HomeMy WebLinkAboutMemo - Mail Packet - 12/24/2014 - Memorandum From Steve Catanach And John Phelan Re: Notification Of External Publication Regarding Fort Collins UtilitiesPUBLISHED SEPTEMBER 2014
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COPYRIGHT JOE WOLF
1820 FOLSOM STREET | BOULDER, CO 80302
COPYRIGHT ROCKY MOUNTAIN INSTITUTE.
INTEGRATED UTILITY SERVICES
A NEW BUSINESS MODEL FOR FORT COLLINS UTILITIES
INTEGRATED UTILITY SERVICES | 2
Authors
Martha Campbell, Rocky Mountain Institute
Steve Catanach, Fort Collins Utilities
Kim DeVoe, Fort Collins Utilities
Judy Dorsey, Brendle Group
Bob Lachenmayer, Colorado Clean Energy Cluster
Duncan Lawrence, Telluride Research Group
James Mandel, Rocky Mountain Institute
James Newcomb, Rocky Mountain Institute
John Phelan, Fort Collins Utilities
Julie Sieving, Brendle Group
Dennis Sumner, Fort Collins Utilities
Eric Wanless, Rocky Mountain Institute
Dan Wetzel, Rocky Mountain Institute
Contact
For more information, please contact:
James Mandel (jmandel@rmi.org)
Martha Campbell (mcampbell@rmi.org)
Editorial Director: Peter Bronski
Art Director: Romy Purshouse
Graphic Designer: Chris Rowe
Acknowledgments
The authors thank the following funders for their
generous support of this work:
Argosy Foundation
Reuben Munger
Fred and Alice Stanback
The authors thank the following individuals and
e-Lab member organizations for offering their
insights and perspectives on this work:
Brad Copithorne, Environmental Defense Fund
Lena Hansen, Rocky Mountain Institute
Jamie Fine, Environmental Defense Fund
Micah Myers, Clean Power Finance
James Tong, Clean Power Finance
Howard Wenger, SunPower
Roger Woodworth, Avista Corp.
The authors also thank the following additional
individuals and organizations for offering their
insights and perspectives on this work:
Mathias Bell, Rocky Mountain Institute
Toni Bouchard, SmartPower
Matthew Brown, Harcourt Brown & Carey
Coreina Chan, Rocky Mountain Institute
Devi Glick, Rocky Mountain Institute
Laura Hutchins, CLEAResult
Eric Maurer
JP Ross, Sungevity
Greg Rucks, Rocky Mountain Institute
AUTHORS & ACKNOWLEDGMENTS
* All images courtesy of Shutterstock unless
otherwise noted.
INTEGRATED UTILITY SERVICES | 3
e-Lab is a joint collaboration, convened by RMI,
with participation from stakeholders across the
electricity industry. e-Lab is not a consensus
organization, and the views expressed in this
document are not intended to represent those
of any individual e-Lab member or supporting
organization.
The Electricity Innovation Lab (e-Lab) brings
together thought leaders and decision
makers from across the U.S. electricity sector
to address critical institutional, regulatory,
business, economic, and technical barriers
to the economic deployment of distributed
resources. In particular, e-Lab works to
answer three key questions:
• How can we understand and effectively
communicate the costs and benefits of
distributed resources as part of the electricity
system and create greater grid flexibility?
• How can we harmonize regulatory frameworks,
pricing structures, and business models of
utilities and distributed resource developers for
greatest benefit to customers and society as a
whole?
• How can we accelerate the pace of economic
distributed resource adoption?
A multi-year “change lab,” e-Lab regularly
convenes its members to identify, test, and
spread practical solutions to the challenges
inherent in these questions. e-Lab has
member meetings, coupled with ongoing
project work, facilitated and supported by
Rocky Mountain Institute.
e-Lab meetings allow members to share
learnings, best practices, and analysis results;
collaborate around key issues or needs;
and conduct deep-dives into research and
analysis findings.
For more information about e-Lab, please
visit: http://www.rmi.org/eLab.
WHAT IS e-Lab?
INTEGRATED UTILITY SERVICES | 4
TABLE OF CONTENTS
Executive Summary .......................................................................................... 05
01: Overview and Value Proposition ............................................... 09
Context and Introduction
The Integrated Utility Services Business Model
The Value Proposition of a New Utility Business Model
Report Structure
02: Program Design and Administration .................................... 15
Introduction
Design Process and Principles
Program Administration
03: Economics ........................................................................................................ 20
Introduction
Findings
04: Customer Adoption ........................................................................................................... 28
Introduction
Customer Adoption—A General Framework
Behavioral Science and Customer Adoption
Evaluating the IUS Model From a Customer Perspective
Recommendations
05: On-Bill Repayment .................................................................................. 36
Introduction
Front-End Financing
Back-End Financing
06: Pilot Goals and Principles ............................................................... 42
Introduction
Pilot Activities
07: General Conclusions and Impact ............................................ 47
Appendix A ................................................................................................................ 49
Appendix B ................................................................................................................ 53
Endnotes .................................................................................................................. 62
EXECUTIVE SUMMARY
EXEC
COURTESY OF CITY OF FORT COLLINS
INTEGRATED UTILITY SERVICES | 6
Fort Collins Utilities, along with other local
stakeholders, has developed an implementation
strategy to help meet the city’s greenhouse gas
reduction goals. The utility would like to develop
a new business model to help customers access
a broader range of energy services—including
efficiency improvements, distributed renewable
energy options, and demand response—offered as a
bundled package of integrated utility services (IUS).
To accelerate customer adoption, Fort Collins Utilities
will roll out a new IUS default option for customers,
financed on the utility bill and designed to save
customers money from the first day of use.
RMI’s analysis of the IUS model’s impact on the
residential sector indicates that it:
• Is within the capabilities of Fort Collins Utilities,
and can be built in a capital-light way that is
scaled up over time;
• Could support achieving up to 90% of the
emissions reductions articulated in the Stepping
Up report for the residential buildings sector;
• Could generate additional net utility income,
which can be used to offset distributed resource
grid integration costs (if any), used to pay Platte
River Power Authority (PRPA) or others for lost
revenue or stranded assets, etc.;
• Will catalyze increased investment in Fort
Collins, improve housing stock, and increase
residents’ health and comfort.
Fort Collins Utilities is well positioned to be a leader
in pioneering this new model, with a successful track
record in delivering affordable, reliable electricity
and high rates of energy efficiency and solar
adoption. Among its strengths, Fort Collins Utilities
brings an extremely high level of customer trust, a
highly successful existing set of programs in energy
efficiency and solar, an active contractor training
program, and a productive partnership with PRPA
(its generating partner) and the city council. With this
strong track record and considerable strengths, Fort
Collins Utilities is an ideal utility to demonstrate the
capabilities of this new service offering.
THE PILOT
Before rolling out a new utility business model to the
entire community, Fort Collins Utilities is launching
a pilot project. The IUS pilot will conduct market
research around a suite of offerings and services that
aim to:
• Increase levels of customer adoption of energy
efficiency retrofits and renewables necessary
to reach greenhouse gas emissions reduction
goals;
• Increase consumer education while streamlining
the often complex and uncoordinated process
involved in pursuing energy efficiency retrofits
or renewables;
• Raise awareness among vendors, builders, and
installers to ensure they can respond to the
significant increases in customer adoption of
INTEGRATED UTILITY SERVICES | 7
EXECUTIVE SUMMARY
The pilot project will test:
• Customer demand and interest in integrated
energy efficiency improvements, on-bill financing,
single-point-of-contact sales and installations,
and maintenance;
• High levels of customer engagement, including
personalized communications and propensity
analysis to enhance customization;
• A seamlessly integrated sales-to-installation
process;
• The on-bill finance structure necessary for
service/tariff/financing options;
• Consumer preferences around energy efficiency
savings reporting.
This testing will help identify:
• The resources and infrastructure required for
Fort Collins Utilities to act as the facilitator of an
integrated service offering in order to scale these
services to the entire Fort Collins community;
• The team and expertise required along the solar
and energy efficiency value chains to implement
such a business model (e.g., financiers, sales
force, hardware and software manufacturers,
installers, ESCOs, measurement and verification
providers);
• Opportunities for innovations in product and
service offerings that can stimulate the local
economy and fill the utility’s sales pipeline.
The contents of this report provide a concrete rationale,
from both the customer and utility perspectives, on the
value of pursuing the IUS business model and refining it
through a real-world pilot (see Figure 1).
Figure X: Pilot Activities
PLANNING
• Consolidate customer research and energy modeling
• Select houses that span range of customer types (200–300 homes)
• Construct packages
• Model economics for each home and market segment
• Construct market variable testing strategy
• Train pilot sales force and procure materials
• Identify financial institution partners for financing programs
• Contact target customers and o er packages and financing
• Combine variables and segments to test various models
• Institute necessary billing services (third party if necessary)
• Install services supported by external contractors
• Confirm savings and quality through audits
• Solicit customer feedback
• Analyze variables
• Document learnings
• Identify gaps and design solutions
• Create scaling plan
• Amplify program enthusiasm and begin city-wide marketing campaign
EXECUTION
POST
FIGURE 1: PILOT ACTIVITIES
INTEGRATED UTILITY SERVICES | 8
EXECUTIVE SUMMARY
Bringing an integrated set of offerings to customers
with minimal transaction costs requires a different
operational structure than Fort Collins Utilities
currently has, and will need to be developed over time.
It will require working with contractors more closely,
assessing customer end-use patterns and housing
stock in new and more detailed ways, and guiding
customers through a much more holistic way of
viewing residential energy use. This is one reason why
a pilot followed by a scaled rollout is likely the best
way to proceed.
The following report details design recommendations
and analysis from Rocky Mountain Institute in support
of the Colorado Clean Energy Cluster’s FortZED effort,
which aims to create a zero-energy district in Fort
Collins. It reflects the collective efforts of Fort Collins
Utilities, the Colorado Clean Energy Cluster (CCEC),
RMI’s e-Lab network, and the Brendle Group.
COURTESY CITY OF FORT COLLINS
OVERVIEW AND
VALUE PROPOSITION
01
INTEGRATED UTILITY SERVICES | 10
CONTEXT AND INTRODUCTION
The Stepping Up report by Rocky Mountain Institute
(RMI) showed that the city of Fort Collins can cost-
effectively reduce greenhouse gas emissions to
80% below 2000 levels by 2030, a two-decade
acceleration from the City’s original 2050 goal.
Recently, the Fort Collins city council voted
unanimously to plan for this future, and requested
that City staff introduce initiatives that tackle the city’s
largest sources of emissions.
Fort Collins Utilities has a key role to play helping the
city achieve its accelerated emissions reduction goal
while designing creative solutions to meet changing
customer needs. At the same time, by becoming a
provider of integrated behind-the-meter services, the
utility has an opportunity to diversify and stabilize its
revenue base.
Some utilities, such as RWE in Germany, are looking
at transitioning to energy services models, but these
primarily focus on larger customers. Fort Collins, on
the other hand, is an ideal place to pioneer an energy
services model for smaller customers, including
residential and small-commercial.
Residential and small-commercial customers
represent 98% of Fort Collins Utilities’ accounts,1 and
those same groups account for 43–50+% of overall
utility energy consumption (see Figure 2). Fort Collins
Utilities is a primary connection between the City
and these crucial customers—the residents and
businesses that occupy the city’s buildings.
This combination of significant aggregate energy
consumption and large numbers of widely distributed
accounts, all with slightly different physical
characteristics and customer motivations, means that
residential and small-commercial customers present
a large and difficult-to-reach efficiency and (in some
cases) renewable energy market. Yet the opportunity
is large. Our analysis shows that energy consumption
in buildings can be cost-effectively reduced by
more than 31% and that over time distributed solar
photovoltaics (PV) can reasonably supply 25% of Fort
Collins’s energy (see Figure 3). Accessing this market,
and capturing associated significant energy efficiency
savings, is the focus of the IUS model described here.
OVERVIEW AND VALUE PROPOSITION
0 5,500,000 11,000,000 16,500,000 22,000,000
2012 Emissions
Primary
Fuels
Intermediary
Fuels
End Uses
Gigajoules
RENEWABLES
INDUSTRIAL PROCESSES
NATURAL GAS 39%
NATURAL GAS 39%
PETROLEUM
Source: “FC GHG and RE Data 2005-2012.xls”; City of Fort Collins, 2012. "Community Greenhouse Gas Emissions Inventory Quality Management Plan
INTEGRATED UTILITY SERVICES | 11
01: OVERVIEW AND VALUE PROPOSITION
THE INTEGRATED UTILITY SERVICES
BUSINESS MODEL
The options for achieving Fort Collins’s goals
range from those that have a high degree of Fort
Collins Utilities involvement in procurement and
management of renewables and efficiency to those
that have very little additional involvement. Figure 4
describes the pros and cons of the extreme points of
this range and articulates the rationale for focusing
on a hybrid IUS model.
More rapid customer adoption of distributed energy
resources has long faced barriers such as large initial
investment relative to savings (i.e., extended payback
periods), lack of information, complex or arduous
customer processes for rebates and installations, and
utility business models that penalize load erosion.
The IUS model we propose seeks to address many of
these barriers by including the following attributes:
• A new IUS model will not supplant but rather
augment Fort Collins Utilities’ traditional role as
a distribution utility;
Figure X: Future Energy E ciency And Distributed Solar PV in Fort Collins
0
500,000
2013 2018 2023 2028
1,000,000
1,500,000
2,000,000
Electricity Generation (MWh)
Average annual e ciency savings: 2.4%
(Fort Collins currently averages 1.5%
e ciency savings annually)
Annual distributed PV generation increase
(% of total): 1.7%*
(Fort Collins currently averages 0.03% annual
PV adoption)
E ciency Gains
Distributed PV Generation
Other Electrical Generation
Note: A combined-cycle gas turbine comes online in 2019
*Adoption of PV typically follows an S-curve, the annual rate provided here is a linear average over that curve and yearly targets should exceed this value during be
less in the early and later years of this scenario and should exceed this value in the interim years
FIGURE 3: FUTURE ENERGY EFFICIENCY AND DISTRIBUTED SOLAR PV IN FORT COLLINS
COURTESY OF VISIT FORT COLLINS. COPYRIGHT RYAN BURKE.
INTEGRATED UTILITY SERVICES | 12
01: OVERVIEW AND VALUE PROPOSITION
• Fort Collins Utilities net income has the potential
to increase with growing adoption of efficiency
and renewables versus a business-as-usual
case;
• Customers will have the option to finance
upfront costs for services provided;
• Customers continue to pay traditional energy
and demand charges and fees for remaining
central generation needs;
• All customers are enrolled in a basic, net-
present-value-positive package of energy
efficiency measures and solar PV (either on-site
systems or community solar) unless they opt out;
• Customers will be assessed a fee (structured as
a tariff, service charge, or on-bill loan depending
on final design)2 for the basic package that will
be less than or equal to the expected energy
and demand savings the package generates,
ensuring that customer bills do not increase;
• Depending on the financing options available
and customer preferences, either the customer
or Fort Collins Utilities or a third-party financier
will retain ownership over the efficiency
measures and distributed generation;
• The fee (with the exception of the on-bill loan
option) will be structured in a way that shouldn’t
create an additional burden for property
buyers or sellers at the time of sale (e.g., no
title clouding and default transfer at sale for
programs that reduce the overall utility bill);
• Customers will have the option to opt in to
a number of premium offerings that include
measures that provide value beyond their
energy efficiency savings (e.g., new windows,
EV charging, HVAC, etc.) for a service charge
that may increase their monthly bill;
PROS
• Lower cost of capital
• Coordinated/centralized
implementation
• Scale
CONS
• Customer backlash
• Customer utility not maximized
• Less adaptable to changes in
new technologies, customer
interests, etc.
• Not responsive to innovation
Fort Collins is exploring a
hybrid approach that can:
• Maintain utility relationship
with the customer
• Leverage utility price, scale,
and speed
• Allow more market
innovation and customer
choice
DIVERSITY
INTEGRATED UTILITY SERVICES | 13
01: OVERVIEW AND VALUE PROPOSITION
• Fort Collins Utilities will assist customers in
obtaining incentives that may be available for
certain measures;
• Depending on the financing option chosen,
credit losses will be minimized through the
use of underwriting criteria and/or service
termination for payment default;
• The delivery mechanism for the IUS model
will be structured to enable easy customer
participation (e.g., by having a single point of
contact for a given customer, minimizing number
of disruptive site visits, etc.).
The IUS model is somewhat unique in its intense
focus on residential and small-commercial customers
with an energy services approach. Residential
customers are usually targeted through measure
rebates (both direct to customers and midstream to
retailers) in traditional utility programs, and relatively
few utility savings are achieved through direct install
and retrofit efforts. This is true because generating
large amounts of savings through residential
customers is often challenging.
To access the residential and small-commercial
market the IUS model increases integration of
product offerings and services to improve ease of
delivery to customers and to leverage the combined
economics of packaging measures together (more-
expensive measures can be offset by less-expensive
measures). Also, the costs of energy audits and any
acquisition costs can be reduced through using
multiple measures at one time rather than through
a piecemeal approach. The increased integration
facilitates a comprehensive and seamless approach
that aims to improve customer adoption and minimize
opt outs. This approach should also bring significant
synergies and increased customer savings (e.g.,
building envelope improvements can reduce air
conditioning needs beyond the savings that would
result from simply using a more efficient, but larger,
air conditioning unit).
THE VALUE PROPOSITION OF A NEW
UTILITY BUSINESS MODEL
In addition to helping a community achieve
accelerated greenhouse gas emissions reduction
goals, a new utility business model that promotes
distributed energy resources provides several
sources of value for a community and for the utility.
Community Value
There is significant value in the IUS model beyond
enabling greenhouse gas emission reductions,
including:
• Mitigating the risk of consumers “going it alone”
to develop distributed resources, therefore
ensuring continued reliability;
• Creating jobs as more contractors are needed to
install efficiency measures and distributed solar
PV systems;
• Bringing more awareness and cohesion to a
INTEGRATED UTILITY SERVICES | 14
01: OVERVIEW AND VALUE PROPOSITION
Value to Fort Collins Utilities
The primary value of the IUS business model to
the utility is improving the customer’s experience
while ensuring the utility’s continued relevance in a
rapidly changing world. Large utilities in Europe are
working now to adjust their business models. For
example, RWE, the second-largest utility in Germany,
recently announced that it is moving away from being
a developer and owner of large, centralized power
plants and into a role in which it helps manage and
integrate renewables into the grid. All because “the
massive erosion of wholesale prices caused by the
growth of German photovoltaics constitutes a serious
problem for RWE which may even threaten the
company’s survival.”iii In the U.S., independent power
producer NRG’s CEO opened the company’s annual
report with a letter stating:
There is no energy company that relates to
the American energy consumer by offering a
comprehensive or seamless solution to the
individual’s energy needs… that connects the
consumer with their own energy generating
potential… that enables the consumer to make their
own energy choices… that the consumer can partner
with to combat global warming without compromising
the prosperous “plugged-in” modern lifestyle that we
all aspire to… NRG is not that energy company either,
but we are doing everything in our power to head in
that direction... as fast as we can.
Fort Collins Utilities, by adopting the IUS business
model, can join companies such as NRG to “enable,
connect, relate with, and empower” its consumers,
all while preserving the utility’s own financial viability.
Furthermore, if the world moves even more toward
distributed generation plus storage the IUS model
would mitigate risk and fit with such a future.
Specific values to Fort Collins Utilities include:
• Diversified revenue stream that allows the utility
to hedge against potential disruptions to its
primary revenue source of electricity sales (e.g.,
changing regulations, declining overall demand);
• Ability to offer lower-carbon energy options that
support the City’s climate goals;
• Build a much deeper relationship with customers
that can provide the foundation for future growth
opportunities (e.g., fiber or data services, EV
services);
• A tighter integration between utilities cost drivers
(e.g., high cost peaks) and behind-the-meter
energy use;
• Much better understanding of how customers
use energy;
• Ability to serve customers with diverse energy
needs (e.g., selective investments in reliability for
small-commercial customers);
• Overall increase in revenue from the ability to a)
provide services that reduce currently non-billed
energy costs (e.g., natural gas and transport
COURTESY OF SHUTTERSTOCK
PROGRAM DESIGN
AND ADMINISTRATION
02
INTEGRATED UTILITY SERVICES | 16
PROGRAM DESIGN AND
ADMINISTRATION
INTRODUCTION
While the economics of an IUS business model are
essential to determining the program’s viability, the
majority of its success will be determined by how it
is structured and administered. Most utility programs
attempt to optimize a broad set of variables such
as attractiveness to customers, desired utility and
City outcomes, City and utility resource constraints,
elected officials’ political mandates, business leaders’
need for economic viability and opportunity, and
overall community values. These variables must be
understood and addressed explicitly in program design
and administration to ensure adoption and buy-in from
stakeholders who will be critical to IUS implementation.
The IUS structure aims to balance these variables
by ensuring:
• Pursuit of efficiency and renewables is as
convenient as possible for customers;
• The low cost of capital and appropriately long
financing terms necessary to maintain customers’
finances and enable Fort Collins Utilities to
stabilize its revenue with high levels of distributed
energy resource investment;
• City and business interests see the program as a
net positive to their politics and economy.
INTEGRATED UTILITY SERVICES | 17
02: PROGRAM DESIGN AND ADMINISTRATION
• Feel happy and confident in
the results of services
provided
• Access a ordable energy
and value-added services
• Experience a streamlined
purchase process
• Experience enhanced
customer service
• Stabilize business model
• Ensure savings for
customers
• Accelerate levels of
renewable and energy
e ciency adoption to
support City’s Climate
Action Plan goals
Customer Interests Utility Interests City Interests
• Increase distributed energy resource adoption – supports ambitous GHG
reduction goals, is attractive to customers
• Simplicity – simple to operate, administer, and purchase
• Customizable – appropriate for various building and customer types
• Resilient – viable at multiple scales, adaptable to user feedback, capital light
• Economically viable – improves customer and utility finances
• Equitable – accessible to lower and middle income, customers without
crowding out private sector
Core Design Principles
• Reach Climate Action
Plan goals
• Stimulate economic
development
• Ensure equitable access
to energy
Business Interests
• Minimize complexity and
operational risk
• Improve business climate
Figure X: Core Design Principles
FIGURE 5: CORE DESIGN CRITERIA AND PRINCIPLES
DESIGN PROCESS AND PRINCIPLES
The Design Team
A core design team of subject matter and community
experts developed the overarching framework of
the IUS design. This team included representatives
from the Colorado Clean Energy Cluster (CCEC), Fort
Collins Utilities, and Rocky Mountain Institute (RMI),
with regular guidance from RMI’s e-Lab members.3
Particular attention was paid to the City’s goals and
customer attractiveness because of the unique
requirements of a residential energy services model.
Many team members were involved in previous local
efforts, including FortZED e-Lab design charrettes.
The Design Process
The design team convened several workshops to
envision the ideal program and leveraged subject
matter experts to quickly identify an appropriate
program structure. The ideal in this case is an
optimization over several criteria (see Figure 5),
INTEGRATED UTILITY SERVICES | 18
02: PROGRAM DESIGN AND ADMINISTRATION
PROGRAM ADMINISTRATION
Introduction
Traditional utility efficiency and demand-response
programs are executed as a set of individual,
standalone programs. The utility, government
agencies, private enterprises, and/or nonprofits
can administer these programs. The administrator
is responsible for the program’s general oversight,
connecting all the pieces and maintaining a holistic
view of how they should operate together. Program
administration must ensure a variety of activities are
conducted and managed (see Table 1), many of which
can be and are typically subcontracted.
Program administration can vary along a spectrum of
high to low utility involvement (e.g., some programs
are run completely inside a utility, others like
Efficiency Vermont are completely outsourced with
a performance contract). Simultaneously, the legal
structure of the administration can take several forms,
including a private third party, a government agency,
the utility, and a hybrid of these models. Each has its
pros and cons. A detailed discussion of these legal
structures can be found in Appendix A.
PROGRAM FUNCTION RESPONSIBILITIES
General Administration
and Coordination
• Manage overall budget for portfolio of programs
• Manage contracts with all primary contractors
• Maintain centralized information system for reports to regulators, legislators, advisory groups, etc.
Program Development,
Planning, and
Budgeting
• Prepare initial technical and/or market reports necessary for program strategies and initial
program designs
• Facilitate development of public planning process
• Prepare general program descriptions and budgets for regulatory approval
Program Administration
and Management
• Prepare detailed program designs and propose changes based on experience to date
• Hire and manage staff and /or subcontractors for program implementation
• Design and implement quality assurance standards and tracking protocols
• Review and approval of invoices
Program Delivery and
Implementation
• Promote and market programs
• Develop and implement program services
• Develop energy-efficient projects at specific sites
• Develop measurement and verification (M&V) procedures and/or conduct M&V to determine
performance-based administration fees or incentives
Program Assessment
and Evaluation
• Assess program impacts and/or cost effectiveness
• Evaluate effectiveness of program processes and administration
TABLE 1: PROGRAM ADMINISTRATOR RESPONSIBILITIES*
* Framework based on “Who Should Administer Energy-Efficiency Programs?” by Carl Blumstein, Charles Goldman, and Galen Barbose.
Center for the Study of Energy Markets, University of California Energy Institute, University of California-Berkeley. 2003.
INTEGRATED UTILITY SERVICES | 19
02: PROGRAM DESIGN AND ADMINISTRATION
Recommended Structure
Given that the IUS is a holistic approach to customer
engagement and resource management, we
recommend that the utility stay involved as the
lead administrator, but also work heavily with third-
party home performance integrators (see Figure 6).
This structure will leverage the strength of the
utility’s existing relationship with customers while
enabling efficient and focused sales and installation
management. Performance-based incentives for
integrators would also help align interests among
customers, the utility, and the integrators.
FIGURE 6: RECOMMENDED PROGRAM ADMINISTRATION STRUCTURE
UTILITY
Customers
Lead
contractors
Lead
contractors
Sub contractors
Home performance
integrators
Training/QC/M&V
Program Assessment
BREADTH OF
EXPERIENCE
Virtual audits/
Package design/
Sales/Reporting
Home
performance
installs/Audits
Marketing
Funding/Billing
Figure X: TITLE?
STRONG
EXISTING
RELATIONSHIP
COPYRIGHT RYAN BURKE
COURTESY OF CITY OF FORT COLLINS
ECONOMICS
03
INTEGRATED UTILITY SERVICES | 21
ECONOMICS
INTRODUCTION
Utilities considering a move into energy services
must consider an important question: Is it a business
that can be operated in a financially sustainable
manner? For energy services business lines targeting
large commercial and industrial companies, the
answer appears to be yes. This is evidenced by
recent announcements by large utilities and also by
the burgeoning ESCO industry, which is providing
comparable services on a standalone basis.
However, for businesses targeting residential and
small-commercial customers, we did not see a clear
answer initially.
On one hand, efficiency savings opportunities are
often much greater in residential customer segments,
where many opportunities have not been looked at
systematically, versus larger business customers,
many of whom can afford a dedicated energy manager
and might view reducing energy costs as a strategic
advantage. This higher potential savings opportunity
is negated by high customer acquisition costs for
efficiency interventions, potentially higher fixed costs
per intervention, and a much smaller monthly bill
against which to find customer savings and replacement
revenues for the utility.
Given this uncertainty around the basic economics of
the opportunity, yet its high potential for transformative
impact in Fort Collins and similar cities, we conducted
an economic assessment of the business opportunity
for the residential customer segment (with an
expectation of parallel conclusions for the small-
commercial segment) to better understand the
parameters required to ensure a mutually beneficial
program. A successful program needs to meet three
economic criteria:
1. Reduces costs to customers: A fully financed
program should be able to offer a basic package
that reduces costs for the customer. Even if
many customers opt for higher-end offerings
that increase their overall bill, it is critical that this
program be capable of delivering bill savings to
customers through a basic program.
2. Self-sustaining: The program, at scale, should
be able to cover its full costs without additional
subsidies.
3. Net-income contribution: The program
should generate net income for the utility that
contributes to critical services like distribution
system maintenance as well as the utility’s
obligations to the City. This includes maintaining
the 6% charge on revenue, or payment in lieu of
taxes (PILOT), that Fort Collins Utilities collects
for the City (thus, this program would contribute
to an important City revenue base), as well as
continuing to contribute to the fixed costs of
the utility.
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03: ECONOMICS
In order to determine if a program could meet
these economic criteria we looked at three general
categories of cost that would exist for a fully scaled
program:
1. Intervention costs: The full costs of the
measures being installed in homes, including
labor, materials, and contractor overhead
2. Program costs: The additional overhead of
running the IUS program—customer acquisition
costs, and distribution maintenance costs that
would otherwise be covered solely through
electricity charges4
3. Financing costs: Since this program assumes
on-bill repayment for all interventions, the cost
of capital is a critical component to the overall
costs of the interventions and the bill impacts
customers will see
For simplicity we only evaluated rolling out the IUS in
single-family homes in Fort Collins.
FINDINGS
The following sections describe the critical outputs
from our analysis based on the overall energy
efficiency potential for the building stock in Fort
Collins,5 a segmentation of that building stock,6 and
a potential list of interventions and their savings
potential,7 which each inform an overall bill-level pro
forma for a typical customer, as well as the overall
economics from the utility’s perspective. Finally, we
look at the overall cost per negawatt (i.e., efficiency)
and compare it to alternative utility programs.
Efficiency, Energy, and Economic Potential
From our recent report on possible energy pathways
for Fort Collins, Stepping Up: Benefits and Costs of
Accelerating Fort Collins’ Energy and Climate Goals,
we know that the city holds great potential for both
distributed generation and distributed efficiency.
Efficiency Potential
In the Stepping Up report we assume that Fort Collins
Utilities can realize energy efficiency savings at a
rate of 2.4% of annual sales each year through 2030
(consistent with best-practice energy efficiency
programs in the United States). Given this, Fort
Collins could reduce building energy consumption
by 31% relative to a business-as-usual scenario.8 This
31% reduction translates to a 1,255 GWh reduction
in electricity consumption and a 4,310,000 MMBtu
reduction in natural gas consumption. Electricity
savings come from a 417 GWh reduction in residential
electricity consumption, 779 GWh in commercial
consumption, and 58 GWh in industrial consumption.
Natural gas savings are associated with a 1,796,000
MMBtu reduction in the residential sector, a 1,830,000
MMBtu reduction in the commercial sector, and a
683,000 MMBtu reduction in the industrial sector.
Distributed Energy Potential
Using the Stepping Up 2030 future scenario to define
Fort Collins’ desired energy mix, roughly 312 MW
of distributed PV (out of 778 MW of new installed
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03: ECONOMICS
sectors. We believe it is realistic for the IUS to realize
roughly 195 MW of the 312 MW needed to achieve the
Stepping Up future scenario.
Economic Potential
The total capital cost9 of meeting the distributed
energy and efficiency potentials is somewhere
between $725 million10 and $900 million through
2030. The exact figure will depend on the future
costs of energy efficiency and renewables technology
and on how well Fort Collins Utilities can negotiate
and procure solar and efficiency measures on behalf
of its costumers. After discussions with various solar
installers we believe it is realistic for Fort Collins
to secure solar at ~$2.42 per Watt. Because these
programs are fundamentally designed to save
customers money, and because interventions can be
financed primarily using third-party capital, we expect
that very little of this cost would be born directly
by the utility, likely just administration, overhead,
and existing rebate program costs. However, these
numbers are important for two reasons: 1) this is a
large enough investment to draw the interest and
investment of third-party partners and program
administrators, and 2) this represents a significant
investment in Fort Collins that should lead to material
benefits in terms of jobs and economic growth.
Segmentation of Building Stock
We focused on the residential sector, again looking
at single-family homes, as it was a priority area for
Fort Collins Utilities and has the most challenging
economics. We believe a successful residential
program can be used to develop a small-commercial
program. Within the residential sector, we identified
three major build-out periods of Fort Collins building
stock and thus three primary housing ages/types.
We analyzed the typical economics and efficiency
potential for each.11
Pre-1945: The commercial downtown, in particular,
contains a number of older buildings built before
1945. These homes, often Victorian in style, are larger
and most have been remodeled at least once. They
typically have two stories, a conditioned basement,
2,200–2,500 square feet of living space, and central
gas furnace heating. We estimate there are over
5,200 of these homes, with an average estimated
energy bill of $1,260 per year.
1945–1980: This category is dominated by homes
built during the 1970s. These homes tend to be larger
(3,400 square feet and above for two-story homes),
and while many have been remodeled, initial builds
were often not efficient. We estimate that there
are over 19,000 of these homes, with an average
estimated energy bill of $1,330 per year.
Post-1980: Newer homes in Fort Collins tend to be
more efficient, but are larger (many 4,000 square
feet and larger) and on the periphery of town or
in new neighborhoods, which requires a larger
transportation footprint. Like the other segments,
INTEGRATED UTILITY SERVICES | 24
03: ECONOMICS
Separate analysis with the NREL PV WATTS tool
suggests that, with no incremental customer
acquisition costs and utility ownership at lower cost
of capital, as well as bulk purchasing, solar could be
delivered at close to the marginal customer electricity
rate of $0.08 per kWh. Given this, we assumed no bill
impact for solar and treated it the same as traditional
power from Fort Collins Utilities. There would be
additional distribution costs and the need to buy
additional firming resources to support such a large
investment in distributed solar. We did not explicitly
model these costs but additional net income from the
IUS could be used to cover them (this is discussed in
the utility economics section later).
Furthermore, we assumed each home installs a
semi-standard solar PV system (e.g., current analysis
assumes a 5 kW system). The size of the systems
installed can be scaled fairly easily to match home
energy use and existing regulation, without a
significant impact on costs.
An example of the economic impacts on an average
pre-1945 home is shown in Figure 7 (other examples
in appendix). A detailed sample measures bill can be
found in Appendix A.
Utility and Partner Economics in 2030 at Scale—
Costs, Revenue, and Net Income
While this program will initially start at a small scale,
it will need to grow quickly to meet Fort Collins’s
aggressive goals. By 2030, or when the program
reaches full scale if sooner, the program will incur
substantial fixed costs, erode previous electricity
revenue that was devoted to utility operating costs,
and impact Fort Collins Utilities’ core business. This
section evaluates the utility costs and potential for
stabilizing net income.
FIGURE 7: AVERAGE ANNUAL ENERGY BILL: PRE-1945 SINGLE-FAMILY HOME*
Avg. Natural Gas Charge
Avg. Electricity Charge
Coverage Charges
Package Charges
Negatherms Savings
Negawatt Savings
Customers receive lower bills
today and protection from future
price increases while receiving
significant investments in e ciency
that improve the value and comfort
of their home.
$246.76 16% REDUCTION
$93 8% REDUCTION
Today
Traditional Avg.
Energy Bill
2030
Traditional Avg.
Energy Bill
Today
IUS Basic
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03: ECONOMICS
Programmatic Fixed Costs
We estimate that a residential program of this size
would incur ~$775,000 of additional fixed costs
each year. Ideally, the program would be rolled out
to small-commercial customers who would incur
the balance. The fixed costs fall into the categories
described in Table 2.
In our modeling we assume a 4% cost of capital for
the utility, with a 6% cost of capital for customers.
Off-balance sheet (third-party-deployed capital), we
assume the utility charges a 2% fee for loan servicing.
TABLE 2: FIXED COST COMPONENTS
STAGES ELEMENTS ACTIONS
Implementation
Program Administration Program administration office
Procurement Warehousing and logistics, contract negotiations
Marketing
Pure marketing with external firm
Community organizing
Sales
Sales force
Sales reporting
Installation
Package assembly
Delivery
Installation program manager
IT Troubleshooting Help desk and call center
Follow-through
Customer Service
Troubleshooting support
Sales call center
Quality Control
Inspection and audits - hardware
Inspection and audits - installation
Community identification of improvement opportunities
Payments
Billing
Payment to contractors
Any performance payments
Adaptive Program
Management
Evaluate savings estimates
Revise study with Fort Collins Utilities
Field measurement
Analysis
Report and recommendation
INTEGRATED UTILITY SERVICES | 26
03: ECONOMICS
Revenue and Net Income
At scale, the IUS model would target at least a 60%
adoption rate of the basic package, as well as a 10%
additional adoption of premium offerings. Depending
on the program’s financing structure, Fort Collins
Utilities’ annual revenues could see an impact ranging
from a $2 million decrease to a $4 million increase,
by 2030. Net income will increase by at least $1
million. Table 3 shows the profit and loss statement
for the residential component of Fort Collins Utilities’
overall operations in a business-as-usual (BAU) case
and in the IUS case for both on-balance sheet (i.e.,
utility financed) and off-balance sheet (i.e., third-party
financed) scenarios. We recommend Fort Collins
Utilities pursue some blend of on- and off-balance-
sheet financing to optimize revenues while managing
its liabilities.
OFF-BALANCE SHEET – 2030†
BAU IUS CHANGE
Residential Energy Consumption (kWh/yr) 344,988,297 271,637,757 -73,350,540
Participating Meters 55,772 39,040
FCU SINGLE-FAMILY HOME ANNUAL REVENUE
Traditional Electricity Revenue $30,798,744 $24,887,885 -$5,910,860
IUS Package Fee Revenues* NA $1,874,001 $1,874,001
IUS Coverage Charges NA $1,940,308 $1,940,308
Total Annual Revenue $30,798,744 $28,702,194 -$2,096,550
FCU SINGLE-FAMILY HOME COSTS
Fixed Costs -$9,030,426 -$9,030,426 $0
PRPA Energy Charge -$12,272,191 -$9,662,909 $2,609,282
PRPA Demand Charge Proxy -$5,095,321 -$4,011,967 $1,083,354
Additional IUS Overhead Cost NA -$775,697 -$775,697
Interest Payments+ NA $0 $0
Taxes and Equivalents -$1,847,925 -$1,722,132
Total Annual Cost -$28,245,863 -$25,203,130 $3,042,733
ADJUSTED INCOME $2,552,882 $3,499,064 $946,182
Income from IUS NA $2,809,754
Income from Traditional Electricity $2,552,882 $689,310
Percentage from IUS NA 80%
Percentage from Traditional Electricity 100% 20%
Adjusted Income/Revenue 8% 12%
Traditional revenue falls
Fixed costs are the same
But is offset by package
processing fee revenues
Energy and demand
charges fall
And additional charges
to cover additional costs
New programs cost
money
TABLE 3: BUSINESS-AS-USUAL VS. IUS PROFIT AND LOSS: OFF- AND ON-BALANCE SHEETS
* This analysis only includes energy efficiency (no solar) as a multitude of solar options will be offered ranging from utility financed, utility owned,
or thrid-party owned. Total credit to be expended by 2030 for energy efficiency is roughly $225 million in this scenario, with approximately
$120 million of credit outstanding by 2030.
† Beginning of 2030
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03: ECONOMICS
OVERALL VALUE
Our modeling suggests that this program can:
• Be executed with savings to customer bills;
• Generate new revenue for Fort Collins Utilities;
• Contribute to fixed and utility operating costs;
• Help customers contribute to city-wide
emissions reduction goals.
By expanding into new areas, such as growing the
premium offering or exploring opportunities not
shown here (Fort Collins Utilities is currently exploring
fiber optic cable), the utility can expand its presence
even further, using these basic offerings as a platform
for continued service provision.
At the same time, a program like this helps diversify
Fort Collins Utilities’ business away from primarily
fossil-fuel-generated electricity sales, a model
increasingly at odds with the City’s climate goals.
This program also provides protection against
uncontrolled revenue erosion from customer-initiated
solar and efficiency programs.
We estimate that, at scale, emissions reductions will
be substantial, delivering over 90% of the savings
that is required from conventional residential building
efficiency outlined in the Stepping Up report, as well
as deploying more than 60% of the distributed solar
that is required to meet the City’s goals.
ON-BALANCE SHEET – 2030†
BAU IUS CHANGE
Residential Energy Consumption (kWh/yr) 344,988,297 271,637,757 -73,350,540
Participating Meters 55,772 39,040
FCU SINGLE-FAMILY HOME ANNUAL REVENUE
Traditional Electricity Revenue $30,798,744 $24,887,885 -$5,910,860
IUS Package Fee Revenues^ NA $8,085,067 $8,085,067
IUS Coverage Charges NA $1,940,308 $1,940,308
Total Annual Revenue $30,798,744 $34,913,260 $4,114,515
FCU SINGLE-FAMILY HOME COSTS
Fixed Costs -$9,030,426 -$9,030,426 $0
PRPA Energy Charge -$12,272,191 -$9,662,909 $2,609,282
PRPA Demand Charge Proxy -$5,095,321 -$4,011,967 $1,083,354
Additional IUS Overhead Cost* NA -$775,697 -$775,697
Interest Payments+ NA -$5,184,451 -$5,184,451
Taxes and Equivalents -$1,847,925 -$2,094,796 -$246,871
Total Annual Cost -$28,245,863 -$30,760,245 -$2,514,383
ADJUSTED INCOME $2,552,882 $4,153,014 $1,600,132
Income from IUS NA $2,809,754
Income from Traditional Electricity $2,552,882 $689,310
Percentage from IUS NA 80%
Percentage from Traditional Electricity 100% 20%
Profit Margin 8% 12%
† Beginning of 2030
CUSTOMER
ADOPTION
04
INTEGRATED UTILITY SERVICES | 29
CUSTOMER ADOPTION
INTRODUCTION
Achieving Fort Collins’s greenhouse gas reduction
targets will require the city to reshape its energy use,
which will take the effort of the city’s most important
resource: its residents. Fort Collins Utilities’ customers
must change how they use, produce, and save
energy. In other words, the challenge facing the City
of Fort Collins and Fort Collins Utilities is to transform
customer adoption, moving the community from low
levels of adoption to almost universal adoption of
distributed energy resources. Although our models
assume a more conservative 60–70% adoption rate,
we feel it is critical to start with a goal of near-100%
adoption when designing the program.
CUSTOMER ADOPTION—A GENERAL
FRAMEWORK
A successful customer adoption program focused on
distributed energy resources should address some, if
not all, of the stages in the customer-adoption process:
awareness, interest, evaluation, adoption, and referral.
In addition, the program should consider three other
essential program elements: design, community
engagement, and marketing/sales (see Table 4).
Importantly, it serves as a jumping off point to further
articulate and evaluate—using behavioral science
concepts and findings as well as original market
research—an efficient and effective approach to
widespread customer adoption of distributed energy
resources on a citywide scale in Fort Collins.
Behavioral Science and Customer Adoption
Many Americans already experience behavioral
science strategies without even knowing it. For
example, the roll out of auto-enrollment retirement
plans, in which employees had to opt out if they did
not want to participate, saw plan participation soar.ii
This shift comes from simply altering the structure and
default option of a choice, not taking that choice away,
and leveraging some knowledge about the psychology
of decision making.
Today, we can similarly apply behavioral science
to customer distributed energy resource adoption
choices. For example, if putting in new insulation saves
money, why doesn’t every homeowner call their local
contractor and have it done today? We are far from the
rational utility-maximizers idealized by economists, and
we make choices based on a wide variety of factors.iii
Therefore, understanding how we make decisions,
process information, and evaluate choices can provide
important insight into how utilities and communities
can increase customer adoption of energy efficiency
and distributed generation.
Factors that Influence Customer Choice
The context in which humans make decisions—the
choice environment—can dramatically influence
decision making, so how we structure choices
matters.iv Choice architecture includes two key
elements: what to present to decision makers (e.g.,
customers) and how to present it.v While we like to
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04: CUSTOMER ADOPTION
Program
Design
Targeting based
on specific
characteristics
(e.g. capacity
constrained
customers)
Example:
Marshfield Energy
Challenge
Pre-packaged options
and limited choices
Example: Marshfield
Energy Challenge
On-bill financing
(possibly net-zero)
Example: New London
Resources Project
Rewards, prizes,
and competition
Example: Energy
Smackdown
Free Audits
Example:
Bonneville Power
Administration
Opt-in as a default
Reports / real-time
feedback
Examples: Jasper
Energy Efficiency
Program, Opower
Utilize pledges
/ goals as
commitment device
Use early
adopters as
passive examples
and active
volunteers
Example: Long
Island Green
Homes
Community
Engagement
Targeting based
on location or
demographic
characteristics
Example: Twin
Cities One Stop
Program
Leverage the
power of local
leaders to spread
information and
serve as examples
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04: CUSTOMER ADOPTION
• Give customers an easy option: Make auto-
enrollment a priority and help customers by
vetting ALL the options, narrowing choices, and
providing clear recommendations.
• Provide program relevance today: Give
customers public recognition, a sense of
belonging, and clear information on near-term
impacts of interventions.
• Create a sense of opportunity and ownership:
Communicate in a way that creates ownership
and entitlement: clean air, comfort, and
affordable energy are City commitments to
citizens that should not be taken away.
• Leverage the power of community influence:
Facilitate the involvement and mobilization of
social networks, both virtual and on the ground
(e.g., neighborhood associations, Chamber of
Commerce, etc.).
• Maintain customer dialogue post-installation:
By seeking feedback, necessary program
modifications can be identified and any
problems can be discovered quickly.
These concepts provide a framework to help address
some of the key hurdles to increased adoption. RMI
and Fort Collins Utilities used these concepts in
developing and evaluating the IUS model.
EVALUATING THE IUS MODEL FROM A
CUSTOMER PERSPECTIVE
For a small municipal utility, Fort Collins Utilities has
already amassed an impressive array of programs to
overcome key barriers to distributed energy resource
adoption, many leveraging the aforementioned
behavioral science concepts. Fort Collins Utilities
partners with Opower to provide all residential
customers with online energy reports. Expanding on
the power of information, Fort Collins Utilities has
replaced almost all the city’s mechanical water and
electric meters with advanced electronic meters that
enable two-way communication and will allow all
customers to more easily track their electricity use.
FIGURE 8: NET ANNUAL ENERGY EFFICIENCY SAVINGS IN FORT COLLINS
1.0%
1.5%
2.0%
0.5%
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2010 2011
Net Utility Annual Savings (% of Retail Sales)
Figure X: Net Annual Energy E ciency Savings in Fort Collins
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04: CUSTOMER ADOPTION
This, combined with multiple other distributed energy resource programs, including a nascent on-bill financing
program, has been successful in generating significant energy efficiency savings (see Figure 8).ix
Given the success of its existing programs and understanding the importance of behavioral levers in increasing
customer adoption to unprecedented levels, Fort Collins Utilities and RMI engaged in three complementary
efforts to formulate and test important customer-facing elements of the IUS model (see Figure 9).
The progressively narrowing research approach—moving from articulating key concepts and variables to a
detailed customer survey experiment—provides a platform and key insights to implement a successful and
informative pilot program of an alternative utility business model that overcomes key customer-based obstacles.
FIGURE 9: DEVELOPING AND TESTING THE IUS MODEL
TABLE 5: KEY CUSTOMER-BASED OBSTACLES TO WIDESPREAD ADOPTION
Figure X: Developing and Testing the IUS Model
INNOVATION LAB
Concepts/variables
FOCUS GROUPS
Customer Logic
Research Stages
CUSTOMER SURVEY
Customer sentiment/behavior
IUS PILOT
BARRIER DESCRIPTION
Communication
• Energy bills typically do not have significant relevance in consumers’ lives to lead to action.
• Energy savings reports are a platform to build on.
• Even the best programs often use technical language or target only one audience.
• Communication needs to come from a trusted source, be grounded in local context, and have
inclusive language to speak to all customers.
Ease
• Most energy programs are at best, inconvenient, and at worst, complicated and invasive.
• Adoption needs to be as frictionless as possible.
• Expensive actions can make widespread adoption difficult.
• Pay as you save can overcome this barrier.
Adaptive
• People and the world around them shift constantly, yet most efficiency programs are static.
• A program would need to be data driven and adaptable, with a range of choice architectures.
Self-Perpetuation
• Most programs end at adoption, and so require constant marketing efforts to sustain impact.
• Continuous, rather than one off, engagement is potentially integral to enhanced adoption.
Political/Market
Risk
• Many programs create winners and losers; the losers can kill a program politically or crowd it out of the
market.
• Managing this risk is imperative to a program achieving 100% adoption.
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04: CUSTOMER ADOPTION
Innovation Lab
In October 2013, Fort Collins Utilities, RMI, and e-Lab
members met to identify the major challenges to
widespread customer adoption of distributed energy
resources and energy efficiency in Fort Collins (see
Table 5).x
The ideas and recommendations that emerged from
the e-Lab workshop lay out the framework for a new
customer-centered utility business model that is
agile and innovative, but capable of scaling rapidly.
Building on this conceptual work, the next step in the
research and evaluation process was testing core
elements of the IUS—elements specifically designed
to address some of these key obstacles—among Fort
Collins Utilities customers.
Focus Groups
After e-Lab, we explored customer thinking around
IUS. The first step in this process involved convening
two small focus groups of Fort Collins Utilities
customers. Led by Populus, LLC, a respected and
innovative provider of energy efficiency advisory
services, the focus groups explored the key concepts
of auto-enrollment, permutations of on-bill financing
(e.g., loans, leases, and service charges), and
expanded and alternative services (e.g., solar, furnace
financing/service, electronics financing/service, etc.).
The discussions uncovered underlying concerns of
customers, such as long-term resale issues of homes
with leased equipment (e.g., solar panels, furnaces,
etc.), costs, and flexibility to keep up with the pace
of technological advancement. Importantly, the
focus groups also revealed information gaps among
customers, openness to alternative financing and
service models, and high levels of trust in Fort Collins
Utilities. Table 5 summarizes the key takeaways from
the focus groups.
Given the feedback and insights from customers
during the focus groups, there were a number of
important areas that emerged for further evaluation:
• Perspectives/attitudes around auto-enrollment
• Openness to alternatives to traditional
ownership
• Balance of choice vs. pre-determined packages
• Perspectives/attitudes toward different financing
options
• Understanding different market segments in Fort
Collins (renters/owners, commercial/residential)
• Customer motivations, such as environmental,
economic considerations
• Message framing (e.g., goal-based packages vs.
measures)
Customer Surveys
Focus groups are a fantastic research tool to better
understand customer thinking and behavior, but they
have limitations. Because the groups only involve a
few individuals and detailed conversations, they are
an excellent mechanism to explore and understand
what customers perceive as driving their thinking
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04: CUSTOMER ADOPTION
TOPIC SUMMARY
Integrated Utility
Services
• There is a high degree of comfort with the idea of Fort Collins Utilities (FCU) providing additional
offerings focused around energy efficiency and distributed generation (EE/DG).
• However, even where there was a high level of trust, quality assurance and transparency are important
to maintain that trust.
• There is a strong sense among focus groups that it is the responsibility of the utility to “do the right
thing” environmentally and customers are prepared to “partner” with the utility in that effort, provided
the arrangement is financially reasonable.
Automatic
Enrollment
for Efficiency
Upgrades
• A default option with basic energy efficiency measures did not raise any significant concerns among
participants.
• Although this reflects views of only a few customers, it does suggest that auto-enrollment has great
potential and, with an opt-out option, still provides people with adequate choice. It also means FCU has
a unique opportunity to pilot a default program, solidify existing trust and confidence of customers, and
leverage that work into deeper and more impactful EE/DG investments (ratcheting up approach).
Financial Models
& Ownership
• Different financial models generated confusion and there is a clear need to provide people with
education and options surrounding ownership. Multiple participants indicated that leasing/loans/service
charges provide a unique opportunity for people to invest in EE/DG who would not have the financial
means to do so independently.
• While some participants initially expressed a clear preference for ownership of equipment and systems,
they were more likely to consider alternative ownership options for unfamiliar equipment that they are
not used to owning, especially when that equipment requires maintenance (such as solar PV).
• From these initial focus groups there is evidence that education and messaging around lifetime costs,
maintenance risks and diminishing equipment value may be able to shift preference away from an
ownership model.
Packaging of
Energy Upgrades
• From these initial focus groups, it is likely that customers will desire high degrees of customization,
calling into question the idea of having a few packages to choose from.
• Packages may be useful in grouping measures that are most able to assist customers in meeting unique
goals, but the idea of a per-package cost and per-package benefit generates strong confusion and
perhaps unnecessary resistance.
• There are some technologies (primarily WiFi-enabled devices) that generate emotional resistance, even
amongst a motivated and educated group of participants.
Customer
Experience
• Participants expressed a desire for a streamlined process with one point of contact to assist them in the
implementation phase.
• This group of motivated customers valued the convenience of a streamlined approach that narrows the
choices available, but gives them options around measures and providers.
TABLE 6: FOCUS GROUP TAKEAWAYS
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04: CUSTOMER ADOPTION
will provide important information to help Fort
Collins Utilities refine the model proposed here and
implement a successful and informative pilot. The
analysis of the survey and the results will be available
as an online appendix.
RECOMMENDATIONS
Fort Collins Utilities’ progress to date promoting
distributed energy resource adoption is substantial
for a small municipal utility. That said, both the City
of Fort Collins and Fort Collins Utilities would like to
achieve near-universal levels of customer adoption
in the next 15 years. The IUS model is designed
to create thriving utilities in a world where every
resident produces some if not all of their own energy
and energy consumption diminishes because of the
extensive efficiency measures adopted by property
owners, renters, and businesses. Yet, how does
a community move from relatively low levels of
customer adoption to almost-universal adoption?
Doing so requires eliminating or at least providing
a way around the key economic and psychological
hurdles to customer adoption. Building on existing
successful programs as well as behavioral science
research, our Fort Collins-specific market research
suggests the following elements will be important
factors in a successful model that transforms
customer adoption:
• Ensure programs can learn and are data
driven—Collect robust information from
participants and use regular feedback to
test alternative approaches across different
demographic groups.
• Strive for “customer-ized” programs combined
with auto-enrollment—Apply auto-enrollment
across different market segments, while
giving ‘customer-ized’ options around bundled
services/products. Customer-ized programs
would be both customer-centric and highly
customized offerings.
• Provide customers with tailored choices—
Develop clear guidance and recommendations
around products, services, and finance that
facilitate easier customer choice.
• Help customers see how they’re making a
difference while showing them clearly how they
are saving money—Link individual adoption
decisions and progress with overall community
goals. Clearly show customer savings at every
opportunity.
• Develop community-based programs—
Leverage existing networks and connections
to test a community-driven approach in certain
neighborhoods, while collecting information
on how social networks help programs spread
quickly.
• Educate customers around finance and
ownership—Develop clear and concise
language around financing that customers
COURTESY OF SHUTTERSTOCK
ON-BILL REPAYMENT
05
INTEGRATED UTILITY SERVICES | 37
ON-BILL REPAYMENT
INTRODUCTION
A key component of dramatically increasing the
adoption of energy efficiency resources is mitigating,
through financing, the upfront capital cost for
measures that will generate savings over time. A
structure that allows anyone to invest in energy
efficiency savings that generate a return over time
expands the reach of programs to those who may
not have sufficient resources and facilitates greater
investment in deep savings. Financing is also critical
for the utility to access capital necessary to deliver
this program. In this paper, financing refers to financial
contracts in the most general terms unless otherwise
noted (i.e., it includes leases, service charges,
loans, etc.). We’ve focused our financing research
and analysis on residential customers because
they are traditionally underserved by distributed
energy resource (DER) financing providers and there
are numerous financing options available to large
commercial and industrial customers.
In the context of the IUS, financing plays a role in the
relationship between the utility and the customer—the
front end—and securing institutional financing to fund
the overall program—the back end. Next we describe
the financing of these two aspects using a similar
structure. Within these two categories we first discuss
today’s typical model, then emerging models, and
finally the future model that we believe is needed to
best support the IUS concept.
FRONT-END FINANCING
Ensuring that customers have access to energy and
value-added services, feel happy and confident with
the results and process associated with the service
provided, experience a streamlined process, and
have the option for no upfront costs or lump sums
are core design principles. The structure of front-
end financing plays an important role in adhering
to these core design principles. For example, if the
front-end financing is similar to what most people go
through in buying a house—credit checks, exhaustive
documentation of assets, providing pay stubs, etc.—
the process would not be streamlined and customer
satisfaction would likely be low. Conversely, if no
financing is provided, the ability to provide energy
efficiency or distributed renewables with no upfront
costs would be difficult. Some form of financing is
necessary for the IUS model to work.
We present three different categories of front-end
financing: a) today’s typical finance models, b) today’s
cutting edge models, and c) the future model we
propose for Fort Collins Utilities. All of the forms
described below involve repayment or payment
through a utility bill rather than a separate payment
mechanism. This form of finance is generally known as
on-bill repayment.
The promise of on-bill repayment is that it allows
more people to invest in energy efficiency and other
DERs, and that those who provide funding for these
INTEGRATED UTILITY SERVICES | 38
05: ON-BILL REPAYMENT
12
The ability for the utility to stop providing electricity to a customer who is delinquent.
Today’s Typical Models
There are two on-bill repayment models that are
common today—on-bill loans and on-bill tariffs.
We define on-bill loans as being tied directly to an
individual or entity. We define an on-bill tariff as a
financing mechanism that is tied to physical property
or an electric power meter.
On-bill loans typically target small-commercial
and industrial customers, although there are some
residential programs.xii These programs operate much
like a standard consumer loan. They typically involve
a detailed credit screen and are often not transferable
or difficult to transfer. The difficulty in transferring an
on-bill loan means that it usually must be paid off when
the home or business owner moves (in some cases the
loan follows the borrower). These complications also
make it difficult for renters to take advantage of on-bill
loan programs. Depending on specific regulations
and specific program structures, on-bill loans may be
subject to consumer lending laws and may not be able
to leverage turn-off ability,12 which may add additional
burden to utility administrators.xiii These are essentially
conventional loan products, often secured by a home
lien, that happen to use the utility bill for repayment.
Tariff is a term that describes rates and charges
associated with a utility bill. Typical on-bill tariff
programs are loans that are tied to physical property
rather than an individual or company. Many programs
also limit the scope of investment such that the
savings associated with the DER are greater than
the additional on-bill payment. In theory this makes
it easier both to transfer the obligation to a new
owner when the property is sold and for renters to
participate. In reality, the ease of transferability varies
tremendously depending on how the program is
structured. For example, if a program administrator
requires a comprehensive credit screen (either
because their funding source demands it or because
their internal finance officers chose to include it) then
transfer of the obligation may be cumbersome, or
delay the sale of the property or setup of a new rental
lease agreement. Further, depending on the structure
of the program, an on-bill tariff may cloud property
title in a similar way to loans, adding additional hassle
to the transfer process and limiting one of the chief
benefits associated with the tariff structure.
We believe that a primary indicator of on-bill tariff
program success is the ease of initiation and the
ease of transferability—many of today’s on-bill tariff
programs have neither, resulting in low participation
rates.
Today’s Emerging On-Bill Tariff Models
We focus on on-bill tariff models here because we
believe that the complexity and application burden
of on-bill loan programs limits their ability to scale.
As mentioned earlier, tariffs are charges associated
INTEGRATED UTILITY SERVICES | 39
05: ON-BILL REPAYMENT
diligence (e.g., minimal credit checks and application
procedures) is discussed in detail in the back-end
section that follows. To replace the security that is
usually provided with these credit checks, a utility is
often more involved in facilitating tariff repayment,
using meter payment history and turn-off ability to
ensure payment, and aggregating across customers to
provide their capital providers with more stability.
Creating simple transfer or closing procedures is
more difficult, especially if the savings from DERs do
not cover the additional bill charge. This is why most
programs constrain the scope of DER investment.
Some programs, such as Midwest Energy’s, register
their on-bill financed projects with the county, which
then notifies potential buyers of the obligation. Written
disclosure of the obligation must be signed to ensure
transfer within 30 days of the sale of the property or
the original owner is responsible for paying off the
obligation. Other programs, such as a nascent Hawaii
program, may automatically transfer the obligation as
long as the new owner is notified.xiv
While these programs are a significant step forward
and adhere to many of our recommended program
design principles, their long-term success is yet to be
determined, especially in the renter market.
The Future Model We Need—Charge for Energy
Services
An additional on-bill repayment component needed
for the Fort Collins Utilities IUS model isn’t really a
finance model at all. Rather, it would be a new utility
revenue model in which customers pay for the service
afforded by DERs rather than paying for and owning
the hardware outright. In an energy services model,
screening would still be tied to the meter and the utility
would retain turn-off ability, but the utility would own
the asset. Consumers would simply pay the utility for
the service of the hardware or resources such as a
new and highly efficient refrigerator, renewable power
generated by a utility-owned solar array on their roof,
or an efficient furnace. It is important to note that this
model would not supplant a highly streamlined on-
bill tariff model, but accompany it as another option.
This model would be similar to many consumer
products analogs, such as home security systems, cell
phones, cable modems, and DVRs, as well as third-
party owned solar PPAs. As focus group discussions
revealed, some customers may feel more comfortable
owning all the equipment in their home and elect not
to use the service charge option. To reach all target
customers and achieve aggressive goals, the utility will
need to provide a variety of options to meet different
customer goals.
The transferability of an energy service charge faces
similar challenges as emerging on-bill tariff models.
Many of the opportunities to simplify transfer or
closing out of service contracts are similar. Fort
Collins Utilities could work with the county assessor to
register the service contract and develop systems to
INTEGRATED UTILITY SERVICES | 40
05: ON-BILL REPAYMENT
BACK-END FINANCING
The back end of financing DERs involves securing
capital to finance any one of the front-end options just
described. This capital can come from a range and/
or combination of sources, including traditional utility
program funds and public or private financiers. Next
we describe the typical models for today’s on-bill
finance programs, current emerging models, and the
options that could be well suited to the Fort Collins
Utilities’ IUS model.
Today’s Typical Models
Many of today’s on-bill finance programs are funded
directly through utility program budgets, public
grant funding such as the American Recovery and
Reinvestment Act and public loan funds, or special
entities such as community development financial
institutions (CDFIs) that are designed to help those
who have difficulty accessing traditional sources of
capital. In cases where the utility offers loan-based
capital, the utility facilitates the connection between
the customer and the lender and collects payments,
but the loan is held by the original lender. Fort
Collins Utilities’ current on-bill program uses Energy
Smart Partners, a subsidiary of Funding Partners, a
local CDFI, to provide qualification and loan-closing
services but the utility provides capital.
TABLE 7: ON-BILL FINANCE FRONT-END OPTIONS
ON-BILL FINANCING ON-BILL TARIFF ENERGY SERVICE CHARGE
• Capital buy-down with
down payment floor
• No upfront capital required • No upfront capital required
• Loan application
required
• Streamlined application • Streamlined application
• Credit screen • Screening tied to meter
payment history
• Screening tied to meter
payment history
• Eligible for additional
rebates
• Eligible for additional
rebates
• Not eligible for rebates
• Eligible for state and
federal tax incentives
• Eligible for state and federal
tax incentives
• Not eligible for state or
federal tax incentives
• Customer owns assets • Customer owns assets •
Utility owns assets
• Obligation must be
closed upon sale
or exit of property
• Obligation can be
transferred upon sale or exit
of property
• No transfer of obligation,
INTEGRATED UTILITY SERVICES | 41
05: ON-BILL REPAYMENT
The primary limitation of today’s typical sources of
capital for on-bill finance programs is their ability
to scale. Grant funding is neither guaranteed nor
regular. Public loan funds are somewhat subject to
the whims of the legislature and may not have the
longevity required to sustain year-on-year expansion
of on-bill finance programs. The Fort Collins Utilities/
CDFI program may not have sufficient resources to
provide funding for large programs and support a
host of other financial products aimed at ensuring
lower-middle income access to capital.
Emerging Models
Emerging models for funding on-bill finance programs
are trying to address the issue of scaling by accessing
a broader set of capital sources. Developing
programs that fund on-bill finance using private
lenders is a promising opportunity to bring greater
scale. In these models, the utility typically administers
an on-bill finance program on the front end and the
back end involves connecting individual customers
with individual lenders in a standard way that may
appear seamless from the customer perspective.
This allows for consistent messaging leveraging
the longstanding customer-utility relationship while
outsourcing origination and loan management as well
as mitigating impacts to a utility’s balance sheet.
Utilities can leverage program funding or grants to
create more appealing rates for their programs by
establishing a loan loss reserve, by buying down
interest rates, or by combining existing funds with
private sources to target different market segments
that lenders may be unwilling to provide capital for.
Furthermore, the utility may leverage traditional
rebates to reduce the initial capital expense of
measures to further reduce payment amounts. The
use of private lenders may influence the front-end
design of on-bill finance programs. For example, local
or state laws and policies may affect the program’s
ability to turn off service if private lenders are
involved. Private lenders may also require certain
additional underwriting criteria in their programs.
While large private financial institutions would
bring scale to on-bill finance programs, it is unlikely
they would be interested in participating without
significant aggregation of residential and small-
commercial customers—each transaction would be
too small to spur their interest. Without aggregation
smaller-scale community banks would more likely be
the key partners in these emerging funding models.
The Future Model We Need
To achieve the scale Fort Collins Utilities needs
and to accommodate the energy service charge
described earlier, Fort Collins Utilities must pursue a
new back-end funding model to complement existing
funding sources. The model we propose looks more
like the utility raising capital for a new business
offering than a utility connecting customers to lenders
and administering the program. This brings funding
COURTESY OF CITY FORT COLLINS
PILOT GOALS
AND PRINCIPLES
06
INTEGRATED UTILITY SERVICES | 43
INTRODUCTION
The IUS model will be piloted in an estimated 200–
300 homes across Fort Collins. The pilot will entail
selling and installing an integrated package of energy
efficiency and solar funded through emerging and
new on-bill repayment mechanisms and executed by
a third-party administrator. Testing the new ways of
engaging and serving consumers articulated in this
report are critical pilot goals. This testing will allow
Fort Collins Utilities to refine the IUS model before a
potential larger citywide rollout of the program.
Objectives
In addition to testing the overall IUS model, the pilot
has five main objectives:
1. Uptake—test market demand for integrated
packages
2. Efficiency—prove out increased energy
efficiency savings relative to current programs
3. Financial viability—test the economics for the
consumer and the utility
4. Efficacy—establish and test program processes
for a larger city rollout
5. Customer satisfaction—understand Fort Collins
Utilities customer reactions to the IUS model
Recommended metrics to assess each objective are
listed in Table 8.
Scope
Market research variables to be tested
Pending findings from the ongoing market research
customer survey, we recommend testing the following
variables in the pilot:
• Perspectives/attitudes around auto-enrollment
• Openness to alternatives to traditional
ownership
• Balance of choice vs. pre-determined packages
• Perspectives/attitudes toward different financing
options
• Understanding different market segments in Fort
Collins (renters/owners, commercial/residential)
• Customer motivations, such as environmental,
economic considerations
Understanding how customer preference changes
over the course of the pilot will inform the design of a
broader IUS rollout.
Duration
The planned pilot launch is early 2015. Marketing and
recruitment will be conducted over the course of a
three-month period.
PILOT GOALS AND PRINCIPLES
METRIC
Uptake Package adoption rates
Efficiency kWh saved versus current program kWh savings, therms saved
Profitability Bill neutrality and utility margin replacement
Efficacy Administrative cost per energy unit saved
Customer
Satisfaction
Percent of pilot participants who hold a favorable impression of the new model at the conclusion of the pilot
TABLE 8: PILOT PROGRAM OBJECTIVES AND METRICS
INTEGRATED UTILITY SERVICES | 44
06: PILOT GOALS AND PRINCIPLES
PILOT ACTIVITIES
Marketing
The pilot will launch with a marketing campaign
notifying citizens of the new suite of offerings the
utility will provide. This will entail both passive and
active marketing strategies. Active marketing will
only be conducted in the pilot region, while passive
approaches will use traditional and social media.
Pilot consumers will also receive a notification with
their bill that they will be enrolled in the new default
(opt-out) basic package and will be contacted by a
customer service agent to coordinate the installation
process and answer any questions they may have
about the program.
Customer Engagement
All pilot customers will be contacted by phone to
schedule their install date. During the course of
this conversation sales representatives will provide
a concierge-like service to all customers enabling
optional upgrades to premium packages. Customers
who wish to opt out of the new default or optional
upgrades will be asked to answer a quick survey to
gain insight into their choice to not participate.
Installation
Installers will be dispatched at pre-selected times
from which customers can choose. These times
will be established for each package type in order
to minimize visits to each customer and to use
contractor time efficiently. Once on site, crews
will conduct a holistic audit (potentially to include
water as well) in order to confirm predetermined
measures are appropriate for the building. After the
audit they will immediately perform the appropriate
installations associated with each package type. A
variety of materials will need to be on hand for crews
to adaptively install appropriate measures. Finally,
should a customer wish to upgrade packages upon
arrival of the installation crew, a new installation date
must be determined for the appropriate package
type. The installer must then upgrade the customer’s
package choice in the central sales system and flag
that an audit has already been performed with a set
of recommended measures.
Quality Control, Measurement and Verification, and
Reporting
Once measures have been installed, Fort Collins
Utilities will continue to provide information to
customers through current methods like Opower
reporting, as well as additional information that
communicates savings estimates on monthly bills.
Savings may be shown on a normalized basis to take
into account the seasonality of energy consumption,
which might otherwise cause large variations in
month-to-month savings. Natural gas savings will
be estimated by Fort Collins Utilities models and
reported through a separate report included with
monthly bills. Real-time electricity use will continue
to be available to customers through Fort Collins
INTEGRATED UTILITY SERVICES | 45
06: PILOT GOALS AND PRINCIPLES
PILOT PLANNING ACTIVITIES
Based on the core program elements of the business
model, the design team identified a set of activities
required to launch and deliver a meaningful pilot.
Two critical tasks will further enable Fort Collins
Utilities to launch a more robust test run of the IUS
model: 1) hire a third-party administrator before
the pilot launch to ensure that customers have one
touch-point under the Fort Collins Utilities brand,
and 2) create the recommended on-bill repayment
products for customer repayment (private capital is
likely unnecessary for the pilot) to meet the needs of
different market segments.
Next, we list specific actions that support the
pilot launch. Some of these activities have been
completed or are currently under way.
On-bill Repayment
Completed activities
• Design recommended on-bill repayment
structures.
• Conduct community outreach necessary for
stakeholder buy in.
• Seek input from financial institution partners
interested in financing programs beyond the
pilot.
Remaining activities
• Secure necessary funding for legal and
administrative resources needed for
implementation.
• Seek outside council, if necessary, to assess
potential regulatory obstacles and develop
solutions that enable proposed on-bill financing.
• Review proposed business model with municipal
advisory boards.
• Set up rate structure codes for service charges
for the pilot.
• Arrange for contingencies should recommended
on-bill financing face opposition.
. Work with Fort Collins Utilities to waive
origination fees
. Reduce current financing rates and terms
. Simplify current financing application
Package Offering Development
Completed activities
• Finish market research, economics, and
buildings analysis.
Remaining activities
• Identify pilot specifics:
. Building stock
. Measures and technologies
. Measure costs
. Market segments
• Finalize integrated packages for specific building
stock and market segments.
Marketing
Completed activities
• Initiate internal discussions to explore
communication and approaches to minimize
INTEGRATED UTILITY SERVICES | 46
06: PILOT GOALS AND PRINCIPLES
Partnership planning
Remaining activities
• Execute central negotiations for solar and
efficiency products.
• Set up system to incorporate rebates into
package costs.
• Establish durable goods partnerships for
procuring selected measures.
Reporting, QC, and M&V
Completed activities
• Use existing utility services to conduct QC and
M&V.
• Use existing third-party reporting to convey
electricity savings.
Remaining activities
• Develop process for securing customer consent
for Fort Collins Utilities to request Xcel natural
gas data—perhaps similar to Clean Energy
Colorado.
• Develop analytic tools for using Xcel natural gas
data to report savings to customers.
Figure 10 summarizes the recommended timing of
general pilot planning activities.
POST-PILOT ACTIVITIES
Upon completion of the pilot a host of actions
must ensue in order to roll out the IUS model to
the broader community. Lessons learned and
the true potential of the program to help the City
meet accelerated GHG reduction goals must be
understood. Adaptive management of the program as
well as understanding the implications for centralized
resource development by the utility will no doubt be
an outcome of the pilot. But assuming the utility’s
hypothesis around adoption barriers and sales
strategies is correct, the following activities must be
completed before launching a broader-scale program:
• Analyze tested variables and document
learnings from pilot
• Identify gaps and design solutions
• Create and secure program capital structure
• Create natural gas savings reporting process
• Amplify program enthusiasm and begin citywide
marketing campaign
From here expanding measures as well as system-
and community-wide benefit offerings can continue.
This evolution could include offerings such as electric
vehicles and charging stations, and demand response.
FIGURE 10: TIMING OF PILOT PLANNING ACTIVITIES
• Program design
• Create packages
• Finish analysis
• Community outreach
• Secure funding
• Carve out pilot targets
• Board reviews
• Legal council and back
o ce implementation
• Begin third party solar
COURTESY OF CHRIS ROWE
GENERAL
CONCLUSIONS
AND IMPACT
07
INTEGRATED UTILITY SERVICES | 48
The overall benefits of achieving Fort Collins’s
accelerated greenhouse gas reduction goals are well
articulated in RMI’s Stepping Up report. The specific
benefits of the actions that Fort Collins Utilities can
take to support Fort Collins’s goals are quantified
below and describe significant value above and
beyond maintaining Fort Collins Utilities’ relevance in
a rapidly changing utility paradigm.
If the degrees of adoption and savings modeled in
our analysis are achieved, Fort Collins Utilities will
generate 1,015,998 MWh of energy efficiency savings
annually by 2030, which will move the city 80% of the
way towards its electric efficiency potential and 40%
of the way toward its total efficiency potential. It will
also help customers access 195 MW of distributed
renewable generation capacity by 2030. These
savings will keep $26.5 million in the pockets of
residents annually (an average of $680 per residential
customer per year). From a utility perspective,
the savings generated annually by the IUS model
have the potential to reduce costs associated with
energy and demand by $2.6 million and $1 million
respectively by 2030.
In addition to increasing efficiency and saving money,
Fort Collins Utilities’ actions can reduce Fort Collins’s
greenhouse gas emissions by 542,000 metric tons
per year. These reductions are 32% of what RMI
showed was possible across all sectors (electricity,
buildings, transportation) in the Stepping Up report,
and 90% of what is predicted for the residential
buildings sector.
GENERAL CONCLUSIONS
AND IMPACT
COURTESY OF CHRIS ROWE
APPENDIX A
PROGRAM ADMINISTRATOR
CONTRACT AND LEGAL
STRUCTURES
INTEGRATED UTILITY SERVICES | 50
APPENDIX A
PROGRAM ADMINISTRATOR CONTRACT AND LEGAL STRUCTURES
The nature and the structure of the program administrator can vary along a spectrum of high to low utility
involvement.
FIGURE 11: PROGRAM ADMINISTRATION – DEGREE OF UTILITY INVOLVEMENT
• Utility manages all RFPs
and contracts
• Sales agency advises client
• Audit process has high
implications for conversion
• Rebates folded into
package pricing
• Utility manages 1 RFP
• Integrator advises client
• Audit process streamlined
to increase conversion
• Programs overhauled
Note:
Private sector integrator
can potentially capture
ITC and MACRS reducing
financing costs
• Utility manages 1 RFP
• Performance contractor
advises client
• Audit process streamlined
to increase conversion
• Programs overhauled
Note:
• Reduces legal exposure
for utility
• Some variation of this
could be used in previous
model
• No RFPs or contract
management required
• Contractor directly
advises customer
• Audit process has high
implications for
conversion
• Tweaks on existing
programs, rebates remain
Best-in-class practice:
E ciency Vermont’s 2.9% incentive payment has been very successful, driving some of the highest U.S. EE adoption rates
HIGH
Utility
Customer
Customer
Contractor
Audit Training/QC Service Capital
$
$
$
$ $ $
$
$
LOW
Utility
INTEGRATED UTILITY SERVICES | 51
APPENDIX A: PROGRAM ADMINISTRATOR CONTRACT AND LEGAL STRUCTURES
The legal structure of the administrator can take several forms, including a private third party, a government
agency, the utility, and a hybrid of these models. Each has its pros and cons as described Table 9.
TABLE 9: PROS AND CONS OF PROGRAM ADMINISTRATION LEGAL STRUCTURES
PROS CONS
OTHER IMPORTANT
CONSIDERATIONS
• Strongest existing relationship
with the customer
• Technical and administrative
experience of utility sta
• Well developed regulatory
channels for oversight and
accountability
• Have established infrastructure
and network with market
participants
• Allows each oversight body to
focus very specifically on
addressing a local priority such
as service to low income
customers, market
transformation, etc.
• Structure and mission can be
strongly aligned with policy
goals
• Ability to create lean admin
• High probability of attracting
qualified sta
• Agency objectives generally
compatible with program goals
• Financial disincentive to pursue
energy e ciency
• Potential and perceived conflict
of interest with customer
• Service territory boundaries
reduce potential to capture
economies of scale
• When funding tied to rate cases
can be contentious
• Communication issues can
diminish benefits of separate
entities. Having some sort of
process or structure in place
to address this issue can help
• Institution building requires
time, political will and resources
• Only appropriate if funding
resources available for an
extended period of time
• Funds susceptible to
government re-direction
• Must ramp up subject matter
knowledge
• Procurement requirements can
limit best-value selection
• May face challenges attracting
the best sta
• Greater political and
INTEGRATED UTILITY SERVICES | 52
APPENDIX A: PROGRAM ADMINISTRATOR CONTRACT AND LEGAL STRUCTURES
In the Sample Measures Bill in Table 10, the checked boxes to the right of the figure indicate which measures are
included in the basic package, the (P) indicates measures that are in the premium package, and the X indicates
measures that are not included. In this case, a customer would receive lighting, thermostat, power strip, and
building envelope improvements, as well as an efficient water heater and furnace in the basic package. All
measures were amortized over the same duration.
A smart thermostat, part of the basic package, costs $250, which is financed at a 6% rate for a monthly payment
of $2.11, and saves $0.79 on the monthly electricity bill and $7.23 on the monthly gas bill. Together, the measures
in the basic package achieve $11.63 of electricity and natural gas savings for a customer every month. Our
modeling evaluated the need for additional IUS charges to contribute to Fort Collins Utilities’ lost fixed cost
revenue (beyond the $4.75 fixed charge already imposed and remaining) adding an additional charge of $0.016/
kWh saved as well as a program overhead charge.17 The final customer bill impact for the average pre-1945 home
came out to a bill reduction of $7.79 holding behavioral patterns in the home constant.
TABLE 10: SAMPLE MEASURES BILL
17
Estimating the required distribution maintenance contributions for a negawatt, as opposed to a delivered kilowatt, is challenging. Here we
estimate 1.6 cents/negawatt based on public filings, but it should be noted that this is less than Fort Collins Utilities’ current total adder for
delivered kilowatts of 2.6 cents.
COURTESY OF CHRIS ROWE
APPENDIX B
PROGRAM STRUCTURAL
ELEMENTS
INTEGRATED UTILITY SERVICES | 54
APPENDIX B
PROGRAM STRUCTURAL ELEMENTS
The elements described here include the major operational attributes of the IUS program, including sales and
marketing, financing, operations, and program strategy.
SALES AND MARKETING
Product Design
There are many ways to package offerings that include efficiency, distributed generation, and value-added
services into specific products. We identified integrated packages (versus unbundled offerings) as the ideal
design for product offerings. Integration is attractive for two reasons: 1) simplicity of sales, explanation, and
delivery, and 2) the ability to systematically affect the consumer’s energy consumption.
Recommended Structure
We crafted an initial set of packages designed to appeal to specific customer segments. We recommend offering
a default basic package and a limited number of premium packages that offer additional services and savings.
The Basic Package is a default (opt-out) offering designed to create efficiency savings. This package will cater to
customers whose main priority is reducing costs. Optional opt-in premium packages may or may not lead to bill
increases but include more emphasis on outcomes such as improved comfort, more attractive home furnishings
and fixtures, resilience, etc. As customers’ desired set of outcomes change, these packages can continue to
evolve. Understanding these changing dynamics and adapting to them will be a critical piece of ongoing analysis
and is described in Program Strategy below.
Gaps and Solutions
At present Fort Collins Utilities manages an unbundled set of product offerings. Fortunately, a third party has
already been hired to understand customer propensities to purchase certain product bundles as well as the
combinations necessary to make the economics of a package attractive to the consumer and viable for the
utility. A continued public-private partnership will enable the utility to ensure products meet consumer demand
even when resource constrained. Meanwhile, maintaining the utility as the sales point will leverage the existing
relationship and trust between Fort Collins Utilities and its customers.
Promotion
Promotion historically refers to how a business markets and communicates its products in order to stimulate
sales. This can include everything from TV, radio, or print commercials to distributor incentive campaigns that
drive sales. In the context of the IUS, promotion refers not only to the need to market and sell a new set of utility
product offerings, but also to preparing the community for a new relationship with its utility.
Recommended Structure
After discussions with various program administration and industry experts, it became increasingly clear that
launching a new product offering without adequate customer and stakeholder engagement could severely
compromise the program’s success. Therefore the program’s promotional efforts will seek to educate, create
awareness, and promote community involvement around the program while ensuring any crucial customer
feedback, confusion, or concerns are addressed before launch. This promotional effort should combine various
methods along a spectrum of passive to active approaches (see Figure 12).
INTEGRATED UTILITY SERVICES | 55
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
Gaps and Solutions
Traditional utility approaches to marketing have predominantly been passive. New service providers have
developed new models to boost customer adoption of renewables and energy efficiency. Some work at a more
grassroots level using local champions and social capital to gamify campaigns over a bounded timeframe. Others
use a concierge approach, hand-holding customers along the way and helping guide them through the complex
decision-making energy efficiency retrofit and solar installation process. Using this approach companies such as
Populous have seen a 70% conversion rate.xv Leveraging organizations such as these, among others, will help
move the program’s promotional approach to a more active one that drives demand. Simultaneously, actively
communicating with specific market segments can promote waves of adoption that create critical mass and
adoption tipping points while reducing complexity.
Intake
Customer intake is one of the most critical aspects of the sale of any product. Because of this, interacting with a
potential consumer and converting that interaction into a sale is a vast and wide area of study in marketing. Many
traditional utility energy efficiency and solar programs offer financial incentives to lure consumers but this passive
approach has produced customer adoption levels that are not adequate for addressing most cities’ greenhouse
gas reduction targets. Therefore, we propose a more active customer engagement strategy—specifically the
default (opt-out) Basic Package offering for all customers. Setting the default option is a powerful way to change
behavior, as a growing body of research suggests.
Recommended Structure
Engaging customers by knowing as much as possible about their housing stock and desired set of outcomes (for
example, through propensity modeling, which builds predictive models of likelihood to purchase certain goods
and services given certain demographic and value characteristics) and data analysis are required precursors to
driving high conversion rates (i.e., low opt-out rates) for the Basic Package.
FIGURE 12: SPECTRUM OF CUSTOMER ENGAGEMENT: PASSIVE TO ACTIVE PROMOTION
PASSIVE ACTIVE
• Print, TV, radio promotion
• Billboards
• Flyers
• Web
• Phonebanking sales
(opt-out program will
involve calling all
customers)
• Door-to-door sales
• Distributor incentives (a la
carte contractors)
• Potentially required for
focused campaign
• Town halls for consumer input
• Social media campaign
• One-on-one stakeholder program
discussions e.g.:
• Consumer rights advocates
• Environmental advocates
• Business interest groups
Figure X: Suite Of Passive To Active Promotion Strategies
Traditional focus
for utility e ency
programs
INTEGRATED UTILITY SERVICES | 56
We recommend increasing uptake by applying a default opt-out Basic Package to all customers. While the opt-
out approach will drive increased customer adoption and the majority of customer intake will be initiated by this
program element, subsequent interactions with consumers will be funneled through two channels. The first is
through traditional contractor-driven referrals for program rebates (a la carte offerings). The second is through an
integrated offering that would be promoted to customers in a similar way to initial contact with the Basic Package.
We recommend that the service offering be contracted through the IUS integrator and its contractor network (see
Figure 13). But a la carte contractors should be incentivized to refer customers to the Home Performance program
to take advantage of deeper energy efficiency retrofit oppertunities.
Throughout the intake process (first initiated during scheduling for the Basic Package measures installation)
and in subsequent interactions, customers should be engaged regarding the set of outcomes they desire (e.g.,
converting a useless room over the garage to a comfortable living space) as opposed to specific measures (e.g.,
roof and wall insulation). Sales representatives must be fluent in communicating the comfort, health, and safety
benefits of all measures in a given package. Furthermore, customers who choose to opt out of the default Basic
Package provide an opportunity to gather valuable information that can be used to better understand opt-out
dynamics and to modify the program to further increase participation and retention rates.
After sales, traditional programs have several dropout points, including audits, contractor selection, and incentive
paperwork. These steps in the installation process can be streamlined through:
• Analysis of building stock prior to sales interactions;
• Light-touch audits delivered by a customer service representative;
• Pre-selection of contractors; and
• Elimination of paperwork through a streamlined application at the initiation of the process.
Gaps and Solutions
Fort Collins Utilities-trained contractors primarily handle about half of current projects. These contractors often
have an incentive to promote their own interests, which typically revolve around single-measure projects (e.g.,
insulation, HVAC, or windows). Consequently, conversion rates from single-measure types to deeper retrofits have
been limited from this source. We recommend centralizing customer intake through use of default options that
are coordinated with active promotion. This, combined with streamlining customer dropout points, will help boost
customer intake and conversion to higher-value offerings significantly.
FIGURE 13: TWO CHANNELS FOR CUSTOMER INTAKE
Figure X: Two Channels For Customer Intake:
Home Performance Package vs A La Carte O erings
HOME PERFORMANCE
One lead contractor per project contracted
through Program Administrator
Integrated Services
Audit
Scope Work
Estimates of Costs
and Savings
Integrated Rebates
and Financing
Complete Work
Test Out
Insulation & Airsealing
HVAC
Windows
Etc.
A LA CARTE
Many contractors contracted on an
individual basis through customer
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
INTEGRATED UTILITY SERVICES | 57
FINANCING
Financing is discussed in depth in Chapter 5. Here, we present the key elements of financing the IUS model from
a customer and utility perspective.
Customer
While some consumers have the outright capital to invest in distributed energy resources, for many, overcoming
the upfront capital costs associated with investing in distributed energy resources has proven a large barrier to
adoption, especially in the residential sector. Minimizing the need for significant capital investment through some
form of financing is a key method for overcoming this barrier. One proposed solution has been financing facilitated
by the utility and collected through its existing billing structure. This system is generally known as on-bill financing.
The main priorities of an on-bill program are to optimize attractiveness and equitability. Some levers to enhance
attractiveness include no money down, credit against the meter (an on-bill tariff), minimization of paperwork and
encumbrances, and an ability to articulate value (savings and additional features). Fort Collins Utilities has already
established an on-bill financing program and we feel this option should be maintained but enhanced. We also
evaluated two additional on-bill payment structures that maintain the flexibility for customizable offerings and
facilitate package-based products—an on-bill tariff (where the customer owns the assets with financing tied to the
meter) and an on-bill energy service charge (where the utility owns the assets). These two additional structures
are described in more detail in Chapter 5.
Recommended Structure
We recommend maintaining multiple options for repayment, as different customers will have different
financial needs.
Each on-bill finance option presents a work-around to many of the obstacles customers potentially face when
accessing financing. For example, homeowners may wish to significantly lower their long-run capital investment
by accessing state or federal rebate programs and on-bill financing at a low interest rate that enables them to
do this with limited money down. Also, many lower-middle income consumers do not have enough tax liability to
access incentives for solar and need mechanisms that enable little money down with no impact to their monthly
cash flow. Renters are another market segment that has been difficult to target. Those who are sub-metered can
utilize an on-bill program to improve their home amenities and energy use. Each of these market segments has
different ownership and investment needs and therefore calls for different forms of funding. Mitigating default
risk to reduce the cost of capital will require the utility to provide some form of credit enhancement as well as the
ability to terminate service. A loan loss reserve or interest rate buy down could serve this purpose across
funding mechanisms.
Gaps and Solutions
At present Fort Collins Utilities combines billing for all four of its departments: water, wastewater, electric, and
storm water. Therefore, all four services are netted against payments and credits (overpayments) and are simply
applied to the next billing cycle’s charges. Furthermore, service termination can only be enforced if billing is
conducted through Fort Collins Utilities.
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
INTEGRATED UTILITY SERVICES | 58
Utility
Both the IUS program structure and the sources of capital the utility pursues to finance the programs will
determine the affordability of the service offerings and therefore the program viability. The main priorities for
utility financing are securing low-cost capital and having the ability to finance integrated investments over
appropriate terms.
Recommended Structure
We recommend Fort Collins Utilities maintain its existing on-bill financing program with certain tweaks to its current
deployment. For affluent customers, using cash that would otherwise sit in a low-interest bank account would
enable them to accrue more savings, more quickly, increasing their return on investment. Accordingly, we do not
want to discourage these customers from making any upfront or early capital buy downs. At the same time, the
current Fort Collins Utilities interest rate, application process, and application fees must be overhauled in order to
make economic sense for these types of consumers. Fort Collins Utilities should lower its interest rate, eliminate the
application fee, and streamline the application process.
For the on-bill tariff and energy service charge, we envision Fort Collins Utilities administering these funds while
capitalizing them through a combination of municipal bonds and private capital, pooled in a special-purpose vehicle
that will operate like a revolving line of credit for the utility. This structure will lower the utility’s financing costs, as
funds are only borrowed as requested by consumers. In order to further lower financing costs, seeking federal and
state grants as well as philanthropic dollars to create some form of credit enhancement, whether as a loan loss
reserve or interest rate buy down, is highly recommended. Lastly, an option to buy down the capital required for
any upgrades should be highly visible and encouraged. This will mitigate risk in investors’ eyes by demonstrating
consumers have some “skin in the game” while simultaneously accelerating accrued savings to the consumer.
In the case of the energy service charge model, the capital Fort Collins Utilities pursues is on its own behalf. The
utility bears the risk of non-payment, which directly affects Fort Collins Utilities’ credit rating and therefore its cost
of capital. Adding new product offerings where the utility owns the assets will require the utility to more actively
manage its balance sheet. The non-traditional nature of these new distributed resources (negawatts of saved energy
from efficient appliances and envelope upgrades, and kilowatts of generation from distributed renewables) will
potentially increase the scrutiny of investors. As such, Fort Collins Utilities will need to show competent execution
and returns through the pilot to secure the best terms and oversight when seeking outside capital.
Gaps and Solutions
A combination of funding solutions will be necessary to raise the capital required to perform the level of deep
efficiency retrofits with distributed generation needed for Fort Collins to reach accelerated greenhouse gas
reduction goals. For example, maintaining third-party solar financing with the option for the utility to buy out after
a period of time could bring economies of scale to the solar portion of the integrated package. Creating a special-
purpose vehicle to consolidate private, public, and philanthropic investments will further enable more rapid
capital deployment, credit enhancement mechanisms, and provide a platform for additional community emissions
reduction financing programs.
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
INTEGRATED UTILITY SERVICES | 59
OPERATIONS
Bringing an integrated set of offerings to customers with minimal transaction costs requires a different operational
structure than Fort Collins Utilities currently has. It will require contractors to be able to holistically assess
the homes and make integrated recommendations to customers speaking to their needs and desires while
understanding how a building is a system where specific retrofit measures can have significant cost-cutting
impacts on other upgrades to a home (e.g., improving the air tightness of the building enables smaller HVAC
systems to be installed and therefore reduces HVAC costs). Managing the subcontracting process to enable a
seamless experience for the customer will be a large part of this. The activities of training, installation, and quality
control and reporting must all reinforce this experience.
Training
A set of contractors will need to be created in Fort Collins who have the capability to diagnose and install a fully
integrated set of offerings (the heart of the IUS) while another set of contractors will continue to be able to install
one-off measures that meet Fort Collins Utilities’ quality control standard (e.g., a customer just needs a new
heater, and he or she wants to capture the utility rebate for an efficient one).
Recommended Structure
Trainings for home performance measures should be centrally managed by the utility. An integrated approach to
making upgrades to a home will be required, and establishing and teaching such an approach is a role the utility
is well positioned to fill. Simultaneously, the integrators can provide a set of recommended home performance
contractors to customers who have undergone this unique training and/or comply with established utility
standards. These trainings should train contractors to evaluate buildings in a holistic way with an eye to reducing
energy and water use in a building while addressing the needs of the consumer. Fort Collins Utilities should
continue to offer its traditional rebate and incentive training for contractors to offer consumers access to these
incentives when installing a la carte measures.
Gaps and Solutions
Many contractors, while having undergone Fort Collins Utilities’ installation training, are not necessarily driving
more meaningful improvements to their customers’ building stock. Thus we recommend the home performance
integrator use subcontractors who have gone through the utility’s training program, ensuring local contractors
are benefitting from both the home performance and traditional a la carte program while creating an incentive for
contractors to promote the utility’s home performance program.
Install
As mentioned previously, having contractors that understand how to implement the integrated nature of a home
performance package will be integral to reducing touch points and enabling customer ease with the program.
Installs are where the rubber meets the road and they determine subsequent customer satisfaction and trust in
the program.
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
INTEGRATED UTILITY SERVICES | 60
Recommended Structure
Having a limited set of contractors oversee home performance package installs serves several critical functions,
including: scale, quality, dollar cost averaging, performance guarantees, seamless integration with the utility, and
a simpler customer experience. The lead contractors should be capable of assessing intervention needs in a
holistic way and maximizing the deep efficiency saving potential of each install. After having undergone the home
performance training provided by the utility they will have the authority to subcontract and manage Fort Collins
Utilities-trained subcontractors for measure-by-measure installs. This would reduce the number of customer
touch points leading to a more frictionless transaction for the customer. Subcontractor visits would need to be
well coordinated and managed by the lead contractor in order to minimize the number of visits necessary to a
property. Finally, the lead contractor would be responsible for test-in and test-out audits, which would include
combustion safety and air leakage testing.
Gaps and Solutions
All home performance lead contractors could use a central procurement facility when performing package
installs, and subcontract only to qualified subcontractors.
Quality Control, Monitoring and Verification, and Reporting
Any program that is founded upon enhancing energy efficiency savings while improving customer outcomes
requires processes for ensuring quality, monitoring performance, and reporting these benefits to consumers. Each
of these activities is integral to the others.
Recommended Structure
Fort Collins Utilities should play a critical role in tying together quality control (QC), measurement and verification
(M&V), and reporting. Fort Collins Utilities has traditionally conducted QC activities in order to ensure rebate
program contractors are delivering the quality of service necessary to generate savings. These same activities
must be conducted to ensure the IUS program is fulfilling its intended purpose. While M&V typically has been
used to ensure energy service company (ESCO) contract fulfillment and therefore ensure a certain cost of capital
for the ESCO or for gauging utility progress toward mandated goals, in this context it would be simultaneously
used to maintain investor confidence and to provide program discipline for the utility and the integrators.
Additional quality control aspects of the program would include an equipment standards component, including
install and customer experience.
The results and findings aggregated in these QC and M&V activities should directly inform customer energy use
and savings reporting. Reporting should be comprehensive for both electricity and natural gas use and savings,
as well as credit performance. Establishing comprehensive reporting will facilitate raising future capital to fund
customer measures.
Gaps and Solutions
An ideal program reporting structure conveys costs and savings in tandem, but one of the most challenging
aspects of reporting will be computing natural gas savings. Natural gas savings will often make up the largest
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
INTEGRATED UTILITY SERVICES | 61
portion of savings in proposed packages. Fort Collins Utilities cannot collect natural gas data on behalf of Xcel
Energy to streamline energy efficiency savings reporting without customer consent. We recommend that Fort
Collins Utilities explore including securing customer consent to request natural gas data from Xcel as part of the
early customer interactions. Several efficiency and distributed solar organizations in Colorado already do this. The
difficulty will be in streamlining the translation of Xcel natural gas data to IUS-specific reporting structures.
PROGRAM STRATEGY
Any program Fort Collins Utilities pursues must be adaptive as new technologies, business models, and insights
evolve in the energy efficiency and solar industries. Establishing a process for understanding these trends, as well
as shifting consumer preference, is an activity most nimble businesses have in place.
Recommended Structure
We recommend Fort Collins Utilities create a team to regularly assess program data and research industry trends
and emerging technologies so that the IUS model can be revised as needed by applying the original program
design principles in the context of emerging trends. This will maintain the program’s relevance and ability to meet
consumers’ demands while also supporting the financial viability of the program.
Gaps and Solutions
The ideal program requires having the expertise on hand or readily available to systematically and regularly
reassess customer propensities for consuming various services and strategically plan for the introduction of
new technologies. It also requires regular system improvement planning to ensure continued sales and energy
efficiency savings for the program. We recommend streamlining data access procedures and procuring the
necessary resources to create a nimble and savvy program to conduct the analysis described above.
APPENDIX B: PROGRAM STRUCTURAL ELEMENTS
INTEGRATED UTILITY SERVICES | 62
i Beckman, Karel. “RWE sheds old business model,
embraces transition.” Energy Post. October 21, 2013.
<<http://www.energypost.eu/exclusive-rwe-sheds-old-
business-model-embraces-energy-transition/>>
ii Madrian, Brigitte C. and Dennis F. Shea. “The
Power of Suggestion: Inertia in 401(k) Participation
and Savings Behavior.” The Quarterly Journal of
Economics. Vol. 116, No. 4 (November 1, 2001): 1149–87,
doi:10.1162/003355301753265543.
iii Kahneman, Daniel and Amos Tversky. “Prospect
Theory: An Analysis of Decision under Risk.”
Econometrica. Vol. 47, No. 2 (1979): 263–91.
iv Thaler, Richard H. and Cass R. Sunstein. Nudge:
Improving Decisions About Health, Wealth, and
Happiness. Penguin, 2009.
v Johnson, Eric J., et al. “Beyond Nudges: Tools of a
Choice Architecture.” Marketing Letters. Vol. 23, No. 2
(June 1, 2012): 487–504, doi:10.1007/s11002-012-9186-1.
vi Thaler and Sunstein. Nudge.
A. Tversky and D. Kahneman. “The Framing of
Decisions and the Psychology of Choice.” Science.
Vol. 211, No. 4481 (January 1981): 453–58, doi:10.1126/
science.7455683
McNeil, Barbara J., et al. “On the Elicitation of
Preferences for Alternative Therapies.” New England
Journal of Medicine. Vol. 306, No. 21 (May 27, 1982):
1259–62, doi:10.1056/NEJM198205273062103.
vii Bull, Joe. “Loads of Green Washing—Can
Behavioural Economics Increase Willingness-to-Pay
for Efficient Washing Machines in the UK?” Energy
Policy. Special Section: Past and Prospective Energy
Transitions—Insights from History, 50 (November
2012): 242–52, doi:10.1016/j.enpol.2012.07.001.
viii Cialdini, Robert and Wesley Schultz. Understanding
and Motivating Energy Conservation Via Social Norms.
William and Flora Hewlett Foundation, 2004. <<http://
opower.com/uploads/library/file/2/understanding_
and_motivating_energy_conservation_via_social_
norms.pdf>>
ix Quaid, Maureen and John Phelan. “Fort Collins
Utilities: A Municipal Utility Leading Innovation.” ACEEE
Summer Study on Energy Efficiency in Buildings. 2014.
<<https://www.aceee.org/files/proceedings/2014/data/
papers/10-711.pdf>>
x Rocky Mountain Institute. “Working Group Notes,
Customer Adoption in Fort Collins: October 15–17,
2013.” (presented at the Electricity Innovation Lab,
Warrenton, VA, 2013).
xi Byrd, D. J. and R.S. Cohen. A Roadmap to Energy
Efficiency Loan Financing. Memorandum to U.S.
Department of Energy. Progressive Energy Group.
2011. <<http://www.cleanenergyfinancecenter.org/
wp-content/uploads/DOE-Energy-Efficiency-Report-
rev-8-29-11.pdf>>
xii Bell, Catherine J., Seven Nadel, and Sara Hayes. On-
bill Financing for Energy Efficiency Improvements: A
Review of Current Program Challenges, Opportunities,
And Best Practices. ACEEE Report Number E118. 2011.
<<http://www.aceee.org/research-report/e118>>
xiii Ibid.
xiv Harcourt Brown & Carey. On-Bill Financing in
Hawaii. Denver: Harcourt Brown & Carey. 2013.
<<http://dms.puc.hawaii.gov/dms/DocumentViewer?pid
=A1001001A13A04B61718B06948>>
xv Hutchings, L. Fort Collins Utilities Utility as a Service
Provider Working Group Session. November 21, 2013.
J. Mandel, Interviewer.
ENDNOTES
bureaucratic exposure
• Funds susceptible to
government re-direction
• Not as nimble to a changing
market
• Creating an advisory committee
can prevent issues around
stakeholder engagement and
create buy-in for programming
• Advisory committee requires
establishing governance
processes
• The city council of the District of
Columbia created a new structure
for EE admin in DC known as a
sustainable energy utility (SEU)
funded primarily through bonds.
The contract to manage the SEU
has gone to the Vermont Energy
Investment Corp (same entity
managing E ciency Vermont)
Figure X: Program Administration Structures
UTILITY
HYBRID
(2 or more admins)
GOVERNMENTAL
THIRD PARTY
Customer
Performance
Contract
$
$
Utility
Sales
Sub-
contractor
Customer
$
Utility
Integrator
Sub-
contractor
UTILITY HYBRID HYBRID THIRD PARTY
negotiations
• Draft sale and customer
experience guide
• Begin marketing
planning
• Arrange for any
necessary
contingencies
• Conduct customer
experience training
• Set up rebate
buy-downs
• Establish durable
good partnerships
• Launch marketing
campaign
• Pilot launch
May Jun Jul Aug Sep Oct Nov Dec Q1 2015
Figure X: Potential Pilot Timeline
customer confusion re: other utility programs.
Remaining activities
• Develop specific communication campaigns and
protocol.
Sales and customer service
Remaining activities
• Draft sale and customer experience guide for
customer contact points.
• Conduct customer experience training with
third-party administrator and utility customer
service reps.
Utilities’ online tracking platform.
Three months after final installations are made, Fort
Collins Utilities will send all pilot participants a survey
about their experience with the program. This survey
will cover initial communication with sales staff,
the installation experience, reporting and savings
understanding, and satisfaction with short-term
program outcomes.
Fort Collins Utilities will randomly conduct a number
of audits across building and package types to
ensure installation quality as it currently does with its
qualified rebate contractors. Simultaneously it will be
responsible for conducting verification of program
savings for both electricity and natural gas.
to scale because the utility, instead of individual
customers, would be borrowing funds. It also gives
Fort Collins Utilities more control over the structure of
the front-end program because the money is “theirs”
(i.e., it enables the energy service charge).
The funding that Fort Collins Utilities pursues will
likely come from a private lender and will ideally
be a line of credit rather than a lump-sum loan. The
line of credit will allow Fort Collins Utilities to bring
the program to scale over time while avoiding the
interest expense of underutilized capital (should there
be less participation in early years of the program).
Fort Collins Utilities may need to establish a loan
loss reserve fund or other credit enhancement using
another source of funding to satisfy lenders. We
recommend this be established using program funds
or additional grants as a reserve to lower the overall
risk to outside investors.
early termination fee
RECOURSE
• Service termination
• Collection agency
• Credit reporting
• Service termination
• Collection agency
• Credit reporting
• Service termination
• Collection agency
• Credit reporting
On-bill tariffs and
energy service charges
are the primary
mechanisms to lower
upfront costs in IUS
notify potential owners. If formal transfer of the service
contract was recorded (perhaps through a streamlined
online portal), the new owner would assume it. If not,
the original owner would be responsible for closing
the service agreement, a similar arrangement that
many home security providers use. In the rental
market, the landlord would likely need to approve
renters entering into the service contract and would
likely be responsible for notifying future tenants about
the service agreement.
Table 7 summarizes the various on-bill repayment
front-end options and highlights the recommended
on-bill tariff and energy service charge options we
recommend Fort Collins Utilities pursue in the IUS
model. Customers will always have the option to
make a cash purchase (and potentially fund with, for
example, a bank loan) and should have the option to
make a down payment if desired.
with the utility bill, and have the potential for two large
advantages: 1) they do not require the customer to
incur debt, which allows for different credit dynamics,
easier initiation, and easier transferability, and 2) they
can be customized to reach customers that are not
eligible for debt products, such as low-income tenants
and renters, by relying on meter payment history and
turn-off ability to provide security. Today’s emerging
models are similar to established on-bill tariff models
in that they involve financing tied to property or the
meter and typically limit the scope of the program
to DER investments in which the savings are greater
than the additional on-bill charge. The differences
are that they seek radical simplicity in the application
procedure, and that transfer or closing of the
obligation upon time of move is designed to be easy.
The radical simplicity of the application is tied, in
large part, to the funding source for the program.
Giving lenders comfort with performing minimal due
investments can do so with great confidence in
repayment or payment because paying utility bills is a
high priority for customers.xi In cases where the utility
has the power to discontinue service due to lack of
payment, the perceived risk of the financing is further
reduced. Finally, the ease with which customers can
participate should lead to higher participation rates.
It is important to note that specific terms mean specific
things to different parties in the DER finance world,
and there is not a particularly strong consensus on
which terms mean what. For clarity, we try to define
exactly what we mean by the specific terms we use.
readily understand.
• Streamline delivery—Utilize an integrator to
help customers navigate distributed energy
resources. Make integrators available at times
convenient to customers (such as before and
after normal work hours).
• Make the model flexible—Allow the ability to
incorporate additional industry or technological
developments.
So far, our work around IUS has been conceptual,
exploratory, and research driven. However, the next
and perhaps most important step is putting these
ideas and models to work in Fort Collins. To do that
will require piloting the program among a small group
of customers in different neighborhoods throughout
Fort Collins. Specific recommendations for the IUS
pilot are found in Chapter 6.
or behavior. In that way, they serve to initially test
concepts and identify important questions or
ideas, which can then be evaluated among a more
representative, larger customer sample.
To test the key questions emerging from the focus
groups, as well as obtain more representative
information concerning utility customer attitudes,
we are in the process of conducting a survey of
Fort Collins’ 68,000 utility customers. The survey
is designed to provide insight into key areas of the
IUS and expand upon the information gleaned from
the focus groups. The survey is structured to directly
address the core elements of IUS and uses different
analytical tools (e.g., experimental design, anchoring
vignettes, etc.) to assess customer perspectives,
choices, and behaviors. The results from the survey
Example: Take
Charge Challenge
Create and use
existing networks:
contractors, retailers,
cities, community
groups, etc…
Example: Keystone’s
Home Energy Loan
Program
Engage the
community in
program design &
implementation
Example: Hood River
Conservation Project
Direct peer-to-
peer interactions
and discussions
between early
adopters and
prospective
adopters
Example: Hood
River Conservation
Project
Group sign-ups:
have people in a
neighborhood sign
up for the program
together as a group
Example:
Sustainable Works
Leverage the
power of local
leaders to spread
information and
serve as examples
Example: Take
Charge Challenge
Marketing
& Sales
Targeting a specific
audience & framing
the message
Example: Houston’s
Home Energy
Efficiency Program
Reach out to people
multiple times or
utilize multiple venues
of advertising to
reinforce the message
Example: Houston’s
Home Energy
Efficiency Program
Free Audits
Example:
Bonneville Power
Administration
In-person
conversations with
potential customers
Example: Vermont
Community Energy
Mobilization Project
Energy concierge
to hold a customers
hand through
the decision, and
therefore increase
the chance that they
buy
Example: Populus
LLC (Energy
Advisers)
Referral bonus –
for the referrer,
the referee, or
both.
Example:
Sungevity
AWARENESS INTEREST EVALUATION ADOPTION REFERRAL
A successful program must touch on all stages of customer adoption
A successful program needs to carefully consider:
TABLE 4: CUSTOMER ADOPTION STAGES
think we make decisions based on facts, the context
for those facts matters as much or more than the
facts themselves.vi For example, individuals are more
likely to reduce energy use when presented with
information about their energy consumption relative
to their neighbors. In addition, in the energy sector,
experimental evidence suggests that framing impacts
a wide range of customer preferences and actions,
from choosing more-efficient but also more-expensive
appliances,vii to turning on fans instead of using air
conditioners.viii
Recommendations to Boost Adoption
Based on key elements of behavioral science
research, four general concepts can help guide Fort
Collins Utilities in developing programs that promote
customer adoption:
Package
2030
IUS Basic
Package
$1,000
$1,500
$2,000
$500
$0
$500
$1,000
Figure X: Average Annual Energy Bill vs IUS Basic Package
for Pre-1945 Single Family Home
*Assumes 1.6% escalation rate
they have central gas heating. We estimate over
31,000 of these homes, with an average estimated
energy bill of $1,400 per year.
Detailed Interventions, Value Potential, and
Customer Bill Impact
We looked at many typical efficiency measures for
each housing class, and then estimated which ones
would be appropriate for a sample house from each
housing segment. We then created a basic offering
that could be delivered with negligible impact on
the customer bill and a premium offering that could
raise the bill slightly but would add additional value to
the customer beyond energy efficiency savings. We
addressed the balance of a home’s consumption with
rooftop or community solar.
9
These are full capital costs for efficiency measures, not incremental capital costs.
10
This consists of roughly $225 million of energy-efficiency measures and $500 million of distributed solar PV.
11
Fort Collins Utilities has also requested from their contracted analytical resource a more granular segmentation. Early results suggest that
our analysis, based on three less-granular segments, comes to similar conclusions as the more granular segmentation.
capacity) will need to be built to meet the City’s
accelerated greenhouse gas emissions reduction
goals. These distributed resources can be installed
across the residential, commercial, and industrial
4 Distribution system contributions are at 1.5 cents/negawatt using estimates from public filings, although this can be adjusted up or down as
appropriate to ensure stable operations.
5 As defined in RMI’s Stepping Up report.
6
Based on American Communities Survey 2006–2010 averages.
7 Using Lawrence Berkeley National Laboratory savings data with capital expenditure data from a variety of sources, including the National
Renewable Energy Laboratory and TopTenUSA.org.
8 The business-as-usual scenario assumes a 19% increase in building-sector energy consumption, which is based upon a 1.9% per year
population growth rate and continued energy efficiency adoption of 0.5% of sales annually.
and may differ from choices made by other utilities.
Nevertheless, these recommendations should aid
any utility in developing a residential energy services
model.
These design principles can be executed with varying
degrees of utility involvement, and some utilities will
likely want to internalize IUS capabilities while others
will want to contract them out. To aid that decision,
this chapter describes the role of the program
administrator in detail. Recommendations on program
structural elements—including marketing and sales,
financing, operations, and overall program strategy—
can be found in Appendix B.
3 e-Lab is a group of experts from across the utility value chain that
RMI convenes regularly to identify and address the most pressing
issues in the power sector.
fuels) and b) offer premium services (e.g., efficient
appliances, selective reliability investments);
• Ability to make selective investments in
distributed resources that defer or eliminate the
need for costly distribution investments.
REPORT STRUCTURE
The following chapters explain the program design
and how it should be administered, define the struc-
tural elements of the program, explain the economics
associated with the integrated utility services model
from a customer and utility perspective, describe
a customer acquisition model that ensures lasting
success, detail possible program delivery elements
with recommendations for those that hold the most
promise, and quantify the benefits of the IUS model
for the City of Fort Collins.
fragmented construction industry;
• Allowing for the implementation of the
greenhouse gas reduction plan to change over
time with minimal expense;
• Freeing up land that could be used for other
community benefits;
• Achieving net-zero-energy goals associated with
zero-energy districts;
• Shifting capital expenditure from outside to
inside the city boundaries.
OF OPTIONS
# OF
PROVIDERS
CUSTOMER
INTERFACE
PROS
• Enables innovation
• Engages customers
CONS
• Requires attracting providers
• Overwhelms customers
• Players run each other out of
business
• Requires individual actions
Figure X: Range of FCU Options to Meet City Goals
Utility Procurement
(no customer choice)
Hybrid Approach
(customer choice with utility screen)
Open Platform
(unlimited customer choice)
FIGURE 4: RANGE OF FORT COLLINS UTILITY INVOLVEMENT
2 This can be a traditional on-bill tariff charge or an energy service
charge (described in detail later).
2005-2011," City of Fort Collins, Environmental Services, October 2012. Available at http://www.fcgov.com/climateprotection/FC GHG Quality Management Plan
FIGURE 2: ENERGY CONSUMPTION AND EMISSIONS IN FORT COLLINS
1
All residential rate classes plus the GS rate class (commercial with
no peak demand charges).
energy efficiency and renewables;
• Demonstrate a new business model that is
robust in changing consumer behavior, including
higher adoption levels of distributed generation
and efficiency.
The pilot results will be used to refine a customer
adoption strategy for Fort Collins Utilities and
test the infrastructure necessary to install and
manage accelerated levels of distributed renewable
generation and energy efficiency analyzed in this
report. Furthermore, the pilot will provide a model for
other utilities and cities around the nation interested
in providing clean, reliable electricity to their
customers while stabilizing their own utility business
models.
EXECUTIVE SUMMARY