User Guide
The Problem
Rising electricity costs are squeezing many American households.
Roughly one-third of American households report having to forgo food or other basic necessities to pay their energy bills, and these burdens are not distributed equitably. Elderly households, households of color, and families residing in low-income multifamily housing, manufactured housing, and older buildings face disproportionately high energy burdens.
Meanwhile, the problem is getting worse. Average electricity bills increased 4.5 percent annually from 2019 to 2024 — faster than inflation. Key drivers of increased electricity prices include aging grid infrastructure, extreme weather and wildfires, natural gas price volatility, load growth, and misaligned utility incentives.
Five Key Cost Drivers
Aging Grid Infrastructure
Utilities are ramping up spending on grid infrastructure, in part due to equipment reaching the end of its useful life. From 2003 to 2023, US transmission spending nearly tripled while investment in distribution infrastructure increased by 160%.
Load Growth
Without proper guardrails, load growth can drive up prices. A recent report found that load growth from data centers, manufacturing, and electrification could drive rates up by 15% to 40% by 2030, depending on the market.
Extreme Weather and Wildfires
Utilities pay to harden the electric grid and recover from extreme weather events. In California, for example, wildfire-related costs made up roughly 16% of utility revenues in 2022.
Fuel Price Volatility
Reliance on natural gas for power generation introduces affordability risks due to the fuel's inherent price volatility. Market disruptions caused by a major 2021 winter storm and Russia's invasion of Ukraine in 2022 caused massive spikes in the price of gas for electricity generation.
Misaligned Utility Incentives
Many utilities lack incentives to adopt new approaches or modern, cost-saving technologies. For example, widespread deployment of grid-enhancing technologies (GETs) on the transmission system could cut customer costs substantially, but they remain rare in the United States due to misaligned incentives.
What is electricity affordability?
This toolkit defines energy affordability as the ability of a household to pay its energy bills without facing undue financial hardship. This is often measured as energy burden: energy costs as a percentage of household income. Electricity costs make up much of a household's overall energy burden, constituting the majority for the average low-income US household. Those that earn less than or equal to 30% of area median income spend an average of 11% of their income on electricity with an additional 5% on gas or other fuels. A total energy burden of 6% is considered high while 10% is considered severe. While addressing a household's broader energy burden requires comprehensive solutions across energy sources, this toolkit focuses specifically on affordability within the electricity sector.
Fortunately, policy solutions are available to address high burdens and rising rates with massive potential benefits. For example, studies have projected the savings from virtual power plant-enabled resource portfolios to be about $140 per household per year for an illustrative state electricity system. The Energy Poverty Policy Simulator shows how simple policies focusing specifically on low-income households can reduce their bills by hundreds of dollars per year.
And depending on design, these policies can create benefits beyond cost savings, including increased resilience and security, better air quality and health, greater fairness, and job creation and economic development.
POLICY SOLUTIONS
This toolkit equips state policymakers and advocates with a structured and actionable set of electricity affordability policy solutions.
The toolkit provides guidance for state legislators, their staff, advocates, and others looking to advance electricity affordability via legislation at the state level. It covers more than two dozen policy solutions under three overarching themes, which together form a comprehensive framework for understanding electricity affordability and taking an organized approach to deploying solutions.
A subset of policies across the three themes of cost control, cost distribution, and customer agency can be designed to specifically safeguard vulnerable customers. Safeguard policies ensure low-to-moderate income customers are protected from disproportionate system costs.
Some policies fit into multiple themes. For example, low-income energy efficiency programs both provide customers with agency and help control system costs by reducing the need for new electricity infrastructure.
The toolkit focuses on actions that state legislatures can take rather than on regional or federal reforms (e.g., improved oversight of transmission planning by regional transmission organizations, federal legislation). Likewise, it enables users to filter policies by the relevant cost drivers, such as aging grid infrastructure and fuel price volatility. Understanding which cost drivers are relevant and within a state's control — and which are not — is essential for effective policymaking. By identifying where influence lies and assessing the relative impact of each driver, policymakers can prioritize actions that offer the greatest potential to improve affordability outcomes.
HOW TO USE THIS TOOLKIT
Interactive Filters
The toolkit presents an array of policies, and clicking allows users to view a greater level of detail or download a PDF version. Filters on the left side of the screen allow users to focus on a smaller subset of policies based on their interests, needs, and context, given that not all policies will be appropriate or immediately possible in all states. For example, in states with high load growth, users may filter policies based on the policy's relevance to load growth as a cost driver and then select among them which to focus on. The following policy parameters allow filtering:
1. Policy Theme
Indicates whether the policy uses Cost Control, Cost Distribution, and/or Customer Agency as its main mechanism(s) for advancing affordability.
2. Safeguards
Indicate whether the policy focuses specifically on protecting vulnerable customers from disproportionate system costs.
SAFEGUARD3. Impact Time Horizon
4. Target Cost Driver
Lists five common factors driving electricity prices that may be relevant in places where this policy is suitable: fuel price volatility, aging grid infrastructure, extreme weather and wildfires, load growth, and misaligned utility incentives. Note that for policies focused on customer agency, such as percentage of income payment plans, all potential cost drivers are marked as relevant. Most customer agency policies are designed to improve overall affordability rather than address specific cost drivers individually though there are some exceptions (e.g., virtual power plants directly addressing load growth).2
Narrative Components
In addition to the filterable parameters outlined above, each policy entry includes narrative components. Entries fall into three levels of detail — brief, standard, or in-depth, and some of these narrative elements are omitted in the shorter entries. Narrative sections may include:
- Context and background information
- Potential cost savings, denoting the level of cost savings that can reasonably be expected to result from this policy (low, medium, or high)3
- Real-world examples
- Legislative design and implementation considerations, including information on the role of legislatures in relation to regulators, administrations, and RTOs
- A deep dive case study
- Information for further reading
THE ROLES OF DIFFERENT ACTORS
A thoughtful process that considers the roles of all key actors can move policy from idea to impact.
Legislatures can craft effective policies by understanding their role within the broader ecosystem of decision makers shaping electricity affordability, which includes regulators, state administrations, and regional transmission organizations.
State legislatures can improve electricity affordability through, for example, clarifying or establishing regulatory authority, providing specific directives, or allocating funding in the budget to affordability programs. At the same time, legislation that is broad but not overly prescriptive allows regulators the flexibility to design and implement the most effective policies using their expertise. From state to state, the nature of the relationship between legislatures and commissions varies widely — from deep collaborations to more limited, formal interactions. Recognizing these differences, legislators can tailor their approach in a way that reinforces productive communication while respecting institutional norms.
Regulators and others are responsible for utility oversight under the legal and policy framework set by legislatures. This relationship allows legislatures to define priorities and goals while enabling commissions to work out the technical and administrative details effectively. Legislatures establish the “what” of electricity affordability policy while utility commissions determine the “how”, tailoring solutions to system needs and policy goals. Most formal interactions between legislatures and commissions occur through oversight committees (e.g., appointment confirmations or hearings), but much of the collaboration happens informally. Legislatures can strengthen affordability outcomes by cultivating spaces where commission staff can proactively share insights and challenges to allow legislators to respond with statutory or budgetary actions.
State administrations, through governors' offices and state energy offices (SEOs), can propose and shape legislation and support or implement electricity affordability goals. They do this by coordinating and convening stakeholders, setting and advancing high-level strategy, proposing budget support for specific policies, and designing or implementing programs. In some states, SEOs are housed within governors' offices, while in others they operate as independent entities, but in both structures, these administrative entities play a central role in policy implementation and fostering alignment with broader state priorities.
Regional transmission organizations (RTOs), meanwhile, shape market rules and system operations that affect the cost of electricity delivery. While they do not directly regulate retail prices, their decisions influence upstream system costs that utilities pass onto customers, making coordination between RTOs and state-level actors important for aligning affordability goals with policy and market design.
ACTIONS BEYOND THE TOOLKIT
Design policy to meet state goals and avoid unintended consequences.
Smart policy design can ensure that improving electricity system affordability involves a fair process and results in fair outcomes. For example, low-income rate design or wildfire mitigation policies may help certain customers or lower overall costs, but design decisions will make a big difference on the extent to which the policy addresses the magnitude or distribution of costs.
Some policies could even worsen affordability issues if not designed properly (e.g., a wildfire mitigation fund that unduly burdens ratepayers). Thoughtful policy design that incorporates customer safeguards and involves communities themselves in design and implementation can ensure that the impacts of a policy or suite of policies provide benefits as intended and do not cause unintentional harm to vulnerable people.
Electricity affordability solutions don't stop with the policies in this toolkit.
Policymakers can consider this toolkit one part of a comprehensive look at energy affordability. While this toolkit focuses on policies that address electricity affordability, it does not focus explicitly on policies that address other facets of energy affordability, such as vehicles or the use of gas at home, though these may be important components of a comprehensive energy affordability policy strategy.
This toolkit also focuses on discrete, actionable policies rather than broad policy approaches — such as financing, public utility commission (PUC) modernization, system planning, program cost-effectiveness frameworks, or interventions at the ISO/RTO level — though specific policies in the toolkit may align with or fall into such overarching strategies. Understanding how these approaches connect discrete policies (e.g., that X and Y both fall under PUC modernization) can support the policy development process.
Green municipal bonds — a policy included in the toolkit — are another example of a specific financing mechanism that falls within the broader approach of funding electricity affordability solutions via the tax base instead of the rate base. This distinction can affect both fairness and cost-effectiveness: since governments typically have access to lower-cost capital than utilities, tax-based funding may result in lower overall program costs.
As a result, it may be more equitable and cost-effective to pay for wildfire liability funds via the tax base or use green bonds, rather than bill charges, to pay for customer energy efficiency programs. In addition to green municipal bonds, a variety of other financial tools may also be deployed to lower and alter the distribution of costs, such as bulk procurement, reverse auctions, and securitization (also highlighted in this toolkit). In general, certain types of costs may be more appropriately covered by taxpayers than ratepayers, depending on who benefits from the investment, who can best bear the cost, and what financing structures are available.
Federal funding
The federal government offers a range of tax incentives and grant programs that support affordable electricity. States can leverage these programs to support and complement legislative efforts. For example, federally funded but state-administered programs like WAP and LIHEAP can serve as a component of a comprehensive low-income energy efficiency policy approach. States can also advertise, facilitate, and encourage uptake of other federal funding sources that they do not administer directly. Note that active changes at the federal level, including the rollback and curtailment of many programs as well as changing program guidance, may affect the accuracy of the information provided in these resources.
ADDITIONAL RESOURCES
The following additional resources can provide more information to guide the development of affordability policy:
- For a focused look at energy poverty, see We Can End Energy Poverty in the Electric Sector: Here's How.
- To understand the electricity affordability challenges in specific geographies, see the Low-Income Energy Affordability Data (LEAD) Tool.
- For more detail on actions that control utility costs, see A Strategic Framework for Utility Cost Control.
- For actions governors' offices can take, see US Governors Are Leading Efforts to Tackle the Cost of Electricity.
- For more information on regulatory tools that can help build a more affordable electricity grid, see The Nuts and Bolts of Performance-Based Regulation.