Senate Joint Resolution No. 125 mandates that the State Corporation Commission undertake a study of the feasibility of energy distribution companies financing the insulation of homes and businesses. This report presents the results of that study. The Resolution in its entirety is presented as a preface to this report.

The financing of insulation in homes and businesses by energy distribution companies is feasible; two companies provide such financing in Virginia and at least 13 companies operate programs in other states. This study finds that adequate insulation financing is available through existing conventional finance sources. An analysis of cost data provides evidence that energy distribution companies are not able to lend funds for insulation at a lower cost than conventional finance sources. Therefore, there is no compelling reason to rely on energy distribution company insulation finance programs as a means of improving the level of insulation in homes and businesses in Virginia.

This study does not question the potential benefit resulting from insulation as a means of energy conservation. It assumes benefits are sufficient to justify the installation of more insulation. This study addresses the desirability and need of having energy distribution companies engage in the financing of such insulation.

The question is approached by first estimating the amount of insulation needed in Virginia. This is done to determine the annual amount of financing required. Attention is focused on single-family housing rather than business or multi-family installations. There are several reasons why this is done. The average cost of insulation retrofitting is found to be in the range of $500. This amount should not be a problem for a business or landlord that is seriously considering insulation. Economic incentives for installing insulation are lacking for those cases where a tenant supplies the heating and cooling energy. Further, it may not be possible to retrofit high rise multi-family units. Therefore, this study concentrates on single-family housing. Census and other published data indicate that the annual financing requirement for retrofitting the single-family, occupied housing in Virginia is in the range of $18 million per year over the next six years.

The second section of the study examines the dollar flows and terms of conventional financing sources that are now available to meet these requirements. In addition, current government programs for meeting insulation needs are discussed. These conventional and government financing sources appear sufficient to meet the projected insulation retrofitting financing requirements.

The third section discusses potential constraints pertaining to financing of insulation by energy distribution companies. In this section relevant legal issues are discussed and financing programs that are either planned or now being conducted by energy distribution companies are ·set forth. An analysis of these programs provides no evidence to suggest that energy distribution companies are able to lend funds at a lower cost then existing conventional financing sources.

In the fourth section, the economic advantages and disadvantages of having energy distribution companies finance insulation are summarized and the conclusions of the report are presented.