Overview and Policy Recommendations Resulting From the Grid Transformation and Security Act of 2018
Energy efficiency measures offer some of the most climate-friendly and cost-effective means of meeting the energy demands of citizens in the Commonwealth. The 2018 Virginia Energy Plan provides an excellent opportunity for the Northam administration to help Virginia maximize its energy savings potential, while creating jobs, providing more comfortable living environments, and lowering energy bills for citizens who need it most.
The Grid Transformation and Security Act of 2018 (SB 966) has the potential to greatly alter Virginia’s energy resources and infrastructure in a way that contributes to a greener and more efficient energy landscape. Key provisions of SB 966 include:
- A commitment by Dominion Energy Virginia and Appalachian Power Company to collectively spend over $1 billion in energy efficiency programs over the next ten years, with at least 5% of this amount directed to low-income, elderly, and disabled residents,
- The authorization of significant investments in advanced metering infrastructure (AMI),
- Important reforms to cost-effectiveness testing, and
- The creation of a new stakeholder process to collaborate on energy efficiency program design.
During the 2018 legislative session, Governor Northam and high-ranking members of his administration intervened to create a stakeholder group to negotiate a compromise on SB 966. The governor should be applauded for his leadership in helping to craft this transformative piece of legislation. The 2018 Virginia Energy Plan is where the governor should articulate his vision for the outcomes of SB 966. Many key provisions of the legislation are bound by a 10-year time horizon, which aligns perfectly with the 10-year state energy plan Governor Northam must create. The governor should set bold goals for program delivery for each of the key components of SB 966:
- Recommendation: The 2018 Virginia Energy Plan should set ambitious targets for total energy savings and households served that will result from the more than $1 billion in energy efficiency program spending over the next ten years. Energy burdens for low-income and minority families are often two, three, or many more times higher than the energy burden of the average household. And while energy efficiency resources are often directed to owners of single family residences, Virginia could reduce electricity consumption in the state by 28% with full deployment of energy efficiency in affordable multifamily housing, which makes up 15.5% of the Commonwealth’s total housing stock. As such, we recommend an affordable multifamily housing service penetration percentage goal in addition to an energy savings goal for this sector and the Commonwealth as a whole.
- Recommendation: The 2018 Virginia Energy Plan should urge utilities to share energy usage data to customers and create easy-to-understand materials so that customers can maximize energy savings associated with AMI usage. Access to whole-building energy consumption data is particularly important to owners and residents of low-income publicly-subsidized multifamily housing. Energy costs are the second largest variable operating costs in multifamily affordable housing. Because of affordability restrictions, rents cannot generally be increased to offset rising operational expenses. Improved energy management, directly informed through whole-building energy information, and benchmarking that such data enables, is an essential path to lower operating expenses, and pursue further investments in energy efficiency to maintain long-term affordability.
In Phase I of Dominion’s Grid Transformation Plan, which includes the first three years of investments pursuant to SB 966, Dominion is asking for State Corporation Commission approval to deploy 1.4 million digital smart meters to its customers. Full deployment of smart meters and supporting infrastructure to all of Dominion’s customers is planned by the end of 2023, pending Commission approval. Full smart meter deployment is a smart investment. However, to change consumer behavior and identify opportunities for energy efficiency investment, customers need systems to translate raw data into language that is useful and third-party providers need easy access to tailor services to maximize the benefits of AMI. Thus, the energy plan should encourage systems that provide ease of data access and outline strategies to work with the utilities and the SCC to establish such regulations and procedures.
- Recommendation: The 2018 Virginia Energy Plan should urge transparency of cost-effectiveness testing by the SCC and support additional reforms like the consideration of non-energy benefits (NEBs) for efficiency programs. SB 966 amended language regarding the four cost-effectiveness tests the SCC must consider when reviewing energy efficiency program proposals, seeking to significantly reduce SCC over-reliance on the harmful Ratepayer Impact Measure (RIM) test. But, it is yet unclear how the Commission will interpret the new legislative language, and inputs and analyses completed by the SCC in its cost-effectiveness testing procedures could be far more transparent. Also, important non-energy benefits of efficiency programs like reduced pollution and increased health of residents aren’t currently considered by the Commission in efficiency dockets. The 2018 Energy Plan should dedicate additional resources to DSM docket monitoring to ensure the intended reduced-reliance on the RIM test takes place and work with the Commission staff to make cost-effectiveness testing protocols more transparent. Additionally, the Energy Plan should support legislation mandating the consideration of NEBs in efficiency filings by way of adders or multipliers as currently authorized in other states.
- Recommendation: The 2018 Virginia Energy Plan should define criteria for the scope of the new EE stakeholder group and the governor’s office should take a leadership role. SB 966 requires utilities to use a stakeholder process to design a portfolio of energy efficiency programs under the minimum EE spending requirement, and requires several entities to participate in the process, including DMME. Beyond that, the full scope of the stakeholder group, the policy goals and outcomes of programs, and other key details that will lead to a productive, collaborative stakeholder process are not prescribed in the legislation. The 2018 Virginia Energy Plan should set concrete statements around the intended purpose, outcomes, and methods by which the stakeholder group should operate, with an emphasis on consensus-driven program design and intended policy outcomes from the portfolio of programs, including anticipated savings targets and households served as discussed above. Also, the governor should take a leading role to help facilitate coordination with the SCC, utilities, and key stakeholders in the initial process regarding the creation of the stakeholder group, including the hiring of the independent monitor. Lastly, the governor should encourage the stakeholder group to meet multiple times per year for the duration of the 10-year period to ensure a robust and inclusive process.
- Recommendation: Governor Northam should reconvene the Governor’s Executive Committee on Energy Efficiency (GEC), and the 2018 Virginia Energy Plan should articulate how the committee will support the governor’s EE policy priorities in the plan and help monitor key efficiency-related activities in the Commonwealth.
RECOMMENDATIONS ON DMME’S FOUR FOCUS AREAS FOR ENERGY EFFICIENCY
At the outset of the public comment period for the 2018 Virginia Energy Plan, DMME officials noted that they were particularly interested in receiving feedback and comment on four focus areas related to energy efficiency:
- Achieving Virginia’s voluntary 10% energy conservation target
- Lead-by-example strategies,
- Financing, and
- Program design for DMME-funded programs
While Virginia has made some progress on energy efficiency overall, and these four areas specifically, there is plenty of room for growth. This administration, beginning with the development of this plan, can position Virginia as a leader in energy efficiency in the region, and the nation.
Achieving Virginia’s Voluntary 10% Energy Conservation Target
In 2007, the Virginia General Assembly passed legislation establishing a goal to reduce energy usage in the Commonwealth 10% by 2022 compared to a 2006 baseline. In 2015, former Governor Terry McAuliffe announced an update to the Commonwealth’s goal and tasked the newly created GEC to meet the energy savings target by 2020 and develop tools to track the state’s performance. To-date, the Commonwealth is not on track to meet the voluntary goal, but it is encouraging that Governor Northam understands the value to the Commonwealth in hitting its target, in addition to exploring ways to further improve Virginia’s energy savings performance.
Meeting the Commonwealth’s 10% goal (in addition to meeting an extended savings goal resulting from SB 966 investments as recommended earlier) is a smart way to meet the state’s energy needs while providing economic and environmental benefits to Virginians. But there are two key questions that should be posed and answered directly in the state energy plan:
- To whom will energy savings benefit the most and,
- How can we ensure overall benefits are distributed in an equitable fashion?
The national energy burden average is 3.5%. (note: energy burden is the percentage of household income spent on energy costs). In Richmond, half of low-income households have an energy burden greater than 6.5 %. In Virginia’s largest city, Virginia Beach, half of all low-income households have an energy burden greater than 7.5%. As high as these figures are in large metro areas, a recent study found that the energy burden for low-income residents in rural communities in Virginia and the region are even higher. The median energy burden for rural low-income households is 9%, with over a quarter shouldering an energy burden greater than 18%.
On the surface, it may seem obvious that low-income households would spend a higher percentage of their income on energy – or anything – compared to the average household since those households simply have fewer resources to spend. But low-income households also spend more money for energy per square foot of living space. This means that while energy burdens are driven in large part by income, an equally large part is driven by energy inefficient housing.
Multifamily affordable housing presents a unique opportunity to help Virginia meet its 10% goal and reduce the energy burden of low-income renters. The affordable multifamily sector is viewed as “hard to reach”, largely due to the split incentive. In individually metered properties, owners do not benefit from efficiency investments because residents pay the energy bills. In turn, renters do not have an incentive, or are not allowed, to make efficiency upgrades to a property they do not own. A commitment to overcoming barriers to multifamily energy efficiency is key to reducing the energy burden for low-income renters in Virginia.
In addition, providing owners with access to whole-building energy usage data in a modern, timely and systematic manner would allow owners to manage energy use, and make data-driven investments to keep costs low for the residents who need it most.
Recommendation: The reconvened GEC should create a subcommittee on low-income and multifamily housing, and the 2018 Virginia Energy Plan should emphasize the unique challenges and opportunities to grow efficiency program support to these sectors. To supplement this recommendation, the 2018 Virginia Energy Plan should support legislation authorizing localities to adopt benchmarking ordinances to enable building owners to evaluate their properties’ overall energy performance to make better decisions about energy efficiency upgrades.
To supplement the Commonwealth’s voluntary energy savings goal, former Governor McAuliffe signed EO 31 establishing a lead-by-example goal to reduce energy usage in state facilities by 15%. Governor McAuliffe’s EO expired at the end of 2017, and we recommend Governor Northam issue a new EO to continue the progress being made towards this voluntary goal. To date, the Commonwealth is not on track to meet the lead-by-example goal, like the overall state energy savings target.
Since the establishment of the lead-by-example target, the state has relied on the usage of energy savings performance contractors (ESCOs) to support energy reduction in state buildings. In a recent Virginia Energy Plan EE Subcommittee meeting, DMME noted the success of Energy Performance Contracts (EPCs) to achieving the state’s energy savings to-date, while acknowledging that implementation and energy savings may be delayed. DMME noted its intent to continue using EPCs to further energy savings, and we agree with this approach.
- Recommendation: The 2018 Virginia Energy Plan should continue to support the use of EPCs in delivering energy savings to state facilities, while also exploring new existing in-state or future budgetary opportunities to provide a more consistent flow of resources for EPC projects. Municipalities, universities, schools, and hospitals (MUSH) sector buildings offers sizeable energy savings potential for EPC projects, and EPCs can help the Commonwealth reach its conservation goals. We also encourage the administration to include energy efficiency in its portfolio of public housing as a lead-by-example strategy and investigate opportunities for EPCs or other innovation in the sector. Additionally, as the 2018 Virginia Energy Plan urges utilities to make reforms to its policies and procedures to advance energy efficiency savings, it is imperative that the state utilize its resources to achieve energy savings as well.
- Recommendation: The 2018 Virginia Energy Plan should update its lead-by-example goal consistent with the ten-year planning horizon for the energy plan, and work to improve shared learnings and data collection from MUSH sector upgrades to maximize energy savings in other sectors.
Financing and Program design for DMME-funded programs
The Commonwealth must work together throughout all levels of government, and in partnership with the private sector, to find solutions to the growing housing affordability challenge facing Virginians. Energy efficiency should be viewed as a tool to reduce operating costs and maintain the affordability of much-needed rental housing. Financing challenges are one of the main barriers to multifamily energy efficiency. Proper implementation of utility-sponsored or other energy efficiency programs, combined with access to capital, and technical assistance will be critical to reducing the energy burden for low-income families, seniors, and residents of color, and maintaining access to health, affordable housing. We urge the governor to task the newly-created low-income and multifamily subcommittee of the GEC, as we recommended above, to coordinate with state agencies, the private sector, and key stakeholders to finding solutions to these unique financing challenges.
In 2015, the General Assembly authorized the use of Property-Assessed Clean Energy financing (PACE) to incentivize efficiency upgrades in larger building structures, like multifamily homes. Arlington County was the first locality to implement a PACE program pursuant to the legislation which we support. The governor should continue to support and monitor the activities of other localities looking to move forward with this approach.
In the near-term, the Commonwealth should prioritize working with the Virginia Housing Development Authority, Public Housing Authorities, CDFIs and financial institutions to find immediate, and innovative solutions to deliver energy efficiency programs to residents, particularly in hard-to-reach communities in affordable multifamily housing and low-income communities. It’s reassuring to know that most citizens in the Commonwealth are ready and willing to act.
- Recommendation: The 2018 Virginia Energy Plan should support a “public benefit charge” to assist low-income residents pay for energy efficiency upgrades. A recent poll conducted by Christopher Newport University found that 61% of Virginia voters support adding a $0.50 monthly surcharge to every customer’s energy bills to help make the homes of low-income families more efficient. A similar poll released in August of 2018 found a 59% level of support for the same policy by residents in four mid-Atlantic and northeast states, including Virginia. Public benefit charges exists in more than 20 states in the country, and establishing a consistent stream of funding specifically targeted to weatherization upgrades for low-income customers would help lower the inequitable energy burden facing many Virginians.
- Recommendation: The 2018 Virginia Energy Plan should support directing DMME’s five-percent RGGI allocation towards energy efficiency investments for affordable multifamily housing. Per the Virginia Department of Environmental Quality’s proposed CO2 budget trading program, DMME will receive five-percent of the program budget for auction to be used for carbon abatement programs. Taking the recent auction clearance prices from the Regional Greenhouse Gas Initiative (RGGI) into account, DMME may soon have six to seven million dollars annually in additional resources due to the program. As mentioned earlier, energy efficiency is a clean energy source that can reduce energy usage and carbon pollution. Additionally, there is great need to prioritized investments in the multifamily housing sector as resource allocations have not has not met demand. Whether these resources be used as grants or as a revolving loan fund, we urge DMME to specify that 100% of its allocation budget under this program service the affordable multifamily residential sector.
The 2018 Virginia Energy Plan provides a strategic vision for energy policy in the Commonwealth. Low-income households and families in multifamily homes are bearing a disproportionate energy burden that is increasing inequities in the state. Energy efficiency is a terrific resource the Commonwealth can use to meet its energy needs and help families living in underserved areas reduce their energy bills and increase the health of their living environment. Low-income families and renters face unique challenges. In addition to setting strong energy efficiency policy for everyone in the Commonwealth, we urge the governor to focus on the needs of citizens who need help the most and prioritize concrete energy savings solutions for low-income families and renters living in multifamily housing.
– Dawone Robinson
Northeast/Mid-Atlantic Director, Energy Affordability
Natural Resources Defense Council
Submitted on behalf of the Virginia Multifamily Energy Efficiency Coalition