State Energy Program

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In the early stages of the American Recovery and Reinvestment Act, one particular program—the $3.1 billion State Energy Program—had more than its share of controversy. Eventually, however, every state and territory accepted the money, but some have been slow to spend those funds. Now, the clock is ticking: States have until April 30 to spend their remaining balances. Multiple 
reasons explain why the program was slow to get off the ground and why states have had difficulties spending their allocated funds.
 
The State Energy Program provided financial and technical assistance to states through formula and competitive grants.
  • The program was designed to allow states to use their formula grants to develop state strategies and goals to address their energy priorities, such as increasing energy efficiency to reduce energy costs and consumption, cutting reliance on imported energy and shrinking energy impacts on the environment.
  • According to the U.S. Department of Energy, the State Energy Program “emphasizes the state’s role as the decision maker and administrator for the program activities within the state.”
  • When states receive State Energy Program formula allocations, they are required to provide a 20 percent match. In addition to formula grants, the Department of Energy awards competitive grants to states for the adoption of energy efficiency and renewable energy products or technologies on an annual basis when funding is available.
  • Each award consists of two phases: States must first establish an energy savings and efficiency plan of at least 1 percent per year. The second phase requires states to execute their plan either through setting energy efficiency policies or standards. 
The clock is ticking to spend SEP funds.
  • On the national level, 75 percent of total funds allocated to the State Energy Program had been spent as of March 5, 2012, leaving more than $782 million.
  • Six states—Idaho, Indiana, Mississippi, Nevada, Pennsylvania and Wisconsin—have spent 90 percent or more of their allocated funds.
  • Alaska has been the slowest state to spend its funds, with more than 70 percent of the $28 million it received left to be spent. Kansas, however, is not too far behind, with just under 70 percent of its allocated funds remaining.
  • States must spend their funds by April 30, 2012, or those funds will be returned to the federal government.
Like many programs authorized in the Recovery Act, the State Energy Program faced its own set of initial impediments and delays.
  • The Recovery Act pumped more than $3 billion into a program that historically only received about $25 million in total federal funding. The sheer size and scope of the funding increase made it difficult for small state staffs to manage—a major reason states still have so much of their funding unspent.
  • The requirements of the Davis-Bacon Act, the National Historic Preservation Act,1 “Buy American” provisions, and the National Environmental Policy Act were applied for the first time ever by the Recovery Act to the State Energy Program; each set of requirements slowed down processes.

    • To access funds, states were required to change their building codes, as well as implement decoupling rate methodologies2 to encourage energy conservation by utilities and customers.
    • According to a Department of Energy Inspector General report, the National Environmental Policy Act review process alone added two to three months to federal project approval, which slowed down the entire process.
    • States proposed larger, more expansive projects with increased stimulus money, which triggered the additional environmental review.3 In response to the project delays, the Department of Energy issued new environmental review guidance that reduced initial project delays from several months to only two or three weeks.

References:

1 The Davis-Bacon Act applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration or repair of public buildings or public works, according to the U.S. Department of Labor. Under the act, contractors and subcontractors must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.
2 Electricity rate decoupling allows utilities to charge a fair rate of return for improving energy efficiency or employing conservation technologies. Under previous state electricity rate structures, utilities could only recoup costs for building new power generation or transmission. Therefore, rate decoupling provides a financial incentive to invest in energy or efficiency saving measures.
3 Historically, project awards were so small they were “categorically excluded” from the act because of their de minimis impact.
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