GEMS Authority, Hawaiian Electric At Odds Over On-Bill Financing Plan

posted in: January 2018 | 0

Practically since the day life was breathed into the Green Energy Market Securitization (GEMS) program in 2013, its advocates have argued that for it to be successful, recipients of GEMS loans – intended to help lower-income families benefit from expensive, energy-saving technologies – would need to be able to pay for their energy-saving equipment with what’s been called on-bill financing or on-bill repayment.

To this end, the Hawai‘i Green Infrastructure Authority (HGIA), which manages the GEMS funds, budgeted nearly a quarter of a million dollars to support work last year on an on-bill financing scheme, which it called the Green Energy Money $aver program, or GEM$. Now, however, it seems as though the agency has struck out.

Starting in 2014, the state Public Utilities Commission had tasked Hawaiian Electric utilities and a host of other interested parties to develop a means to include on customers’ bills charges for third-party loans — principal, interest, and other fees — that were taken out to pay for rooftop solar arrays and possibly other energy-saving technologies, regardless of whether those loans were underwritten by GEMS funds. For two years, the utilities had worked with a contractor to develop a system to accomplish this, and had even published a draft “Bill $aver” manual, but when the primary vendor for the financing service dropped out and no other vendor came forward, the PUC shut down the effort.

In the PUC order closing that docket, however, the agency instructed Hawaiian Electric to continue working with HGIA to attempt to work out an arrangement for recipients of GEMS loans to be able to pay their loans off through add-ons to their monthly electric bills, relying heavily on the work products developed over the previous two years.

Ever since, representatives of Hawaiian Electric and HGIA have been meeting or participating in conference calls weekly to figure out how on-bill financing should work, according to a November 24 letter to the PUC from Daniel Brown, manager of regulatory non-rate proceedings for Hawaiian Electric Industries.

Brown describes four unresolved issues and asks the commission for guidance as to how the parties should proceed. Those issues concern:

• Disconnection;
• Payment priority;
• Coordination with GEMS loan servicer; and
• Cost recovery.


When Hawaiian Electric customers are in arrears on their bills, the recourse is disconnection. The “Bill $aver” program manual called for disconnection of customers who did not fully repay both the electricity charges and loan charges. Brown informed the PUC that the HGIA proposes identical language for the manual describing procedures for GEMS on-bill repayment.

However, he continued, “The companies are cognizant that potential disconnection for non-payment of an on-bill financing program charge was incorporated into the [Bill $aver] program to facilitate better market interest and rates for that program. However, especially considering that the GEMS program is focused on the hard-to-reach market (i.e., low-income and rental customers), the companies are concerned that potential consumer protection issues may arise.”

In a response filed December 4, deputy attorney general Gregg Kinkley, who advises HGIA, pointed out that Hawaiian Electric had no problem with the potential disconnection of its customers when they were in arrears on payments made under two earlier utility programs, SolarSaver (2007- 2009) and a “Simply Solar Pilot Program” (2011), both of which were intended to support purchases of solar water heating equipment.

Kinkley went on to note that the GEM$ program was requiring not just bill neutrality – meaning that the monthly bill including GEM$ charges is no greater than the monthly bill without them – but at least an overall savings of 10 percent on energy charges. Further reducing the monthly charge, he said, is the proposal to amortize financing over 18 to 20 years as opposed to 12 in the Bill $aver program.

Senior Status

Under the Bill $aver program, priority for payment would have gone to loan repayments over electricity charges. The HGIA is proposing a similar system for GEMS loans.

As Brown described it, “The disconnection concern stated above is compounded by the issue of GEMS loan repayments receiving senior status over payment for usage of electricity. Under this arrangement, payments received from customers are first credited toward repayment of their GEMS loans, and only once a GEMS loan amount is fully covered will payments be credited toward that customer’s monthly electric usage.”

“The companies are concerned that giving senior status to GEMS loans increases the risk of disconnection even where the customer is able to pay for their entire electric usage and pay a majority of their GEMS loan. Under such a construct, even a minor underpayment could ultimately result in the disconnection of electric service for a participating customer,” Brown wrote.

In addition, he continued, should the loan be assigned to another customer, that customer “would not need to fulfill any of the requirements for loan eligibility. Therefore, the companies would bear increased risk both from the potential for non-payment (or partial payment) of their bill, and also from an assignee who may not otherwise qualify for such a loan. Under the current proposed approach, the companies would be subject to increased write-off risk for partial payments, versus the GEMS program, whose loan payments are senior to the companies.”

In response, Kinkley stated that the requirement for a 10 percent bill savings should ensure that customers are able to pay their full bill, including financing charges. “Incorporating a minimum required bill savings (program charge plus electricity charges) will increase the probability of the participant’s repayment ability and will thereby decrease the risk of disconnection,” he wrote.

Coordination Agreement

The HGIA has contracted with Concord Servicing Corporation to manage GEMS loan repayments. But Concord, wrote Brown, is reluctant to come to an agreement with Hawaiian Electric for oversight of GEMS loan repayments, since it claims that doing so would entail assuming additional risk without any additional compensation.

Without a contract that includes terms of “contractual privity … for purposes of indemnification,” Hawaiian Electric would face exposure to litigation, Brown argued. “[I]f any claim were to arise from the GEMS program based on Concord’s conduct and the companies were subject to a lawsuit or other complaint, the companies (and by extension, their customers) may be forced to pay litigation costs instead of Concord, even if the issue arose from Concord’s conduct,” Brown stated. Nor could Hawaiian Electric seek to recover costs in that event from HGIA since, he noted, as a state entity, it enjoys sovereign immunity.

Kinkley’s response notes that Concord’s agreement to service loans is with HGIA and that Hawaiian Electric need not have any agreement with Concord.

Concord already services loans for 12 utilities, he said, none of which has required Concord to sign an agreement along the lines Hawaiian Electric is proposing. If Hawaiian Electric is concerned about losses associated with Concord’s services, it could purchase insurance against that, he suggested.

Finally, he noted that the on-bill repayment program in Hawai‘i is limited now to GEMS loans, which limits Concord’s profits. “[P]erhaps expanding the capital sources might help Concord justify a business decision to absorb additional risks in return for potentially increased on-bill servicing opportunities,” he wrote.

Cost Recovery

This issue is particularly thorny. Under state law, Hawaiian Electric companies are allowed to recover costs associated with developing the on-bill financing program. In the earlier docket for Bill $aver, the company has stated it incurred more than $2.3 million in non-labor costs from August 2013 to June 2016, for which it is seeking reimbursement through the Public Benefits Fee levied on customers’ monthly bills. (The PUC had not issued a decision on this request by press time.)

In the case of further on-bill financing work related to GEMS loans, Brown wrote, Hawaiian Electric is seeking reimbursement directly from HGIA. “HGIA does not agree with this suggestion,” he noted. “However, the companies are wary of recovering such implementation costs and ongoing costs via their broader customer base for a program that will only be utilized by customers participating in HGIA’s GEMS program.”

Kinkley responded by stating that HGIA has just two options to cover Hawaiian Electric’s charges: it can dig into the GEMS fund, or it can increase the interest rate charged to loan recipients.

As to the first option, Kinkley stated that this “would require the Hawai‘i State Legislature and the [Public Utilities] Commission to approve an increase to the administrative budget for the authority.” And in any event, he claimed, GEMS doesn’t even have that much money left to loan out, with “only an estimated $50.0 million available to lend.”

According to the most recent HGIA quarterly report to the PUC, just under $7 million in loans had been issued from the GEMS fund, with more than $140 million left to distribute. So how did Kinkley arrive at the $50 million figure?

That question was put to Gwen Yamamoto Lau, HGIA’s executive director. She answered by providing a total of GEMS loan commitments – including a $46.4 “commitment” to the state Department of Education for energy-efficiency improvements and a nearly $10 million loan to be distributed to Moloka‘i residents for solar water heaters. Altogether, “approximately $77.8 million of the GEMS funds have been committed to date,” she stated.

Furthermore, a recent PUC order requiring HGIA to use loan repayments to replenish the Public Benefits Fee before paying HGIA’s administrative costs (running lately at more than $1 million a year), has added to the obligations on the GEMS funds, she said. “As HGIA is not supported by general funds, and as loan administration and servicing will continue for 20+ years, this order requires HGIA to set aside and reserve a portion of the loan funds to ensure proper administration and servicing until the loans are paid in full.” When that reserve is added to the commitments made to date, what’s left is “approximately $50.0 million in GEMS funds available to lend.”

(As to the DOE commitment: although the loan ceiling is $46.4 million, as of September 30, less than a quarter million dollars had been given out. Per Yamamoto, any amount that hasn’t been committed by June 30, 2018, “will be added back to the GEMS loan fund and will be available for other borrowers.”)

— Patricia Tummons

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