- Financing Furnaces: What Should Utilities Consider?
- August 21, 2014 | Author: Jack J. Lah
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cincinnati Office
The natural gas boom our country has experienced over the past several years has been nothing short of impressive. We finally have the opportunity, if we choose to seize it, to attain true energy independence. In order to realize this independence, however, we need the cooperation of those in positions of power who share their constituents' desire for cost-efficient energy options.
A substantial concern in the forefront of the minds of those who want to realize this exciting opportunity is the ever-present matter of sheer economics. Quite simply, the conversion of a home to natural gas often presents a fairly significant up-front cost that an average homeowner cannot easily afford. For this reason, certain jurisdictions have shown an increasing willingness to pass legislation permitting utilities to finance this conversion. Such legislation is a "win-win" situation. The homeowner receives an opportunity to upgrade the home to take advantage of the attractive pricing options presented by natural gas. The utility company receives an opportunity to expand its market that would otherwise have been stifled by a costly entry barrier.
Connecticut is one of several jurisdictions at the forefront in passing legislation intended to provide relief to its residents.1 Public Act 13-247 is part of an overall statewide natural gas expansion plan designed to assist homeowners interested in converting to natural gas.2 Under this law, Connecticut has devised a financing program under which utilities have started to finance necessary upgrades to homeowners' heating systems.3 Up to ninety percent of heating system equipment costs may be financed under this program, depending on the projected energy savings.4 Loans up to $15,000 are offered at the generous rate of 2.99 percent, with terms ranging anywhere from three to ten years.5 The customer repays the loan through the monthly electric bills.6
The proactive approach taken by Connecticut has not gone unnoticed. New Jersey has, for example, taken a similar but even more aggressive approach authorizing a zero percent loan to be offered by a utility to a homeowner.7 Other jurisdictions such as New York have followed suit, only with a more "government-centered approach" under which the loan is repaid through the government as opposed to through the utility.8
Under most circumstances, this process starts with an accredited contractor performing a comprehensive home energy assessment to identify opportunities for home energy savings.9 The contractor will then author a report recommending specific energy improvements for a home, along with cost figures to make the improvements, and estimated energy savings.10 The homeowner then applies for financing through the state-approved loan origination contractor.11
Once the homeowner is approved, in most circumstances, the homeowner must sign a note and declaration describing the terms and conditions of the financing and authorizing the monthly charge to be billed upon completion of the project.12 Upon completion of the improvements by the contractor, the lender pays the contractor's bill and the utility is notified.13
A concern that a utility might have in making such an investment is what happens if the homeowner should sell or otherwise transfer the property upgraded by the project. Fortunately, in most jurisdictions, the payments required to repay the loan are transferrable upon the sale of the property.14
Additionally, a utility might be concerned as to how its interest is protected of record. Most often, a title company records a declaration showing the amount and term of the loan, and notes that the loan is being repaid through a charge to the homeowner on the utility bill.15 It is most often the responsibility of the loan servicer to track the status of the loan from the time it is disbursed until the time it is fully paid off.16
The benefit of this advancement cannot be denied. Utilities now have a great opportunity, due to increased production, to provide natural gas to customers at a very affordable price. The downside to those financing the necessary upgrades to those entering this market is not something uncommon to any lender - the prospect of non-payment. However, those jurisdictions which provide appropriate safeguards to lenders by allowing for the recording of a lien which remains with the real property to be satisfied upon transfer of the property to a new homeowner provide some security in this regard.
The intricacies of this issue should be reviewed and analyzed on a state-by-state basis. It is great to know that this legislative development is ongoing, but the practical application of each jurisdiction's legislation is different. Our firm has the experience and resources available to guide you through this ever-changing area of the law.
1 See 2013 Connecticut Public Act No. 13-247.
2 Public Act No. 13-247, pgs. 136 - 140; American Gas, June 2014, pg. 14.
3 Public Act No. 13-247, pgs. 136 - 140.
4 Public Act No. 13-247, pgs. 136 - 140.
5 American Gas, June 2014, pg. 14.
6 Public Act No. 13-247, pgs. 136 - 140
7 New Jersey Housing and Mortgage Finance Agency, Home Energy Saver Program Guidelines.
8 "Governor Cuomo Proposes $1 Billion Nrew York Green Bank." ENS Newswire. 1/10/13. http://ens-newswire.com/2013/01/10/governor-cuomo-proposes-1-billion-new-york-green-bank/
9 Public Act No. 13-247, pgs. 136 - 140.
14 See e.g., Public Act No. 13-247, pgs. 136 - 140.
15 American Gas, June 2014, pg. 14.