Inclusive Utility Investment

Galen Nelson
Wonderful. Well, good afternoon to you all. Welcome, Ashley, and welcome to everyone joining us today at MassCEC and beyond. We\'re really excited about this new MassCEC speaker series, which will be highlighting experts, pioneers and practitioners from a variety of existing and emerging climate tech sectors and disciplines, as well as subject matter experts who can provide insights into the broader economic, social and technological dynamics shaping our industry.

Galen Nelson
Today, we\'re going to focus on inclusive utility investment, also known as on-bill financing, which is an exciting novel approach to financing building decarbonization and electrification work. Ashley Muspratt with the Center for EcoTechnology will share her experience and knowledge. Welcome, Ashley.

Galen Nelson
Ashley is President and CEO of CET, the Center for EcoTechnology, where she leads the organization\'s growth and expansion of climate solutions across the northeast. She holds an MS and PhD in environmental engineering and energy and resources from UC Berkeley and resides in western Mass. But before we turn to you, Ashley, I want to provide a little bit of context for today\'s discussion.

Galen Nelson
Many of you are aware that decarbonizing the built environment, over two million structures here in Massachusetts, is one of our most difficult energy transition challenges in terms of its scale, cost, and complexity. Most home and business owners can leverage Mass Save incentives to subsidize weatherization, which includes insulation and air sealing, heat pump space and hot water heater installations, and more. But most building owners are left with a building decarbonization project cost balance, which must either be paid upfront or financed in one way or another. To put the cost in perspective, thinking about this challenge, according to an analysis completed by the Building Electrification Institute and the city of Boston, just thinking about Boston alone, a three to five billion dollar financing gap would need to be met to decarbonize Boston\'s 70,000 low to moderate income households by 2050.

Galen Nelson
This analysis focused on one-to-four-unit buildings and mid-rise multifamily buildings up to six stories. It is worth noting that the three-to-five-billion-dollar figure represents the gap remaining after Mass Save, and other incentives are applied. It is also worth noting that that estimate includes a variety of Inflation Reduction Act incentives, which are now threatened. Without those incentives, that funding gap would be considerably larger, as much as 4.5 to five billion dollars. Again, this is for Boston only for 70,000 households. Just want to give everyone a sense of the scale of the challenge and the enormous amount of investment necessary to meet our building decarbonization and electrification objectives. Financing is not the only barrier to widespread adoption of building electrification and decarbonization equipment, materials, and strategies. There are customer adoption and education barriers, for renters, landlord tenant split incentive barrier, a variety of pre-weatherization challenges, and for many, electric rates which discourage electrification. Though I am happy to share that the state and the utilities are exploring promising short- and medium-term solutions there, and MassCEC is working very closely with our colleagues at the Department of Energy Resources on that score.

Galen Nelson
To be clear, there are a variety of existing building decarbonization finance options for building owners here in Massachusetts, including but not limited to the zero interest HEAT Loan, property assessed clean energy or PACE financing for certain commercial and industrial building decarbonization projects, a relatively new loan product offered by the Massachusetts Community Climate Bank which targets low to moderate income households, and building owners could finance projects on their own, depending on household income and credit, via personal loans or other approaches. I want to emphasize that building owners have options here in Massachusetts to finance their building decarbonization and electrification projects. Today we are just going to be talking about one of those options, which is a bit less common in our region but has some really attractive qualities which drew our attention when the Ipswich Electric Light Department, a municipal light plant in partnership with Ashley and her group, approached us, the Mass Clean Energy Center, seeking our support for an inclusive utility investment feasibility study and pilot project, which we were really happy to support.

Galen Nelson
Many of you may be aware that the Mass Clean Energy Center supports a variety of clean energy and climate tech innovation companies and projects. Over the last decade, we have also supported experimentation with innovative decarbonization program structures, climate finance approaches, and business models. With that lens, we are really excited to support this novel approach to building decarbonization finance, and we have really enjoyed the partnership with you, Ashley, and with the team at Ipswich ELD. That is why I am really delighted to have you here and to have this conversation today. We are going to have a bit of dialogue about IUI, inclusive utility investment. We will cover some territory and then open it up to all of you on the webinar for Q&A. Please use the Q&A function and feel free to drop in questions at any time, though we will hold off on addressing those questions until the end of the discussion. Let\'s jump right in. Let\'s just start with the basics. What is IUI? What are the key elements of an IUI structure?

Ashley Muspratt
Thanks, Galen. IUI or alternatively known as tariffed on-bill financing or TOB, is a mechanism that allows a utility to pay for cost effective energy upgrades at a specific building. These upgrades could include weatherization, heat pump, and solar. The utility recovers the cost of that investment through a tariff tied to the building or to the meter of the building.

Ashley Muspratt
There are three fundamental features of IUI that set it apart from other financing options. The first is that IUI is a utility investment. It is not a loan to the building owner or occupant. The second is that inclusive utility investments must yield savings, and the cost recovery has to be taken from those savings. This is really key because it means participation is compelling from the outset. The third really important element is that these tariffs stay with the building. This is not a loan to an individual. They are not attached to an individual; they are attached to the building. If the occupant moves out or the building is sold, the tariff goes on to the subsequent occupant.

Ashley Muspratt
I think we will have a chance to unpack each of these in more detail as we go on. It is this combination of these three features that really makes IUI a mechanism that can unlock clean energy solutions for renters, for low-income homeowners, and for another key segment, which are incentivizing early retirement of fossil fuel systems. If the Commonwealth is going to hit its decarbonization goals, that is a key customer segment to get to. We cannot have people waiting until the last minute to replace their systems. Some interesting data on IUI programs in other parts of the country shows five times the uptake compared to a standard incentive program and twice the scope of decarbonization project.

Galen Nelson
Wow. There is a lot to unpack here. This is substantially different from a lot of the other building decarbonization finance solutions that we have seen. Why don\'t we dig into each of these benefits a bit more? I understand that there are several. Certainly, one is that IUI approaches allow for a longer payback period than many other building decarbonization finance solutions, and that enables building owners to complete deeper decarbonization projects that might have higher costs. Can you talk about that a bit more?

Ashley Muspratt
Sure. The requirement of IUI is that the investment yields savings, and the payback is taken out of the investment. The way that you achieve that, the way that you have the occupant saving as they pay, and you enable the utility to recover the investment, is to spread that payback over the life of the measure. The easiest way for me to explain how and why this works is to pull up a slide. I like to put numbers to this.

Ashley Muspratt
In this example, the assumptions are for demonstration purposes. Let us say we have a heat pump that costs \$20,000 to install. Let us say the annual savings are \$1,800. The Mass TRM puts the life at 18 years. A rule of thumb in IUI is that the payback period is matched to 80% of the measure life, just to build in some buffer there. That is about 14 and a half years. I have taken two comparative situations here. Seven years, I chose that because that is the length of the HEAT Loan.

Ashley Muspratt
You can see in this example that the payback per year is over \$2,800 greater than the savings. You have a loss every year of over a thousand dollars. Over the term of that repayment, over the seven years, there is an accumulated loss of \$7,400 in this example. It takes 11 and a half years for this customer to get to cash flow positive. In the case of IUI, where we are extending that payback period to 14 and a half years, our annual payback goes way down. We are keeping it under the annual savings. Every year there is accumulated savings, and by the end of the 14 years, there is an accumulated \$6,000 in savings. We are at cash flow positive from the start.

Ashley Muspratt
Ultimately, the capital cost is the same; the savings to the customer is the same. But when we have these short payback periods, we front load the cost and push the benefits way out into the future. What is really nice about IUI is that we are keeping the savings and the cost in sync with one another. You are saving as you go.

Galen Nelson
The patient capital component of IUI is really critical here, just underscoring.

Ashley Muspratt
Absolutely. This gets to that customer segment I was talking about at the beginning, those we want to incentivize to have early retirement of their fossil fuel systems. You are not going to do that if it is going to put you in a hole. Also, with people that are anticipating selling their house or moving in less than 12 years, unless they absolutely have to make that investment, they are going to put it off. In this case, it is a no brainer to participate right away.

Galen Nelson
They could leave the home a year from the beginning of the project, or ten. It would not really matter. Both the cost and the benefits would stay with the home. That is a really important distinction. You mentioned something else in the beginning. You noted that the payments under IUI are tied to the meter. What does that mean? With a loan, the payments are tied to a human being. With PACE, they are tied to property tax. In this case, the payments are tied to the meter. Can you talk a little bit more about the benefit that that structure imparts?

Ashley Muspratt
Sure, absolutely. As we have been talking about, inclusive utility investment is an investment by the utility. As such, there is no individual who is taking on debt, who is then subject to a credit check, who has to have an appetite for the loan. By tying the payback to the meter, to the building, it means they transfer to the subsequent occupant. Of course, the occupant of the building needs to agree to participate. In the case where you have a renter, the landlord would also have to agree. What is great is that you are guaranteeing that the finance piece is yielding savings. Even if someone is anticipating moving or selling the building, in theory, these investments should make that building more attractive. It is increasing the value. It is making them healthier, more comfortable. A landlord can advertise climate friendly living, lower cost utilities. These are all attractive elements of IUI to current and future occupants of the building.

Galen Nelson
Thanks, Ashley. Somewhat related, given that it is administered by the utility and the payments are tied to the meter, it does bring to mind regulatory challenges. If I remember correctly, with our support for the feasibility study that you commissioned for the IUI pilot in Ipswich, we did explore this question. We wanted to check in with our colleagues at the DPU and make sure we are in the clear. Are there any regulatory barriers with regard to IUI? I think that we found that there were not, in their view. Is that accurate?

Ashley Muspratt
That was the finding of the DPU. Importantly, we were doing our work with a municipal light plant, that is subject to a very different set of regulatory structures and measures than investor-owned utilities. But we did go to the DPU, even though they are not directly regulated by the DPU. We got the green light. There was an agreement that once we are operating at scale, the utility would present their tariff structure to the DPU. But in their initial analysis, they had no problems with the program. These programs are operating in over a dozen other states in the country.

Galen Nelson
Do you see, I think that is interesting to explore this thread a bit more in the other states. I first heard about them years ago, and the utilities in the Midwest. Is that a mix of investor-owned utilities and municipal light plants where they are operating?

Ashley Muspratt
Yes, there are several investor-owned utilities who are running these programs at this point. In the early days, it was mostly co-ops and municipal light plants in the southeast. But the most recent program that I am aware of launching was with Duke Energy down in the Carolinas.

Galen Nelson
Great. It is worth noting that Eversource proposed an IUI mechanism as part of its ESMP. It was more narrowly structured. It was largely focused on promoting customer-owned solar projects in communities with major distribution system infrastructure upgrades. I just wanted to note that this is on the radar of at least one of the major IOUs in Mass., and we were certainly interested when we heard that Eversource had proposed that project.

Galen Nelson
There is another IUI attribute that I think is really exciting and interesting. I think this is one that you and I have talked about, maybe one of the more interesting components of IUI, which is that it allows incentives and related financing to be tailored to the household income on an individual basis. Could you talk about that a bit more?

Ashley Muspratt
Sure. You are right, Galen. I love this topic because I think IUI gives us a really elegant way to set the incentives, or as I like to say, get the incentive right. I would go a step further to say it not only allows us to tailor incentives to household income, but to tailor them to the very unique and specific impacts that a measure has on a building. As we know, a heat pump system costs a different amount for every single house, and has a different impact on the heating bills of that house, depending on the style of the home, the weatherization situation, etc. We can take all of that into account with IUI financing.

Ashley Muspratt
I am going to again pull up my slides because this is easier to demonstrate with numbers. Let me go to my next slide. In this example, I have ratcheted up the cost of the heat pump installation from \$20,000 to \$25,000. I left the annual savings where they are. I have also introduced another buffer rule of thumb that is used typically in IUI, where we try to ensure that the amount that is paid in a tariff does not exceed 80% of the estimated annual savings. We do not want to exceed 80% of the measure life.

Ashley Muspratt
In this example, we have the same payback period. We have the same payback per year. But the maximum amount that we can recover is \$20,736, which means there is a portion that cannot be financed with IUI, and that is an upfront cost. This upfront cost to me is precisely where the customer becomes cash flow positive. This tells you you certainly would not want to give a penny more than \$4,264 to incentivize a customer to move forward with this, because by definition they are going to be cash flow positive. They are going to be saving money from this investment.

Ashley Muspratt
As Galen said, a utility can decide how much of that upfront cost to buy down or incentivize. For low-income customers, they decide we are going to buy down that entire upfront cost. For higher income customers, they might choose to incentivize none of it, or a small portion of it. But it is possible from a regulatory perspective for the utility to make site specific, building specific decisions on how much of that upfront cost to incentivize or buy down.

Galen Nelson
Playing devil\'s advocate, I think this is very attractive. On the other hand, I would be curious to hear if you are aware of how utilities in other jurisdictions have addressed this. There is often a reasonable pressure, with the exception of carve outs for low to moderate income households, to have a flat incentive structure. I understand that. It can be more difficult, perhaps, from a regulatory or even a political perspective, to have endless variety with regard to setting those incentive levels. Do you see utilities in other jurisdictions embracing this approach? Because I think you have just explained very well why it is so attractive. It allows you to reserve financial resources and target them very specifically on a household by household basis, which ostensibly would lead to more projects and a better use of funding. On the other hand, I think one could reasonably argue that having different incentive levels could be challenging.

Ashley Muspratt
Sure. As part of our feasibility study with Ipswich, we worked with a nonprofit think tank called Clean Energy Works based in DC, that is really working to promote and scale up IUI across the country. Their perspective on this is that typically a utility would maintain a menu of fixed incentives that would sort of come in under the amount of a typical upfront cost, and then they would have discretionary funds to use to incentivize participation. For regulatory reasons, there is a nuanced distinction in what you call these pots of money. There are the incentives that everyone has access to, and then this is a participation incentive. The way that a utility can justify paying a participation incentive is because there are territory or network wide benefits that all customers ultimately experience when a utility is running an IUI program. As they are increasing the number of kilowatt hours sold, they are smoothing out their load. They are able to spread their fixed costs over more kilowatt hours, and that can lower costs for all customers.

Galen Nelson
Makes sense. Yeah, thank you. I realize that there are so many kind of ancillary topics here, and that\'s one we are not really going to have much time to cover.

Ashley Muspratt
Yeah.

Galen Nelson
The kind of related grid impacts everything from the way that an IUI program might dramatically increase electrification to other neighborhood electrification efforts. But maybe a topic for another speaker series.

Galen Nelson
There was one other barrier that many of us are familiar with that, at least it appeared with the work in Ipswich, that IUI seems well positioned to address, which is this notion of the landlord tenant split incentive. For those of you who are not familiar with that term of art, it describes this dynamic in which a renter may be very motivated to make building upgrades, or to electrify or decarbonize the unit in which they live, but they have no agency to do so. They are not the building owner. The landlord has agency, but perhaps not in all cases, but in many cases lacks the incentive to make those investments because they are probably not paying the energy bills, nor are they benefiting from improved comfort from things like a shiny new heat pump. I would love to hear you talk about the landlord tenant split incentive in the context of IUI.

Ashley Muspratt
Sure. I would say there are two key features of IUI that help galvanize renter participation. One we have sort of talked about, which is the fact that these are investments by the utility tied to the meter. No renter is going to invest in equipment for a building they do not own and may not occupy for long. Because they are being guaranteed that if these upgrades are made to their space, they will be saving money, there would be a natural inclination for a renter to want to participate whether they think they will be there for six months or six years. The renter is taken care of by the fact that they do not have any personal obligation. I think the other really key feature here is that we transfer the burden of investment from the landlord to the utility. Most landlords are going to make just in time investments in their buildings because, since they are passing on their utility bills to the tenants, they do not accrue any benefits from making the investments.

Ashley Muspratt
In this case, where the utility is making the investment, if there is an upfront cost, the landlord would be responsible for that, not the tenant. But these are modest compared to the total cost of the investment. I think most business savvy landlords would see that the benefits they get from participating, the increased value to their building, the fact that they can then advertise to tenants that their electricity bills are going down, that they are climate friendly living, these are all good motivators for a landlord to want to participate. In most cases, if not all, the upfront cost that they would have to pay would be less expensive than the full cost of a fossil fuel heating system when they ultimately need to make that investment.

Galen Nelson
This has come up a couple of times, but maybe how soon do you think we will see IUI financed projects listed on Zillow listings and the like? I think this is maybe where we need to be headed.

Ashley Muspratt
Oh, that is my dream!

Galen Nelson
The state is looking at building energy labeling, and there are some cities that have taken leadership in that arena. Perhaps we are not that far off from that. Thank you for all of that, Ashley. This is really helpful. I think it helps folks who have not dug into this better understand all the different attributes and benefits of IUI. This all sounds good in theory, and the study was very encouraging. But how about in practice? If we could talk about the pilot a little bit. By way of reminder, MassCEC was very happy to support you and Ipswich ELD with regard to the study and the pilot. I would love to hear a little bit more about the pilot and what we learned from it.

Ashley Muspratt
Sure. After completing a successful desk-based feasibility study in Ipswich, where we did this regulatory analysis, we did a business case analysis for the utility. We surveyed the customer base to make sure that a mechanism like this would be attractive to customers. We did an analysis of the extent to which we could use IUI to finance the measures that we care most about. When all of that checked out really nicely, we moved into the pilot. Thanks to funding from MassCEC. We were able to demonstrate this mechanism with three homes. It was a small capital pool, but the pilot was really intended to demonstrate that this works, to work through process and workflows between CET, the kind of program administrator, and the utility, and to work with the lawyers to really flush out and refine the terms and conditions.

Ashley Muspratt
We ultimately served three homes. They were oil heated homes. We had a low income customer. We had a first time homeowner who was very eager to decarbonize. We had someone whose furnace was at end of life, and for financial reasons they were going to replace it with another oil furnace. It was IUI that enabled them to make the switch to heat pumps. In all of these cases there was some upfront cost. The customers readily, happily paid the upfront cost in the case of the first time homeowner and the end of life system. The utility and CET through our community climate fund bought down the upfront cost for the low income customer. They did not have to pay any upfront cost on their system. We installed weatherization, heat pumps, and in a couple of the homes heat pump hot water heaters.

Ashley Muspratt
We completed this pilot about a year ago, close to a year ago, and we have been sitting ready to go to scale, but have been working through applying for, negotiating a line of credit from the USDA to capitalize the full scale program. They have a line of credit from their rural energy services program that Ipswich intends to use. Hopefully that credit is not going away. That has really been the delay in going to the next kind of full scale in Ipswich. Our priority is to have some of our early customers be renters and gas customers. We want a more comprehensive suite of customer types that we have demonstrated being able to serve with this mechanism.

Galen Nelson
Thank you for that. Many folks participating on this webinar today are aware that the economics, moving from oil to heat pumps are certainly more attractive than from natural gas to pumps. That is a challenge with all financing approaches.

Ashley Muspratt
In municipal light plant territories, as long as there is the large \$10,000 Mass Save whole home system, in a lot of cases that pencils out better than the oil. Between the incentive and getting that better cost differential of lower cost electricity at an MLP, you get a wider split than you would from IOU gas to IOU electricity. It was circumstantial bad luck that we did not get a gas participant. In MLP territories they are definitely very feasible.

Galen Nelson
Right. Maybe now we could pivot to just briefly reflecting on a couple of the other existing building decarbonization finance options. We have been talking about IUI. We mentioned the HEAT Loan at the beginning of the conversation, we mentioned PACE. I am wondering if you could just reflect on some of the advantages and disadvantages of IUI relative to those two platforms, the HEAT Loan and PACE financing.

Ashley Muspratt
Sure. To summarize from the customer perspective, IUI compared to the HEAT Loan, with the HEAT Loan the customer needs to be taking on debt. They have to pass a credit check, and they have to really think that they are going to be in their home long enough to get a positive return on that investment. That is a key distinction between the HEAT Loan and IUI. I also showed that with shorter term payback periods, you are really front-loading cost and pushing benefits into the future, whereas you keep them nicely in sync with these longer payback periods that you get with IUI.

Ashley Muspratt
I am not a PACE expert, and residential PACE does not exist in Massachusetts. One of my understandings is that with PACE you are putting a lien on the building. I think this can complicate refinancing or selling the building in a way that IUI does not. I really like to think about IUI as compared to your incentive budget, and looking at what you can do with IUI that you maybe cannot do with incentives. We talked about using IUI to really get the incentive right. I have the position that, given the amount of money we need to mobilize to hit the commonwealth decarbonization goals, we want to be really discerning with how we spend those incentive dollars. We have to make all our money go as far as we possibly can. I just did some back of the envelope math here to just make a point that I would like to show.

Galen Nelson
To underscore that too, this concept is certainly very familiar now to our colleagues at DOER, who thought very critically about EV incentives, and in jurisdictions in other states as well. We have moved toward capping EV incentives for very expensive EVs, which is another form of tailoring incentives. It is not like this notion of tailoring incentives to the buyer is unheard of with regard to the energy transition and related incentives.

Ashley Muspratt
Right.

Ashley Muspratt
In this example, I am comparing 100% incentives to IUI. The point I am trying to make is an incentive is one and done. Once you spend it on a customer on a measure, you cannot get it back. With IUI and other loan mechanisms, you are recycling that money over and over again into your economy. I just for fun took the target that we have in the new Mass Save plan of installing 16,000 heat pump systems in low-income homes. The plan is to do that with 100% incentives. I just made up a round number of what would cost at \$25,000 per home. This is going to cost us \$400 million, just for 16,000 homes. Then I thought, with the same total spend, what could we do with IUI? I went from highest to lowest interest here. In this first example, if we assume we are paying 3% interest, I set my future value at \$400 million. My base principal cash is quite a bit lower. In this situation, I would be able to serve 30% more homes for the exact same amount of money over the 14-year period of one measure life of a heat pump. If we could get capital at one and a half percent interest, that would increase the number of homes that we can serve for the same amount of money by 64%. Lower interest rate, our starting capital increases. If we can get 0% interest, then we can really make this money go far, and we can reach 108% of homes. I think it is important to think about the recycling potential of IUI as compared to straight up, full 100% incentives.

Galen Nelson
Thank you for that. Landing that kind of concessionary capital is very challenging in this environment, but good to have those figures at hand. That is one of the roles that state climate banks play. That was a motivating factor for those behind the Greenhouse Gas Reduction Fund money from the federal government. Good to know how those dollars could be stretched further at various interest rates.

Ashley Muspratt
I think too, climate change is here. We are increasingly able to conceive of the damage costs of climate change. For a while, it has been this far off issue. My point is, we can start to really think there is a social cost to carbon. If we apply a social cost to carbon and consider ROI from that perspective, it is huge. It is like a thousand percent ROI. It is really what you are including in your calculus when you think about it.

Galen Nelson
Maybe that is a good pivot. I am looking at the clock, and I want to make sure we get to some of the great questions in the Q&A. You have got the pilot under your belt. We have encouraging results from that. You are thinking about scale up. We have discussed several times now the need for a massive amount of patient concessionary capital to accelerate and ignite IUI, and frankly building decarbonization finance generally, even if it is not under an IUI structure. What are the strongest prospects that you see right now for that kind of capital? Are foundations, for example, program-related investments, fair game? Are you in dialogue with entities like that?

Ashley Muspratt
I think foundation program related investments would be a phenomenal source of capital for these programs. I am in some conversation. I would love to be in more if there are any funders on the call, or people who know funders. Depending on how you are measuring your return, it could be considered quite high with this. The appetite and the interest is there. We have other utilities who we are currently working with to develop programs and to launch pilots. This is not to say there is not some wariness. In the commonwealth we like to see things to believe them locally. I really believe that once we are at scale in Ipswich, and a couple of other utilities, and really demonstrating the impacts of this, then we will have really accelerated demand from other utilities. Then it is a matter of just getting the access to capital. A typical MLP would need about \$10 million a year to capitalize a program. It is a large amount of money that we need. Finding mission aligned foundations that are doing PRIs would be ideal.

Galen Nelson
I know this is at least one of the questions in the Q&A, so I will pose it here. Folks are curious about what kind of activity or traction you are seeing in Massachusetts. It may not make sense right now to talk about specific conversations you are having with specific utilities here in Mass., but you mentioned utilities. To be clear, there is interest in Massachusetts?

Ashley Muspratt
Oh, absolutely! Yes.

Galen Nelson
Okay.

Ashley Muspratt
We are working with several right now who want to run pilots. There is a next handful of MLPs that are interested and just want to see what happens in Ipswich first. There are about 40 MLPs in Massachusetts, and we have been in conversation with many of them about this program.

Galen Nelson
There is one other just quick observation I wanted to make, and then we will jump to the questions. I frankly forgot to bring it up during the benefits piece. It does occur to me that there is this notion that there is just less friction with this approach for the building owner. You still have to have the building owner bought in. You are going to have to have an audit. There has got to be a scope of work for the decarbonization project. But at the end of the day, the homeowner is just paying a little bit more on the utility bill that they already pay. No credit check. I think oftentimes with the energy transition, we focus a lot on deployment, but we have an enormous amount of inertia to overcome with a wide variety from the smallest single-family homeowner to the largest building owner.

Galen Nelson
It just occurs to me that making that process easier, you are not having to apply for a loan, is a good thing, and will absolutely resonate.

Ashley Muspratt
Keeping it all in house with the utility and the administrator, and related to removing friction, it completely changes the conversation with the customer from, here is your audit, like good luck, to, hey, your utility wants to make these investments in your home, and you will have little or no upfront cost to do it.

Galen Nelson
This has really been spectacular. Let\'s get to some of the questions. I am not sure if you can see the questions, but I am going to try and pick out some. There are some wonderful questions here. I think some of them have been addressed, so I will try to pick out some that have not.

Galen Nelson
This is a good and fair question. What happens if the occupant does not pay the surcharge or falls behind on their energy bill? Did Ipswich ELD think about defaults, and if so, how would a utility protect against that?

Ashley Muspratt
Sure. In the terms and conditions, the utility would typically include an ability to turn off electricity for lack of payment, just like they can do now in a worst case, last resort situation. I would love to point out that data dating back to 2005, when some of the earliest programs got going, and through the present, the rate of collections for existing programs is 99.9%. Remember, people\'s bills are going down, not up. The sum of what they are spending on their energy costs is lower. This program actually makes paying bills more, not less, affordable.

Galen Nelson
Great. There is another question here about whether or not IUI can be used for larger commercial properties. I certainly want to hear your take on that. My understanding is that these deals are often cut, and I do not say that in a pejorative way, I think it is great that the utilities do this sometimes with large commercial building owners, because the projects are large and complex, and they essentially structure an on-bill payment approach on top of incentives that may already exist, whether it is Mass Save or similar incentives in any other state. My understanding is that those types of structures are sometimes deployed in the commercial industrial sector. But more formally with regard to IUI, do you see any utilities embracing an IUI approach for larger commercial and industrial properties? Or do you see IUI as applying more readily to single family and small multifamily, or all of the above?

Ashley Muspratt
In concept, in theory, there is no reason this could not be applied to commercial properties. If you are talking about larger properties and not small businesses, you would just be looking at much, much higher capital outlay. It would just make the pool of capital that a utility would need that much greater. I do not see any structural reason why it could not work.

Galen Nelson
Great. That makes sense.

Galen Nelson
There is one question here, and I am pretty sure the answer to this is no, but I will pose it anyway. Would a utility earn an ROI on this investment as they would for distribution system infrastructure investments?

Ashley Muspratt
A utility can factor in an interest rate on the capital they are using to make the investment in the period over which they are returning it. What that would do, though, is shift more into the upfront cost. The more of a return they are trying to get, the more of an upfront cost there would be. If the utility is going to pay that anyway, then why bother with the interest? You may be turning more customers away from participating if that upfront cost gets too high. That is why low-cost capital is so critical, because you really want to pass little or no interest on to the participant.

Galen Nelson
Okay, thank you.

Galen Nelson
You talked a little bit about one of the benefits being that with other building decarbonization finance approaches, if it is tied to the building owner, then they may be less willing or interested to invest in projects because they are going to take that cost with them in terms of a loan. Are there any studies that explore the extent to which IUI financed projects impact the resale value of homes? We know, for example, that studies that some of the national labs have done show that solar PV systems have a positive benefit that is reflected in a very rational way, often equal to, or closely equal to, the value of the solar value. I am wondering if you are aware of any studies or data that have explored this issue, the extent to which these upgrades might impact resale value?

Ashley Muspratt
I think you could draw some logical conclusions, as you were saying. I have not seen specific studies on that. I have seen data from existing programs showing that building sales are not inhibited by these tariffs. But I have not seen the specific question you are asking.

Galen Nelson
To the extent that you are comfortable talking about it, you mentioned that you are in conversation with utilities, and I assume that to be primarily MLPs. We talked about Eversource\'s interest in this earlier, and we talked about the fact that there does not appear to be a regulatory barrier to the investor-owned utilities looking at IUI. Have you talked to Eversource, National Grid, or Unitil about IUI?

Ashley Muspratt
Not yet. Our approach has been to first really prove this out with municipal light plants. We administer the residential energy program for about half the utilities in the state. We are contracted by MWEC to run the Next Zero program. We are already working with twenty of them, plus a couple of independent utilities. Their size, their scale, and the regulatory structure made them a really nice place to start. Certainly, my vision is to see this scaled up across Massachusetts, not just to MLPs, but to the investor-owned utilities as well.

Galen Nelson
Great, that makes sense. If you would like some introductions, we would be happy to connect you. There are certainly a lot of smart folks at the investor-owned utilities that I suspect would be very interested in exploring this approach.

Ashley Muspratt
Those conversations would be great.

Galen Nelson
It looks like a lot of these questions are covering ground we have already covered. I am going to look a little bit more here and see if there is anything that appears to be substantially different.

Galen Nelson
There are a number of questions related to default. If a unit becomes empty, for example, in a multifamily building, how would that be addressed? That is a good question. You have one challenge with regard to an entire building becoming vacant and default, or any other type of default risk. If you have a medium sized multifamily and you have one or more units that become empty and rental income drops, what does that look like for a landlord under IUI?

Ashley Muspratt
In the case that a rental property is vacant between occupants, the utility has two options. In most cases with Ipswich, anyway, the utility bill goes to the landlord when an apartment is vacant, so the landlord would pay the tariff for the months that it is vacant. The other option, if that is not what is happening, if the electricity is just shut off for some reason, then you just delay or stop the payment. If there is a twelve-month repayment period, just simple math, and it is empty for two months, then the period of time would be fourteen months, but you would just pay twelve months of tariff. You certainly want to be wise about the state of the building you are investing in. If a building is about to be condemned or in really terrible shape, then the utility would not move forward with those investments. There are analyses that are done upfront to make sure that the building has a life that is longer than that of the measures being installed.

Galen Nelson
Makes sense.

Galen Nelson
We are just about at time, Ashley. I think I am going to close things out. This has been a really wonderful dialogue. It has been such a pleasure to work with you and the CET team. I do not know whether or not anyone from Ipswich ELD jumped on the call, but our partners there have also been really wonderful, and embraced this in a way that was so refreshing. We really enjoyed working with all of you. Thanks to everyone who tuned in today. We will do this again. I believe our next topic will focus on industrialized construction. We are really happy to dig into that in March, I believe on March 14th. With that, Ashley, I just want to thank you and thank everyone again who tuned in. I really enjoyed the conversation and the partnership with you, and I really appreciate your time.

Ashley Muspratt
Thank you. My pleasure. Thanks, everyone who joined today. I really appreciate it.

Galen Nelson
Thanks, all. Take care!

Ashley Muspratt
Bye.