Challenge

One of the largest barriers to effectively addressing energy affordability challenges is a lack of publicly-accessible data about 1) the specific drivers of utility expenditures, 2) how these expenditures are translated into rates for customers, and 3) the populations most affected by high energy cost burdens. Both the drivers and impacts of energy unaffordability vary significantly by region and utility, such that any portfolio of solutions must be tailored to local conditions. In many cases, however, the specific drivers of utility spending are not characterized in a sufficiently detailed way in utility reporting to identify areas where there are opportunities to reduce costs—such as how much money is being spent on utility lobbying and public-image ads, or the transmission upgrades being implemented to interconnect new data centers. In turn, there is often limited transparency about which of these costs is being passed onto which classes of customers within rate cases. And finally, households facing high energy cost burdens may be affected by a variety of factors—not only the utility rates, but also household-specific details such as their access to energy-efficient appliances or their renter status.

Policy Solution

State legislatures or other bodies can allocate funding for a study on the drivers and impacts of energy unaffordability to develop better policy and regulatory solutions. Such studies should ideally be repeated on a regular basis such that the effectiveness of solutions can be measured against a clear baseline and new drivers identified.

Model Policy Features

A state-mandated study to characterize the drivers and impacts of energy affordability would include the following features:

• An early and recurring community outreach and stakeholder engagement process to ensure the study addresses community priorities and concerns.
• Early and recurring coordination with agencies (such as the utility commission or energy agency) working on relevant regulations or programs, to garner input on study design, access agency data, and identify study outcomes that would support agency efforts on energy affordability. Coordination with regional grid operators may also be required.
• A requirement that utilities share spending, rate-allocation, and sales data at a sufficiently granular scale to be meaningful, with appropriate privacy protections in place.
• A study design that addresses three central questions:
  • Utility spending: What are the specific components of utility spending, broken down into highly differentiated categories (not just generalized buckets such as transmission and distribution investments and operational costs)? Which of these are projected to increase (e.g. hardening the grid in the face of climate change) or introduce the most exposure to potentially high prices (e.g. volatile fossil fuel prices)?
  • Bill analysis: How are these utility spending components passed on to customers through rates and realized in bills—by customer class, including for fixed and volumetric charges, and specifically for low-income households? 
  • Household energy cost burden analysis: What are the energy cost burdens faced across the state or utility territory—broken down by category such as income level, homeowner or renter status, household size, demographic characteristics, and building type—and where are these likely to increase in the coming years? This analysis should also identify where home decarbonization measures—such as efficiency or electrification—may be most useful for reducing bills.  
• The study recommendations should identify the specific utility spending areas and household policy or programmatic intervention areas that should be prioritized or explored in more detail in follow-on programs, proceedings, or policies; the study itself could include an analysis of the potential for specific programs and policies to affect energy cost burdens, or this analysis could be conducted in subsequent studies targeted at priority drivers or impacts.
• The study findings should be summarized in such a way that they can easily align with policy or program design—such as low-income energy efficiency programs, or distributed energy resource investments—and provide the basis for subsequent utility commission proceedings, energy agency incentive development, and other solutions.
• The study should be used as a baseline from which subsequent studies can measure changing energy affordability trends and the effectiveness of any policy interventions; the data can, for example, feed into utility Performance Incentive Mechanisms [hyperlink PBR] to achieve energy affordability goals.

Potential Policy Drawbacks and Pitfalls

• Utilities may argue to keep certain areas of spending private for reasons of competitiveness.
• Evaluating household energy use and demographic data requires careful policy considerations to protect customer privacy, requiring data to be aggregated and anonymized—and there may be barriers to accessing such data at all. In such cases, energy cost burdens may have to be modeled, reducing study accuracy.
• Some costs may be dependent on decision-making at different jurisdictional levels—such as capacity prices set at the multi-state grid operator level—that may therefore be difficult to resolve at the level of the study (e.g. an individual state) and require a separate set of policies to ensure access to needed data.
• Efforts to address energy affordability, in particular no-regrets policies, should be continued in parallel with any study regarding drivers and impacts and not delayed until such a study is completed.

Complementary Policies

Complementary policies to support the effectiveness of an affordability drivers and impacts study include: 

• Data reporting and transparency to ensure regular and up-to-date tracking of the drivers and impacts outlined in the study.

Performance-based ratemaking to build on the study findings to set meaningful goals for energy affordability and other benefits.