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Public Benefits Funds

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Description


A public benefits fund (PBF) is a policy mechanism intended to provide long-term, stable funding to support energy efficiency, renewable energy and/or low-income programs. PBFs for renewable energy typically provide direct incentives and financing for renewables projects, business development and industry recruitment activities, and research and development. Funds might also support workforce development activities, such as installer training and initiatives to promote public awareness about energy issues and renewable energy. Historically, these funds have been instrumental in spurring the growth of state markets for smaller solar-energy projects.

PBFs are usually supported by a very small surcharge (a “system benefits charge”) on electricity consumption by customers, but a few have been established as a result of utility merger settlements or in return for allowing utilities to store nuclear waste on-site. The surcharge usually only applies to customers of investor-owned electric distribution utilities, but some funds also collection surcharges from natural gas customers. Only customers that pay into a PBF are eligible for assistance through the programs it funds.

Although public benefits funds are usually established at the state level, municipalities that have authority over their electric utility may establish a PBF via a dedicated surcharge or flat monthly fee to support solar programs. In other cases, municipal utilities and electric cooperatives may choose to opt in to a state-administered program.


Status & Trends


Most state public benefits funds were established during the electric utility restructuring era of the late 1990s, to assure continued support of renewable energy, energy efficiency, and low-income programs as utilities moved to a competitive industry model. Although the kilowatt-hour (kWh) surcharge on electricity sales is common, several variations exist. In Pennsylvania, four “Sustainable Energy Funds” for five distribution utilities were established through separate utility settlement proceedings. The funds initially received revenue through a combination of lump-sum payments and recurring annual payments over a specified time period. Several subsequent utility mergers resulted in additional lump-sum payments and recurring payments for general fund operations or to fund specific programs defined in the settlements. Public Benefits Funds for RenewablesThese funds have all expired, with the last fund ending collections in 2012.

In Minnesota and Vermont, renewable energy funds have been derived from annual payments by investor-owned utilities as compensation for on-site nuclear waste storage. In another variation of funding practices, the Illinois Renewable Energy Resources Trust Fund is supported by a flat monthly surcharge (e.g., around $0.05 - $37.50/month, varying by customer class) on electric and natural gas bills. In some cases, such as in Massachusetts, funds for certain renewables programs supported by the PBF may be supplemented by alternative compliance payments made by utilities under the state's renewable portfolio standard (RPS) or revenue from the sale of carbon emissions allowances in the Regional Greenhouse Gas Initiative (RGGI) auctions.

Around half of state PBFs for renewables do not have a specified expiration date; some others will expire in the next few years unless they are extended. Ohio's PBF, the Ohio Advanced Energy Fund, expired at the end of 2010, Pennsylvania's funds had all expired by the end of 2012, and Maine's PBF is now supported only by voluntary contributions. Annual funding levels range from less than $1 million in Pennsylvania to more than $400 million in California. Many states provide support for renewable energy via PBF-funded programs, but others focus solely on energy efficiency and low-income energy assistance. In a few cases, funds are dedicated exclusively to renewables. Currently, 15 states plus the District of Columbia and Puerto Rico have a PBF that collects funds in supports of renewables. In sum, these funds will collect an estimated $7.8 billion by 2017.

The revenue generated for PBFs has not always been used as it was intended. A number of PBFs have been “raided” by state legislatures and governors to fill state budget gaps. Some states have avoided this problem by directing fund revenue through independent administrators or utilities, as opposed to state government agencies. The state of Connecticut transferred money from utility-held accounts to the general fund in 2003 and, though the fund is currently administered by a quasi-public organization, the fund faced similar pressure in 2009.[1] State-administered funds in Illinois[2] and Ohio (now expired) have been subjected to funding transfers, and even the independent third-party administrator of Oregon’s PBF has been threatened by such action in the past.[3]


Examples

  • In Wisconsin, the Focus on Energy program was originally authorized in 1999 by the state legislature. Funding originally ran through the Wisconsin Department of Administration, which, in turn, contracted with third parties for program administration. However, from 2002 to 2006, a total of $108 million was transferred out the PBF to the general fund for other uses. In 2006, the program was overhauled by Act 141, in part to prevent raiding of the fund for other state purposes. The newer design requires utilities to contract directly with third-party program administrators rather than passing funding through a state government account where it may be vulnerable to raids.[4] Under the current mechanism, electric and natural gas utilities are obligated to spend 1.2% of their gross operating revenue on energy efficiency and renewables programs.
     
  • Municipal utilities in California have been administering solar programs supported by individual PBFs, as directed by state policy, for many years. Under SB 1 (2006), California's municipal utilities are required to create solar programs that collectively invest $784 million in solar incentives. Around 40 such utilities are expected to support 700 MW as part of the California Solar Initiative by 2016.
     
  • Boulder, Colorado (currently served by Xcel Energy) collects an excise tax from residential, commercial, and industrial electricity customers for the purpose of funding a climate action plan to reduce greenhouse gas emissions. This represents a rare example where a municipality that does not control its own electric utility has created a local PBF. The Climate Plan Action Fund was approved by ballot initiative in 2006, and citizens voted again in 2012 to extend the tax through March 31, 2018. In 2010, the rate surcharge supported an annual program budget of approximately $1.8 million. The proceeds help fund a variety of residential and commercial energy programs, including a solar water-heating rebate for residents. A separate renewable energy fund collected through the city’s local sales and use tax helps fund rants for low- to moderate income residents.

Resources

 
Advancing State Clean Energy Funds: Options for Administration and Funding. Prepared for the U.S. Environmental Protection Agency’s Climate Protection Partnerships Division by Optimal Energy, Inc., May 2008.

Clean Energy States Alliance web site

Clean Energy State Program Guide: Mainstreaming Solar Electricity: Strategies for States to Build Local Markets. Clean Energy Group and Peregrine Energy Group, April 2008.

States Advancing Solar web site






Footnotes

[1]  “Rell's Budget Would Raid Energy Funds,” Connecticut Post, February 7, 2009 
[2] 
“Illinois House Passes Supplemental Appropriations Bill to Save Parks,” Illinois Environmental Council, September 18, 2008. 
[3] 
Who Should Deliver Ratepayer Funded Energy Efficiency? A Survey and Discussion Paper, Regulatory Assistance Projects, May 2003.
[4] 
Wisconsin Legislative Council Information Memorandum, IM-2006-01

 




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Disclaimer: The information presented on the DSIRE web site provides an unofficial overview of financial incentives and other policies. It does not constitute professional tax advice or other professional financial guidance, and it should not be used as the only source of information when making purchasing decisions, investment decisions or tax decisions, or when executing other binding agreements. Please refer to the individual contact provided below each summary to verify that a specific financial incentive or other policy applies to your project.

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