State On-Bill Financing and PAYS programs

State On-Bill Financing and PAYS programs 

On-bill loans and tariff-based financing systems are utility programs designed to help customers pay for energy efficiency upgrades through energy savings programs. These programs are set up so that the utility covers the cost of the energy upgrades and the customers pay the utility back through a charge on their monthly utility bill. Typically the electric and natural gas utilities run these programs, but programs are more successful when state governments adopt legisla­tion or regulations that encourage and enable their adoption.

The participation of the legislature makes a collective effort to require public utility commissions to investigate the feasibility and desirability of such programs, enact laws that provide capital for on-bill programs through public benefit or other funds, establish energy efficiency goals and encourage regulators to adopt rate structures that remove disincentives to investing in energy efficiency and facilitate such investments. Encouragement from the states is important for utility participation in the program because on-bill financing programs are outside the normal business model because they are not simple to design, require an expensive overhaul of old billing systems, and put the utility in the role of a lender. 

State Energy Efficiency Policies Report

States with Successful PAYS Programs  


In 2000, United Illuminating (UI) launched an on-bill financing program offering zero percent interest financing for energy-efficiency improvements to small businesses. The program works with businesses that own their premises and those that lease spaces; eligibility to participate in the program is based on the name on the utility bill rather than the property owners.  UI combines the loans with incentives to cover 30 percent of lighting efficiency measures and 40 percent of costs for other measures, but if the customer/borrower elects to install two or more measures, the rebates grow to 50 percent of the cost, thus encouraging a more comprehensive approach to efficiency investments.  The typical project sizes range from $8,000 to $12,000 and is financed over an average term of 24 to 36 months.  


In 2006, Hawaii enacted legislation requiring utilities to implement financing programs based on the PAYS system. In June 2007, the commission approved applications by Hawaiian Electric Company, Hawaii Electric Light Company and Maui Electric Company to implement PAYS pilot programs for the installation of solar water heaters called SolarSaver.  Within the first six months of the pilot programs, a 200 unit target was proposed and 122 solar water units were installed.  


In 2009, Illinois adopted legislation that would help the environment, and help its families save money by requiring the utilities to conduct on-bill financing programs for residential customers.  The program is open to small business as well.  The Illinois Commerce Commission is conducting hearings and meetings to finalize the program, and the state’s utilities are beginning to work with lenders to develop on-bill finance programs in response to the new legislation. 


Midwest Energy’s How$mart® program provides money for energy efficiency improvements such as insulation, sealing, and heating and cooling systems. It allows both commercial and residential customers to make efficiency improvements with no upfront cost requirements.  The interest rate for residential customers is 5.05 % over 15 years. For commercial customers, it is 6.6 % over 10 years. The How$mart program is available to all Midwest Energy and gas customers who are current on their utility payments. The program is also available to both home owners and renting or leasing tenants with the owner’s permission. With How$mart, Midwest Energy is the first utility partner in Efficiency Kansas, a program that utilizes stimulus funds to provide low interest funds for energy efficiency improvements..  


In 2008,Michigan adopted Public Act 285, requiring their Public Service Commission to conduct an investigation of a tariff-based system. The Michigan Public Service Commission has issued a Request for Proposals (RFP) to design and operate an on-bill energy efficiency program, Michigan Saves.  The program is still being researched.

New England 

On-Bill Financing is offered to small business customers in Massachusetts, Rhode Island, and offered on a limited basis to commercial and industrial medium businesses and municipalities in Massachusetts through National Grid.  This financing option pays from 40 percent to 70 percent of the project cost and the customer pays for the remaining expenses of the project - interest free - over a period of one to 24 months as an additional line item on their utility bill.  The repayment plan even includes a 15 percent discount for small businesses if the bill is paid off in one month. 

New Hampshire

From 2002-2004 the state of New Hampshire ran a pilot program, after receiving state utility commission approval, for PAYS® to be utilized at two utilities – Public Service New Hampshire and New Hampshire Electric Cooperative.  The program received approval from an independent commission to continue the program and this energy upgrade financing option has been available to utility consumers since.  

New Jersey

Public Service Electric and Gas has a Small Business Direct Install Program that utilizes on-bill financing to provide energy efficiency upgrades and financing to small businesses in Newark and Trenton, and has the intention of expanding its service territory.  Through this program, eligible customers receive a free on-site energy audit of their business, followed by a report that details energy-saving recommendations. If the customer chooses to install any of the specified upgrades, it repays only 20 percent of the cost over time through a charge that appears on its electric bill.