IRA-IIJA Funding: David Terry



Fortnightly Magazine - June 12 2023

The Inflation Reduction Act's $370 billion in clean energy investments, effective August 2022, are designed to accelerate private investment in clean energy solutions in all sectors of the economy. That includes strengthening supply chains from critical minerals to efficient electric appliances, and ensuring the U.S. leads the way in climate change efforts.Public Utilities Fortnightly's Paul Kjellander examines the federal funds coming into the energy and utilities space and how State Energy Offices are playing a role. Listen in as he talks to the experts who are already dealing with the big funding issues, for there is much to learn.


PUF: How would you describe the potential impact of the funding programs that have been set up to implement and accelerate energy projects?

David Terry: It is historic, and both Congressional actions, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act — particularly the tax components of the IRA, are game changers for modernizing our energy system.

PUF: Which funding buckets have the most direct impact on states and state energy officials who are part of your membership?

David Terry: At a high level, what's different about the IIJA and IRA from, for example, the American Recovery and Reinvestment Act (ARRA) of 2009, is the number of programs and size. The vast majority of the IIJA and IRA programs are targeted, competitive actions that will need to be knitted together by the states, private sector, and local governments. It's a tough task.

In contrast, ARRA was primarily delivered by formula through several large energy programs that gave states great flexibility in meeting local market conditions. The IIJA and IRA means a massive increase in the number of federal energy procurement actions.

While extremely large-scale competition can be good, it comes at a cost of time, procurement resources, and inadvertently creates silos across infrastructure programs. That leaves our members with the task of navigating and assembling the program elements of transmission, distribution, storage, electric vehicle charging infrastructure, and codes, along with the private sector and local governments to create more value.

States' abilities to accomplish that task is due in large part to one flexible bipartisan program funded under the IIJA, the five hundred-million-dollar State Energy Program. In the scheme of these bills, SEP is a modest amount of money, considering it is spread across all states.

However, Congress designed SEP with the idea that governors need flexible funds to plan and implement energy programs and policies tailored to energy opportunities. Collectively, this adds tremendous value to federal energy investments in planning, innovation, and infrastructure.

The IIJA-provided SEP funding from the U.S. DOE began arriving at State Energy Offices the last week of April 2023 and we anticipate all states will receive these funds over a two-month period. The SEP funds support State Energy Offices as they work across their energy sectors.

States then knit policies and projects together across sectors in ways that address innovation, resilience, climate, and economic goals. The pieces of competitive money that will go out from federal agencies to the private sector, local governments, and states are silos of opportunity — challenges — that address markets that generally don't operate in silos. SEP funds are foundational to the IIJA and IRA working for American consumers and businesses.

Other critical pieces under the IIJA are the Section 40101(d) $2.5 billion in grid resilience funds, managed by State Energy Offices, with another $2.5 billion competitively awarded to utilities. DOE required governors to decide which state agency should oversee formula resilience funds.

In about ninety percent of states, the governor selected the State Energy Office because they are suited to work across utility types, state, and local agencies, and they often lead state energy security planning. There are additional IIJA grid resilience funds, all of which are competitive.

In grid resilience, $2.5 billion is and isn't a lot of money. From a taxpayer perspective it's a great deal of money but given the amount of electric infrastructure, it simply makes for a great start.

These funds are a game-changer in that it's getting large and small utilities — and mission critical end-use facilities �" to think more about resilience and how they spend their customer-derived funds, as well as state and federal resources.

Among the larger programs under IIJA, electric vehicle charging infrastructure is important to states. Over five billion dollars is provided to the State Departments of Transportation, typically in partnership with State Energy Offices, to establish a national electric vehicle charging network.

There are additional billions in funding for other vehicle electrification elements, such as school buses and community charging. This program is administered by DOE and the U.S. Department of Transportation under a Joint Office.

NASEO and the American Association of State Highway Transportation Officials partnered with DOE and DOT under an MOU and cooperative agreement to support states' work in implementing these programs. All acted rapidly to complete electric vehicle charging infrastructure plans and move funding to states. There are challenges and much work remains, but this program is a federal-state success story under the IIJA and those making it work deserve thanks.

Another major chunk of energy funding, the IRA tax elements, comprise as much as two-thirds of the entire spending under the bill. These credits cover electric generation, carbon management, hydrogen, nuclear, efficiency, manufacturing, and more over a ten-year period.

The IIJA-funded U.S. State Energy Program, SEP, which each of the fifty-six State and Territory Energy Offices oversee, is the only flexible federal energy funding out of the IIJA and IRA. SEP funding helps braid these opportunities into meaningful actions and investments for states.

The State Energy Offices work closely with public utility commissions and utilities to think through what these energy opportunities mean for state residents and how they can meet goals set by governors and state legislators.

PUF: Is it becoming clearer what the role of states will be as these federal programs continue to roll out and mature?

David Terry: It is, and it varies by state. From our members' perspectives, they're dealing with a number of highly visible programs that the private sector and everyday citizens hear about in the news media.

The State Energy Offices are primary point of planning for the state on most of these programs; hydrogen hubs, carbon capture and utilization, residential energy efficiency rebates, energy security, and critical energy product manufacturing and supply chain, to name a few. Some issues require immediate attention, others are mid- and longer-term opportunities.

For example, the hydrogen hubs attracted a tremendous amount of private sector, governor, and multi-state interest. The State Energy Offices in each region helped shape and lead the state portion of the eight-billion-dollar hub application process now underway.

That's an immediate role that involves policy and planning. If successful, long-term implementation and policy support roles also. It's a great opportunity for them to reach out to their public utility commissions to help inform them about the potential impacts of these programs on their states.

There are a few other near- and mid-term programs with a substantial state role, such as the residential energy efficiency rebates and carbon capture and utilization funds. State officials are managing their time and resources among these priority activities.

One of the State Energy Offices' more important roles is informing their governors and legislatures about the relative value of different options so that resource, policy, and management decisions can be made to benefit the state's residents.

About one month ago, I briefed a group of congressional staff about what the states thought of IIJA and IRA opportunities and how things are progressing. During the presentation, one staffer said, "What can our offices and our bosses do to help?" I said, "it's critically important for your offices to help set timing expectations for the public regarding delivery of these programs and associated funding."

By design, most of these programs were not intended to be rushed out the door and must be thoughtfully prepared to address once-in-a-generation energy infrastructure, economic, and climate challenges. These funds must produce good value for the nation and the states.

Our federal agency partners, State Energy Offices, state utility commissions, and businesses must have time to work together and with other state leaders to position these funds to maximum benefit.

PUF: Are you beginning to see best practices or common threads among states as they start to move these programs forward?

David Terry: Yes. Across a wide range of states politically and geographically, governors have appointed staff and agency leadership to work together, look across opportunities, and inform decisions on which opportunities to pursue. They may be acting from an economic development perspective or maybe it's climate lens or both.

I had the privilege of participating in a Louisiana state government meeting a year ago that brought together agency leaders to strategize on how best to support their states' consumers and businesses in accessing IIJA funding for energy infrastructure improvements. They looked across state agencies and worked with local governments to make sure as many Louisiana-based companies and residents could take advantage of the IIJA as possible.

I've seen this approach repeated in most states. It is not the kind of story that jumps to the front page of the news, but it should. It is an example of the government working well for nearly everyone.

Recognize that states are careful with their spending and look for value. It's tough to hire people whether you are a state agency or a private-sector entity.

The good news is we have seen state legislatures and governors across the political spectrum approve hiring by State Energy Offices because they recognize the value in capturing these resources for their states. They want the best energy infrastructure to deliver cleaner, affordable energy now and to prepare their states for the future.

PUF: How important is it for utilities and stakeholders to follow what's happening at the state level regarding the role of the State Energy Offices?

David Terry: It is critically important and there are several reasons to follow State Energy Offices closely. First, the State Energy Offices are in the catbird seat in looking across all energy elements of the IIJA and IRA led by different federal agencies, such as DOE, DOT, USDA, and EPA.

For example, there are two billion dollars in renewable energy programs for farmers, ranchers, and small rural communities, with another ten billion in grant and loan funds from USDA. And EPA has twenty-seven billion in financing funds for clean energy projects. State Energy Offices typically have the lead relationship with DOE on access to the grid resilience and transmission funding — billions �" that investor- and consumer-owned utilities can utilize.

Another reason for utilities to work more closely with their State Energy Offices is to utilize them as a convener on challenging energy issues and opportunities that may involve non-utility partners. The nonregulatory nature of State Energy Offices allows them to engage in a freer flow of information and from a perspective that includes all types of energy supply and demand options.

State Energy Offices are uniquely positioned to see, and often support, technology innovations in every energy production and end-use sector. Their purview often includes opening markets, convening businesses and consumers to inform governors' policy decisions, and envisioning how energy can create jobs and lower energy costs, while improving the environment.

They see the near- and longer-term future of energy in their states and are amazing resources. NASEO's growing list of private-sector Affiliate Members, including Google, Exxon, Air Products, Home Depot, TVA, Lowes, EEI, AGA, and more, suggests State Energy Offices are important to businesses of all types.

PUF: Talk about how utilities and other parties should be engaging with State Energy Offices, as they look at federally competitive projects moving forward.

David Terry: We're seeing states, such as Michigan, Tennessee, Indiana, New York, and others engaging with consumer- and investor-owned utilities to discuss grid resilience needs or other IIJA opportunities. Similarly, product manufacturers and retailers, such as Whirlpool, Rheem, Home Depot, and Lowes are talking with State Energy Offices about how to collaborate on implementing the energy efficiency rebate program under IIJA.

The answer to the how part of your question is often through NASEO events or one-on-one calls with State Energy Offices to explore the unique energy landscape of each state.

Another important way utilities should consider engaging their State Energy Offices is around grid planning. In many cases, the State Energy Office has a grid planning role and works in close coordination with the public utility commission and consumer-owned utilities.

If the State Energy Office doesn't have that direct grid planning role, they typically advance energy programs and policies — electrification, security, energy storage, solar �" that may have a great impact on the utilities' grid planning and operations.

Often, federal energy officials are aware of the State Energy Office vantage point and call on them to offer guidance on implementation of energy policies, programs, and other matters.

Federal agencies take what the State Energy Office says about energy seriously, which is helpful to their states, and can be helpful to the utilities where views align with state goals.

PUF: If you are serious about a competitive project and State Energy Offices have been direct planning in coordination with DOE, if you want a letter of support from the state, you better develop a relationship with the state energy offices. Is that what I'm hearing?

David Terry: Yes. That's correct, but I would add it's a relationship built on what's in the best interest of the consumers and businesses of the state and goals set forth by the governor. You're competing for something at the federal level and having the state agree it's a valuable project means a great deal.

The State Energy Office is also likely to be in a position to understand where state and federal priorities align. For example, there is a White House committee focused on electrification, mostly in the transportation sector, and how that impacts demand on the grid.

The State Energy Offices are at the center of that issue in many states and can inform utilities about the forward-looking policies and actions they see unfolding. Having that information to inform a utility's competitive federal funding proposal seems important to me.

PUF: A lot of State Energy Offices are getting more money through State Energy Program funds because of increased federal funding. For these state-driven programs, is the benefit to push forward some projects that were on the margins?

David Terry: Keep in mind, those funds are only starting to arrive from DOE to the states, but I think there're going to be two general types of projects. One is moving projects forward that were on the margins economically but that have a long-term value proposition.

The other, and more typical example, is helping to speed up projects that were contemplated, not fully planned, and wouldn't have happened at as fast a pace or scale without some state support.

An important change happened after the passage of the IIJA and IRA, one that was not a factor during the development of these bills, which is higher interest rates. We've had the most rapid rise in interest rates in U.S. history and that's made a lot of capital-intensive projects look different than they did a year or two ago.

Large infrastructure projects require substantial capital, and a few points of interest rate increase is huge. That may mean some projects fall out, but it'll also mean something that wasn't on the margins a year ago is now. For critical energy infrastructure and our long-term security, finding ways to move many of these projects from maybe to a yes has value.

PUF: How are relationships between NASEO and NARUC members across the country? Is this having an impact on dialogue between state energy offices and state regulators?

David Terry: They both have a great deal on their plates, so it's difficult to have as many discussions as they would like but the relationship is positive and valuable. The State Energy Office and public utility commissions are informing each other about important issues and their different roles.

These agencies' actions, taken together, help states move their economies forward. State Energy Offices' forward-looking policy role helps to inform commission decisions, and commissions' expert understanding of electricity markets and rate impacts is critical to implementation of those ideas.

I'll give one example, among many, regarding electric vehicle charging infrastructure. Medium- and heavy-duty electric vehicle infrastructure is being contemplated in several western, mid-western, and northeast states and the electric demand for this infrastructure is at a scale rarely seen.

The State Energy Offices are at the forefront of this work with vehicle manufacturers and end-users and their view of the pace and potential outcomes can be enormously helpful to commissions.

Similarly, the state commissions are uniquely positioned to understand the potential rate and reliability impacts of these new loads on all consumers. The synergies are greater than ever for the NASEO-NARUC partnership, in my view, and reflect the value of the new NARUC-NASEO partnership in the nuclear energy area.

PUF: How long will this new surge of federal funding and the programs associated with it be top of mind for NASEO?

David Terry: Certainly, for the next several years and likely longer. As we get a few years out, the implementation actions will become more routine.

However, we will also see what adjustments are made to programs to reflect new information, market changes, and lessons learned. Many of these programs are highly visible, can't-fail actions and the states take that challenge seriously.

The element of these two bills that may be most important and that more public and private leaders should focus on are the energy tax credits and incentives. These incentives are already starting to reshape portions of our energy system. It is critical for the public and private sectors to work together to ensure we deliver value for taxpayers and lay a solid foundation for our energy future.


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