Energy Efficiency Beyond Just Energy Efficiency: Massachusetts’ Three-Year Plan

By Stephan Wollenburg, Senior Consultant; and Justin Lindner, Market Analyst Fellow II

Publish Date: February 24, 2022

Estimated Read Time: 8 minutes

While energy efficiency programs may not always be a primary focus of clean energy stakeholders, the scale, scope, and often precedent-setting nature of Massachusetts’ energy efficiency landscape make it a critical component of the renewables landscape. The recent approval of the 2022-2024 energy efficiency plan (the Plan) included many elements with important implications, including:

  • Approval of demand response/storage programs with growing budgets, and the continued usage of an “incentive lock” to offer greater revenue certainty
  • Aggressive targets and budgets for electrifying space heating, with implications for future load growth and shape and distribution system needs
  • Increased focus on equity, reflected in program design, budget-setting, and performance incentives, a focus which is likely to be mirrored and intensified in future energy-related programs in the Commonwealth
  • A stated intention, from the Department of Public Utilities (DPU), to move away from revenue decoupling for electric distribution companies, in light of anticipated electric load growth
  • Rejection of a proposal by the Cape Light Compact to use energy efficiency funds to help offset the cost of solar for income-qualified customers, establishing some boundaries on what energy efficiency funds might be used for (although, the Compact has appealed a DPU finding on this subject to the Massachusetts Supreme Judicial Court)

For more details, read on!

On November 1, 2021 the investor-owned electric and gas distribution companies and the Cape Light Compact (collectively the Program Administrators or PAs, carrying out their energy efficiency and demand response activities under the Mass Save brand) submitted their final 2022-2024 Three-Year Energy Efficiency Plan to the DPU.  The submission followed an extensive planning and stakeholder process that began in 2020 and concluded with unanimous support from the Energy Efficiency Advisory Council (EEAC). In response to criticism regarding the scope and pace of the State’s building decarbonization progress, the PAs amended an earlier version of the plan to include sharp reductions to fossil fuel heating system rebates and the introduction of an affordable housing multi-family decarbonization retrofit program with a commitment to provide all-electric new construction offerings in residential and Commercial and Industrial (C&I) sectors.

On January 31, 2022, the DPU issued an Order approving the PAs’ three-year plans with some modifications, allocating approximately $3.94 billion towards measures including heat pumps and active demand reduction as well as more traditional building efficiency investments to help propel the State towards reaching its greenhouse gas (GHG) emissions reduction goals. However, some of the DPU’s modifications have received criticism for rejecting a number of changes instituted by the PAs, with Mass Save issuing a statement sharing that while they appreciate the DPU’s approval of many aspects of the Plan, “we have concerns about some fundamental changes to our proposals and how they may affect our ability to deliver on our ambitious goals.”

Heat Pump Incentives

The DPU approved the PAs’ heat pump incentives and found that the incentives will be effective at helping the State reach GHG reduction goals. Importantly, this was the first three-year Plan submitted following the enactment of Chapter 8 of the Acts of 2021, which included provisions that required the PAs to submit plans that achieved emissions reductions consistent with a target set by the Secretary of Energy and Environmental Affairs (a target which, in turn, must be consistent with climate goals adopted under the Global Warming Solutions Act).  Thus, this was the first Plan that included a statutorily-binding emissions reduction goal. 

The Plan includes $800 million for building electrification and weatherization measures and includes a commitment to install approximately 54,000 residential heat pumps, including 6,650 income-eligible projects, and converting 34.1 million square feet in the C&I sector to heat pumps. The Plan also includes an affordable housing multi-family decarbonization retrofit program and a commitment to provide all-electric new construction offerings in residential and C&I sectors. The DPU noted that the PAs’ plan to finalize their deep energy retrofit offering for C&I customers in 2022. These additions are aimed at helping the State reach one million homes and 300–400 million square feet of commercial buildings using heat pumps for space heating by 2030.

Despite approving these incentives, the DPU questioned whether the PAs were reaching their statutory obligation to pursue all cost-effective energy efficiency resources due to their exclusion of fossil fuel incentive measures, a statutory requirement distinct from the emissions reduction target referenced above. The DPU therefore directed PAs to continue offering incentives for fossil fuel heating systems, arguing that the subset of customers facing technical and financial hurdles to electrification should not be limited to adopting mini-split or central heat pumps and instead be allowed to install a “more familiar heating measure,” so long as it is a higher efficiency system. This decision ran counter to the strong support for discontinuing these incentives offered my most stakeholders, with exceptions including those representing heating oil dealers.  In theory, this decision could slow the overall pace of space heating electrification by incentivizing the installation of fossil-fuel based systems with lives that often exceed 20 years, although aggressive heat pump incentives are still likely to encourage customers to strongly consider moving away from relatively expensive delivered fuels, such as fuel oil and propane.

Active Demand Reduction & Energy Storage

The 2019-2021 Three-Year Energy Efficiency Plan included an Active Demand Reduction (ADR) program (known as ConnectedSolutions), which provides pay-for-performance incentives to storage and demand response resources. The DPU Order approved the electric distribution companies’ (EDCs) proposal to maintain the five-year incentive locks for storage projects that have qualified for the offering and that have received interconnection agreements, to provide near-term revenue certainty and hedge against the risk that incentive offerings could change. However, the DPU noted that as increasing amounts of battery energy storage are deployed on the grid, five-year incentive rate locks may no longer be needed. They directed PAs to conduct a study on the efficacy of the incentive rate lock and to share the results of the study in their next three-year plan filings.

The EDCs’ Plan also stated that they intend to utilize the ADR program to encourage the development of paired storage and solar primarily through marketing and outreach efforts. As discussed below, the DPU’s Order made clear that it doesn’t believe existing statute is consistent with the PAs offering incentives for solar funded through the energy efficiency programs. The Plan stated that the PAs will also introduce ADR marketing and enrollment at the point-of-sale for smart thermostats. Concerned with the safety of “children, the elderly, and medically compromised individuals residing in a household that is auto-enrolled in an air conditioning ADR program,” the DPU directed the PAs to utilize opt-in customer enrollment for all residential and income-eligible ADR programs.

The DPU “strongly supports” the actions being taken by EDCs to help drive incremental adoption of electric vehicles (EVs) and associated charging equipment through ADR programs. The EDCs are considering expanding the participation of EVs in ADR offerings from the current focus on residential EV charging to a more involved offering including direct load control of charging and the curtailment of EV charging during certain events. Currently, the different PAs have different incentive structures for EVs, but Eversource and National Grid are exploring the potential of implementing a statewide EV demand reduction offering by the summer of 2022. Citing a lack of detail, the DPU declined to provide substantive findings regarding the currently available proposals and instructed Eversource and National Grid to file any proposed offerings for DPU approval prior to implementation. The DPU ordered National Grid and Eversource to address the complication of EVs charging in multiple service territories in their filings.

Revenue Decoupling

The DPU shared its plans to eliminate full revenue decoupling for the EDCs in their respective rate proceedings moving forward, citing recent changes to the Commonwealth’s decarbonization policies that encourage increased electrification. The DPU has asserted that such changes obviate the need to sever the link between the EDC’s sales and revenues as the utilities will be incentivized to increase load. The DPU characterized this shift in policy as a reorientation of EDCs from being neutral on the state’s policy goals to embracing an increase in clean electric load. Revenue decoupling will continue to apply to gas distribution companies. We note that in January, Eversource, in Docket 22-22, submitted a Request to the DPU seeking to increase its rates. The Request did not propose to discontinue revenue decoupling but we expect that to be an issue in the rate case.  We further expect that the DPU’s plan to eliminate revenue decoupling will be met with skepticism from stakeholders representing distributed generation and environmental interests, and potentially ratepayer advocates, including the Attorney General.

Cape Light Compact

The DPU considered several proposals by the Cape Light Compact (the Compact) that differed from the statewide elements of the Plan, including higher incentives for residential multi-family new construction projects and for existing C&I buildings, as well as a strategic electrification proposal known as the Cape and Vineyard Electrification Offering (CVEO).

The DPU approved most of the Compact’s proposals for higher incentives. The new construction income-eligible residential multifamily project proposal consists of incentives of up to 100% for the installation of weatherization measures above code and the installation and maintenance of heat pumps. The C&I proposal, which is consistent with plans from previous years, would provide up to 100 percent incentives for C&I customers, including municipal customers, small non-profits, small businesses, and microbusinesses installing weatherization, lighting, and electrification measures. In a caveat to the approval, the DPU questioned the prudence of these enhanced incentive levels, instructing the Compact to complete an analysis of the approved incentives prior to the filing of its 2025-2027 Three-Year Plan to determine if they are needed to drive participation levels. The DPU warned that the Compact’s energy efficiency plan certification could be jeopardized if it is unable to provide this justification and address other concerns, such as low-income participation levels, cited by the DPU.

The DPU rejected the Compact’s CVEO electrification offering, which would have provided enhanced incentives for the combined installation of cold-climate air-source heat pumps, solar PV, and behind-the-meter battery energy storage for 250 income-eligible and moderate income customers. The Compact argued that Chapter 227 of the Acts of 2018 amended the statute governing energy efficiency plans (G.L. c. 25, § 21) to allow the PAs to offer strategic electrification measures that result in cost-effective GHG emissions reductions and to offer programs that “result in customers switching to renewable energy sources or other clean energy technologies.” The Compact suggested that, because switching to heat pumps will increase heating costs for some customers, pairing heat pumps with solar and storage to reduce electricity costs is critical for any plans to electrify the homes of lower-income households. The DPU rejected this proposal, stating that solar PV is not included in the scope of energy efficiency funds, noting that other programs and incentives to promote solar already exist within the Commonwealth and that allowing the use of energy efficiency funds to incentivize on-site generation would be “an absurd use of energy efficiency funds.”

The DPU’s decision established some boundaries to the expansive scope Chapter 227 of the Acts of 2018 appeared to grant to PAs administering energy efficiency plans.  As noted, above, however, the Compact has petitioned the Supreme Judicial Court to reverse an earlier DPU rejection of its CVEO offering.  While the Compact’s offerings would have been limited in scale, precedent set on this question has important implications for future program design. Subscribers to Sustainable Energy Advantage’s Eyes and Ears Regulatory, Policy and Legislative Tracking and Renewable Energy Market Outlook services can look forward to continued coverage and analysis of relevant energy efficiency updates, in addition to our coverage of events more directly related to renewable energy and storage.