How Regulators Can Direct Utilities to Leverage IRA Savings
Lessons from the PUCs that are taking decisive action to pass IRA benefits to utility customers
A range of factors from natural disasters to increased load projections are prompting proposals for new, expensive investments in the grid. The Inflation Reduction Act (IRA) provides an array of tax credits, rebates, loans, and grants that can be leveraged to lower the cost of certain investments, or support strategies that can avoid them completely. As the final arbiter of whether these investments are in the public’s interest, regulators have the power to ensure that the IRA has been considered in utility strategy and gets fair consideration in their proposals. Without these checks, it increases the risk of higher customer expenses that can further threaten affordability.
PUCs from Washington, Oregon, Georgia, and New Jersey are all leading the way with regulatory actions that will support the uptake of IRA provisions that can yield ratepayer savings. Each of these PUCs have acted decisively to convey an expectation that the IRA should be incorporated into utilities’ planning processes, whether it is in their current or future integrated resource plan (IRP), clean energy filings, procurement process, clean energy program design or beyond.
The many ways for PUCs to harness the IRA
There are a variety of different regulatory actions that can prompt utilities to make use of federal funding. The table below from our Planning to Harness the IRA report outlines three categories of potential actions, organized by timing relative to an IRP. Regardless of where states currently are in the planning process, there is a range of actions that they can take to ensure utilities harness IRA funding to improve the affordability and reliability of the grid, whether it is proactive, during the planning process, or outside of the planning process in the procurement or program design phase.
Proactive actions: Washington UTC sets guidance ahead of utility IRP filings
The Washington Utilities and Transportation Commission (UTC), whose utilities are initiating an IRP process within the next year, issued a leading-edge policy statement setting minimum expectations of utilities’ plans to incorporate both the IRA and the Infrastructure Investment and Jobs Act (IIJA) into their IRP filings. The policy statement directs utilities to update IRP assumptions to include IRA tax credits; encourages utilities to identify and evaluate transmission needs that may qualify for IRA programs (including clean repowering); and provides utilities with resources to guide their efforts to develop a plan. Notably, the UTC’s memo also created a novel financial incentive to motivate their utilities to meaningfully pursue federal funding, which will allow the utilities to earn a higher return on equity for all funds they must use to meet federal matching requirements. There is a wide range of possible questions regulators can ask utilities to evaluate how the IRA benefits are incorporated into the IRP, some of which the UTC explored in an online collaborative workshop to evaluate how utilities were already leveraging federal funding.
How does this action ensure utility planning harnesses IRA benefits? The Commission’s up-front expectations in the policy statement ensure that the plans utilities file will meet established criteria for including IRA and IIJA, which can be used as the basis for rejection or modification if these standards have not been met.
How does this improve affordability and reliability of the grid? As utilities work to meet the state’s decarbonization goals set out by the Clean Energy Transformation Act, they must consider all potential opportunities to reduce the costs associated with meeting those goals.
Mid-IRP actions: Georgia PSC requires investigation of federal funding opportunities in the next IRP
In a recent IRP update, the Georgia Public Service Commission (PSC) adopted a stipulated agreement with Georgia Power (GPC), which allowed the fossil resources that GPC requested but required additional investigation of federal funding opportunities prior to the next IRP in 2025. Specifically, the agreement states that GPC must investigate additional behind-the-meter opportunities for demand side management, distributed energy resources, energy storage systems, grid-enhancing technologies, and related funding opportunities that have been enabled under the IRA and the Title 17 Energy Infrastructure Reinvestment (EIR) Clean Energy Financing Program.
How does this action ensure utility planning harnesses IRA benefits? The Commission’s actions ensure GPC will consider federal funding opportunities prior to submitting their next IRP. To provide additional clarity for this type of guidance, Commissions can also create timeline expectations for the results of the required analyses and set expectations for the analysis methodology and results presentation (e.g., cost-benefit analysis).
How does this improve the affordability and reliability of the grid? As Georgia works to invest in the grid and new resources to address projected load growth, the new elements that GPC is required to investigate may uncover additional least-cost solutions that can be incorporated into the utility’s IRP.
Beyond IRPs: Oregon PUC brings the Energy Infrastructure Reinvestment (EIR) program into procurement
The Oregon PUC ordered that in Portland General Electric’s (PGE’s) procurement process all bids must be submitted both with and without the use of the EIR financing. The PUC directed PGE to develop instructions for the RFP that will inform bidders on how to meet this requirement. The PUC also instructed PGE to allocate its internal resources to begin developing an EIR project application in 2024 and recommended that the PGE extend the scope for an independent evaluator’s RFP to include an update to PGE’s EIR application in its final report. Lastly, the PUC communicated that this information should be available in future rate cases. This improves transparency, allowing for PUC review of any rate recovery request for financing costs associated with this RFP’s projects and associated infrastructure.
How does this action ensure utility planning harnesses IRA benefits? Even though the IRP process had concluded, the PUC’s order provides an example of how regulators can require consideration of IRA programs and tax credits from EIR in the procurement stage, downstream of the planning process. Moreover, by linking this action to rate cases, the Commission has provided advanced notice that it will consider the utilities’ efforts to secure EIR financing (or lack thereof) in prudency determinations.
How does this improve the affordability and reliability of the grid? By requiring two bid prices, the RFP process will be more likely to discover and quantify EIR savings potential for new investments. This can help capture solutions that might otherwise fall out of least-cost procurement, leading to a lower cost portfolio.
No IRP? We can work with that: New Jersey BPU brings IRA funding into clean energy offerings
Not all states currently have an IRP process, either because the state does not have a planning process or because the utilities own few or no generation assets. However, commissioners in these states are still able to motivate utilities to include the IRA in program design and implementation. For example, the New Jersey Board of Public Utilities (NJBPU) held a technical conference in December 2023 to discuss how they can incorporate IRA funding to help meet their building electrification and energy efficiency goals, especially in ways that can help low-income homes. In May 2024 the NJBPU issued a request for information to get input on how to best implement the IRA’s Homes Efficiency Rebate and Home Electrification and Appliance Rebate program funding alongside current electrification and efficiency programs.
How does this action ensure utility planning harnesses IRA benefits? The NJBPU’s proactive program design ensures that program implementation at the state level will be coordinated with existing state and utility programs. External stakeholder engagement also ensures that the NJBPU is leveraging expertise beyond utilities. When thinking about program design, commissions can also ensure that other tax credits and program opportunities provided by the IRA are included in the programs (see the toolkit developed by RMI’s first RegLab cohort for details).
How does this improve the affordability and reliability of the grid? By leveraging federal funding opportunities to supplement their existing programs, New Jersey is ensuring that the state will meet its electrification goals, as set out by Executive Order 316, at a lower cost for ratepayers. They are also explicitly setting out guidance to ensure that low-income households are able to leverage federal funding opportunities to make electrification technologies more affordable for these groups.
PUCs have the power to motivate their utilities to make use of funding opportunities from the IRA. They can take actions to either require or set expectations for utilities to leverage these once-in-a-generation benefits for customers, in their planning and beyond.