State energy officials and utilities caution against using electric efficiency charge to fund thermal and transport electrification under S.65

Ed McNamara, who introduced testimony at the Feb. 19 Senate Natural Resources & Energy meeting, said S.65 would reassign electric efficiency funds to thermal and transportation programs and warned that approach could send the wrong price signals.

"You're increasing the cost of electricity while trying to get people to switch to using more electricity," McNamara said, adding that the usual economic rule is to "tax the bad and incentivize the good." McNamara told the committee he and his organization support energy-efficiency charges when they are used to lower electric rates, but that using that same charge to subsidize thermal and transport programs is "bad economic policy."

Why it matters: The electric efficiency charge is collected from ratepayers and has historically been used to finance efficiency measures that reduce overall system costs and downward pressure on rates. Witnesses warned that moving those resources to programs that reduce greenhouse gases (GHGs) in heating and transportation could both raise near-term rates and weaken price incentives for customers to adopt electric technologies.

Key points from testimony

- Budget mechanics and timing: McNamara summarized language in S.65 saying budgets for energy efficiency utilities (EEUs) would be fixed at existing levels plus inflation from 2027–2030 and that, starting in 2031, the Public Utility Commission would set the budget to achieve "all societally cost-effective" GHG reductions. He cautioned that "societally cost-effective" is not the same as cost-effective for Vermont ratepayers and that the valuation will depend heavily on assumptions about the social cost of carbon.

- Affordability and price signals: Several witnesses said increasing charges tied to electricity use while urging customers to electrify (for heat and transport) is self-defeating. Alex Anchak, director of energy efficiency at the Department of Public Service, described the risk that prioritizing GHG reductions through the EEU budget could force utilities to procure higher‑cost supply to replace the avoided energy efficiency value and thereby put "upward rate pressure" on all customers.

- Low-income weatherization and community action agencies: McNamara and Department of Public Service witnesses stressed that low-income weatherization is currently delivered by five regional community action agencies and is primarily funded from fuel taxes and federal grants. They warned federal funds are fading and that as fossil fuel sales decline, fuel‑tax revenues will fall. McNamara said S.65 does not create a durable funding path for weatherization providers and recommended creating a long-term revenue source (examples mentioned: increased fuel tax, a thermal energy benefit charge, or biofuels blending fees) rather than drawing down electric efficiency funds.

- Program duplication and operational concerns: Multiple distribution utility witnesses and Department of Public Service staff argued that services such as large‑scale storage and load control are operationally linked to distribution utilities. They recommended leaving storage and load-control procurement with utilities because those entities know local grid needs and system impacts. McNamara urged the committee to be explicit about how S.65 would interact with the existing Renewable Energy Standard Tier 3 obligations, suggesting the bill should either alter or carve out parts of Tier 3 rather than layering new, overlapping duties on top of it.

- Transition consequences: Testimony described trade-offs. One example from Anchak: moving funds from efficiency to fuel switching measures could reduce the EEU's cost‑benefit ratio and require greater gross spending to achieve equivalent system benefits, while also increasing electrification-driven load that requires higher‑marginal‑cost supply.

What the Department of Public Service said

Kirk Johnson, commissioner of the Department of Public Service, told the committee the department "does not support the bill as written," citing concerns about energy burden, rate pressures and the need to prioritize low-income weatherization and vermiculite remediation before expanding EEU obligations. Johnson said the department wants a clearer, prioritized, and cost‑tagged work plan for the state’s climate and energy goals before endorsing a structural change to the EEU remit.

Questions and next steps

Committee members and witnesses repeatedly asked for better costing and prioritization: how much will expanded programs cost, who would pay, how long would funds be needed and whether the state can identify a transition path for low‑income weatherization agencies when fuel‑tax revenues decline. Johnson said the department plans additional analysis and a climate action plan update due July 1; he urged a cautious approach and more collaboration with utilities and community action agencies before changing EEU duties.

Ending

Witnesses agreed on urgency to reduce GHGs but differed on the right financing path. The recurring committee requests were: (1) a clear price tag for proposed programs; (2) an explicit plan for long‑term funding of low‑income weatherization agencies; (3) clarity about how S.65 would alter or interact with Tier 3 and existing utility obligations; and (4) more coordination so that storage and load‑management work remains aligned with distribution utility operational needs.