How Utilities Can Mitigate Risks through Robust Community Benefits Plans

Working with communities to ensure their voices are part of the project planning process can help utilities’ new clean energy projects succeed.

The passage of the Inflation Reduction Act (IRA) in 2022 heralded historic investments in climate and energy and supercharged the shift toward clean energy. Critically, policymakers included new and expanded funding programs and established new incentives intended to ensure that everyone shares in the benefits of a clean energy economy — especially rural places and energy communities (places that have been historically dependent on fossil fuel industries for their economic livelihoods). And as part of applications for federal funding, many federal agencies now require Community Benefits Plans (CBPs) as a way to ensure that communities and local stakeholders have a voice in the process of developing a new project and can share in the positive impacts stemming from the project.

One of the biggest opportunities for new, large-scale economic development in energy communities is the Energy Infrastructure Reinvestment (EIR) program, which offers $250 billion in low-cost financing for projects that make use of operating or legacy fossil fuel infrastructure. As with most DOE programs, EIR applicants are required to write a CBP that explains how the project will support the local community. Developing a comprehensive and community-centered CBP requires working with communities to ensure their voices are part of the project planning process, thereby reducing project risk and increasing the prospect of loan repayment — not only making for a stronger EIR application but also helping ensure the success of the project.

EIR offers an incredibly wide range of economic development opportunities…

The EIR program was designed to drive reinvestment into communities that have existing or legacy energy infrastructure. The definition of energy infrastructure is deliberately broad and could include anything from a coal mine to a fossil fuel-fired power plant to pipelines to gas stations. And the types of projects that qualify could include deploying clean energy, constructing EV charging infrastructure, developing clean energy manufacturing facilities, and more.

Utilities are well positioned to make use of EIR. They are often the owner of valuable energy infrastructure and have long-standing relationships in the communities they serve. Power plant sites often have assets that can be repurposed: think interconnections to the grid, electrical infrastructure, rail lines, waterways, buildings, and more.

… with a requirement to engage with communities

The EIR includes a requirement for an analysis of community engagement and community impacts. All EIR project developers must engage with the communities that their projects serve. When done well, this process gives communities an opportunity to help shape project plans that reflect their local priorities. Utilities applying for EIR financing must also demonstrate how the financial benefits of the project will be passed along to consumers.

The Community Benefits Plan (CBP) has emerged as a tool to meet these requirements and to address the administration’s priorities of deploying clean energy and advancing a just and equitable future. The Department of Energy (DOE) developed a framework and scoring criteria for CBPs for all IRA and IIJA funding opportunities and financing programs. Simply put, a CBP outlines the community’s priorities for a development project and the developer’s commitments to those priorities. DOE requires examination of four priority categories and offers examples of agreements, actions, or commitments that could fit into each one:

• Community and Labor Engagement. How and when will the project developers engage with community stakeholders, and who are they?
• Quality Jobs. How will the project create high-paying jobs, and ensure a trained workforce to fill those jobs?
• Diversity, Equity, Inclusion, and Accessibility (DEIA). How will the project advance equity?
• Implementing Justice40. How will the project ensure that 40 percent of the benefits flow to disadvantaged communities?

The DOE’s Loan Programs Office (LPO) offers guidance for the development of a CBP based on DOE’s categories, encourages applicants to discuss CBP development early in the application process, and is committed to working with applicants to develop strong CBPs. Many of the suggested actions and commitments can apply to multiple categories. Below we discuss how some of these actions and commitments make good business sense.

Increasing local support through engagement

According to a recent study, local opposition to wind and solar is among the top three reasons for project cancelations and delay. Public backlash can drive local ordinances — by the end of 2023, 15 percent of counties had enacted restrictions on wind or solar development.  An analysis of 53 stalled or blocked utility-scale renewable projects revealed that nearly 30 percent of opposition stemmed from lack of meaningful inclusion of local communities and advocates. The CBP process creates an opportunity to work together with local communities, helping to avoid opposition that can delay or even cancel new projects.

Project cancelations and delays pose significant financial risks to project developers. According to a survey of developers responsible for more than half of the wind and solar projects developed in the past seven years, cancellations result in substantial sunk costs, averaging over $2 million for solar projects and $7.5 million for wind projects. Moreover, even when projects are not entirely canceled, uncertainty tied to opposition creates delivery risk, and delays have real financial consequences. If a project is expected to be online by a certain date to meet load currently served by retiring fossil assets (or to meet expected new load), a delay can create risks to system reliability. Additional costs caused by delays might be passed onto ratepayers, and the delay also leads to a slower growth in the utility’s rate base, which is bad for shareholders.

Meaningfully consulting a community to co-develop a CBP and delivering on the benefits of new projects can help mitigate these risks. According to the same survey, an overwhelming majority of project developers believe that increased engagement results in fewer project cancellations and allows developers to address local concerns before project construction.

Ensuring a skilled and productive workforce by empowering workers

The success of a project depends on the skilled workforce needed to execute — during both the construction and operational phases. The lack of a skilled workforce can lead to project delays and additional costs. Creating and executing a plan to ensure that a skilled, diverse workforce is ready when needed will support on-time project construction and operational readiness. This is especially important when a project site is in a rural community, where the local workforce may be willing to fill the jobs but may require training to be successful.

Importantly, EIR financing can be used to support worker training programs, thus breaking down a longtime barrier to investment in energy communities: namely that a developer may overlook the opportunity in favor of another location with a ready-made workforce. Combining EIR financing with various clean energy tax credits and manufacturing tax credits, which both have specific bonus adders or carve-outs for energy communities, puts energy communities at a competitive advantage in landing projects.

LPO’s framework names several specific approaches to ensure a skilled workforce through a robust CBP. These include partnerships with local community colleges and minority-serving institutions to create credentialing programs to address the project needs and train a local workforce. Partnering with business organizations (such as minority-owned businesses), educational institutions, and workforce training organizations that cater to underrepresented workers is key to breaking barriers to high-quality job access. This collaboration not only strengthens community ties but also diversifies supply chains, contributing to community health and vitality. Project labor agreements and local hiring commitments can also go a long way toward not only developing a pipeline of skilled workers but also to building local support for the project by demonstrating the tangible benefits the project will bring.

Although workforce training is crucial, the CBP framework goes a step further in highlighting the importance of empowering workers by recognizing their free and fair right to organize. The utility sector consistently has the highest unionization rate in the private sector at 20 percent, compared to 6 percent for the private sector overall. Union workers also earn higher wages and have better benefits than their non-union counterparts. Unionized workers are more productive, express greater job satisfaction, and tend to be more loyal to their employers than their nonunionized counterparts, resulting in increased productivity and efficiency (especially in manufacturing processes) and reduced turnover — directly benefitting the company’s bottom line.

Improving reputation as a corporate citizen

A utility’s reputation as a good corporate citizen (or not) can have material impacts on its social license to operate. Utilities generally care about how they are perceived by investors, customers, regulators, and the communities they serve. Especially in rural places that host a power plant, the utility may be one of the largest employers in the area and considers itself to be a part of that community. As described above, strategies to build local support for the project and commitments to workers are components of a CBP that make sense from a business perspective.

Regulators and customers care deeply about the cost of electricity. At the end of 2020, customers of US electric and gas utilities owed $32 billion in late bill payments, with as many as 20 percent of households behind on utility payments. Ultimately, the utility may be responsible for that debt if the customers are unable to pay, which in turn could drive the utility to raise rates for all their customers to recover the cost or to force the utility to disconnect service. More than one in seven families live in energy poverty, meaning that the proportion of household income spent on energy is greater than 10 percent. High energy burden is one of the factors that identify a disadvantaged community in the Justice 40 Initiative and addressing how the project reduces energy burden can be included in a CBP.

Finally, CBPs can help to mitigate reputational risks and improve utilities’ social license to operate by supporting them in meeting their ESG (environmental, social, and governance) goals through diverse and equitable employment standards. ESG goals and performance, especially related to climate change and the need for a just transition, can help utility stakeholders — residential customers, large customers, investors, and regulators — assess progress. Many investors incorporate ESG or other impact metrics in capital investment decisions and stewardship, existing customers look to them to determine when and how to show up in regulatory proceedings, and potential new large customers look to them to understand whether their goals are aligned in determining where they want to site new data centers or other large loads. As part of a CBP, utilities can commit to hiring goals for people from underserved or disadvantaged communities and developing a DEIA business plan, which could include goals for contracts or agreements to minority-owned or disadvantaged businesses and contractors.

Doing right by communities makes good business sense. As noted, LPO’s guidance document for EIR offers actions and commitments that can be incorporated into a strong CBP. In this article, we have examined how some of those strategies make good business sense by reducing project risk and improving relationships with stakeholders. The process of developing Community Benefits Plans presents a unique opportunity for electric utilities to foster meaningful relationships with communities in their service territories. Developing a strong CBP demonstrates a growing recognition of shared goals such as economic development, environmental sustainability, and affordable energy access. Utilities — and the broader set of developers who could benefit from EIR financing — should see community benefits plans as a roadmap for building support for their projects within a local community.