Energy in 30: IRA and IIJA strategies for utilities

Legislation providing opportunities for innovation

Joan: So great to have you guys on. We are thrilled to have you, and we wanted to start the year off with something fun. So, thank you again for coming with your industry knowledge and your predictions, which are going to be so much fun. Predictions about the trends that each of you think we'll see as the IRA and the IIJA (Inflation Reduction Act and Infrastructure Investment and Jobs Act) begin to take shape. And before we get into 2023 predictions, let's do a quick round on what makes you guys most excited about these groundbreaking bills. Why don't we start with Mike?

Mike: Well, first let me thank you guys for having me on this podcast. I've been listening to it for a long time because I used it as a great way to get to know ICF before I joined, and I also have learned a lot from it. So, you guys do a great job and I'm really honored to be here and glad to be part of the ICF team.

David: Thank you.

Mike: In terms of the IRA and IIJA or the Bipartisan Infrastructure Law—as we jokingly call it in the company, sometimes crazy Uncle Bill and IRA—it sort of feels like we've been partying hard, we've been couch surfing for way too long, but finally we're sobering up. We're battening down the hatches and we've mustered up the wherewithal to make a down payment to begin construction on a house of our own. It's a monumental first step to reinvent our energy infrastructure, both on the supply and demand fronts to be climate compatible finally, and to do it with an eye towards equity. This is what we've been working on for decades, my lifetime, and I'm really excited to be here as a part of the generation that gets to implement this.

Joan: Oh, I love that. It's so...

David: ...awesome.

Joan: You capture it, really great. How about you, Erica? What are you thinking? What's jazzing you up about this?

Erica: Definitely—I don't disagree with that—but I also feel like it's like a house that we don't necessarily have the blueprint for maybe. We've got a lot of money, more money than we've ever had. We have some direction on what to do with it, but there's still so much to fill in. And I think it's going to be filled in by individual utilities making plans, by nonprofits, by states. It's going to really be informed by the passion of people that are in this industry, which makes it a really exciting time to be in this industry, to be a part of that. So, that’s what got me excited.

Joan: Well said. And how about you, Justin?

Justin: Yeah, I'm in agreement with Michael and Erica. I think the sheer opportunity ahead of us is amazing. And I do not think it's fully sunk in yet, just how monumental the level of investment the U.S. is making in clean energy and decarbonization truly is. But what I'm really excited about, and Michael touched on this a little bit, is just the holistic focus of these bills. There's been a ton of excitement for decarbonization. And the government could have stopped there, but exciting for me is the focus on environmental justice and making disadvantaged communities, whether it's historically underserved communities or what the administration has called energy communities, those that are negatively impacted by the transition away from fossil fuels. Stakeholders and the projects that will come out of this funding, grants or loan opportunities—I’m excited that the next energy transition will be an equitable one.

David: Completely agree with that. I'll chime in on one really minute aspect of these points. In the homes program there's a provision to demonstrate compliance through modeled savings—which we've done in the past—but also measured savings. And I think that's signaling how far we've been able to come as an industry that we could now actually monitor, and measure savings, presumably at the meter. Some of the details are still being worked out, but it’s pretty cool stuff.

Joan: Absolutely. And I feel like there's such energy under our wings right now, literally, right? It's so exciting. And after being in this industry as long as I have, it's nice to still be excited about what's to come. So with that, what a great way to set the tone for what we're doing today. And that is, I wish we had a drum roll—predictions. Since we only have 30 minutes, and now we’re even less than 30 minutes, we’re going to narrow in on two top categories today, but they're packed. So, let's go ahead and get started. Category one, grants, tax credits, and direct payments. Justin, go.

Increased funding and financial assistance for customers through state programs, local governments, nonprofits, and other players

Justin: So, my prediction is maybe going to be hard to measure by the end of the year, but I think we'll see a lot of utilities caught off guard this year by the sheer amount of funding and financial assistance that is going not to the utility directly, but to their customers through state programs, local governments, nonprofits, and other players. And I think this presents two risks. One, the unintended grid impacts it will cause. All of a sudden, entities other than the utility are going to have a ton of funding and begin making decisions that will affect the distribution level load on the grid. This could be funding for projects to electrify fleets, build microgrids, develop and run electrification or energy efficiency programs at a county or city level. And utilities are going to have to begin reckoning with that and understanding what's going on in their territory.

Secondly, there is a risk for utilities, especially those that have spent more than a decade building strong relationships with customers through their energy efficiency or other benefit programs. There's a risk that these utilities will become disintermediated from their customers. For more than a decade, utilities have been the primary resource for residents and businesses for information on energy efficiency or clean energy. I think that the utilities that are going to be most successful in overcoming some of these risks will share common tactics and strategies.

One, they'll begin more collaboration with community organizations, local government departments, and community leaders to begin establishing themselves as a partner for energy solutions that will be implemented within communities. Second, I think successful utilities will take an active role in promoting customer engagement and really understanding what the customer's experience is going to be as they navigate all these different programs. This might include increase in communications to customers through their existing channels, but it also could be a more robust approach like account-based marketing.

And then, the third is just hosting more events and workshops within the communities and being more transparent to the communities and providing them with information and resources that'll make them successful.

Joan: Any discussion or should we just move right on to Erica?

Erica: Maybe I'm biased because I'm up here in a state that's still vertically integrated. We don't do community choice aggregation or anything like that, but I find it a little hard to believe that at a time when we're putting so much more on the grid, we're really going to be de-emphasizing the centrality of a utility. The idea that customers are going to be turning to somebody else and somebody else is going to be the expert on the grid, is going to be their energy solutions provider—I'm not sure I totally buy that that's possible while at the same time that we're trying to electrify everything, and be much more sophisticated. And the timing of energy use seems like the utility has to be central to all of that. I don't know, am I too pro-utility?

Justin: That's an ideal. I would argue that most people don't care what the impacts on the grid are and the decisions they’re making in their home or for their businesses. And so, you're going to all of a sudden have different entities giving them solutions and funding for things, and they're not going to be talking to the utility about that. We're seeing some of that come up with utilities concerned about fleet strategy for electrification and commercial entities just electrifying their own fleets without consulting the utility and what that means at the distribution level for the load that will bring to the grid.

So, I see what you're saying. I think it should be centralized, but I think I just look back to 10 years ago when Airbnb and Uber and all these other apps kind of disrupted everything in regulated areas. And I think while the utility industry is a lot harder to disrupt, they should be actively kind of trying to engage with communities, engage with others that will be doing things on their grid. My perspective.

David: Certainly we want the utilities informed of what's happening. From a planning perspective, as you said, if some of this money starts impacting the grid and utilities aren't aware of it, that's not going to be good. To the degree that they're central to everything, I think you're right. I don't think they're going to be... Just because there's money going to too many other places and the utilities are getting very little of it. So, I don’t know. It’s going to be a balancing act.

Joan: Mike, you had something you were going to...

Mike: I was just going to ask the question. When was the last time anyone here took a taxi?

Erica: Oh, I still do sometimes.

Mike: You still do?

Erica: A couple weeks ago, because they’re right there at the airport and you have to call the Uber and wait. So, if it's late at night, I take the taxi. But other than that, I'm with you, I don't take taxis very much anymore.

Mike: It's interesting. That's sort of an example of there is a role to play. It may not necessarily be the only option anymore and there are, in many cases, may be better options. And I would say, Erica, I would agree. Utilities I think have an opportunity to up their game. Will all of them step up to that opportunity and will all of them seize that opportunity in the same way? I think it's going to be a mixed bag, and I think it'll be difficult to predict.

But I'm going out there on a limb. I'm going to say that there are going to be winners that do it well, and there will be losers that stumble along the way. For better or for worse, we have set up ourselves with a private sector utility way of doing things here in this country. And what that really means is that there is risk and there is reward. And the ones that are rewarded are the ones that do it well. But you always run that risk of stumbling and maybe falling flat on your face.

Joan: All right. Well, we're going to come back around at the end of the year and check back on these predictions. So standby audience. All right. Erica.

David: I just have to throw in the last public sector transportation that I took was a tuk tuk.

Justin: Yes.

Mike: Very private sector, very entrepreneurial.

Joan: Oh my goodness, I love it. That's great. Okay, Erica, we're on category grants, tax credits, and direct payments. Go.

Opportunities for increased transparency as stakeholders track money from grants and tax credits

Erica: So, my prediction here is that you are going to have, in 2023, you're going to have more utility commissions, more regulators asking utilities where the money is and wanting to see very specifically how money from grants, money from tax credits, money from these two acts is benefiting their constituents in the state. And I feel pretty safe in this. This is maybe not a reach because it's already happening. So, in Florida, you already have the utilities putting in filings saying, "We think we're going to get so much back in tax credits, we're going to lower rates." You have the utilities in Michigan putting in very detailed filings about the grant opportunities they're chasing when applications open up, what they're going for and for what projects. I think you're going to see more states seeing those examples and wanting to see those specific benefits flowing to them.

Mike: Paraphrase from Jerry Maguire, show me the money, right?

Erica: It's very classic what commissions are for, right? Bringing down costs. It's like their core mission from back in the day.

David: It's not bad strategy and I don't see any fault with it. Do you guys?

Erica: No, I think it's more, it's maybe a warning for those of the utilities maybe listening to this that aren't super clear on what they're doing, are putting off figuring this out because it's not clear whose job it is at the utility to think this through you. You need someone to think, you need to assign this to somebody. This needs to be somebody's job. You need to have a specific plan. You need to have answers to the questions about what you're doing with this money when your regulators start asking.

Joan: Does that layer on a role that somebody already has that you would recommend or...

Erica: Gosh, it's going to be different at every utility. I definitely think it is. It's going to include your unbiased regulatory folks. They're going to be in there and they're going to have…they're the ones who are going to get the questions. If you're flat-footed and have no plan, they're the ones who are going to be scrambling to help them out, be ready. But in terms of what grants to actually go for, what tax credits are going to do, that's all going to be with your operations folks. They're the ones who are going to have to think through what is most beneficial for you, what fits into your system. I know, Mike, you're from a utility too. What do you think? Who has that job?

Mike: That's a great question. I think it depends on how big your utility is, and it depends on how proactive your utility is, as well as how proactive your commission is. Not every commission is going to be as engaged in terms of asking the hard questions. I hope more of them do. And then the utilities, not all of them are set up to really sort of pounce on opportunities. And many of them are going to be reactive. I hope fewer of them are.

Joan: Is this a workforce development area?

Mike: I would argue everything is a workforce development area in the utility world these days.

Joan: Exactly.

Mike: The silver wave is big and it's real. But I think this is—from an opportunity point of view-it's a really kind of an exciting new area for folks who are wanting to become part of the energy transition, wanting to become part of this climate revolution for them to get engaged.

Joan: All right. Okay. So moving on, still category one, grants, tax credits and direct payments. Mike, go.

Consumer-owned utilities taking a more active role as asset owners and operators for renewal power and energy infrastructure

Mike: Mine's short and sweet. I live here in the Pacific Northwest. And in this part of the country, there's a lot of consumer-owned utilities. For lack of a better way of saying it, most of the big energy policy initiatives in my lifetime have been ones that have kind of overlooked the public power sector as they call it, or consumer-owned power sector. And I think because of Uncle Bill and Uncle IRA, for the first time in a long time, publicly-owned utilities or consumer utilities, they're seen, they feel seen because this direct payments mechanism that's part of the Bipartisan Infrastructure Law lets them take advantage of the benefits of the tax credits that have always gone out to the privately owned or publicly traded entities out there.

So I think we're going to start to see the beginning of consumer-owned utilities becoming active players in this space of being asset owners, asset operators for renewal power, energy infrastructure or energy storage infrastructure. They're going to be in the game. They're not just going to be contracting with third parties anymore. They're going to, I think, become active in the owning and operating space. And I think that's a great thing.

David: Awesome. Great. Great prediction. All right. We're running short on time. So let's jump to category two, which is resiliency, grid modernization, and industry influx. So we're going to reverse-order here. Mike, go.

Mike: Yes. So we're putting a lot of eggs in one basket when it comes to the grid. And that's a good thing because the grid is going to be the straightest shot we have at a clean energy future. Electricity is carbon free at the point of consumption, and we can make it more and more carbon free as we work our way upstream. But at the same time we're doing this, we're going to be...we have to be honest. The grid is pretty dependent on a lot of things: climate, weather, disasters, and cyber warfare that's happening in nation state levels. Domestic terrorism is a thing these days. And all these present challenges to the grid that we're depending on.

So we're going to have to—and this is maybe more of a New Year's resolution than a New Year's prediction—we're going to have to do a good job of connecting the dots between things like broadband communication, cybersecurity investments, and grid modernization technologies so that we can make sure that the grid that we're going to depend on more and more is augmented in ways that improve its reliability, enhance its resilience, and augment its security—because we're going to be needing that grid to be up more and more.

David: And we're seeing crazy stuff. People shooting at substations. I wouldn't have imagined that last year.

Mike: Yeah, there's a lot of things that we couldn't have imagined that have happened and are happening. And I think being prepared is the best thing that we can do. But the good news is that there's so much opportunity as we not only rebuild the electric power grid, but we reinvent it and reimagine it, and do it using tools today that didn't exist when we built it the first time 100 years ago.

David: Yep. I like that. Cool. All right. Justin, go.

Breaking down internal and external silos to improve energy resiliency

Justin: Mine's a little shorter this time, which is, I think, good. So, I think it's no secret that IRA and Bill—to use Mike's terms—will accelerate radical change to the rise of intermittent supply, increase in-load from electrification of buildings and vehicles, improvements in resiliency, etc. I think my prediction here is that the utilities who will be most successful in the next five to 10 years are the ones that are going to change either how they're organized and or how they purchase and think about projects together.

I think success in a decarbonized energy landscape will require coordination across various departments that have traditionally been siloed in utilities. For example, transmission and distribution teams. Their demand-side management and electrification teams ...and utilities must begin breaking down their own internal silos to create more flexible and agile teams that can adjust to the uncertainty we'll see over the next couple years. And then, I also think that the most successful leaders at utilities will begin to see themselves as connectors, ensuring that the right parts of the organization are aligned, are working together to achieve the utilities' goals, the state's goals, and to drive value for both their shareholders and for stakeholders in the communities they serve.

David: Breaking down silos. Yeah.

Joan: We heard that from Nathan last year, right? Nathan Morey from SRP [Salt River Project] talking about being put in a room with all these various leaders from the different parts of the organization to do exactly that. So definitely a trend, and they are a municipal [utility].

Erica: Interesting. And that was a huge commitment. They took some really high-up people in the company away from their day-to-day jobs for a significant amount of time. This is not an easy thing that could be done in a retreat weekend, I think.

Mike: And as I remember that story, they weren't just put in a room, they were locked in that room. They were taken off the grid for all intents and purposes, which is about what it takes to break through these silos because they have been rebar, reinforced over the decades that we've built up this system. And it's going to take a lot to punch through them.

Joan: Yeah, they have an accountability feedback loop as well. So they are still reporting on how they're succeeding according to what came out of those times together.

David: Okay. Good role model there. Okay, thank you. So Erica, go.

Increased state pressure on building electrification

Erica: Yeah, it's mine. So mine is maybe a little more micro than some of these things, but it's something I pay a lot of attention to. I think you're going to see more pressure on states that have not figured out what they're doing with building electrification. You still have states that are struggling with how do we manage building electrification given that traditionally, energy efficiency has been about reducing load? How do we fix our regulatory structures, our incentive structures to move forward with building electrification?

And I think that there's already been a lot of pressure on that. There's already been states that have been working to figure this out in recent years. Minnesota, my home state, has been doing a lot of work. California, New York, and Colorado—you've got a lot of states that have been looking at this, but you have a bunch of states that have been putting it off. And I'm thinking of New Jersey. I'm thinking of Michigan. I'm thinking of Pennsylvania.

And IRA, in particular, is going to put pressure on that relationship because it is, even if the utilities aren't doing it, someone is going to be pursuing building electrification. There are going to be rebates flowing to customers. So I think the states need to figure out what they're doing. And I think you're going to hear a conversation about that in the next year.

Justin: Are you predicting that moratoriums on fuel switching are going to go away and that'll be allowed?

Erica: I think in some states. I think that—I don't want to call out particular states maybe—but I do think there are some states where that is where it's heading. I think there are other states where the question is going to get raised and they're going to entrench in their positions. But in your states that are gas producing for example, they may not be interested in breaching this traditional barrier to energy efficiency. But I think we're going to have a lot of conversations about it in '23. And I'll go ahead and predict at least one state will further enable building electrification or break down the barriers to building electrification energy efficiency. So we'll have a prediction you can call me on if it doesn't happen.

Mike: For my part I'm excited to see that not just states, but even at the local level, that building code starts to transform, I hope. The Energy Star next gen stuff that really kind of gets into that intersection of the appliance and the building envelopes itself, I think creates opportunities. I don't know if we're going to see big waves this year, but I hope we start to see the ripples that turn into those waves in the future.

Erica: I think for sure that's going to happen. I'm putting it in 24 though, in my mind, but yeah, I agree.

David: Justin, did we-

Joan: Did you give the state Erica?

Erica: I'm not going to give you the state because I have to hedge a little bit, but I got a couple states in mind I think could both go. So, I think at least one of them will.

Joan: All right. We tried.

Mike: Give us a hint. First letter, Erica.

Erica: No, no, I won't call it out. Freak out the utilities there.

David: Justin, did we cut you off on something or...

Justin: No, I think that was it. I do want to just give one more example on the original point I brought up because I think it's better than the Uber or Lyft—is when the American Recovery and Reinvestment Act came out, all of a sudden solar developers were going nuts. And that really affected utilities and net metering stuff started coming up. Some people, some utilities prevented net metering. It was a whole thing. I think this is going to be like that on steroids for the money going to local entities, but we don't have to include that.

David: Yeah, I think that's a valid point.

Justin: I just want to make the point.

David: Yeah, I think that's a valid point. Well, thank you all. Those are some super good predictions. We will have to see how they play out. Very, very curious to see how they track. Check out our latest paper outlining five actions for utilities to prepare for the IRA impacts. We'll provide a link to it on the podcast page. And if you've enjoyed listening to this conversation, we'd sure appreciate your liking, sharing, and even subscribing to our podcast.

Joan: And thank you guys so much for being part of this. What a way to kick off the new year. Wow! And just let's put a placeholder down for December and have you back and see how our crystal balls fared. I think that'll be a lot of fun. And in the meantime, thanks so much to our audience for listening, and we look forward to you tuning into our next Energy in 30.