A Multi-state Analysis of Equity in Utility-sponsored Energy Efficiency Investments for Residential Electric Customers
By Tony G. Reames, Ben Stacey, and Michael Zimmerman
State Energy Efficiency Resource Standards (EERS) have emerged across the United States, becoming prevalent in the early 2000s. EERS policies are state laws that require utilities to pursue energy efficiency as a cost-effective energy resource. As a result, billions of dollars have been invested in improving residential energy efficiency. The expressed goals of EERS policies include providing consumers direct economic savings by reducing wasted energy, and indirectly through avoided costs of constructing additional power plants. In 2016 alone, twenty-nine EERS states invested $2.5 billion in energy efficiency programs. While utilities regularly surpass annual energy savings goals required by EERS laws, the distribution of program benefits across subpopulations remains a concern for many stakeholders and energy justice advocates. This study takes a novel approach to examining EERS investments through an energy justice lens, taking the first step to assess distributional justice of residential program investments across socioeconomic groups: low income (or income-qualified) and non-lowincome residents. To accomplish this, we develop a comparison metric, known as the Energy Efficiency Equity baseline (E3b), which estimates equitable utility investment proportionate to the low-income population in the service territory and as a percentage of the total residential energy efficiency investment portfolio. This study captures $5.6 billion of spending by 11 Investor-Owned-Utilities (IOUs) from 2012-2021, located in six EERS states: Connecticut, Colorado, Illinois, Massachusetts, Michigan, and Minnesota. The study reveals various distributional disparities in low-income investments and investment trends among utilities, with most underperforming relative to the E3b. However, recent trends suggest improvement by large utilities. Policy revisions, stakeholder intervention, and utility decision-making is beginning to shift this trend.
- Each state approaches low-income program requirements differently. The two main factors include:
- Low-income program qualifier: State policy approaches define the population that qualifies for low-income programs, setting the equity bar for the Energy Efficiency Equity Baseline.
- Minimum spending requirements: States also define (or do not define) the minimum level to be allocated towards low-income programs.
- Socioeconomic characteristics (the percent of population qualified for low-income programs) vary greatly across utility territories. The proportion of population eligible for low-income programs varied greatly between 2012-2018 and between utilities, from 23% to 45%. In 2018, the range was 17% to 45%.
- The Energy Efficiency Equity baseline (E3b) was developed as a normative baseline metric for utility spending on low-income customers. It effectively accounts for differences in policy approaches, differences in socioeconomic characteristics of each utility territory, and how these factors change overtime. Estimated E3b investments in 2018 ranged from $700,000 to nearly $61 million.
- The E3b was used for several performance indicators:
a. Annual E3b deficit by year: The largest annual deficit was in 2017 with a shortfall of $91 million. In 2021, the planned spending levels result in a smaller E3b deficit of $27 million, despite increases in total residential portfolio spending (low-income plus non-low-income). This reflects substantial shifts in portfolios, emphasizing low-income programs. This also reflects an overall trend across study states towards more equitable allocations of residential energy efficiency program spending.
b. Cumulative E3b deficit: The cumulative E3b deficit for the 11 IOUs in this study reached $585 million (2012-2021), with the largest cumulative deficit for a single IOU at $123 million.
c. Rankings: Normalized for portfolio size, E3b performance rankings on an annual basis and lifetime basis can be found in Table 3.
d. E3b performance is likely due to a combination of factors including: state policy parameters (income qualifiers and spending requirements), as well as utility decision-making. Two notable performances improvements, while associated with regulatory changes, exceeded low-income spending requirements, moving one utility from #11 to #1, in terms of annual E3b performance (2015 to 2018).
- The E3b is a useful metric for evaluating utility performance from an equity perspective. It can be used to compare among utilities and within states, among utilities with small to large portfolios, and utility performance over time. E3b provides flexibility for existing and future variations in state policy approaches, while accounting for the socioeconomic characteristics within utility service territories.
- Results suggest that while most utilities are underperforming relative to the E3b, positive investment trends are estimated into 2021. This is likely the result of a combination of factors: utility decision-making, stakeholder interventions, and state policy adjustments.
- EERS policies aimed at achieving equity in energy efficiency should integrate factors including: socioeconomic characteristics of each utility territory, low-income program qualifiers, proportion of the population qualified to participate in these programs, and the total size of the residential portfolio investment.
- Investment inequities in low-income energy efficiency program investments between 2012 2021 may indicate inequities in direct energy savings benefits for this segment of customers. Although not the focus of this study, this is a topic that should be further studied.
- A comprehensive study across EERS states, capturing both the electric and gas programs, as well as the energy savings achieved, will provide useful insights to policy makers, advocates, and utility companies aiming to achieve greater equity in energy.