Utility Rate Design Is a Key Piece of the Energy Transition Puzzle
What is Rate Design?
In order to deliver energy in the form of electricity and gas, utilities oversee and operate the wires, substations, pipelines, and other equipment that together make up the energy distribution systems. Utilities make regular investments in that infrastructure to help meet demand and maintain reliability. Utilities then recover the cost of those investments through customers’ monthly bills. Rate design is the process of determining how exactly to allocate those costs to ratepayers across the many residential, commercial, and industrial customers that make up a utility’s service territory.
As states consider how to accelerate the clean energy transition, utility rate design is a vital piece of the puzzle. Rate design is one of the fundamental tools that regulators have to ensure that utilities have sufficient revenues to bring power to our homes and businesses. But rate design is also a powerful lever for achieving policy goals related to clean energy, equity, affordability, and greenhouse gas emissions.
Why does Rate Design Matter?
Today, as customers face increasingly high utility bills, it is vital for regulators to get rate design right. In Massachusetts, for example, average energy burden (the percentage of household income spent on energy expenses) for low-income households is around 10 percent, and—remarkably—energy burden for some low-income households can reach as high as 31 percent.1 Experts generally agree that customers are energy burdened if they spend 6% of their incomes or more on energy. It is important to note that recent increases in utility bills in the Northeast have been a direct result of an overreliance on gas in the region. Gas and other fossil fuels used to generate electricity are susceptible to price spikes, which we have seen especially during recent winters, and these costs are passed on directly to customers.2
Decisions over how to allocate energy system costs through rates have enormous implications not only for the energy burdens that customers face, but also for the success of building and transportation electrification, deployment of distributed energy resources like rooftop solar and battery storage, and many other programs and policies.
Utility bills are made up of the 1) costs for the generating resources that provide power (e.g. a wind farm or a gas plant); 2) costs that cover building and operating the transmission and distribution systems; and 3) funding for range of important policies and programs, such as energy efficiency programs and bill assistance. These costs are recovered through a combination of fixed charges, which stay the same every month, and volumetric charges, which vary depending on the amount of electricity or gas a customer uses. The majority of a residential customer’s bill comes from volumetric charges (i.e. the volumetric rate times the amount of electricity or gas consumed), so energy efficiency improvements that reduce consumption are a primary way of lowering bills.
Smart Rate Design Can Accelerate the Clean Energy Transition
As states work to reduce greenhouse gas emissions, utility rates must enable affordable and efficient electrification of our buildings and transportation sectors. In an effort to incentivize customers to electrify their homes, some jurisdictions are considering higher fixed charges and lower average volumetric rates. This would mean that customers who install electric heat pumps, for example, would not be penalized for using more electricity. This may be a promising solution to enable broad electrification, but regulators must prioritize efficient electrification by ensuring that incentives for energy efficiency are preserved and that customers and installers right-size electrification measures and avoid unnecessary or overly expensive system upgrades.
Regulators must also be careful to consider potential knock-on effects for other customers. In the past, stakeholders, including Acadia Center, have rightly (and successfully) pushed back against higher fixed charges, which are unresponsive to changes in customers’ behavior and therefore stay the same no matter what a customer does to reduce their demand, such as installing more efficient lighting or appliances. Higher fixed charges can disproportionately burden lower income customers and create a disincentive for energy efficiency investments, which may become less financially attractive as volumetric charges are replaced by fixed charges.
At the same time, customers with rooftop solar may face different incentives, and rate designs that work in favor of electrification may have unintended negative consequences for those net metering customers. As fixed charges grow, the value of rooftop solar and the payments received for exporting excess power to the grid may decrease. As regulators consider the allocation of costs between fixed and volumetric charges, they must be sure to prioritize equity and affordability, while preserving sufficient price signals for energy efficiency and other distributed energy resources like rooftop solar and battery storage.
Although the rates paid over time for the electricity a heat pump or electric vehicle uses (i.e. the operational costs) are an important piece of the decision to electrify, the upfront costs of installation are perhaps an even greater barrier to customer adoption. States should pursue both rate design solutions and efforts to improve the upfront economics of electrification.
In designing rates to enable affordable electrification, regulators should explore all possible methods to help customers manage utility bills and reduce their energy burdens. This includes a broad set of solutions, such as low-income discount rates, as well as more comprehensive approaches, such as Percentage-of-Income Payment Plans, which cap energy costs as a percentage of household income (e.g. so that customers pay no more than 6% for energy, for example). Increased access to programs such as community solar can also help to reduce bills.
States in Northeast also have lots of room for growth in implementing rates that more closely track the changes in energy prices throughout the day. By creating an incentive for customers to adjust their demand throughout the day in response to clear price signals, time-varying rates can help customers lower their electricity bills while delivering benefits to the grid overall. Time-varying rates can help reduce peak demand, which in turn reduces the reliance on the dirtiest, most expensive sources of power used to meet periods of highest demand. The many consumer and system-wide benefits of electric vehicles, heat pumps, and other distributed energy resources cannot be fully realized without the use of time-varying rates.
The demand flexibility that time-varying rates enables—much of which can be automated—will become increasingly important as more renewable resources are deployed and more customers electrify. As regulators consider rate reforms to support affordable electrification, they must focus on making the transition as easy as possible for customers, providing actionable price signals that accurately capture the benefits of clean energy, and avoiding situations where customers are financially worse off if they choose to electrify.
As electrification becomes more common, regulators should explore innovative ways to pay for the transition away from gas and identify solutions to break down silos between gas and electric utilities, which can often frustrate electrification efforts. Regulators should pay close attention to the kinds of gas investments that are approved for cost recovery through customer rates. Gas infrastructure can last for decades, which means customers well into the future may still be paying for investment decisions made today, even if that equipment is no longer needed in light of states’ climate targets. Acadia Center is deeply involved in these complex issues in proceedings throughout the region and is focused on ensuring that regulators implement effective rate designs that help advance a clean and equitable energy system.
While rate design alone cannot ensure the success of the clean energy transition, it remains an essential tool that states should not neglect as they pursue a clean energy future.
1 Kimberly Clark, Metropolitan Area Planning Council, Reducing Energy Burden: Resources for Low-Income Residents (2022). https://www.mapc.org/planning101/reducing-energy-burden-resources-for-low-income-residents/
2 As an example of the relationship between gas and electricity prices, see: https://www.eia.gov/todayinenergy/detail.php?id=51158 and https://www.sciencedirect.com/science/article/pii/S2589004223028031#bib36
Myth Busting: Congestion Pricing
Congestion is a policy designed to reduce traffic in the most congested areas of cities by charging vehicles a fee to enter designated areas. Congestion pricing has been successfully used in London and other locations. New York City’s (NYC’s) created the first major congestion pricing plan in the United States. The plan imposes a charge on vehicles to enter the highly congested lower part of Manhattan below 60th Street. The goal of this policy is to decrease traffic volume in the central business district (CBD) of Manhattan, improve air quality and generate revenue for public transportation improvements. Additionally, the plan is intended to improve walkability, capacity for bikes and increase funding for ADA accessibility to public transit, making multimodal transportation safer for everyone in NYC. The program was estimated to generate about $1 billion per year and finance $15 billion for infrastructure projects for the Metropolitan Transportation Authority (MTA), which is in urgent need of improvements to the city’s subway system.
Seemingly everything was in line to start the program, including a state law passed back in 2019 and the approval from the federal government in 2023. But in an unexpected step, New York City’s congestion pricing program has been indefinitely paused by Governor Hochul, just weeks before its planned start date on June 30, 2024. The governor’s office cited concerns over affordability and the cost of living. Additionally, articles like one from Politico suggest that the decision was driven by public polls showing strong opposition to the initiative, especially among voters in the greater metropolitan region and suburbs.
Congestion pricing in NYC presented an excellent opportunity for such a transit-dependent city to keep reducing its collective carbon footprint and improve the quality of life for residents, but opponents to the program seem to perpetuate several myths about congestion pricing that contributed to the program being paused. So, let’s clear up some common myths and get to the facts about what congestion pricing could mean for the city.
Myth: Congestion Pricing Will Hurt the Economy
Fact: Unfortunately, much of the tolling infrastructure needed to implement the program has already been installed in NYC, at a cost of $507 million. Unless the Governor reverses course, this significant infrastructure investment will now go to waste, effectively flushing away taxpayer money. As a direct result of the congestion pricing pause, there is now a $15 billion shortfall in the MTA’s 2020 – 2024 Capital Program. The funds to compensate for this shortfall will now have to be sourced from elsewhere. Some sources like CNN believe it will likely come from increase in taxation either on individuals or on businesses.
NYC’s economy largely relies on public transportation, with 70% of residents commuting by subway, bike or by foot. Most NYC commuters wouldn’t be directly impacted by congestion pricing. Instead, not implementing it deprives public transit of essential funding, hurting the majority who rely on it.
Reducing congestion would also bring significant economic benefits. It improves productivity by decreasing the time spent stuck in traffic. Efficiency in transportation translated to cost savings for businesses that depend on timely deliver and punctuality. Less congestion means lower operating costs for businesses and workers including lower fuel consumptions. Furthermore, cleaner air from fewer emissions can lead to lower healthcare costs, fostering a healthier workforce and community.
Myth: Congestion Pricing Will Hurt Low-Income Drivers the Most.
Fact: According to MTA’s Environmental Assessment, over 91% of low-income commuters do not commute using a car. The vast majority of the commuters who are low-income in NYC rely on public transportation. The data from that Assessment shows that among low-income commuters, 79% use public transit, 8% are vehicles from NY, 1% are vehicles from NJ and CT, and 12% use other means. Highlighting that low-income individuals in the tri-state area are unlikely to be impacted by congestion pricing and more likely to reap the benefits from improved public transit funded by the program.
F urthermore, exemptions and discounts were also planned by the MTA for Low-Income Drivers and for exemptions for Disability. A 50% discount would have been available for low-income vehicle owners enrolled in the Low-Income Discount Plan (LIDP) after the first 10 trips in a calendar month. With additional low-income tax credits for those whose earn a gross income under $60,000 would qualify for a tax credit equivalent to the amount of tolls paid. The Individual Disability Exemption Plan (IDEP) is available for individuals whose disabilities or health conditions prevent them from using transit. This exemption can apply to a vehicle registered to the applicant or a designated caregiver’s vehicle used to drive the applicant in the Congestion Relief Zone.
The suburb commuters who will benefit from halting congestion pricing are also the smallest percentage of commuters. By not implementing congestion pricing, the state is effectively prioritizing the needs of suburban residents over low-income commuters into NYC and the residents of NYC.
Myth: Congestion Pricing is Intentionally Punishing Commuters from Others States Like NJ and CT.
Fact: According to its Environmental Impact Assessment, the MTA found that from all the work trips entering the CBD only 3.2% of them where drivers from NJ and CT. The program also planned to have notable “crossing credits” which are reduced fees for tunnel users from NJ and Long Island. Congestion pricing could motivate CT and NJ to enhance their own transportation systems, directly benefiting their residents and addressing long-standing demands for better commuter options.
Myth: Suspending Congestion Pricing is Inconsequential
Fact: Congestion pricing is a proven and effective solution for reducing air pollution and improving urban living conditions. Congestion pricing tackles critical urban issues like enhancing public transportation, air quality, safety, walkability, or accessibility which are tangible benefits residents can appreciate.
Delaying congestion pricing indefinitely fosters distrust and delays the implementation of a program that is essential to achieving the State’s climate goals. For government to earn trust, it must be consistent. Changing course so suddenly has consequences for many, including state lawmakers who backed the law, government agencies who were counting on the funding and even the construction industry planning for the subway improvements funded by congestion pricing. The $507 million already spent on the tolling infrastructure risks appearing to be wasted, leaving many constituents feeling distrust of the decision-making process.
Recommendations
Acadia Center believes that the economic, climate, quality of life and equity benefits of the NYC Congestion Plan are clear and powerful. Gov. Hochul and other state and city leaders should work together now to implement a congestion pricing plan, avoid massive interruptions in funding needed for transportation infrastructure and send the right price signals around over reliance on cars in urban areas.
Join the Conversation
We encourage you to share your thoughts and questions about congestion pricing. Let’s work together to create a better, more sustainable tri-state area.
Paola Moncada Tamayo
Policy Analyst
ptamayo@acadiacenter.org
212-256-1535 ext.204
It’s time to talk about what decarbonization will cost
According to a 2022 poll, three-quarters of Massachusetts residents see climate change as a “very serious” or “somewhat serious” issue for the state to address. But if we’re to have any success at responding to climate change, we have to begin thinking about it as not only as a technical, behavioral, and infrastructure challenge – designing more efficient and cost-effective wind turbines and solar panels; getting more people to accept heat pumps; and building out the grid to move the power needed for all the EVs and air source heat pumps we expect to come on line – but as a major financial challenge for the state as well.
It is conservatively estimated that just converting all existing residential gas and oil heating systems to air source heat pumps will cost over $25 billion. Decarbonizing all customer sectors will require many billions more.
The challenges are so multi-dimensional that it can be hard to get all of the relevant stakeholders to focus on the many solutions we need to develop. But we believe the financial challenges have perhaps received the least attention. After all, we have the MassSAVE program to address customer behavior. We have major programs for the state to procure massive amounts of wind power. The price of solar panels is projected to decline by 40 percent between now and 2028. And the pending climate bills will squarely address the need to expedite infrastructure siting.
A relatively new coalition, the Commonwealth Coalition for Decarbonization, is pressing the Legislature to pass language that would require the administration to take a first, essential step regarding the financial challenges to reaching our mandated climate goals. Separately, but moving in a similar direction, the MassSAVE “program administrators” (the state’s electric and gas utilities, and the Cape Light Compact) are also developing an estimate of the funding that will be required to meet our climate goals. Simply put, there currently isn’t enough funding.
We know how much carbon we emit, with reasonable accuracy. We know how much carbon we need to stop emitting. We know much about the carbon-free resources we need to procure. Now we just need to know the cost to the Commonwealth.
Once we know what is available from all actual and likely sources and what the cost will be to achieve our goals, we’ll know how much more funding needs to be procured. At that point, we can begin the difficult work of figuring out how to pay for our climate plan. Without that information and funding, we will hit a dead end.
The 14-member Commonwealth Coalition for Decarbonization includes advocates from low-income non-profits, environmental groups, labor, and the utilities who participate in MassSAVE as well as others. Despite our quite diverse interests, we all work together to move the state in the direction of implementing practical policy approaches and solutions. We hope to monitor progress toward the ambitious climate goals that the Legislature has set, and especially keep banging the drum about getting more information about available and needed funding.
Much is being done to drive uptake of energy efficiency measures and decarbonization investments. But until we know where we stand on the funding need, we will be unable to sustain the efforts needed to maintain Massachusetts as a leader in the country in addressing climate change. We have decades of important and challenging work ahead of us.
Charlie Harak is a senior attorney at the National Consumer Law Center. Kyle Murray is director of state program implementation at the Acadia Center, a nonprofit climate advocacy group.
Originally published in CommonWealth. Click here to read it there.
Navigating Home Weatherization with Acadia Center
We all want our homes to be safe and temperature-controlled, and for our energy bills to be lower. However, making your home more energy efficient can feel like a complicated – and expensive – undertaking. As a first-time homeowner, I felt intimidated when I set out to make my 1950s Cape more energy efficient, but I found a place to begin that was easy, effective, and didn’t break the bank thanks to my state’s incentives – weatherization.
Weatherization includes multiple efforts to make homes more energy efficient by preventing air leakage to reduce energy consumption and optimize energy efficiency. Everything from insulation to replacing windows and doors, to utilizing caulk to better seal air leaks around vents can fall under the umbrella of weatherization. According to Energy Star, air leakage accounts for between 25 percent and 40 percent of the energy used for heating and cooling in a typical residence. By plugging up those leaks, our heating and cooling systems have an easier time keeping our homes comfortable, and our energy bills reasonable throughout temperature spikes and drops.
The first step I took to weatherize my home was looking into any incentives given by the state that could help me foot the bill for the cost. As a resident of Massachusetts, a small part of energy bills are already going towards a program called MassSAVE, a collaboration of Massachusetts’ electric and natural gas utilities and energy efficiency service providers. MassSAVE can give residents who pay in (as most do who don’t live in municipal light plant areas) discounts and rebates on energy efficiency upgrades made to homes through a pool of money provided by utility bill payers. I had already been paying into MassSAVE since I had started paying for the electricity in my first apartment, and I was now able to use those funds in my first home.
Through MassSAVE I had an approved contractor come to my home to give a free energy assessment. He told me that my home contained next to no insulation, which was part of the reason my second floor was so much hotter than my first. He recommended insulation throughout the home, in addition to new weather stripping on our exterior doors. He estimated that these efforts would cost around $5,000 total, but with MassSAVE’s help, we’d only be paying about $1,000 out of pocket. We jumped on the deal immediately and the next week, our insulation was being installed.
The insulation process took about a day, and for the vast majority of the time the contractors were working either on the exterior of the house or in the basement. They were able to remove our siding and install insulation for the exterior of the home, although they warned that not all homes have this option. They did have to drill some holes in our front walls to ensure we were properly insulated, but they patched the holes and cleaned the dust before leaving. In total, the project cost $5,161, and MassSAVE paid for $3,983, meaning we paid only $1,178 out of pocket for a home that uses significantly less energy – and a noticeably cooler upstairs too.
MassSAVE incentives are also available for renters. Renters are eligible to receive rebates for energy-saving appliances and products, like room air conditioners, room air purifiers, advanced power strips, dehumidifiers, and more. Renters may also coordinate with their landlords to use MassSAVE incentives to make larger upgrades throughout their buildings.
And for non-Massachusetts residents, weatherization is also within your grasp! Most states have some kind of energy efficiency incentive program, such as Efficiency Maine or Energize Connecticut. In Rhode Island, the State Office of Energy Resources provides rebates and incentives for processes like what I did in my home.
There are many steps one can take on the road to energy efficiency – next on my path might be heat pumps or solar panels – but weatherization efforts are an important and often necessary first step. Even purchasing caulk and weatherization strips to install yourself can go a long way toward making your home more comfortable while driving your energy bill lower. The most important lesson I learned from this experience is that there are resources out there to make this process simpler! Don’t let the potentially complicated world of efficiency stop you from taking the first step.
If you are looking to do energy efficiency work in your home, you can always consider Acadia Center to be a resource. We would be happy to provide you with more information and insights into the processes of weatherization and electrification.
Opinion: No, heat pumps won’t break CT’s grid
A recent CT Mirror op-ed presents a misleading picture of the impact that electric heat pumps will have on Connecticut’s electricity system.
Moving customers off fossil gas by electrifying homes and businesses with appliances such as heat pumps will be a key component of achieving Connecticut’s climate and clean energy requirements. While major investments in the grid will be necessary over the coming decades, we must move quickly to upgrade the grid while simultaneously installing heat pumps, moving to electric vehicles, and deploying other advanced clean energy technologies.
The claim that “[too] many heat pumps would bring grid failure” to Connecticut is a misleading message at a time when there is an urgent need to rapidly electrify our buildings. The grid must undoubtedly expand to facilitate the decarbonization we need across buildings, transportation, and other sectors of the economy. But there are many solutions that can make grid operations more flexible and mitigate the expected demand growth.
Battery storage and demand response, for example, can help reduce strain on the grid by shifting load to different times of the day to avoid peak periods and to match surplus, low-cost renewables. When paired with automated controls, distributed energy resources can provide flexible, behind-the-meter resources that meet customer demand while easing congestion and driving down costs. And grid-enhancing technologies (GETs) can better optimize the power flowing through transmission and distribution lines, avoiding the need for expensive upgrades.
Electric heat pumps are not just the “energy fad of the day.” They will be an essential component of the clean energy transition and are already bearing fruit. For example, in 2023, Maine exceeded its 100,000 heat pump deployment target two years early and created a new target of an additional 175,000 heat pumps by 2027. And that is in a state whose population is almost a third of Connecticut’s.
Although Connecticut is still in the process of updating its Comprehensive Energy Strategy (CES), we can look to the results of recent decarbonization studies in other states to understand the critical role that rapid deployment of heat pumps plays in achieving ambitious climate targets.
The Massachusetts Clean Energy and Climate Plan (CECP) for 2050 offers a helpful picture of the potential pathways that are available to Connecticut for meeting its emissions reduction goals. The CECP study modeled the “least-cost pathway to achieve net zero in 2050” and concluded that widespread electrification of buildings and transportation was the cheapest way to decarbonize the state’s economy.
The least-cost scenario calls for 80% of homes in Massachusetts to install a heat pump and for 97% of light-duty fleet to be electric by 2050. Despite significant anticipated electric load growth by 2050 — and the need for grid investments to support that electrification — this scenario was still found to be the most cost-effective path to achieving the state’s decarbonization goals. By electrifying buildings and transportation sectors, we can achieve the lowest cost solution to addressing climate change while also creating thousands of full-time jobs and delivering significant health benefits to Connecticut’s residents.
Biodiesel and renewable propane are not the answers to our energy challenges. Biofuels have widely varying lifecycle greenhouse gas emissions that are highly dependent on the feedstocks used to make them. The problem with biofuels as a building decarbonization solution is that the supply of climate-beneficial biofuels derived from waste feedstocks, like used cooking oil, is extremely limited. We’ll need that limited supply of beneficial waste-derived biofuels to decarbonize the most challenging industries to electrify, such as aviation and shipping.
Today, the majority of biofuels are made from energy crops like soy and corn that provide little to no climate benefit. Biodiesel derived from true waste products represents only a tiny sliver of overall biodiesel production. There is no way to scale waste-derived biofuels at anywhere near the levels necessary to function as a viable building decarbonization solution.
Moreover, the claim that “Conservation — not conversion — is the only proven method to lower emissions and costs” is misleading. Even if nothing changed in terms of the resources that provide electric power, heat pumps would help to reduce emissions. Because heat pumps move heat rather than generate heat, they are highly efficient and are more than three times as efficient as the best fossil gas units.
While the most cost-effective pathway to addressing climate change may drive increased electricity use, analysis from our grid operator, ISO-New England, highlights the critical role that energy efficiency and behind-the-meter solar will play in helping to mitigate this increase in electricity consumption. As such, both “conservation” and “conversion” will be necessary for supporting Connecticut’s energy transition.
Connecticut needs to rapidly electrify its buildings and transportation systems. By shifting away from the combustion of fossil fuels in our homes and businesses, we can unlock major financial and health benefits for families, businesses, and the grid overall. Delaying this transition is not an option.
Oliver Tully is Director, Utility Innovation and Accountability; and Jayson Velazquez is a Climate and Energy Justice Policy Associate at the Acadia Center.
To read the article from CT Mirror, click here.
Tackling Building Emissions at the Rhode Island Legislature in 2024
The Act on Climate requires statewide emissions reductions of 45% below 1990 levels by 2030, 80% by 2040, and net-zero emissions by 2050. While Rhode Island has seen recent policy wins in the electric and transportation sectors, the state is not on track to meet the mandated targets in the Act on Climate and lacks a plan to reduce emissions from buildings. Buildings in Rhode Island, specifically accounting for residential and commercial heating, are responsible for nearly 30% of our state’s greenhouse gas emissions. To meet the Act on Climate mandates, we must tackle the transition of our building sector away from fossil fuels. This requires meaningful investments in energy efficiency in tandem with the rapid electrification of our heating and other appliances.
That’s why, in Rhode Island, Acadia Center’s top legislative priority is the Building Decarbonization Act of 2024 (H7617/S2952), which will begin to tackle carbon emissions in both existing and new buildings. Acadia Center partnered with Green Energy Consumers Alliance, the Institute for Market Transformation and the U.S. Green Buildings Council, along with legislative sponsors Senator Meghan Kallman and Representative Rebecca Kislak, to develop and advance the content of the act. In 2024, the Building Decarbonization Act merges previous benchmarking and all-electric new construction bills, and incorporates modifications suggested by the Office of Energy Resources (OER) and other stakeholders.
Acadia Center’s advocacy has centered on strengthening relationships and identifying solutions to address housing and electricity affordability, both in the Building Decarbonization Act and more broadly throughout its work.
How does the bill tackle building emissions?
First, the bill proposes benchmarking for large existing buildings, requiring the tracking and reporting of energy usage in large public buildings and then private buildings in two phases. Equipped with a better understanding of their utility bills and energy consumption, building owners can then leverage data to make cost-effective investments that will save them money and reduce their energy usage and thus emissions. Following three years of collecting baseline data, the bill proposes that OER create a building performance standard to guide these large building owners through setting long-term energy reduction and emissions targets. The act targets the largest buildings to gain the greatest impact when it comes to potential for energy and emissions reductions.
Second, the bill proposes multiple tiers of all-electric new construction, from electric-ready requirements to requirements for public buildings, followed by enabling the local approval of all-electric requirements, and ultimately requiring that all new construction statewide be all-electric, with some exceptions for commercial and industrial uses. While only a small proportion of Rhode Island’s building stock is new construction, the act ensures that new buildings take advantage of the most energy efficient technologies, avoid stranded infrastructure ‘lock-ins,’ and lead the way to a fossil fuel free future. For public projects, the bill includes provisions for apprenticeship programs and project labor agreements above a certain threshold.
What is the status of the Building Decarbonization Act?
House Bill No. 7617 was introduced and referred to the House Environment and Natural Resources Committee on 02/15/2024. The House Environment and Natural Resources Committee heard the Building Decarbonization Act on the evening of Thursday, March 21st, alongside the Clean Heat Standard and a wide range of other bills related to resilience, chemical reduction, and other topics. Acadia Center’s Emily Koo introduced the content of the bill alongside the sponsor, Representative Kislak, prior to offering verbal testimony. A wide range of local and national advocacy groups and residents expressed strong support for the Building Decarbonization Act with written and verbal testimony.
In partnership with Green Energy Consumers Alliance, Acadia Center has lobbied members of the House and Senate and garnered support for the Building Decarbonization Act among diverse stakeholders, from housing nonprofits to construction companies. Key goals have been demystifying myths about the bill and discerning the unique benefits and hurdles of benchmarking and building all-electric in Rhode Island.
Senate Bill No. 2952 was introduced and referred to the Senate Environment and Agriculture Committee on April 5th, 2024. The Senate Environment and Agriculture Committee will hear the Building Decarbonization Act on Wednesday, May 1st, beginning at 4:30 PM, alongside the Clean Heat Standard and many other environmental and energy-related bills. The Senate hearing is another important opportunity to demonstrate to legislators the importance of tackling building emissions this session.
How can you help?
If you’re a Rhode Island resident, we encourage you to contact your state representative and state senator to highlight your support for the Building Decarbonization Act of 2024 (H7617/S2952) and the importance of tackling carbon emissions in both existing and new buildings. The Building Decarbonization Act has also emerged as a top priority of the Environment Council of Rhode Island.
Supporters are also strongly encouraged to submit written testimony to the Senate Environment and Agriculture Committee and to attend the hearing in-person on Wednesday, May 1st to show support. The Committee agenda is available here. Written testimony must be submitted prior to 3:00 PM on Wednesday, May 1st to SLegislation@rilegislature.gov. Be sure to include your name, organization (if relevant), and your support for S2952. Green Energy Consumers Alliance offered these helpful resources for the Housing hearing, with templates for written testimony and tips for coming to the State House. Contact Acadia Center’s Rhode Island Program Director, Emily Koo, ekoo@acadiacenter.org, for any questions about showing your support for the Building Decarbonization Act at Wednesday’s Senate Environment hearing or beyond.
Resources
Building Decarbonization Act Summary
Facts and Myths about the Building Decarbonization Act in RI
Acadia Center Testimony in Support of Senate Bill 2952, the Building Decarbonization Act of 2024
NESEA’s 2024 Building Energy Boston Conference – Echoing the Importance of Resilience in Climate Solutions
The impacts of climate change have become dramatically more adverse in recent years. From extreme heat and disastrous wildfires to severe flooding and melting ice sheets – the list goes on. A recent collaborative study by Berkeley National Laboratory and the University of Michigan supports the idea that these extreme conditions will continue to worsen as time passes. Increasingly, and despite inroads being seen on decarbonization nationally and internationally, the built environment will not be spared by the harmful impacts of the changing climate.
A timely conversation to address climate impacts and prepare communities to be more resilient was recently put together by the Northeast Sustainable Energy Association (NESEA). With the theme, Climate Resilience, NESEA convened policymakers, design and construction workers, representatives from government agencies, and others from the climate and energy sector to brainstorm solutions to the dire and urgent demands of climate in the building sector.
As Acadia Center’s Environmental Justice & Outreach Manager, I attended the two-day Building Energy Conference from March 19 through March 20. I was part of the 26-member content committee that curated and supported almost 50 seminars presented during the conference. Two keynote addresses on Climate Change: What Will You Do when Your Project Floods? and The Power of Systems Thinking: Designing Equitable and Resilient Infrastructure were presented on the two consecutive days of the conference, ensuring that solutions brainstormed resonated with the theme of the conference. I supported two seminar sessions on Virtual Microgrids in Low-Income Communities and Tools for Inclusion in the Workplace, leveraging my understanding of equity and environmental justice policy and her experience in workplace diversity, equity, inclusion, and justice practice.
As recent as two years ago, Acadia Center developed a thorough report to summarize carbon emissions resulting from uninsulated low-quality housing in the Northeast. Overall, direct building sector emissions make up a significant portion of emissions in the northeast – a close second behind transportation sector emissions. Aside from the contribution to greenhouse gas emissions, buildings also contribute significantly to indoor air quality, making it a climate change concern and a public health issue. As a result, NESEA’s conference on Climate Resiliency in the building sector has brought this much-needed conversation to light.
Acadia Center is proud to work with our partners and other stakeholders in the building sector. We will ensure that our work strives for rapid emissions reductions from this sector in the coming years and decades ahead.
The Planning Process for NESEA’s 2024 Building Energy Conference in NYC is ongoing with calls for proposals. Visit https://nesea.org/conference/buildingenergy-nyc-2024 for more information to participate and support.
Restructuring for Net Zero – A More Unified Future Vision Emerges
Acadia Center’s President, Dan Sosland, was pleased to participate in the March 2024 Restructuring Roundtable event in Boston. The now decades-old convening that brings together key energy thought-leaders and stakeholders for timely discussions on the evolving market, technology, and policy landscape in New England. Borne out of the electricity industry restructuring of the late 1990s, it is fitting that the ‘restructuring’ title is still being used for these gatherings, as the ‘i-n-g’ ending connotes a process that is still actively unfolding today – nearly 30 years later. This convening focused specifically on wholesale electricity markets and the bulk power system in the region.
From all the presentations that were featured at the event, it is clear that the region is entering a new chapter in that restructuring journey – a future 2050 state coming into greater clarity, significant market changes currently in the works, and new challenges emerging that must be overcome together. Refreshingly, the conversation reflected a growing consensus about the future 2050 grid that the region must plan for and seek to achieve:
- Abundant clean energy resources like solar and wind delivering the majority of energy on an annual basis and dominating annual capacity additions onto the grid;
- Increased transmission to deliver new resources, such as offshore wind, better interconnect neighboring regions, and further unbottle/optimize contributions from resources already shaping daily and seasonal load profiles, such as distributed solar;
- Greater utilization of new solutions such as grid enhancing technologies (GETs) to help meet the imperative of consumer affordability and squeeze as much out of our existing grid as possible
Acadia Center has been examining leading economy-wide analyses for decarbonization in New England, and it has assembled the following comparison to demonstrate just how significant these changes will be to the mix of generation resources serving the New England grid – and how glaring the gap is between where the region is today and where it needs to be in less than three short decades.
On the left above, you see the 2023 generation mix for ISO-NE in the inner circle, compared to how this generation mix must evolve by 2050, according to the MA CECP. (Neither of these includes imports). The takeaway? The region must move from 55% natural gas today to 85% solar and wind by 2050, in terms of annual MWh. On the right, Acadia Center compared findings on 2050 installed capacity (MW) from five prominent studies of deep decarbonization in the New England region, from Princeton, Brattle, and Energy Futures Initiative (EFI) to two studies from state processes – the MA Clean Energy and Climate Plan, and the DPU 20-80 modeling. Across these, Acadia Center has taken a look at their high electrification scenarios for an apples-to-apples comparison, although you see nonetheless some notable differences in projections for in-region build-out. Regardless of these differences, all these studies find a need for a substantial growth in installed capacity, growing from roughly 30 GW today to at least 120 GW by 2050, possibly up to 160 GW or higher. This is the glaring gap the region faces. As a region, we must build more than 30 GW of solar and more than 20 GW of offshore wind across all studies, likely more. The studies do foresee notable amounts of fuel combustion capacity remaining online, despite very low production from those resources.
To realize this future state, the region’s wholesale electricity markets must be reformed to accommodate such major influxes of new clean resources at the scale and timeframe needed. ISO-NE presented on the proposed shifts to a prompt and seasonal capacity market from the current Forward Capacity Market construct, and other presenters focused on the parallel resource capacity accreditation (RCA) process underway. Both are major capacity market design reforms, and we argued that these processes must fully value clean energy resources for the benefits they provide (including, e.g., fuel saving during peak periods) and allow for swift and reliable market entry – which also ties into interconnection reform. We highlighted the recently finalized Gulf of Maine wind energy area (WEA) from the Bureau of Ocean Energy Management (BOEM) to underscore that these volumes of new clean resources – 30 GW in this case – are eminently feasible from a technical potential standpoint, so the region’s markets must adapt and evolve as a result.
The discussion turned next from the electrons to the poles and wires – the state of the future grid the region will need to match growing influxes of clean supply with growing electric demand from buildings and transportation. Dan went on to emphasize the importance of GETs, underscoring that consumers are currently missing out on big benefits and cost saving opportunities by failing to adopt GETs at scale. The figure below from an Idaho National Lab study on GETs in ISO-NE shows the costs and benefits associated with each of the technology strategies, with the GETs toward the bottom and the traditional upgrades in the longer red bars. Each of the GETs options has a payback period in months (not years) regardless of the metric used to assess. The study found that Power Flow Controls (PFC) and Dynamic Line Ratings (DLR) together can be better than each individually. The bottom line: GETs are a cheaper, quicker, and higher value option to traditional upgrades.
Dan also highlighted transmission asset condition projects (ACPs) as another major low-hanging fruit, with a need for tariff reform. Acadia Center strongly agrees with the spirit of the NESCOE letter to transmission owners on these ill-governed projects:
“…the process by which Asset Condition Projects are developed by NETOs, reviewed by ISO-NE, states and the public, approved for rate recovery, and considered in overall transmission system needs and planning is antiquated and ultimately, inadequate. It is the right time to implement planning process improvements to protect consumers from excessive costs and to maximize the use of all transmission assets by moving Asset Condition Projects from the current siloed, notice-based method into meaningful and holistic transmission system planning.”
Finally, Dan touched on a big missing piece of the puzzle, long overdue for incorporation: improved interregional grid planning and coordination. This requires broadening the discussion beyond the six New England states to reach into New York and into Eastern Canada, the other jurisdictions that compose the Northeast Power Coordinating Council (NPCC) region. Specifically, we took the opportunity to highlight our Northeast Grid Planning Forum (NGPF) project, which is seeking to bring not only these states and provinces together but also the community stakeholders and clean energy market participants who must necessarily have prominent voices in this collaboration. To us, the benefits of this interregional opportunity make it a highly logical priority:
If you missed the Roundtable discussion, slides and recordings from the presentations are available online here. Acadia Center thanks both Raab Associates and our fellow presenters at NPCC, ISO-NE, Connecticut DEEP, the Massachusetts AGO, LS Power, and Vineyard Offshore for an engaging and lively discussion. It’s time to get to work to make this future vision a reality for New England the northeast.
Unaddressed Energy Burdens Are Threatening the Clean Energy Transition
In addition to being an incredible burden upon residents, heavy energy burdens, defined as the percentage of a household’s income spent on home energy bills, also threaten the clean energy transition. Generally speaking, the operational costs of an air-source heat pump end up being less than many existing alternatives, such as fuel oil, propane, or electric resistance heating. However, in cases where electricity prices are high and fossil gas prices are low, and without supplemental relief, it can be difficult to ask an already energy burdened household to switch to a heat pump, even if the swap were to happen at no cost. Therefore, in order to meet our climate goals, it is absolutely crucial to equitably address energy burden as well.
Thankfully, we are starting to see a number of jurisdictions take steps to combat this issue. For example, several states, such as New York, California, and Ohio, have implemented forms of Percentage of Income Payment Plans (PIPP) for certain residents or established policy goals around what constitutes an acceptable/unacceptable energy burden. A PIPP can directly alleviate energy burden by limiting a monthly payment to a certain percentage of income, often between 4-6%. Other states, such as Massachusetts, are looking at things even more comprehensively.
On January 4, 2024, the Massachusetts Department of Public Utilities (DPU) opened an inquiry into energy burden with a focus on energy affordability for residential ratepayers, DPU 24-15. In this docket, the DPU is soliciting input from stakeholders, including members of the public, advocates, and DPU-regulated entities to allow the DPU to “consider improvements to the programs currently offered to address energy affordability, to ensure maximum participation in each of these programs, and to determine whether additional programs may further benefit residential ratepayers of the Commonwealth’s electric and gas distribution companies.”1 As part of this effort, the DPU released a broad list of questions and sought comment by March 1, 2024.
Acadia Center’s comments focused primarily on utilizing a PIPP approach versus potentially using a tiered discount approach. As outlined above, utilizing a PIPP focuses directly on limiting utility bill payments to a specific percentage of household income (with additional provisions). A tiered approach, which some jurisdictions utilize, essentially creates income brackets for which a ratepayer can qualify. At each different bracket, there are different levels of benefits/rate relief. Unfortunately, this approach to benefits has a potential drawback known as the “cliff effect.” Put simply, if a household in a particular bracket but close to the limit rises even a single dollar over the limit, they potentially could lose out on significant benefits. As such, Acadia Center also advised the DPU to avoid the “cliff effect” in any of its policies. Additionally, as part of its recommendations regarding PIPP, Acadia Center also specifically recommended utilizing a 6% income cap, a benchmark that is emerging as a commonly accepted standard for energy burden. In addition, we underscored PIPP program design elements – such as caps in consumption – that can preserve the incentive to conserve energy and the benefits of energy efficiency. Beyond PIPP, Acadia Center also advocated for auto-enrollment in the discount rate, energy affordability programs reflecting seasonal fluctuations in energy use, and placing the costs of the discounted rates upon high energy-use and higher-income households.
Acadia Center also worked with a broad array of stakeholders, including housing advocates, environmental organizations, and environmental justice advocates, to produce a set of coalition comments as well. These comments did not specifically address the questions raised by the DPU and instead focused on broad issues surrounding energy affordability. For example, it notes that existing structural inequities aggravate energy burden amongst certain customers. It also highlights that race is a major factor in determining the likelihood that a household will experience energy insecurity. The coalition letter further emphasizes that this cannot be the end of this process, and additional in-depth analysis will be required.
The steps after this point in DPU 24-15 are not currently clear. However, Acadia Center is confident that the DPU will ensure a robust and transparent process that incorporates a broad swath of stakeholder input and prioritizes environmental justice and equity. We look forward to bringing further analytical review to this important proceeding as it progresses.
1 DPU 24-15, at 1.
For more information:
Contact: Kyle Murray, Director, State Program Implementation, kmurray@acadiacenter.org
Opinion: Performance-based regulation of utilities is key for CT’s energy future
At the direction of the General Assembly, Connecticut’s Public Utilities Regulatory Authority has been at the forefront of innovation, overseeing a comprehensive analysis of a Performance-Based Regulation (PBR) framework for our electric utilities.
PBR 一 a modern approach to regulating utilities that moves beyond outdated policies一 is designed to ensure utilities are responsive to public policy priorities and are operating most efficiently on behalf of customers.
This approach makes the utilities partners in reducing costs and can accelerate the achievement of Connecticut’s environmental and climate goals by supporting a clean and affordable energy system. Connecticut is not unique in examining the potential of PBR to improve utility performance. Several jurisdictions around the country have adopted this model, and others are looking to Connecticut’s proceeding as a potential model for their own efforts. We commend PURA for its leadership in moving PBR forward in Connecticut.
Under traditional utility regulation, utilities make money by getting a guaranteed rate of return (as high as 10% in the Northeast) on capital expenses such as poles, wires, and substations. This made sense when the electric grid was brand new and needed to expand rapidly in order to bring electricity to millions of homes. Today, with a mature and technologically sophisticated electricity grid, this approach no longer serves customers.
More efficient solutions like non-wires alternatives such as energy storage, demand response, and distributed solar generation, do not provide an additional rate of return (i.e. earn extra money), so utilities have a clear incentive to continue building and upgrading their infrastructure in a traditional way 一which can end up more financially attractive for the utility but more expensive for customers. Simply put, under traditional regulation, utilities need to spend money in order to earn money.
At the same time, utility performance is traditionally measured using a limited set of metrics around safety and reliability, with little consideration of customer satisfaction or how well the utility is planning for the inevitable clean energy transition. This incentivizes utilities to play it safe when planning for the future, erring on the side of overestimating demand growth, underestimating distributed energy resources, and underutilizing non-capital solutions 一 all of which leads to customers footing the bill for an overbuilt energy system.
Very little progress in innovation in utility compensation has been made. Utilities are still operating under a framework that was established at the turn of the 20th century.
Utilities in Connecticut need to be encouraged financially to align their actions and business decisions with the state’s policy goals 一 such as reducing greenhouse gas emissions, protecting customers, and promoting environmental justice. Performance-Based Regulation ties utility earnings more directly to their performance, such as reducing ratepayer costs and emissions or supporting the deployment of distributed energy resources. By advancing a PBR framework, PURA is helping to realize these goals and is establishing Connecticut as a leader.
By allowing regulators to better align utility revenues with improved performance, PBR can help overcome outdated incentives and reorient utilities towards solutions that can save customers money and deliver additional benefits compared to traditional investments, including electric system resilience in the wake of recent post-storm power restoration challenges.
PURA has expressed a commitment to exploring a broad set of potential regulatory tools to support the PBR goals that stakeholders agreed to as part of the proceeding: improving utility operational performance; supporting public policy goals; empowering customers; and enabling reasonable, equitable, and affordable rates.
Throughout the proceeding, however, the utilities have consistently expressed skepticism and raised fears that PBR will jeopardize their businesses. These concerns are unsupported and are a distraction from the overdue effort of modernizing utility regulation for a meaningful and positive impact for customers. Rhode Island, Massachusetts, and New York have already employed performance incentive mechanisms and other PBR tools. Now, Connecticut has the opportunity to go beyond those states and demonstrate the full potential of PBR to the rest of the country.
Since taking the reins at PURA in 2019, Chair Marissa Gillett has overseen an impressive suite of regulatory dockets designed to improve the utilities’ distribution system planning and establish greater responsiveness and public transparency. PURA’s Equitable Modern Grid proceedings have established a framework to advance energy affordability, improve grid resilience and reliability, and support the cost-effective transition to a decarbonized future. PBR is important for establishing a firm foundation upon which these transformative initiatives can continue to flourish. Rather than stick to the status quo, Chair Gillet has embraced the challenge of evolving the regulatory space to meet the needs of today. Her leadership is helping Connecticut succeed in achieving the ambitious and imperative energy goals that will take us to a cleaner, more just future.
Utility shareholders cannot continue to dominate the conversation about Connecticut’s climate and clean energy future. The role that utilities play in advancing the public policy goals established by the legislature must evolve so that they no longer create barriers to a clean energy transition, but act as true partners in enabling a healthier and more affordable future. We applaud PURA for its efforts in making this vision a reality.
Oliver Tully is Director of Utility Innovation and Accountability at the Acadia Center. Charles Rothenberger is a climate and energy attorney at Save the Sound.
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