Guiding Principles for Next-Generation Performance-based Utility Program Models
Performance-based utility programs are utility energy efficiency programs that deliver energy savings and/or demand flexibility by providing incentives for measured and verified energy and/or demand reductions over a specified time period.
Improving Equity and Inclusion in Energy Efficiency and Demand Flexibility Programs
Southeast Regional Performance-based Utility Programs Workshop Summary
The Alliance to Save Energy’s Active Efficiency Collaborative held a series of regional workshops during September-November 2020 to explore how performance-based utility programs can accelerate deep energy retrofits and enhance demand flexibility, including by enabling the growth of grid-interactive efficient buildings (GEBs). The Southeast region workshop was co-hosted by the Southeast Energy Efficiency Alliance (SEEA) and focused on ensuring that the main output of the workshops, Guiding Principles for Next-Generation Performance-based Utility Program Models, encourage equitable and inclusive program designs. As input to the LBNL GEB Roadmap being prepared by The Brattle Group, this white paper summarizes the takeaways from the Southeast workshop, incorporates input from previous workshops, and characterizes priorities with regard to equity and inclusion in performance-based utility programs.
Because low-income customers lack upfront capital to invest in energy efficiency upgrades, most utility energy efficiency programs are inaccessible to them. Although many utilities have developed low-income programs, they make up a small portion of the full spectrum of utility program budgets: In 2017, low-income programs in the U.S. made up 5% of total utility expenditures on electric demand side management programs and 22% of the total utility expenditures on natural gas. In that same year, one fourth of all Americans and more than two-thirds of low-income households had a high energy burden, which means they spent more than 6% of income on energy bills. In addition, one in three African American households experiences high energy burdens. The current investments and designs of utility programs do not yet address the inequities in funding and access to benefits.
To address the challenges and opportunities for scaling up next-generation performance-based utility programs in a way that encourages equitable and inclusive program design, the Alliance to Save Energy’s Active Efficiency Collaborative—a community of industry leaders, NGOS, and public sector institutions—held a workshop on November 19, 2020. The workshop participants discussed a range of questions (see box) to help define equitable and inclusive utility energy efficiency programs, identify barriers, and develop a path to scaling up those programs. This white paper discusses both barriers and solutions related to the priority themes that emerged from the workshop: program design, customer awareness and trust, and accessibility. The conclusions below reflect a compilation of individual inputs; it does not reflect consensus among the workshop participants.
Active Efficiency Southeast Workshop Discussion Questions:
1. How do you define an equitable and inclusive utility energy efficiency program?
2. What are the current barriers to equity and inclusion in utility energy efficiency programs?
- What factors limit participation and access in energy efficiency programs?
- What are the barriers for underserved customers to achieve deep retrofits?
3. How can utilities and other stakeholders better support equity and inclusion in future energy efficiency programs?
- What barriers limit participation and access to beneficial electrification and grid-interactive efficient buildings, and how can programs be designed to address these barriers?
- How can performance-based programs enable utilities and energy service providers to expand provision of building controls, distributed energy resources (DERs) and grid integration to enhance demand flexibility for all customers?
4. What is the path to scaling up the future implementation of equitable and inclusive programs?
- What resources, enabling policies, and regulatory changes are most needed?
Cost-effectiveness in Program Design and Regulation
A common challenge cited by many workshop participants is that low-income customers generally cost more to serve. For instance, a major energy efficiency renovation for a low-income customer could involve not only new appliances and equipment but also significant weatherization or structural upgrades for safety (e.g. addressing mold, asbestos, pests) due to poor housing conditions. As a result, contractors pursuing the easiest energy savings under an energy-based performance contract model tend to view low-income customers as “low yield” opportunities and are more likely to “walk away” from low-income customers due to health and safety concerns; in the Midwest, for example, deferral rates for residential energy efficiency programs has been estimated at 20-60%.
Compounding this challenge is the fact that many states with energy efficiency resource standards (EERS) are required to focus on delivering savings at the lowest cost per kWh, regardless of the customer served; this requirement does not take into account the costly housing issues faced by many low-income customers. In addition, savings targets and cost tests can create a regulatory burden that caps investment in low-income programs and silos them outside of the larger program portfolio. These frameworks systemically prevent equitable spending across customer segments within a utility’s portfolio of energy efficiency programs.
Addressing issues in existing programs and further scaling up equitable and inclusive programs will require making equity a focal point of program design, implementation, and funding. Achieving equitable outcomes will not be possible if it is an afterthought. Since low-income programs are less appealing to utilities under traditional cost-effectiveness models, the metrics to assess program success need to expand beyond utility cost savings and incorporate equitable distribution of multiple benefits. Regulatory agencies, utilities, and energy service providers should first collaborate to define and measure equity and should develop performance metrics that—in addition to cost savings—include participation by underserved communities and valuation of non-energy benefits such as health and safety.
Achieving more equitable outcomes for utility programs will require more and targeted funding: lack of funding for low-income programs was cited as a key issue by many workshop participants. Even if utilities adjust their spending to administer programs more equitably, limited utility budgets are expected to continue to be a persistent issue. In the meantime, blended or braided program funding (combining two or more funding streams) can help address high contractor “walk away” rates to avoid missed opportunities and lost costs. For example, partnerships between utilities and entities receiving federal funds for weatherization (e.g., Weatherization Assistance Program) or institutions that provide low-cost energy audits can help extend the reach of utility programs.
Customer Awareness and Trust
Customer distrust of utility programs—based on either perception or negative experience—is a significant barrier to energy efficiency program participation in many communities. For instance, unclear messaging has led to a common misunderstanding that the installation of smart meters raises customer bills, and many customers fear being severely inconvenienced by the increased utility control associated with time-of-use (TOU) rates in demand flexibility programs. Some distrust also stems from negative experiences in deregulated or restructured markets such as New York and New Jersey, where increased competition among electric suppliers has allowed for more customer choice. In some cases, energy commodity retailers or suppliers in these markets have used misleading sales tactics or been associated with scams; these have contributed to customers’ fears of getting “burned,” causing skepticism, confusion, and inaction among customers. This type of customer distrust can undermine utility efforts to encourage upgrades or new technology adoption, particularly in low-income households.
Clear messaging and transparency in program design are critical for raising awareness and establishing and maintaining trust. Across the U.S. regions, workshop participants agreed that lack of awareness is a major barrier for both rural and urban low-income customers. Messaging should be straightforward and consistent within the utility, from the top executive’s office to the local call centers. The benefits and risks of program participation should be transparently articulated to customers; this may require revisiting typical utility perspectives on cost-benefit analysis – such as the “three-legged stool” for aligning business models with energy efficiency (i.e., cost recovery, decoupling, and earnings opportunities through performance incentives). Messaging should be reevaluated from the customer’s perspective to demonstrate the value of investing in energy efficiency and should be tailored to the specific needs of different underserved customers.
Approaches that can both increase public awareness and help utilities understand customers’ perspectives include engaging customers in conversations with utilities and program implementers and collecting and publicizing customer testimonials. In addition, utilities should analyze energy burden reports to better understand customers’ needs. These practices can help utilities define target audiences and design programs with these customers in mind. For example, marketing and communications targeting customers who are subject to new TOU rates should build awareness of the benefits of demand flexibility programs and address customers’ specific concerns. Workshop participants noted that bundling a new, unfamiliar program with trusted utility programs also could boost participation.
Workshop participants also noted that customer trust must be earned. In some cases, this may require acknowledging broken promises or under-investment associated with previous utility programs. Partnerships with local organizations can help build or regain customer trust. For example, engaging local food banks or faith-based organizations can serve multiple purposes: demonstrating program benefits in the organizations’ facilities, gathering community data, and leveraging the partnership to spread messaging on energy efficiency program benefits to hard-to-reach customers. Utility donations or grants to local organizations also can help increase brand awareness and trust for customers.
Increasing representation is also important for building trust. Program marketing materials, utility program administrators, and outreach/customer-facing teams should reflect the demographics of the communities they serve to both build customer trust and expand a utility’s perspective on customer needs. Utilities also can partner with higher learning institutions on training programs to expand local workforce skillsets and profitably engage community members in administering utility programs.
Lack of capital and essential infrastructure can severely limit a customer’s ability to participate in a utility program. Energy efficiency programs that require customers to take on debt are often inaccessible to low-income customers who cannot afford (and/or lack the credit support) to do so. For these reasons, designing programs to minimize upfront costs and provide immediate payback would significantly increase the accessibility of energy efficiency programs to low-income customers.
Lack of reliable Internet access also makes participation in many programs difficult – or impossible in the case of demand response programs that require communications through smart devices. Developing equitable demand response programs is critically dependent on the provision of affordable broadband and internet service to all customers.
Finally, removing bureaucratic challenges—such as long wait times for program registration and technical support—and developing clear and understandable messaging also can improve accessibility to programs for customers in the small business sector and in low-income households. Maintaining customer convenience throughout the program can further expand participation.
Numerous workshop participants noted, however, that accessibility is only one element of equity. Equal access to programs and resources is not the same as equitable, fair, and just services that fill the specific needs of underserved customers. In addition to increasing accessibility to programs, tailoring those programs—along with outreach and funding—toward underserved communities will improve the equitable distribution of benefits of a utility’s energy efficiency program portfolio.