional IUI programs focus just on energy efficiency, and the energy savings from those measures. But with Illinois, the law around Equitable Energy Upgrade Program allows solar, storage, demand response, and that opens up the door to capture more value than just energy efficiency, or energy savings from efficiency. You can capture capacity value, transmission/distribution value. All of those values can be applied to the project to help offset the cost that the customer might have to pay up front. Can you talk to us a little bit about how ComEd is thinking about that potential?

Nick: Yeah, it certainly has opened the door for us to think about, really, all measures. What we found, just taking a step back, a lot of investor-owned utilities may already have a demand response program, or an energy efficiency program. So, doing an Inclusive Utility Investment program after the fact gets to this point of how do you stitch them together? One of the things in our law that really is helping us focus our attention is around the idea of making sure we're using conservative estimates. And that's not new, right. Frameworks and models say, "Be conservative. Do no harm to customers." But it's really putting, then, an onus on us to say, "Well, what measures are better suited for conservative estimates?" And what we're seeing in some of our early research of this is that not all measures are created equal. And solar in particular is proving interesting and attractive to help customers realize savings, eventual savings, for the program, in a way that they see and feel it more in the near term, rather than having a lengthy project.

And that's not to say other measures are bad by any means, but being in the unique spot that a utility is in, and you see what customer usage is and what rate plans they're on, having that ability to look at different type of DER proves for a really interesting program design. Because now, we have all the, you know, if I'd like to call it, all the pieces of the puzzle on the table for us to play with, to say where should we start? What makes sense to go first and then next?

And so, I'm particularly excited for solar. Heat pumps are also an area that, depending on who you are, can get really interesting, given here in Illinois, right, we do have four seasons. But it's nice to have that sort of flexibility to look at the variety of measures, where, when we look at other utilities across the country, the scope of their IUI programs have been a bit more narrow.

Starting strong: Essential advice for utilities launching Inclusive Utility Investment programs

David: Yep. Yep. Very cool. Well, what one piece of advice would you give other utilities on how to get started with their own IUI program, under the presumption that, you know, well, I was gonna say that their commissions weren't mandating it, but even if their commissions were mandating it, what's the one piece of advice you would give to other utilities? Donna, you wanna go first?

Donna: Sure. And one I think we already touched on, and that is, really start out with a thoughtful and thorough internal engagement plan. Really help your internal partners understand what this is, your risk partners, your legal partners, your marketing partners, your customer support partners. They're gonna have a lot of questions. And so, I've found that the more you can help them understand early on in the process, the more they'll contribute to creating what's hopefully a very meaningful and seamless customer experience. The other thing I would say is that don't underestimate the questions that external stakeholders and regulators will have, be it the attorney general's offices, your commission, your public staff, and public staff-like organizations, once you get into the details.

You know, a lot of questions around the customer protections, and a lot of questions around the customer agreements, what the renter journey looks like. How do you make sure that a customer is getting what's free before you sign them up to pay for something? And so, as folks start to think through it a little bit more, they have a lot of questions. And so, the setup, the forums, the format, the dialogue, to really engage with those stakeholders kind of early and often, give them time to digest things, and to come back with questions. Because their questions will really, I think, help you, as someone who's implementing this, think through things you never would've thought about, that you need to think about.

David: So much to think through. Yeah. Great advice. Nick, how about you?

Nick: Yeah, the thing that I've been asking myself this, and challenging folks as we talk about it is, utilities tend to look at programs as mass market programs, right? And there's nothing wrong with a mass market program by any means, but when you think about Inclusive Utility Investment, approach these conversations in a targeted manner. And what I mean by that is that it's unlikely that an IUI program will be a mass market program. And that's okay. As a utility, we have access to customer information that can really help us fine-tune who's best suited for what measures. And while we can't, you know, force a customer per se to participate in a program, we can have a more active and vocal role in saying, "You should consider this, and here's why." And the why is based on you, the person, and how you use, and use energy in your home, and interact with that energy, that should make the conversation, I think, one, more interesting for customers, because they're so used to being spoken to, rather than saying, "We're here to help, and here's something that we think can help."

And if you start in that way, there's pockets of communities where different measures make sense. There'll be a lot of communities you can go and talk to. You won't run out of folks to go and approach for it. But that's my biggest piece of advice, is make it a targeted program, to the extent you can. Otherwise, you know, and we see this, you know, as one of the things we try to hedge against, you'll start seeing program administration costs go up. Customer satisfaction may not be high, or as high, rather, that you'd like. And ultimately, you're not hitting what you were originally intending to get out of the program, which is really trying to help customers save on their bills.

David: Yep. Excellent advice. And it's true. Like, the program works where there's future savings or value that can be tapped, to help either partially or fully pay for that improvement up front, and then the customer repays it over time, through the tariff on their bill. And not all measures are gonna work for all customers. So, you do have to identify, target those customers up front, or you will have a program that's not cost-effective. Excellent point there.

Future focused: What change would you like to see?

David: Well, it's hard to believe that we're getting to the end of our episode here. And there's, like, a gazillion more questions I could ask on this. But we always like to end the podcast by asking, if you could do one thing to change the industry, no limits, what would you do? Donna, we'll start with you.

Donna: In a dream world, I think a lot of these customers struggle with, you know, the health and safety improvements to the home. You know, there's work that they need to do before we can go in and really help them save energy. And those resources continue to be hard to tap. And it continues to be hard to get the money directly to the customer. So, if we could find some magic wand to get the money directly to the customer, to close these gaps, I think that that would be great. So, that's one thing I would like to see us change.

David: I love that vision. And if I find that magic wand, I'll give it to you.

Donna: Thanks.

David: Nick, how about you?

Nick: So, aside from putting a ban on the use of all acronyms in the industry, I'll go with something a little bit more practical. This is a bit beyond Inclusive Utility Investment, but increasingly, I think all utilities are starting to talk about societal benefits alongside traditional measures of success, right? Bill savings, cost savings. If I could wave a wand, those conversations are good and should continue, but coming up with a more agreed-upon framework with how you talk about those, I think, are important, because increasingly, we're seeing discussion around carbon reduction, for instance, take place. And it's not an either-or conversation. We're looking to reduce usage or make more effective use of when you use that energy, with what you're paying and then what you're doing with the environment. And so, I know there's frameworks that are starting to emerge around that, but I haven't personally seen a clear winner. And if I could wave a wand, I'd love to have the, "Here's the industry standard for how we talk about all things societal, environmental, economic out there," because it would make our lives, and talking about how these programs impact each, a lot easier.

David: Yeah. Great comment. And, you know, all of these programs, as we look to decarbonize, really need to capture that broader benefit, because it's very real. And we're doing ourselves a disservice by leaving some of that value out of the equation.

Well, this conversation has been amazing. I appreciate both of your willingness to be on, your insights. I work with both of you offline, and it's a pleasure doing that as well. And it just, you know, to me, reinforces the importance of financing, and how Tariff On-Bill, or IUI, can be an important mechanism for helping utilities equitably transition to a decarbonized economy. So, really appreciate your insights. So, thank you both.

Donna: Thank you, David. And Nick, really appreciate your insights. I learned a lot from you today. Thank you.

Nick: Likewise. Thank you, David. And Donna, I'll be giving you a call. You guys are a couple steps ahead. Wanna learn from you.

David: Awesome. We're here for you. Well, if you've enjoyed this conversation, please let a colleague or friend know about it. It's one of the best ways for people to know about our podcast, and we sure appreciate you liking, sharing, or even subscribing to our podcast. And here's to the next Energy in 30.