A4844 1R

An Act concerning building electrification and ¹decarbonization, amending and¹ supplementing P.L.2018, c.17 ¹[(C.48:3-87.8 et al.)] , and amending P.L.1999, c.23¹.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. ¹(New Section)¹ a. For the purposes of this section:

“Beneficial ¹building¹ electrification ¹and decarbonization¹” means a change in end-use equipment from a nonelectric type to an efficient electric type for any building end use, including water heating, space heating, industrial process, or transportation, provided that the change: reduces ¹[cost] costs¹ from a societal perspective; reduces greenhouse gas ¹[emission] emissions¹; or promotes the increased use of the electric grid in off-peak hours.

“Cost effective” means any beneficial ¹building¹ electrification ¹and decarbonization¹ program having a benefit-cost ratio of greater than one ¹[, consistent with the New Jersey Cost Test for Energy Efficiency adopted by the board,] from a societal perspective, which benefit-cost ratio shall include the environmental benefits of reducing greenhouse gas emissions, including methane emissions,¹ and any additional factors the board ¹[determines are] deems¹ necessary to achieve the goals of this section.

¹“Electric public utility” means the same as that term is defined in section 3 of P.L.1999, c.23 (C.48:3-51).

“Gas public utility” means the same as that term is defined in section 3 of P.L.1999, c.23 (C.48:3-51).¹

b. No later than ¹[one year] two years¹ after the date of enactment of this section, the Board of Public Utilities shall adopt, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations establishing a beneficial building electrification ¹and decarbonization¹ program. As part of the program adopted pursuant to this section, the board ¹, in consultation with the Department of Environmental Protection,¹ shall develop ¹Statewide¹ greenhouse gas emission reduction targets for beneficial building electrification ¹[programs implemented by each electric public utility in the State and require electric public utilities] and decarbonization programs, which targets shall be consistent with the energy master plan adopted pursuant to section 12 of P.L.1977, c.146 (C.52:27F-14). The Statewide targets shall be met through beneficial building electrification and decarbonization programs administered by electric public utilities, gas public utilities, State administrators of energy efficiency programs, or any combination thereof as determined by the board. The board shall assign individual greenhouse gas emission reduction targets to the applicable electric public utilities, gas public utilities, and State administrators of energy efficiency programs and shall require these electric public utilities, gas public utilities, and State administrators¹ to prepare and implement beneficial building electrification ¹[plans] and decarbonization programs¹ . The board shall:

(1) establish ¹, in consultation with the Department of Environmental Protection, Statewide¹ beneficial building electrification ¹and decarbonization¹ program targets expressed in the amount of on-site ¹or source-produced¹ greenhouse gas emission reductions;

(2) establish program design elements and minimum filing requirements to achieve the ¹[goals of the energy master plan adopted pursuant to section 12 of P.L.1977, c.146 (C.52:27F-14)] beneficial building electrification and decarbonization program targets¹;

(3) establish a cost recovery ¹[and performance incentive]¹ mechanism for ¹the implementation of beneficial building electrification and decarbonization¹ programs established under this section;

(4) determine whether ¹[the]¹ electric public utilities ¹, gas public utilities,¹ or the board shall be responsible for the implementation of ¹beneficial¹ building electrification ¹and decarbonization¹ programs for new construction; and

(5) ¹[develop and] require beneficial building electrification and decarbonization programs to¹ provide ¹[direct]¹ incentives ¹[for] to accelerate¹ the installation of electric heat pumps ¹and other efficient equipment;

(6) establish targets for each electric public utility, gas public utility, and State administrator of an energy efficiency program. These targets shall collectively require the amount of on-site or source-produced greenhouse gas emission reductions necessary to meet the Statewide beneficial building electrification and decarbonization program targets, less greenhouse gas reductions attributable to other funding sources or occurring outside of the public utility and State programs, which shall not be counted toward achievement of the targets;

(7) establish provisions to help low- and moderate-income customers to access beneficial building electrification and decarbonization programs and other programs related to energy efficiency and energy bill reduction;

(8) establish standards to ensure that residential and commercial customers, including residential customers in multi-family housing, are able to participate in beneficial building electrification and decarbonization programs;

(9) include, where practical, provisions to enhance load management, including demand response; and

(10) require electric public utilities, gas public utilities, and the State to facilitate, when applicable, customer access to any other available funding for electrification and decarbonization measures and any related programs in order to maximize the deployment of these related programs and improve customer access to available funding for electrification and decarbonization measures; and

(11) require electric public utilities, gas public utilities, and State administrators of energy efficiency programs to seek any available federal funding for the beneficial building electrification and decarbonization programs created pursuant to this section prior to leveraging other funding sources, which shall include, but not be limited to, the cost recovery mechanism established by the board pursuant to paragraph (3) of this subsection¹.

c. ¹(1)¹ Each electric public utility ¹and gas public utility¹ shall develop and submit to the board for approval, a multi-year beneficial building electrification ¹and decarbonization¹ plan to achieve the targets established in subsection b. of this section. To qualify for approval, ¹[an electricity public utility] a¹ plan shall:

¹[(1)] (a)¹ meet or exceed on-site ¹or source-produced¹ greenhouse gas emission reduction targets set by the board; and

¹[(2)] (b)¹ be cost effective ¹[from a societal perspective utilizing a cost-effectiveness test that includes consideration of the environmental benefits of reducing greenhouse gas emissions, including methane emissions] , except that programs serving low- and moderate-income customers may have a benefit-cost ratio of less than 1.0.

(2) Any beneficial building electrification and decarbonization program established by a State administrator of an energy efficiency program shall also be required to meet the requirements of paragraph (1) of this subsection¹.

d. A beneficial building electrification ¹and decarbonization¹ plan may meet the greenhouse gas emission reduction targets set by the board pursuant to subsection b. of this section through the following means:

(1) conversion of fossil fuel-based space and water heating systems, including natural gas and propane systems as well as other unregulated fuels, to systems that employ high-efficiency electric heat pumps;

(2) replacement of fossil fuel ¹-¹ based appliances with high-efficiency electric appliances such as induction cooking ranges and heat-pump clothes dryers;

(3) conversion of fossil fuel-based industrial equipment or processes to energy-efficient ¹,¹ electric-powered equipment or processes; or

(4) market transformation programs aimed at educating and training contractors to ¹[use] plan for and install¹ appliances, equipment, and systems that are ¹[high-efficiency] high efficiency¹.

¹e. As part of the beneficial building electrification and decarbonization program established pursuant to this section, the board may require electric public utilities or gas public utilities to submit filings for investments in pilot projects for the development of utility-scale renewable thermal energy networks.

(1) Notwithstanding any law, rule, regulation, or order to the contrary, for pilot projects submitted pursuant to this subsection, the board may approve recovery of costs for projects that are designed to demonstrate the costs and benefits of:

(a) utility-scale renewable thermal energy sources, systems, or technologies capable of substituting for fossil-based natural gas; or

(b) utility-scale renewable thermal energy replacements for, or alternative uses of, infrastructure constructed originally to generate, transmit, or distribute fossil-based natural gas.

In order to be eligible for approval by the board, the substitute renewable thermal energy sources, systems, or technologies, and the replacements or alternative uses of natural gas infrastructure, shall have a reasonable likelihood of facilitating substantial reductions in greenhouse gas emissions, and the pilot projects shall not include the blending of other fuels with fossil-based natural gas.

(2) Notwithstanding any law, rule, regulation, or order to the contrary, the board may, within a pilot project established pursuant to this section, permit a gas public utility to bill for thermal energy.

(3) In determining whether to approve a pilot project, the board shall consider the reasonableness of the size, scope, and scale of the pilot project and related budget and whether the benefits of the proposed pilot project justify the proposed cost to both participating and non-participating customers. However, the calculation of benefits shall include calculations of the social value of greenhouse gas emission reductions.

f. Notwithstanding the provisions of P.L.2018, c.17 (C.48:3-87.8 et al) to the contrary, any increase in the use of electricity due to the beneficial building electrification and decarbonization program established pursuant to this section shall not be counted against the achievement of targets for reductions in the use of electricity pursuant to P.L.2018, c.17 (C.48:3-87.8 et al).¹

¹2. Section 12 of P.L.1999, c.23 (C.48:3-60) is amended to read as follows:

12. a. Simultaneously with the starting date for the implementation of retail choice as determined by the board pursuant to subsection a. of section 5 of P.L.1999, c.23 (C.48:3-53), the board shall permit each electric public utility and gas public utility to recover some or all of the following costs through a societal benefits charge that shall be collected as a non-bypassable charge imposed on all electric public utility customers and gas public utility customers, as appropriate:

(1) The costs for the social programs for which rate recovery was approved by the board prior to April 30, 1997. For the purpose of establishing initial unbundled rates pursuant to section 4 of P.L.1999, c.23 (C.48:3-52), the societal benefits charge shall be set to recover the same level of social program costs as is being collected in the bundled rates of the electric public utility on the effective date of P.L.1999, c.23 (C.48:3-49 et al.). The board may subsequently order, pursuant to its rules and regulations, an increase or decrease in the societal benefits charge to reflect changes in the costs to the utility of administering existing social programs. Nothing in P.L.1999, c.23 (C.48:3-49 et al.) shall be construed to abolish or change any social program required by statute or board order or rule or regulation to be provided by an electric public utility. Any such social program shall continue to be provided by the utility until otherwise provided by law, unless the board determines that it is no longer appropriate for the electric public utility to provide the program, or the board chooses to modify the program;

(2) Nuclear plant decommissioning costs;

(3) The costs of demand side management programs that were approved by the board pursuant to its demand side management regulations prior to April 30, 1997. For the purpose of establishing initial unbundled rates pursuant to section 4 of P.L.1999, c.23 (C.48:3-52), the societal benefits charge shall be set to recover the same level of demand side management program costs as is being collected in the bundled rates of the electric public utility on the effective date of P.L.1999, c.23 (C.48:3-49 et al.). Within four months of the effective date of P.L.1999, c.23 (C.48:3-49 et al.), and every four years thereafter, the board shall initiate a proceeding and cause to be undertaken a comprehensive resource analysis of energy programs, and within eight months of initiating such proceeding and after notice, provision of the opportunity for public comment, and public hearing, the board, in consultation with the Department of Environmental Protection, shall determine the appropriate level of funding for energy efficiency, light, medium, and heavy-duty plug-in electric vehicles, including school buses, and associated plug-in electric vehicle charging infrastructure, [and] Class I renewable energy programs that provide environmental benefits above and beyond those provided by standard offer or similar programs in effect as of the effective date of P.L.1999, c.23 (C.48:3-49 et al.) [; provided that the] , and the beneficial building electrification and decarbonization program established pursuant to section 1 of P.L , c. (C. ) (pending before the Legislature as this bill). The funding for such programs shall be no less than 50 percent of the total Statewide amount being collected in electric and gas public utility rates for demand side management programs on the effective date of P.L.1999, c.23 (C.48:3-49 et al.) for an initial period of four years from the issuance of the first comprehensive resource analysis following the effective date of P.L.1999, c.23 (C.48:3-49 et al.), and [provided that] 25 percent of this amount shall be used to provide funding for Class I renewable energy projects in the State. In each of the following fifth through eighth years, the Statewide funding for such programs shall be no less than 50 percent of the total Statewide amount being collected in electric and gas public utility rates for demand side management programs on the effective date of P.L.1999, c.23 (C.48:3-49 et al.), except that as additional funds are made available as a result of the expiration of past standard offer or similar commitments, the minimum amount of funding for such programs shall increase by an additional amount equal to 50 percent of the additional funds made available, until the minimum amount of funding dedicated to such programs reaches $140,000,000 total. After the eighth year, the board shall make a determination as to the appropriate level of funding for these programs. Such programs shall include a program to provide financial incentives for the installation of Class I renewable energy projects in the State, and the board, in consultation with the Department of Environmental Protection, shall determine the level and total amount of such incentives as well as the renewable technologies eligible for such incentives which shall include, at a minimum, photovoltaic, wind, and fuel cells. The board shall simultaneously determine, as a result of the comprehensive resource analysis, the programs to be funded by the societal benefits charge, the level of cost recovery and performance incentives for old and new programs and whether the recovery of demand side management programs’ costs currently approved by the board may be reduced or extended over a longer period of time. The board shall make these determinations taking into consideration existing market barriers and environmental benefits, with the objective of transforming markets, capturing lost opportunities, making energy services more affordable for low income customers and eliminating subsidies for programs that can be delivered in the marketplace without electric public utility and gas public utility customer funding;

(4) Manufactured gas plant remediation costs, which shall be determined initially in a manner consistent with mechanisms in the remediation adjustment clauses for the electric public utility and gas public utility adopted by the board; and

(5) The cost [,] of consumer education, as determined by the board, which shall be in an amount that, together with the consumer education surcharge imposed on electric power supplier license fees pursuant to subsection h. of section 29 of P.L.1999, c.23 (C.48:3-78) and the consumer education surcharge imposed on gas supplier license fees pursuant to subsection g. of section 30 of P.L.1999, c.23 (C.48:3-79), shall be sufficient to fund the consumer education program established pursuant to section 36 of P.L.1999, c.23 (C.48:3-85).

b. There is established in the Board of Public Utilities a nonlapsing fund to be known as the “Universal Service Fund.” The board shall determine: the level of funding and the appropriate administration of the fund; the purposes and programs to be funded with monies from the fund; which social programs shall be provided by an electric public utility as part of the provision of its regulated services which provide a public benefit; whether the funds appropriated to fund the “Lifeline Credit Program” established pursuant to P.L.1979, c.197 (C.48:2-29.15 et seq.), the “Tenants’ Lifeline Assistance Program” established pursuant to P.L.1981, c.210 (C.48:2-29.30 et seq.), the funds received pursuant to the Low Income Home Energy Assistance Program established pursuant to 42 U.S.C. s.8621 et seq., and funds collected by electric and gas public utilities, as authorized by the board, to offset uncollectible electricity and natural gas bills should be deposited in the fund; and whether new charges should be imposed to fund new or expanded social programs.¹

(cf: P.L.2022, c.86, s.2)

¹3. Section 3 of P.L.2018, c.17 (C.48:3-87.9) is amended to read as follows:

3. a. No later than one year after the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), the Board of Public Utilities shall require each electric public utility and gas public utility to reduce the use of electricity, or natural gas, as appropriate, within its territory, by its customers, below what would have otherwise been used. For the purposes of this section, a gas public utility shall reduce the use of natural gas for residential, commercial, and industrial uses [,] but shall not be required to include a reduction in natural gas used for distributed energy resources such as combined heat and power.

Each electric public utility shall be required to achieve annual reductions in the use of electricity of two percent of the average annual usage in the prior three years within five years of implementation of its electric energy efficiency program. Each natural gas public utility shall be required to achieve annual reductions in the use of natural gas of 0.75 percent of the average annual usage in the prior three years within five years of implementation of its gas energy efficiency program. The amount of reduction mandated by the board that exceeds two percent of the average annual usage for electricity and 0.75 percent of the average annual usage for natural gas for the prior three years shall be determined pursuant to the study conducted pursuant to subsection b. of this section until the reduction in energy usage reaches the full economic, cost-effective potential in each service territory, as determined by the board.

b. No later than one year after the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), the board shall conduct and complete a study to determine the energy savings targets for full economic, cost-effective potential for electricity usage reduction and natural gas usage reduction as well as the potential for peak demand reduction by the customers of each electric public utility and gas public utility and the timeframe for achieving the reductions. The energy savings targets for each electric public utility and gas public utility shall be reviewed every three years to determine if the targets should be adjusted. The board, in conducting the study, shall accept comments and suggestions from interested parties.

c. No later than one year after the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), the board shall adopt quantitative performance indicators pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) , for each electric public utility and gas public utility, which shall establish reasonably achievable targets for energy usage reductions and peak demand reductions and take into account the public utility's energy efficiency measures and other non-utility energy efficiency measures including measures to support the development and implementation of building code changes, appliance efficiency standards, the Clean Energy program, any other State-sponsored energy efficiency or peak reduction programs, and public utility energy efficiency programs that exist on the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.). In establishing quantitative performance indicators, the board shall use a methodology that incorporates weather, economic factors, customer growth, outage-adjusted efficiency factors, and any other appropriate factors to ensure that the public utility's incentives or penalties determined pursuant to subsection e. of this section and section 13 of P.L.2007, c.340 (C.48:3-98.1) are based upon performance [,] and take into account the growth in the use of electric vehicles, building electrification and decarbonization, microgrids, and distributed energy resources. In establishing quantitative performance indicators, the board shall also consider each public utility's customer class mix and potential for adoption by each of those customer classes of energy efficiency programs offered by the public utility or that are otherwise available. The board shall review each quantitative performance indicator every three years. A public utility may apply all energy savings attributable to programs available to its customers, including demand side management programs, other measures implemented by the public utility, non-utility programs, including those available under energy efficiency programs in existence on the date of enactment of P.L.2018, c.17 (C.48:3-87.8 et al.), building codes, and other efficiency standards in effect, to achieve the targets established in this section.

d. (1) Each electric public utility and gas public utility shall establish energy efficiency programs and peak demand reduction programs to be approved by the board no later than 30 days prior to the start of the energy year in order to comply with the requirements of this section. The energy efficiency programs and peak demand reduction programs adopted by each public utility shall comply with quantitative performance indicators adopted by the board pursuant to subsection c. of this section.

(2) The energy efficiency programs and peak demand reduction programs shall have a benefit-to-cost ratio greater than or equal to 1.0 at the portfolio level, considering both economic and environmental factors, and shall be subject to review during the stakeholder process established by the board pursuant to subsection f. of this section. The methodology, assumptions, and data used to perform the benefit-to-cost analysis shall be based upon publicly available sources and shall be subject to stakeholder review and comment. A program may have a benefit-to-cost ratio of less than 1.0 but may be appropriate to include within the portfolio if implementation of the program is in the public interest, including, but not limited to, benefitting low-income customers or promoting emerging energy efficiency technologies.

(3) Each electric public utility and gas public utility shall file with the board implementation and reporting plans as well as evaluation, measurement, and verification strategies to determine the energy usage reductions and peak demand reductions achieved by the energy efficiency programs and peak demand reduction programs approved pursuant to this section. The filings shall include details of expenditures made by the public utility and the resultant reduction in energy usage and peak demand. The board shall determine the appropriate level of reasonable and prudent costs for each energy efficiency program and peak demand reduction program.

e. (1) Each electric public utility and gas public utility shall file an annual petition with the board to demonstrate compliance with the energy efficiency and peak demand reduction programs, compliance with the targets established pursuant to the quantitative performance indicators, and for cost recovery of the programs, including any performance incentives or penalties, pursuant to section 13 of P.L.2007, c.340 (C.48:3-98.1). Each electric public utility and gas public utility shall file annually with the board a petition to recover on a full and current basis through a surcharge all reasonable and prudent costs incurred as a result of energy efficiency programs and peak demand reduction programs required pursuant to this section, including but not limited to recovery of and on capital investment, and the revenue impact of sales losses resulting from implementation of the energy efficiency and peak demand reduction schedules, which shall be determined by the board pursuant to section 13 of P.L. 2007, c. 340 (C.48:3-98.1).

(2) If an electric public utility or gas public utility achieves the performance targets established in the quantitative performance indicators, the public utility shall receive an incentive as determined by the board through an accounting mechanism established pursuant to section 13 of P.L.2007, c.340 (C.48:3-98.1) for its energy efficiency measures and peak demand reduction measures for the following year. The incentive shall scale in a linear fashion to a maximum established by the board that reflects the extra value of achieving greater savings.

(3) If an electric public utility or gas public utility fails to achieve the reductions in its performance target established in the quantitative performance indicators, the public utility shall be assessed a penalty as determined by the board through an accounting mechanism established pursuant to section 13 of P.L.2007, c.340 (C.48:3-98.1) for its energy efficiency measures and peak demand reduction measures for the following year. The penalty shall scale in a linear fashion to a maximum established by the board that reflects the extent of the failure to achieve the required savings.

(4) The adjustments made pursuant to this subsection may be made through adjustments of the electric public utility's or gas public utility's return on equity related to the energy efficiency or peak demand reduction programs only, or a specified dollar amount, reflecting the incentive structure as established in this subsection. The adjustments shall not be included in a revenue or cost in any base rate filing and shall be adopted by the board pursuant to the "Administrative Procedure Act."

f. (1) The board shall establish a stakeholder process to evaluate the economically achievable energy efficiency and peak demand reduction requirements, rate adjustments, quantitative performance indicators, and the process for evaluating, measuring, and verifying energy usage reductions and peak demand reductions by the public utilities. As part of the stakeholder process, the board shall establish an independent advisory group to study the evaluation, measurement, and verification process for energy efficiency and peak demand reduction programs, which shall include representatives from the public utilities, the Division of Rate Counsel, and environmental and consumer organizations, to provide recommendations to the board for improvements to the programs.

(2) Each electric public utility and gas public utility shall conduct a demographic analysis as part of the stakeholder process to determine if all of its customers are able to participate fully in implementing energy efficiency measures, to identify market barriers that prevent such participation, and to make recommendations for measures to overcome such barriers. The public utility shall be entitled to full and timely recovery of the costs associated with this analysis.

g. For the purposes of this section, the board shall only consider usage for which public utility energy efficiency programs are applicable.¹

(cf: P.L.2018, c.17, s.3)

¹[2.] 4.¹ This act shall take effect immediately.