Inclusive Utility Investment

Expanding access to comprehensive efficiency and electrification upgrades

Increasing access to energy efficiency and electrification retrofits for all buildings, especially households, is critical to addressing energy inequity in the United States and to solving the global climate crisis.  Inclusive Utility Investment is a promising approach to expanding access to cost-effective more comprehensive [1] efficiency and electrification upgrades for all customers, including those that are often underserved by utility energy efficiency programs.  

Inclusive Utility Investment is a proven (yet underutilized) model among Rural Electric Cooperatives and gaining traction and interest among Investor-Owned Utilities because it combines unique attributes, some of which follow:

  • It enables utilities to make site-specific investments in building efficiency upgrades on the customer's side of the meter with site-specific cost recovery,
  • It can pay the upfront costs for 100% of efficiency upgrades that are estimated to produce immediate net savings,
  • Unlike consumer loan programs, all customers are eligible regardless of income, credit standing, or status as a building owner or tenant,
  • Utility cost recovery is achieved through a tariffed charge on the utility bill tied to the location rather than an individual, and
  • Successor customers at an upgraded site are notified that the cost recovery charge applies automatically to the bill until the utility’s costs are recovered.

[1] Many utility efficiency programs focus on single measure and/or low-cost energy efficiency upgrades such as lighting. More comprehensive programs are those that address the major end uses in the home such as water and space heating, and ideally target more than a single measure.

Inclusive Utility Investment Program Activity in the United States (last updated May 2023 click for more details)

Map of Inclusive Utility Investment Program Activity in the United States

Last updated May 2023

The following states have Inclusive Utility Investment program/pilot activity: Arkansas, California, Georgia, Illinois, Kansas, Kentucky, Minnesota, Missouri, New Hampshire, North Carolina, Tennessee, Vermont, and Virginia.  Most of the programs in the market today, as well as a majority of those in process are based on the Pay As You Save® (PAYS®) system, which is a trademark of the Energy Efficiency Institute, Inc. See Current Programs for additional information. Click here for a more detailed map maintained by Liberty Homes of Inclusive Utility Investment activity.

Inclusive Utility Investment

What is Inclusive Utility Investment?

In an Inclusive Utility Investment program (also known as a tariffed on-bill program), a utility provides up-front capital to pay for energy efficiency and electrification upgrades at a customer’s premises and recovers its costs through a fixed charge on the participating customer’s utility bill (hereafter referred to as a cost recovery charge). The cost recovery charge is calculated based on an approved tariff that takes into account measure and installation costs, administrative costs, estimated savings, and cash flow for participating customers. 

Consumer protections are central to the design and success of an Inclusive Utility Investment program and as such are discussed in greater length in the sections below.

Unlike on-bill loan programs or third-party financing, Inclusive Utility Investment programs do not require consumer credit checks, upfront customer investment is optional, and the cost recovery obligations are tied to the location and utility meter rather than the customer, making the approach an appealing route for more customers including renters, low-income and other underserved customers.

What is a tariff? A tariff is a legal document approved by a utility regulatory commission or oversight authority that defines the price(s) to be paid to utilities for energy and related services. Typically, each line item on a utility bill is a tariffed charge that has an associated tariff defining the terms for that charge.

The tariff specifies rates, conditions, rules, along with their applicability, eligibility, and related definitions. For example, a tariff for inclusive utility investment might include specific notification requirements for homeowners when renting or selling a home with energy upgrades.

What Key Barriers Does Inclusive Utility Investment Address?

Many of the upgrades targeted by existing Inclusive Utility Investment programs are part of the ENERGY STAR Home Upgrade, a set of high impact energy efficiency improvements designed to work together to deliver significant energy and costs savings for a healthier more comfortable home.

Well-designed Inclusive Utility Investment programs can help address important utility program needs and customer barriers including:

  • Need for Greater Savings: One major challenge utilities face as they adjust their energy efficiency portfolios to meet savings goals from more comprehensive retrofit measures (i.e., HVAC, water heating and related building shell measures) is achieving the volume they need to drive savings at scale. Established Inclusive Utility Investment programs have demonstrated that customers are much more likely to move forward with offers compared to debt-based offers, therefore increasing uptake of impactful retrofits and utility savings.
  • Availability or Access to Capital: More than one third of Americans report being unable to pay for a $400 emergency with cash savings, and 51% have subprime credit according to the U.S. Federal Reserve. Inclusive Utility Investment programs provide the up-front capital to move forward with retrofits that many Americans cannot afford or either cannot or will not finance through a loan. Credit checks are not necessary under this model. Participants assume no new debt. Some programs have used bill payment history to assess eligibility or identify customers in greatest need.  The investment is made by the utility, and both the utility and the customer benefit from the upgrades, with cost-recovery from energy savings. If well designed and properly implemented, customers will pay less on their utility bills overall than before the upgrades (absent altering their usage habits or adding new load). 
  • First Cost: When coupled with rebate and incentive programs, Inclusive Utility Investments can lower and, in some cases, may eliminate financial barriers that prevent customers from investing in energy efficiency upgrades. Programs operating today leverage existing rebates from other programs, if available, to help lower first cost. Homes with high energy usage and high energy intensity (high energy use per square foot) are most cost effective for this model and typically see the largest reduction in up-front and overall costs.
  • Mistrust & Complexity: Customers often do not trust the energy or monetary savings claims of trade allies who they perceive are motivated to close a sale. Consumers can be overwhelmed by the complexity of contracting. Exposure to high-pressure upselling and poor installation quality are major barriers that deter customer investment in efficiency improvements. To address these barriers,  Inclusive Utility Investment programs ensure that adequate consumer protection protocols are in place to prevent participating Trade Allies from claiming inflated savings and to ensure high quality installations on 100% of jobs.
  • Split Incentives: The model can effectively address a common barrier to decarbonization efforts in rental properties known as the split incentive between landlords and tenants. Because the upgrades and cost recovery are tied to the property and energy bill respectively, rather than an individual, it only requires agreement from both parties to initiate, and the benefits are realized by both parties the renter who pays the bill and enjoys the improved comfort and the landlord benefits from the improvement to the property and tenant retention.1
  • Underserved Sectors: Another challenge facing efficiency and electrification programs is making sure that all customer segments tap into program offerings. This is particularly challenging for low- to moderate-income households and renters, which make up about 36% of households. Some Inclusive Utility Investment programs prioritize marketing and outreach to these customers, targeting high energy users with high-energy intensity. Many utility efficiency programs offer additional incentives and services for low- to moderate-income households, so it is important that customers are notified they may be eligible to take advantage of no-cost upgrades and services, providing contact information so they may pursue those options first. Inclusive Utility Investment programs are not a substitute for grant- based, free home weatherization programs because they typically cannot serve households that are curtailing their energy use or have structural or have homes with structural or health and safety issues that prohibit investment in upgrades until they are remediated. Coordinating (also referred to as braiding or stacking) available incentives and services can be particularly valuable to serving underserved sectors. Programs operating today leverage existing utility rebates, philanthropic grants, and free offerings such as the U.S. Department of Energy’s Weatherization Assistance Program, if available, to help lower costs and eliminate co-pays. To learn more about stacking between IUI with other programs, please see the case study on Midwest Energy’s How$mart program and the Kansas Weatherization Assistance Program (PDF, 230 KB).

1 The split incentive is a particularly pernicious market failure that plagues any number of energy improvement programs. Put simply, a “split incentive” market failure is said to exist when benefits of a transaction pass to someone other than the party paying the cost, which is a common phenomenon in renter-landlord relationships. (“Follow the Money”: Overcoming the Split Incentive for Effective Energy Efficiency Program Design in Multi-family Buildings by Don Hynek, Megan Levy and Barbara Smith, Wisconsin Division of Energy Services).

Target Sectors & Measures: Who Can This Model Serve & Which Upgrades Are Best Suited to the Model?

Most Inclusive Utility Investment programs to date have focused on the energy efficiency and electrification upgrades in the residential sector, and as such, many of the learnings and examples provided are from the residential sector. However, Inclusive Utility Investment is also applicable to commercial and municipal customers, which can face similar renter-landlord split incentive barriers as residential customers. For example, Ouachita Electric Cooperative Corporation has upgraded a number of commercial and state government facilities and Eversource New Hampshire’s Smart Start program serves municipal buildings.

Since the obligation to pay the cost-recovery charge remains with the location's utility meter, it is important to consider upgrades/measures that are long-lived and likely to convey with the sale of the home or property. These typically include building shell measures (air sealing, insulation), hard-wired lighting fixtures and controls, central heating and cooling systems, duct sealing, and water heaters. Some programs include demand response measures such as wi-fi thermostats and water heater switches, and could evolve to include windows, on-site solar, and battery storage and electric vehicle chargers.

What Important Consumer Protections Should Be Included in an Inclusive Utility Investment Program?

A review of utility program experience with PAYS® conducted by the Southern Environmental Law Center found the program model offered important consumer protections, particularly for vulnerable low income customers.

The review also emphasized that PAYS should not be viewed as a substitute for zero-cost energy efficiency and bill-payment assistance programs.

Where offers of additional services for low-income customers are available, utilities can ensure they first provide information about free energy efficiency offerings for those who qualify.

Ensuring robust consumer protections to avoid unintended consequences or exploitation should be a primary consideration when designing an Inclusive Utility Investment program. The original Inclusive Utility Investment model was created by Harlan Lachman and Paul Cillo of the Energy Efficiency Institute and trademarked Pay as You Save®  (PAYS®) with the goal of providing a risk-free method for customers to receive and benefit from energy efficiency improvements. Additional best practices to complement the model and refine consumer protections have been developed by EEtility, a PAYS® program operator, and other utility and non-utility program operators.

The most recent programs include all of the following essential consumer protections:

  1. Site-specific energy savings estimate: To ensure modeled energy savings provide an accurate estimate on which to base the cost-recovery charge, programs use field-tested software calibrated with at least twelve months of the site's historical billing data, the actual cost for identified upgrades, the existing equipment and other conditions of the building or home.
  2. Positive cash flow: The tariff requires that the cost-recovery charge be lower than the estimated energy bill savings on an annual basis. Since the cost recovery charge remains with the meter, this protects the interests of future residents/tenants.
  3. Customer choice: Participants can contribute an upfront amount (a co-payment) to get more than the estimated savings alone would support. For example, estimates may only support insulation and a portion of an HVAC upgrade, leaving a co-payment of $500-$2500. This one-time payment is far less than paying for an entire HVAC system out of pocket.
  4. Equipment warranties: Programs include extended equipment warranties to help ensure that customers realize benefits from the improvements throughout the cost-recovery period, and have provisions that reduce or eliminate the tariff repayment obligation should an upgrade fail through no fault of the occupant.
  5. Site specific quality and verification after installation: The utility or program operator inspects the installation quality and completeness of upgrades.
  6. Monitoring of forward energy usage: With permission of the occupant, energy usage data is monitored for participating customers to help ensure consumption is in line with expectations and to identify anomalies. 
  7. Anomalies are investigated and remedies are provided: When an anomaly is discovered and is not due to occupant choices, programs include a consumer protection protocol that remedies the problem at no cost to the participant.
  8. Programs end payments if an upgrade fails through no fault of the occupants and is not repaired: The occupant is paying for the utility cost-recovery in exchange for the services provided by the equipment. If the equipment is not providing services, then the occupant is not obliged to pay.
  9. Avoidance of conflict of interest: Programs apply explicit strategies for avoiding trade ally, utility or program operator conflict of interest. For example, the trade ally that is paid to install upgrades is not the same entity that determines the estimated energy savings for the scope of work at each site. 
  10. Notification to subsequent owners/occupants: The tariff includes provisions for notification of the cost recovery amount, duration, and included upgrades to subsequent occupants.

Additional important consumer protection considerations include:

  • Budget billing - a tool that utility companies provide to help spread out annual utility bills into even monthly payments to avoid spikes in bills caused by seasonal fluctuations in energy use.
  • Protection from disconnection as a result of cost recovery charge. 
  • Tenant protections from rent increases or displacement as a result of improvements through the use of deed restrictions or voluntary agreements not to raise rent included in the owner agreement for the program.
Sources of Program Capital: Where Does the Money Come from to Fund these Programs?

To date, programs have sourced capital from the U.S. Department of Agriculture (USDA) efficiency loans (for rural markets), rate payer funds, and the same sources they leverage for other infrastructure upgrades. Some Investor-Owned Utilities (IOUs) are pursuing the treatment of Inclusive Utility Investment as a regulatory asset where they earn an authorized rate of return on their expenditures, similar to treatment of supply-side investments. This may be an attractive option for IOUs that do not currently have adequate performance incentives for energy efficiency programs. Experience with Inclusive Utility Investment programs to date indicate a cost recovery rate above 99 percent. (Energy Efficiency Institute, 2022 Status Report).

Initial programs in the early 2000s started with pilot-scale initiatives to gain operational experience, and understand the magnitude of customer/member interest, and then refined program design and delivery to ramp up scale in the transition to permanent programs that have reached more than 1% of customers per year. Recent IOU programs have eschewed the two step approval process and sought approval of a permanent program from their commission. During the initial pilot or program and depending on scale, a utility with sufficient capital may decide to use internal funds. Regardless, it is never too soon to anticipate the need for capital beyond the pilot or year one program phase.

Depending on utility type, regulatory environment, and location, utilities may tap into one or more of the following sources.

*Some of these have not yet been used for Inclusive Utility Investments but are proposed for consideration.

  • Private capital
    • Inclusive Utility Investment programs can be particularly appealing for private capital investors to finance since they are backed by the credit of utilities as opposed to the personal credit of individual customers.
    • Private capital investors will want to make sure that a utility’s credit rating is sound, however with new utility investments, it may also be beneficial to demonstrate that the benefits of an Inclusive Utility Investment program are able to pay capital costs, operating expenses, and interest on debt.
    • Private capital for energy efficiency investment may be available to utilities from tax-equity investors and other private equity investors if 1) the Inclusive Utility Investment program is structured properly and 2) the underlying capital qualifies for Federal investment tax credit or production tax credit incentives. This is a more complicated approach, which would require creating a partnership, but it could offer a lower cost option to utilities and ultimately their customers. To date, this option has not been tested in the market for Inclusive Utility Investment programs.
  • Federal resources:
    • The USDA provides the following loans that can be used for the purpose of advancing energy efficiency and other distributed energy resource solutions through Inclusive Utility Investment programs in rural areas.
    • Although rural electric cooperatives are the predominant user and beneficiary of these loan products, the Rural Energy Savings Program can be tapped by former USDA Rural Utility Service borrowers regardless of size and by other utilities for the purpose of serving rural areas (populations smaller than 50,000).
    • The U.S Department of Energy’s Renewable Energy & Efficiency Energy Projects Loan Guarantees program provides loan guarantees to help address financing gaps for clean energy projects that utilize innovative technology to reduce, avoid, or sequester greenhouse gas emissions.
  • State and Local:
    • *Green Banks can be partnerships between governments and private-sector investors to create low-cost and sustainable financing options to help make public funds go further in support of clean energy projects. 
    • *Revolving Loan Funds may present an opportunity depending on the scale of the program. The North Carolina Clean Energy Technology Center’s DSIRE database provides links to loan funds and other funding sources.
    • Community Development Finance Institutions (CDFIs), such as Mountain Association in Kentucky, can loan capital to utilities with inclusive investment programs.
    • The EPA Clean Energy Finance Toolkit [coming soon!] provides additional information on state and local financing mechanisms.
Stakeholder Engagement

Engaging both internal and external stakeholders in planning conversations can help in developing an Inclusive Utility Investment approach that meets utility and customer needs and is embraced by all – from regulators to the utility billing team. In Missouri, stakeholder engagement was so robust that the Missouri Public Service Commission decided to double the initial budget for the program offered by Ameren Missouri.

The following stakeholders are important to engage early in the process:

Internal stakeholders

  • Billing system team
  • Regulatory team
  • Capital investments team
  • C-Suite/Financial team
  • Marketing team

External stakeholders

  • Regulators
  • Evaluators
  • Consumer/Ratepayer Advocates
  • Community Based Organizations
  • Trade allies

Some programs under development are using stakeholder advisory groups in the program design process. For example, the Duke Energy Tariff-on-Bill (TOB) Working Group is an active group collaborating to help advise Duke Energy on planning for a possible future program, and the Equitable Energy Upgrade Program in Illinois requires that the Commission sponsor a workshop process with stakeholders to develop program guidelines. 

Stay Engaged and Learn More

Interest and experience with Inclusive Utility Investment is growing across the country and as such program design and implementation strategies are likely to evolve over time. To stay engaged and learn more, please reach out to your ENERGY STAR account manager or email

This resource library may provide additional insights and learning