Energy Affordability
Since 2020, residential electricity rates have risen by more than 30 percent on average, straining household budgets already under pressure from inflation and other rising costs. The situation doesn’t look likely to improve on its own either, with half of electric and gas customers nationwide facing higher utility rates—or proposals for higher rates—by 2027. These costs are expected to rise further as the country’s aging energy infrastructure struggles to keep pace with skyrocketing demand, driven in large part by the expansion of AI data centers.
These pressures are not a short-term shock. The vulnerability of the grid infrastructure to increasing climate hazards like wildfires and extreme weather events, as well as the broader energy transition to modern energy technology, will continue to impose significant costs to households in the coming decades. To bring down energy costs for families in an enduring way, policymakers and regulators must address short-term concerns while building toward long-term solutions necessary to modernize the nation’s complex, fragmented energy system.
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- Reduce the up-front costs of energy efficiency upgrades and whole-home repairs. Energy efficiency upgrades and home repairs can secure lower utility bills over the long term, but they require significant up-front costs. Local leaders can leverage publicly funded green banks, municipal sustainability utilities, local community development financial institutions, or community foundations to help finance energy efficiency upgrades and fund whole-home repair programs that reduce household energy demand. The Solar Energy Loan Fund’s suite of products provide homeowners, landlords, and housing developers with low-cost financing to make efficiency upgrades and build to higher energy standards. Holistic wraparound programs—like the Mid-Hudson Energy Transition's Home Upgrade Grant program in Kingston, New York, which provides free energy assessments and up to $15,000 in grant funding to address health and safety barriers before efficiency upgrades are made—offer a promising model for reaching households that standard programs leave behind. Detroit’s Home Repair Fund, an innovative cross-sector partnership, provides critical home repairs that deliver safety, health, and energy-efficiency benefits.
- Leverage innovative financing to accelerate local clean energy supply. Distributed renewable energy resources, such as community solar and distributed storage, provide sources of low-cost energy supply that are relatively quick to add to the grid, offer flexibility, and deliver affordability benefits to households. High up-front costs, knowledge gaps, and limited project experience can hamper local developers, utilities, and policymakers from pursuing these projects. Green banks and aligned lenders can help fill the gap, providing the technical expertise and financing to accelerate the build-out of community-scale distributed energy resources. Washington DC’s Sustainable Energy Utility and the DC Green Bank model how public seed funds and sustained investment from utility fees can help create local financing infrastructure and capacity to support investments that lower energy bills, generate local clean energy, and reduce overall demand on the grid. Montgomery County, Maryland’s Green Bank—capitalized with funds from a utility merger—shows how similar financing capacity can be built at the county level without relying on state-level authorities.
- Build partnerships with utilities to better target investment. Local governments and utilities have aligned incentives to help households reduce energy demand, but they often operate in silos, leaving households to navigate multiple programs on their own. Limited dollars for weatherization, bill assistance, and efficiency programs are often distributed by formula or on a first-come, first-served basis, frequently leaving the most vulnerable households without assistance. Local policymakers can formalize partnerships with utilities to align program delivery, coordinate outreach, and better direct investment to neighborhoods where households carry the highest energy burdens. One-stop shops that coordinate intake, eligibility screening, and program delivery through a single point of contact can reduce administrative burdens for households by, for example, automatically enrolling customers receiving Low Income Home Energy Assistance Program (LIHEAP) in a utility’s low-income rate program. Even when consolidation isn't possible, the one-stop shop model can function as a “single front door” system: one point of contact screening households for all available programs, prepopulating applications, and coordinating scheduling to reduce the burden on residents. The District of Columbia's energy assistance programs use a single application to enroll households in both LIHEAP and the Utility Discount Program, routing eligible residents to weatherization services without a separate application. Chicago's Utility Billing Relief program partners with the nonprofit that administers LIHEAP in Cook County to conduct coordinated outreach and enrollment across both programs through a shared intake network.
- Require energy disclosure for rental housing at point of lease. Often, renters sign leases with no information about expected energy costs and only discover unaffordable bills after moving in. This reality means landlords have little market pressure to improve efficiency. Requiring landlords to disclose prior 12-month utility costs or to provide renters with insights on a unit’s energy performance at lease-signing allows renters to factor energy costs into housing decisions, creates market incentives for landlords to invest in efficiency, and generates useful data for weatherization programs. Currently, Austin, Texas requires disclosure of prior 12-month energy use at point of lease.
- Fund and strengthen state offices designated to advocate for consumers in utility proceedings. Utility bills are shaped by dozens of state regulatory decisions, such as capital spending approvals, cost allocations, and rate designs. These decisions require ratepayer input, represented by consumer advocates. However, consumer advocates, typically organized by state-designated offices (PDF), have limited capacity and resources, especially when compared with well-resourced utility companies. Funding mechanisms like state intervenor compensation programs (PDF) that bring in public voices and expert witnesses into regulatory proceedings can ensure customer voices are well represented and help consumer advocates challenge unjustified rate increases, scrutinize capital spending proposals, and push for affordable rate designs. These programs, typically funded through fees assessed on regulated utilities and administered through the state budget, can generate ratepayer savings that often dwarf the cost of consumer advocates themselves. Illinois’s Citizens Utility Board reports more than $20 billion in ratepayer savings since 1983, and California’s Public Advocates Office and the National Association of State Utility Consumer Advocates report similar return-on-investment ratios across states. To level the playing field, states can follow the lead of Colorado, Maine, Connecticut, and California to pass laws that prohibit investor-owned utilities from using ratepayer dollars for lobbying and other political activities.
- Provide discounted utility rates based on a household’s ability to pay. Low-income households often pay 8–10 percent of their income on energy, compared with the national average of roughly 3 percent. To bring bills in line with what households can actually afford, states can require utilities to offer income-based discounts, the strongest form of which is a percentage of income payment plan (PIPP). This program caps a household's utility bill at a fixed share of income—typically 3 to 6 percent—with utilities recovering the difference through broader rate design. Rate discounts and bill credits offer simpler alternatives: rate discounts reduce a household’s per-unit energy price or total bill by a set percentage, whereas bill credits apply a fixed monthly dollar discount. Both are easier to administer than PIPPs but less precisely tied to ability to pay. Because PIPP payments are set to an amount households can actually afford, they prevent new arrears from accumulating in the first place. Ohio’s PIPP Plus builds in automatic arrearage credits with each on-time payment, and it eliminated more than $500 million in low-income utility arrears in its first full year. Pennsylvania’s Utility Assistance Program is one of the longest-running PIPPs in the country and serves more than 317,000 electric customers and approximately 181,000 natural gas customers, and New Jersey’s Universal Service Fund enrolled over 252,000 households and forgave nearly $8 million in arrears in a single year through its Fresh Start component. California’s CARE program and New York’s Energy Affordability Program offer strong bill-credit models.
- Reform rate design to reduce the burden of fixed charges. Most utility rate structures were designed decades ago and haven’t been updated since. Flat fixed charges—which are the same regardless of how much energy a household uses or how much it earns—fall hardest on low-usage and low-income households. This problem has grown as utilities have increased fixed charges to recover rising infrastructure costs. States can require income-indexed fixed charges that vary based on a household’s ability to pay. They can also reduce ratepayers’ exposure to infrastructure cost recovery by requiring utilities to finance a greater share of capital investments through bonds rather than utility surcharges, lowering the cost of capital and smoothing cost impacts over time. Recent legislation in California takes both approaches: California’s AB 205 (2022) directs the California Public Utilities Commission to develop an income-based fixed charge to replace volumetric rates, and SB 254 (2025) requires the state’s three investor-owned utilities to finance a larger share of their grid investments through bonds.
- Introduce separate tariffs for data centers. With data center electricity demand projected to double or triple by 2030, state utility commissions can design data center–specific tariffs charged to large-load customers that reflect the actual infrastructure costs imposed so that residential ratepayers don’t pick up the bill. A Synapse Energy Economics study on Virginia found that requiring data centers to pay their full infrastructure costs could save residential ratepayers $5 billion between 2026 and 2030. In the tariff design, states can include longer contract terms to deter speculative development, exit fees and collateral requirements to protect against stranded assets, minimum billing provisions to ensure data centers pay for the majority of contracted capacity regardless of actual usage, and conditions for data centers to “bring their own generation,” requiring them to procure or build dedicated power supply rather than drawing solely from the shared grid. While more than 65 large‑load tariffs have been proposed or approved across over 30 states, specific provisions vary widely. Michigan required data centers to pay the full upgrade costs. Georgia's Public Service Commission approved rules requiring data centers to cover not just their direct power costs but also the upstream generation and transmission upgrade costs. Minnesota's HF 16, passed in 2025, links data center tax exemptions to energy efficiency compliance and directs annual data center facility fees toward weatherization and conservation programs for other ratepayers.
- Maximize utilization of the existing grid. The US grid operates at roughly half its capacity on average, meaning there is significant room to expand output without the cost of new construction. Grid-enhancing technologies, such as dynamic line ratings, advanced conductors, and power flow controls, can add 30 to 40 percent more capacity to existing lines. Moreover, virtual power plants that aggregate distributed resources, such as batteries, solar, and smart appliances, can reduce peak demand without new generation. Together, these tools let utilities do more with the grid already in place, before passing the cost of new infrastructure to ratepayers. However, under traditional cost-of-service regulation, utilities earn a return on capital investment but not on operational improvements, creating a financial incentive to build new infrastructure rather than deploy grid-enhancing technologies. Pairing grid utilization requirements with performance-based incentives can help correct this misalignment. Virginia recently passed bipartisan legislation requiring its major utilities to measure grid utilization and develop plans to deploy non-wires alternatives before greenlighting new construction—a model other states can follow. States and utilities can also apply for federal SPARK program funding to accelerate deployment of these technologies using existing rights-of-way.
- Adopt performance-based regulation to align business models with ratepayer outcomes. Under traditional cost-of-service regulation, utilities earn an authorized return on capital expenditure, meaning the more they spend, the more they earn. This creates an incentive to build expensive infrastructure rather than find cheaper solutions, driving up household utility bills. Performance-based regulation ties a portion of utility earnings to outcomes—affordability, reliability, customer satisfaction, and emissions reductions—incentivizing utilities to find the cheapest path for each goal. Hawaii’s performance incentive mechanisms tie a portion of utility earnings to a series of energy affordability metrics, including energy burden for low- to moderate-income households, payment arrangement plans, and disconnection rates. New York’s Grid Connect has adopted a similar framework.
- Require all-source procurement before approving new utility capital spending. All-source procurement requirements force utilities to solicit and evaluate bids from efficiency programs, demand response, and distributed resources alongside conventional generation before approving new supply, ensuring the lowest-cost resource wins. Colorado’s integrated resource planning rules require utilities to demonstrate that demand-side resources have been fully evaluated before approving new generation—a model that has surfaced cheaper alternatives. Hawaii’s competitive bidding framework has consistently selected combinations of renewables and demand response.
- Require integrated resource planning with explicit affordability analysis. Utilities’ long-term resource plans, which determine what gets built over the next 20 years and the cost to ratepayers, rarely require utilities to model or justify the plan’s effects on household-level energy affordability. States can require utilities to include affordability impact analysis that models how proposed spending would affect different household income levels, with particular attention to those least able to absorb cost increases. To ensure affordability, states can go beyond disclosure by mandating utilities demonstrate that demand-side alternatives were fully evaluated before approving new supply, and that they propose mitigation strategies when plans are found to worsen affordability. Colorado mandates that plans include a low-income customer impact analysis. Minnesota mandates explicit affordability analysis and requires utilities to evaluate alternatives to infrastructure expansion and prioritize investments in low-income communities. Washington’s Clean Energy Transformation Act mandates a holistic approach to integrated resource planning, requiring utilities to assess and track benefits and reductions of burdens for vulnerable populations, as well as public health and environmental benefits, costs, and risks.
- Strengthen utility shutoff moratoriums and seasonal protections. Utility shutoffs affected 3.5 million households in 2024 and may have affected 4 million in 2025. Disconnection rates are highest in summer and winter—seasons when households spend the most on heating and cooling and when a lack of power is most life-threatening. While most states have some winter shutoff protections, less than half extend them to summer heat. State utility commissions can prohibit disconnections during extreme heat and cold, require payment extension arrangements before shutoff, and mandate proactive outreach to medically vulnerable households—all without appropriation. These protections can prevent customers from entering a utility debt spiral that poses serious financial and health consequences for households and significant administrative costs for utilities. New Jersey's Winter Termination Program protects low-income customers from disconnection during extreme weather months, with approximately 284,000 households protected under the program in 2024–25. The state’s recently expanded Summer Termination Program will now protect eligible households from June 15 through August 31. Illinois requires a winter moratorium from December through March and mandates payment plans before disconnecting. California has among the strongest protections nationally.
- Establish state LIHEAP backstop funds. Federal Low Income Home Energy Assistance Program (LIHEAP) funding reaches fewer than 1 in 5 eligible households. Currently, the program faces political and administrative challenges, including threats to reduce funding levels and eliminate federal staff. Only a handful of states currently supplement LIHEAP to offer energy assistance benefits. To shore up resources for energy-burdened households, states can establish independently funded energy assistance programs that operate with or without federal dollars. These state programs can provide a guaranteed floor for the lowest-income households and fill the gap for those above LIHEAP income limits who still face unaffordable energy costs. Energy Outreach Colorado and Illinois’s LIHEAP program have both developed state funding streams that supplement or substitute federal LIHEAP dollars. To prevent regressive funding structures for energy assistance programs, states can consider using revenue sources that sit outside of utility ratemaking processes, such as progressive income taxes or general fund allocations. If they choose to rely on utility surcharges, states can require structures that operate on a sliding scale rather than fixed charges.
- Expand state weatherization assistance. Federal weatherization assistance has the potential to save households an average of $372 per year on energy bills, but 1 in 5 income-eligible households cannot enroll in these programs until they address structural issues, such as roof leaks, electrical hazards, or mold. State-funded weatherization readiness programs can help households make repairs so they can qualify for federal assistance and realize those savings. State weatherization programs that supplement the federal program can also help reach the millions of moderate-income households—particularly renters—who earn too much to qualify for federal assistance but still face significant energy burdens. New York’s EmPower+ program serves households up to 80 percent of area median income, well above federal limits, and has delivered significant energy bill reductions. Illinois’s energy efficiency program and Energy Outreach Colorado serve similar above-income-limit populations.
- Expand on-bill financing for efficiency upgrades. Household efficiency upgrades can lower energy bills, but the households most in need are often the least able to pay, and landlords have little financial incentive to invest in improvements that reduce tenant bills rather than their own. Tariffed on-bill financing programs allow households or landlords to repay efficiency upgrade costs through their utility bill over time, with repayments designed to be less than bill savings so participants save money from day one. Because repayment is tied to the meter rather than the tenant, these programs can address the split incentive, passing the savings on to the next occupant and ensuring funding sustainability when the tenant moves out. The average default rate for on-bill financing programs is less than 0.1 percent.
- Enable community solar programs with low-income carve-outs. Community solar programs allow households to subscribe to a share of an off-site solar array and receive bill credits for their share of generation. States can pass legislation that enables community solar programs (as 23 states have done) and require that they include meaningful low-income provisions (as 14 states have done). According to the Department of Energy, well-designed low-income community solar programs can deliver at least 20 percent savings on household utility bills. Illinois’s Solar for All program provides free community solar subscriptions to low-income households with bill savings, and Minnesota’s community solar garden program is among the largest in the country by installed capacity.
- Expand distributed energy resources to low-income households. Distributed energy resources—rooftop solar, battery storage, heat pumps, and smart thermostats—can reduce household energy bills and provide resilience during outages. However, households with the highest energy burden are often least able to access them. Launching state-level Solar for All programs that build on the infrastructure created for the short-lived federal Solar for All program can help bring the benefits of residential solar to the households that need it most. The Environmental Protection Agency projected the federal Solar for All program would have saved enrolled households an average of $400 per year on electricity bills, equivalent to more than $8 billion in cumulative savings over the lifetime of the solar installation. Broadening the state programs to include energy-storage, efficient appliances, and other smart distributed energy resources can help deliver a wider range of bill-reducing technology and expand the grid’s demand flexibility infrastructure.
- Fund and staff the Low Income Home Energy Assistance Program (LIHEAP). LIHEAP is the federal government’s primary tool for helping low-income households pay energy bills, yet it reaches fewer than 1 in 5 eligible households. Most families access the program only after they’re in crisis—when they’ve fallen behind on payments or received a disconnection notice—rather than as a preventive tool for managing energy costs. Deep cuts to LIHEAP staff and proposals to eliminate funding under the Trump administration have left states to administer the program without adequate support amid uncertainty about its future. Ensuring that LIHEAP has adequate staff and funding offers a clear first step to addressing rising energy affordability concerns among those least able to pay. Federal policymakers can improve the effectiveness of the program by increasing funding to levels that reflect household needs and enabling states to use funding for both crisis prevention and crisis response. They can also strengthen the program by updating the funding formula to better reflect the nation’s cooling needs and the changing distribution of energy burden across the country, particularly as extreme heat becomes a growing driver of energy insecurity in the South and Southwest.
- Fund and expand the Weatherization Assistance Program (WAP). Millions of households live in poorly insulated, inefficient homes that drive up their utility bills. According to Department of Energy, WAP currently serves approximately 35,000 homes per year, yet an estimated 39.5 million households are federally eligible for assistance. Unlike bill assistance, improvements made through WAP—such as insulation and air sealing—permanently reduce consumption. To reach more households, federal policymakers can remove per-unit spending caps and link WAP to federal housing programs. They can also complement WAP with flexible repair financing, such as grants and forgivable loans to states and localities for whole-home repairs. Pennsylvania’s Whole-Home Repairs Program offers a proven model, having repaired more than 1,150 homes and benefiting more than 5,600 residents as of mid-2024. It has a wait list of nearly 18,200, demonstrating how far demand outpaces available funding.
- Weave energy affordability into federal housing programs. Federal housing programs invest hundreds of billions in housing for low-income families without requiring or incentivizing energy efficiency, leaving residents in homes with high and rising energy bills. Requiring energy performance standards as a condition for federal housing funding and integrating efficiency into federal underwriting would turn every federal housing dollar into an affordability dollar. While energy efficiency standards may make housing more costly to build for developers, in the long run, they reduce housing costs for owners and tenants. The Department of Housing and Urban Development’s Green and Resilient Retrofit Program funded energy retrofits in federally assisted multifamily housing before funding was frozen in 2025. Early results showed average energy cost reductions of 20 to 30 percent in upgraded properties.
- Create incentives for residential energy efficiency and electrification. Federal tax credits for energy efficiency upgrades and energy-efficient construction are key federal tools for reducing household energy costs through efficiency. Federal policymakers can target existing housing through rebates to homeowners and building owners to upgrade to more efficient appliances and heating and cooling systems, and target new construction through rebates to builders if they build to high efficiency standards. Redesigning these incentives as direct rebates rather than tax credits can ensure that efficiency investments reach households across the income spectrum, rather than just households with sufficient tax liability. The Efficiency Maine program and Rhode Island’s clean heating and cooling incentives offer direct rebate models.
- Expand federal investment and production tax credits for clean energy. The federal investment tax credit (ITC) and production tax credit (PTC) were designed to lower the cost to build new solar, wind, and storage projects, directly reducing the wholesale power prices utilities pay and pass on to ratepayers. Their elimination under the One Big Beautiful Bill Act could cause energy bills to rise by 10 percent by 2040. Wind and solar have near-zero marginal cost once built, so adding more wind and solar energy to the generation mix lowers average prices for all households. Increasing renewable energy sourcing can also help utilities reduce ratepayers’ exposure to the price volatility of fuel-based sources like natural gas. Before repeal, the ITC and PTC drove record utility-scale solar additions in 2023; bipartisan coalitions in Congress have signaled interest in restoration.
- Pass comprehensive permitting reform to accelerate clean energy deployment. New clean energy projects and transmission lines face permitting timelines of 5–10 years or more, adding costs and uncertainty that inflate the ultimate price consumers pay. Sufficiently staffing and funding review agencies while reforming elements of the National Environmental Policy Act can reduce development timelines to 2–3 years and bring new energy supply online faster. Specific reforms could include establishing the Federal Energy Regulatory Commission as lead review agency for federal transmission reviews, constraining the statute of limitations for judicial review to streamline timelines and improve project certainty, codifying a technology-neutral prohibition on retroactive permit or lease cancellations, and expanding some categorical exclusions on federal land.
- Invest in and coordinate interregional transmission build out. Abundant low-cost clean energy, particularly wind in the Midwest and Great Plains, cannot reach the demand centers where electricity is most expensive because of a lack of transmission infrastructure. This leaves cheap power stranded and ratepayers in constrained regions paying more than necessary. Investing in new high-voltage interregional transmission lines can connect low-cost generation regions to high-demand areas, reducing congestion costs and price spikes. With greater transmission expansion, electricity system costs are estimated to reduce by $270–$490 billion through 2050. The Federal Energy Regulatory Commission’s Order No. 1920 requires long-term transmission planning across regions and establishes cost allocation principles to ensure beneficiaries pay their fair share. Federal policymakers can complement the enforcement of this order with sustained investment in transmission infrastructure, so states and regional transmission operators can build out the transmission needed to expand low-cost energy supply. States can also act independently to accelerate federal progress by passing permitting reform to streamline siting and approval of new transmission lines and establishing revolving loan funds to finance local clean energy transmission build-out.