State utility regulators should spur utilities to help implement new home energy upgrade rebates funded by the Inflation Reduction Act by ensuring the companies receive appropriate credit toward their energy savings requirements.
States and communities are preparing to direct billions of dollars in federal funding from the Inflation Reduction Act to improve efficiency in residential and commercial buildings. That funding has the potential to build on energy efficiency programs that utilities already administer to deliver energy savings. Robust coordination between state energy offices and utility energy efficiency programs could maximize the benefits for households and businesses. State utility regulators should help achieve that goal by setting fair rules for how utilities will receive credit for coordinated programs.
Utility energy efficiency programs can and should play a significant role in facilitating the home energy upgrades needed to lower energy burdens, improve health and comfort, and reduce pollution. Many of those programs are already evolving to focus primarily on supporting the same efficient electric appliances and envelope improvements funded by the Inflation Reduction Act to reduce climate pollution. Having different programs administered by the state energy office and the utility for the same purpose and same group of customers can create inefficiencies and cause confusion, increasing administrative costs and reaching fewer households and businesses. Aligning funding streams and simplifying the process are particularly important for reaching low-income households.
But one major barrier to such coordination could be a disincentive for utilities to help implement federal funding if the energy savings are excluded from counting toward their requirements under state laws or regulations. Utility regulators will need to determine how credit for any energy savings achieved in part using federal funds should be attributed to the utility. This is hardly a new issue: similar issues arose with building codes and appliance standards, and many utility regulators have made decisions to encourage utility support by attributing some energy savings credit to the utility for those activities.
We propose three actions that utility regulators should take to clarify attribution of energy savings to encourage utilities to help implement the Inflation Reduction Act and maximize additional energy savings. Federal agencies could encourage these actions through guidance for states. The actions are:
- Exclude any federal funding from utility program cost-effectiveness tests for energy efficiency programs. Most utilities are required to demonstrate that their programs are cost effective for ratepayers, and some cost-effectiveness tests already exclude a customer’s own funding for particular energy efficiency measures. This recommendation would appropriately extend that approach to federal funding.
- Direct utilities interested in coordinating programs to propose proportional attribution of any energy savings for the purposes of utility performance incentives and lost revenue recovery. Proportional attribution should be relative to the total incentive and technical assistance funds provided by the utility versus federal funding. For instance, if a utility provided $2,500 for a combination of incentives and technical assistance for the customer, and the average federal incentive received by customers served by the program is projected as $5,000, the attributed energy savings could be one third. Greater levels of utility involvement could lead to higher levels of proportional attributed energy savings, up to 100%, as demonstrated in a recent settlement in Illinois in a case where a utility’s funding exceeded 50% of the efficiency measure and administrative costs.
- Clarify that any subsequent changes to approved attribution methodologies will not be retroactively applied to previously approved programs. This will reduce regulatory risk and encourage robust participation.
By taking these actions, utility regulators can help state energy offices, utilities, program implementers, and community-based organizations coordinate programs and align funding streams to benefit families and businesses looking to save energy and reduce pollution. Proportional attribution will also ensure that federal funding increases energy efficiency above and beyond what utilities are already required to achieve.