Interview With Michael Volker of Midwest Energy
How Midwest Energy developed a profitable energy efficiency program
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How did a little utility in rural Kansas come up with a way to make more money by selling its customers less energy?
"I'd like to say it was sheer brilliance on our part," Michael Volker replies, "but it was more a question of being lucky than being smart."
Volker is Director of Regulatory and Energy Services for Midwest Energy, which is headquartered in Hays, KA. (Population: 20,013). More important, he is trained as an economist, so he got to wondering why people weren't harvesting more of what's often called "low hanging fruit"—efficiency improvements to their homes that would save them money.
Volker, who also served on the Kansas Energy Council (KEC), a volunteer group that acted as advisor to the governor on energy matters, heard about a program developed back in 1999 by a Vermont-based nonprofit called the Energy Efficiency Institute.
The Institute's idea was to have utility companies invest money on behalf of their customers to install more efficient heating and cooling systems, or seals on doors and windows, or other energy-saving devices. Customers would pay back the utility with the savings they generate on their electric bills, and those payments (and savings) would be linked to the utility meter for the length of the repayment period even if a property’s occupants changed. The EEI called it "Pay As You Save™ or PAYS™."
"Pay As You Save™" is actually a variation on another concept that's been around since the 1970s energy crisis for commercial and government buildings. Many large commercial or industrial customers contract with ESCOs—Energy Services Companies—that put up the capital for efficiency projects and then share in the savings with the building owners.
"The idea is to form an ESCO for small customers and link it to their utility service," Volker says. "That's a neat way to get past a couple of barriers."
That idea became How$martSM.
The program solves a market failure in rental housing—where landlords own the buildings but don’t really care about the utility bills because tenants pay them, and tenants don’t want to spend money into efficiency improvements because they may not stay for long enough to realize the savings. How$martSM loans money to the tenants, provided landlords approve, and tenants realize immediate savings on their bills.
Interestingly, Volker doesn't think of How$martSM as a loan program.
"I call this investment 'beyond the customer meter'," he explains. "The reason I say that is that it's just like investing in a meter, or a transformer or pipes. A customer pays for all those investments on their utility bill while the utility company earns its rate of return for its investment – the same as with How$martSM."
Although Midwest Energy is customer-owned, and therefore a nonprofit, the model should work for investor-owned utilities as well. "If we invest in new insulation or an HVAC system, we're allowed a rate of return on our investment," he says. "It's a logical extension of the utility model – beyond the customer meter."
Posted: 20-Apr-2009; Updated: 09-Apr-2009
