Minnesotans may soon be able to pay for insulation, energy-efficient appliances, and even solar panels through a line item on their utility bill.

A proposal to encourage on-bill repayment of energy loans is advancing in the Minnesota Legislature with bipartisan and utility support.

Such arrangements are already allowed in the state and were used in the 1980s and ’90s, but utilities say they need more legal protection before they would consider reintroducing a program, according to the bill’s supporters.

The legislation that received a hearing in a House energy committee last week would clarify that the bank that lends the money is responsible for any unpaid loans, not the utility’s shareholders or ratepayers.

It also says that a customer who moves is responsible for paying off the loan, not the next owner or tenant of a property. And it says utilities would not be allowed to shut off service due to an unpaid loan.

It’s a conservative approach that differs from proposals being pushed by advocacy groups in other states as a way to expand the pool of financing available for clean energy and energy efficiency projects.

“We’re trying to provide another option,” said Sheldon Strom, founder and president of the Minneapolis-based Center for Energy and the Environment. But he warned against following the lead of other states that attempt to make the on-bill loans more secure and attractive to the financial sector.

‘A different time back then’

Strom testified in support of the Minnesota legislation last week. He explained that the state’s experience with on-bill financing dates back to the 1980s, when Minnegasco (now part of CenterPoint Energy) operated a program in partnership with the City of Minneapolis.

“It was a different time back then. We didn’t even check anybody’s credit. We just said if they pay their gas bill, they’re likely to pay this bill. We had almost no defaults,” Strom said.

One key difference that likely helped the program’s success, Strom said, was that due to high natural gas prices and less efficient housing stock, even a residential insulation project could be immediately cash-flow positive, meaning a customer’s energy savings exceeded the monthly loan payments.

Today, lower energy prices and improved building standards mean residential customers who finance through an on-bill repayment program will likely see their bill increase until the loan is paid off, Strom said.

Nationally, there’s been renewed interest in on-bill repayment programs, which have been promoted in recent years by organizations including the American Council for an Energy Efficient Economy, the Natural Resources Defense Council, and the Environmental Defense Fund.

“What we’re talking about would likely create more clean energy financing for homeowners and business owners,” said Brad Copithorne, director of financial innovation for the Environmental Defense Fund’s energy program.

At least 23 states have implemented or are about to implement on-bill financing programs, including Illinois and Michigan. In Minnesota, interest has been tempered in part by one utility’s bad experience, Strom said.

Northern States Power (now part of Xcel Energy) ran an on-bill financing program in the 1990s in which it loaned customers money for efficiency projects that were then repaid on their monthly bills. All of the uncollectable debt was eventually charged to the company’s shareholders.

Xcel Energy did not respond to an email seeking confirmation of Strom’s account and its position on the current on-bill repayment legislation.

“The purpose of our bill was to respond to utility concerns that if they were going to [offer a on-bill repayment program], they wanted no ambiguity about who was going to pay these loans,” Strom said.

‘A good first step’

Under the Minnesota legislation, on-bill repayment is proposed as a potential convenience to homeowners and businesses, but it does not seek to expand the pool of financing available by making the loans more secure.

The Environmental Defense Fund is lobbying for on-bill repayment legislation in Ohio, for example, that would link the loans to a meter, rather than customer, and also allow utilities to shut off service for nonpayment.

“If you have those two features, then all of a sudden banks are highly confident they’re going to get paid,” Copithorne said. “We’ve heard from a number of banks that it’s a game changer, and they can do a lot of loans and investment they would otherwise not make.”

Copithorne called the Minnesota bill “a good first step,” but said the legislation could have more impact by including that security for lenders.

The bill’s conservatism is by design, though, Strom said. He said if lawmakers want to make energy financing accessible to more people, it should consider targeted grants rather than a policy that encourages banks to make loans to customers they otherwise wouldn’t do business with.

“I tell the legislature, let’s not have Wall Street do to energy what they did for housing,” Strom said.

On-bill repayment may be a helpful option to have in some circumstances, especially with commercial projects, but Strom cautioned that financing alone doesn’t move people to take action.

“I just don’t think on-bill financing is this magic solution that everyone thinks it is,” he said. “If people think it is, they’re going to be very, very disappointed.”

The Center for Energy and the Environment, American Council for an Energy Efficient Economy and the Natural Resources Defense Council are members of RE-AMP, which also publishes Midwest Energy News.