June 17, 2024

How LADWP Can Expand Customer Access via LA100 Equity’s Inclusive Utility Investment Recommendations

By: Kai Palmer-Dunning

Cities around the country are developing strategies to decarbonize and transition to 100% renewable energy. Achieving these goals requires intention, strategic planning, and follow through, especially to ensure low-income and underserved communities are prioritized in the transition. A recent study from the National Renewable Energy Laboratory (NREL) helps illustrate the importance of inclusive utility investment programs to achieving these aims. 

The Los Angeles Department of Water and Power (LADWP), the nation’s largest municipal utility, partnered with NREL and UCLA to develop equity strategies for how LADWP could improve equity in participation and outcomes while targeting its ambitious goal to achieve 100% carbon-free energy by 2035. The LA100 Equity Strategies project complemented the Los Angeles 100% Renewable Energy Study (LA100) published in 2021, which identified multiple pathways for the city to achieve 100% carbon-free energy using a wide range of building decarbonization, renewable energy, and demand response strategies.

NREL’s analysis for LA100 Equity Strategies was organized around three tenets of energy justice: recognition, procedural, and distributional justice, to develop key findings for how LADWP could accomplish a successful energy transition that provided affordable and accessible solutions to all residents. NREL identified an “on-bill tariff” or inclusive utility investment program as an important distributional justice opportunity that could help ensure energy affordability for low-to-moderate income (LMI) residents.

To assess the potential of this and other strategies, NREL developed a Customer Affordability, Incentives, and Rates Optimization (CAIRO) model that included the following data inputs: customer load profiles and demographics, utility revenue requirements, hourly system marginal costs, and tariff design elements. Using this model, NREL estimated that LADWP could help 154,000 LMI customers install heat pump water heaters and 72,000 install enhanced insulation—all with no upfront costs—when braided with home energy rebates from the Inflation Reduction Act (IRA).

The rebates alone would not overcome upfront costs, leaving a gap for income-constrained customers that inclusive utility investments can address—without credit checks and regardless of homeowner or renter status, both persistent barriers to low-income clean energy technology adoption. These customers could reduce their energy bills and improve comfort through this strategic braiding of programs.

In assessing inclusive utility investment potential, NREL analyzed six energy efficiency and/or electrification options:

    1. Air-source heat pumps
    2. Heat pump water heaters
    3. Whole-home electrification: heat pumps, heat pump water heaters, induction ranges, electric clothes dryers, ENERGY STAR refrigerators
    4. Heat pumps paired with basic insulation
    5. Enhanced insulation
    6. LEDs (to ensure quality control in modeling)

Additional modeling parameters limited eligibility to LMI customers, required the tariffed charge to be under $50/month, and limited the tariffed charge to 80% of estimated cost savings annually (a typical feature).

Based on these inputs, the technologies that delivered sufficient bill savings to fully cover the cost of the upgrades when stacked with IRA rebates were heat pump water heaters and enhanced insulation. While other critical decarbonization technologies (like air-source heat pumps) would require an upfront copayment, a combination of IRA rebates and inclusive utility investments would still significantly reduce upfront cost barriers.

LADWP is now reviewing the equity strategies from NREL’s analysis and working with an LA100 Equity Strategies Advisory Committee to prioritize next steps for implementation.

NREL’s findings for LADWP also highlight key points that can inform equitable building decarbonization nationwide. While inclusive utility investments can help rapidly and affordably retrofit our housing stock and overcome many barriers associated with debt-based financing, it’s a policy solution that works best when braided with other key resources.

 

This insight was underscored in a recent report from the Regulatory Assistance Project (RAP) and CLASP, which recommended inclusive utility investments (sometimes called tariffed on-bill financing) as a policy tool that states should consider to enable households to overcome the upfront cost barrier that will remain even after application of IRA rebates. Additionally, no-cost weatherization programs and bill payment assistance should be leveraged wherever possible to more deeply reduce energy burden. Working together, these policy tools can help ensure a rapid and just energy transition.

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