BPU Wants Revolving Loan Program, Not Subsidies, to Fund Some Clean Energy Initiatives

Tom Johnson | November 4, 2011 | Energy & Environment
Move to revolving loans flies in the face of advice offered by agency's own working group

The state is moving to shift more of its clean energy funds into revolving loan programs, a step long advocated by the president of the Board of Public Utilities (BPU), but recently panned by a panel advising New Jersey on its energy policies.

In the proposed budget for the 2012 clean energy program, roughly $48 million, or about 9 percent of the total, is expected to be dedicated to various revolving loans. This includes an initiative to help develop combined heat and power (CHP) plants and a new pilot to reduce energy use at multifamily housing units.

BPU President Lee Solomon has frequently voiced support for creating a revolving loan program to pay for New Jersey’s clean energy initiative, a move that could reduce a sometimes hefty surcharge on customer gas and electric bills now used to fund that effort.

But a working group handpicked by the state agency suggested a revolving loan program may not be the best way to finance energy efficiency projects, certainly not immediately, in a report that came out last month. The group concluded that revolving loan programs have “had difficulty covering their own costs, getting participation from the eligible population, and realizing energy savings.”

Still, the state is looking to try to determine what type of clean energy programs might be suitable for a revolving loan program, recognizing it might not work in every instance, especially for residential energy efficiency projects.

“The approach has been to see where it works,” said Michael Ambrosio, of Applied Energy Group, a consultant to the agency. For instance, the loan program will be used for multifamily energy efficiency projects, he said, because owners of the units have told the state they do not have access to the capital necessary to undertake such projects. The state has set aside $10 million for a new pilot program to offer low-interest loans to multifamily housing to reduce energy consumption.

Solomon conceded yesterday during a hearing on the proposed clean energy budget that revolving loans may not work for everyone, but added he still hoped to have up to 80 percent or 90 percent of the program’s budget devoted to revolving loan programs. If that happened, he said, it would shrink the demand to raise huge amounts of money from a surcharge on customers’ gas and electric bills.

“Our ultimate goals is to expand the revolving loan programs and wean companies off of rebates,” Solomon said.

The surcharge, called the societal benefits charge, typically costs residential customer about $4.67 a month on their electric bill and about the same on their gas bill. For businesses relying on large amounts of gas and electricity, however, the cost is much steeper, sometimes rising to more than $1 million annually.

For the clean energy program in 2012, the state expects to raise $379 million from the surcharge, but the overall budget is $479 million because, as in past years, it is carrying over a large amount of unexpended funds from the previous year, approximately $93 million.

That practice came under criticism from the same working group that recommended the state proceed cautiously in shifting to revolving loan programs to finance clean energy programs. The program “should spend what it collects and not collect what it cannot or will not spend,” according to the report. It also argued that a more accurate budget process would provide opportunities to reduce the societal benefit charge.

Division of Rate Counsel Director Stefanie Brand, a member of the working group, yesterday told the agency it needs to do a better job in reducing carryover funds. “I still think $93 million is a lot of money not to be spending,” Brand said, who conceded the state needs to build some cushion into the program. “I’d like to see that number come down.”

The board is expected to formally adopt a 2012 clean energy budget in December, according to officials.