As the war in Iran drives up energy prices1 and as heat waves blanket much of the country,2 Americans’ electricity bills are rising.3 Energy efficiency improvements are some of the most cost-effective tools available to help make homes more comfortable and lower household energy costs.4 But while these improvements save households money over time,5 their upfront costs make them an easy target for policymakers seeking to lower consumers’ energy bills in the short term. In many states, utilities finance these investments through energy efficiency programs, reducing household energy use while making it easier to plan for and meet growing electricity demand without overbuilding new generation and grid infrastructure. When states fund these programs by tacking higher utility charges onto consumers’ bills, policymakers facing pressure to deliver immediate bill relief may target them for cuts—especially if the savings are not immediately apparent.
Therein lies an affordability trap: The public’s demand for immediate relief can entice policymakers to reduce or eliminate investments that keep energy bills lower over time in order to find savings today. Fortunately, states such as Rhode Island and Massachusetts, along with Washington, D.C., have recently rejected or reversed proposals to scale back energy efficiency investments, recognizing that short-term cuts to cost-effective investments can come at the expense of long-term affordability. In medicine, preventive care is cheaper than emergency treatment. Energy efficiency works in much the same way: States can skip the checkup, but they should not be surprised if the treatment ends up costing more down the road.
Why energy efficiency matters
The case for energy efficiency is well documented. States use different methodologies to measure benefits, but across the country, well-designed energy efficiency investments have consistently delivered customer savings that exceed their costs. For decades, many states and utilities have treated efficiency as a resource because the cheapest unit of electricity is often the one that never has to be generated. Recent analysis by the American Council for an Energy-Efficient Economy (ACEEE) found that energy efficiency could avoid roughly 70 gigawatts of unnecessary electricity demand in the United States by 2040, which would complement the construction of new generation and grid infrastructure needed to serve an otherwise growing electricity sector.6 States ranging from Massachusetts, California, New York, Vermont, and Virginia to Utah, Arkansas, and Tennessee have invested in energy efficiency as part of their long-term energy planning, demonstrating its appeal across the political and geographic spectrum.7
Short-term savings, long-term costs
The design of energy efficiency policy is essential to its durable success. For example, from 2008 to 2024, Maryland’s flagship energy efficiency program, EmPOWER, helped households and businesses reduce energy use,8 with installed measures expected to generate more than $15.8 billion in lifetime savings.9 Since EmPOWER’s inception, however, the Maryland Public Service Commission permitted utilities to spread the cost of the program over five years—and charge interest on costs that had not yet been collected from customers. Over time, those unpaid costs piled up, leaving customers paying for both current programs and past expenditures plus interest. By 2024, the legislature cracked down on this misuse of ratepayer funds, but the damage was already done, with some utility charges for EmPOWER at $15 to $20 per month.10
Faced with rising electricity costs and the structural challenges of EmPOWER’s financing model, Maryland enacted the Utility RELIEF Act,11 legislation that reflects the difficult trade-offs states face as they work to lower energy costs. Signed into law by Gov. Wes Moore (D) in May 2026 amid growing concerns over rising utility bills, the legislation included several positive reforms,12 including the more than $200 million for local clean energy development, storage, and targeted bill relief highlighted in CAP’s “State Climate Action in 2026” report,13 as well as continued investments in energy efficiency for low- and moderate-income households and data center regulation.14
At the same time, the law temporarily scaled back EmPOWER’s energy efficiency requirements and expected spending between 2027 and 2029. ACEEE estimated that an earlier version of the Utility RELIEF Act, which would have lowered EmPOWER’s annual energy savings target from 2.5 percent to 1.5 percent, could increase electricity costs for Maryland customers by $592 million.15 The final law ultimately adopted a smaller reduction, lowering the target to 1.75 percent. Based on 2024 program performance, the Maryland Public Service Commission estimated that EmPOWER’s residential programs deliver approximately $1.84 in benefits for every $1 invested.16 But only the cost of the program appears on customer bills, and nowhere does the bill list utility profits. Maryland’s experience underscores why states should avoid financing energy efficiency programs in ways that enrich utilities and put efficiency programs at risk.
Energy efficiency should not be simply another line item on a utility bill; it should be viewed as preventive care for the energy system.
Other states have faced similar pressures, even for efficiency programs not bogged down by Maryland utilities’ financing model. Like Maryland, Washington, D.C., Rhode Island, and Massachusetts have financed energy efficiency programs through utility bill charges. All three ultimately rejected or reversed proposals to scale back energy efficiency investments, recognizing that any short-term savings could come at the expense of higher long-term costs.
In its fiscal year 2027 budget proposal for Washington, D.C., Mayor Muriel Bowser’s (D) administration proposed redirecting a substantial share of Sustainable Energy Trust Fund (SETF) dollars away from energy efficiency investments.17 According to the D.C. Policy Center, the proposal would have redirected roughly 70 percent of SETF funding away from clean energy and energy efficiency investments and toward covering the district government’s energy costs.18 Funded through the SETF, these programs help residents and businesses reduce energy use through weatherization, efficient appliances, and building upgrades. Since 2011, roughly $360 million has been invested through these efforts, generating an estimated $2.2 billion in gross lifetime energy bill savings for district residents and businesses, or about $6 in gross savings for every $1 invested.19 Recognizing those benefits, in June 2026, the D.C. Council moved to restore portions of the Sustainable Energy Trust Fund.20
Rhode Island almost walked into a similar trap. Last year, the Rhode Island Public Utilities Commission approved Rhode Island Energy’s proposal to reduce the state’s electric energy efficiency budget from roughly $82 million in 2025 to $62.9 million in 2026.21 The Acadia Center estimated that the nearly $20 million reduction could have eliminated more than $46.1 million in benefits for Rhode Islanders, including lower long-term energy bill savings and more than 400 fewer clean energy jobs.22 The cuts in Gov. Dan McKee’s (D) FY 2027 budget proposal were even more severe,23 proposing to cap Rhode Island’s energy efficiency program at $75 million annually—down from the previously approved $95 million—as part of a broader affordability package that also included related energy efficiency reforms.24 This proposal came despite Rhode Island’s efficiency programs having historically delivered about $3 in benefits for every dollar invested.25 In June, the state legislature rejected the governor’s efforts and preserved the state’s energy efficiency funding and the savings it will deliver.
Massachusetts lawmakers also entered the debate. Earlier this year, the Massachusetts House of Representatives approved legislation that would reduce roughly $1 billion in Mass Save spending as part of a broader affordability package,26 though Senate leaders rejected the proposed cuts in June. Mass Save reports that its programs have generated approximately $31 billion in benefits for Massachusetts residents and businesses,27 including more than $3.6 billion in benefits in 2025 alone,28 and estimates that every dollar invested returns $2.76 in customer benefits.29
The same dynamic extends beyond traditional utility energy efficiency programs. In 2023, participating Regional Greenhouse Gas Initiative (RGGI) states30 invested roughly $852 million in proceeds toward energy efficiency, clean energy, bill credits, and other consumer benefit programs.31 RGGI estimates those investments will generate approximately $2.7 billion in lifetime energy bill savings over the lives of the funded projects, including roughly $1.9 billion from energy efficiency measures. Yet the program has faced participating states’ periodic legislative and political efforts to withdraw.32
An easier road
Rather than sacrificing savings from efficiency investments for the sake of immediate savings, states should pair long-term investments with policies that simultaneously protect ratepayers in the short term. Promising avenues include innovative financing for energy efficiency programs, including making artificial intelligence (AI) data centers pay their fair share33 and cover the costs of efficiency and grid upgrades.34
In April, Virginia Gov. Abigail Spanberger (D) signed H.B. 2, which expands access to weatherization and efficient electric heat pumps for low-income households.35 The state also invested $25 million in state funding for weatherization and energy efficiency programs to help lower household energy bills.36 According to ACEEE, combining heat pumps with weatherization improvements could reduce heating costs for participating families by as much as $1,400 per winter.37
Illinois took another effective approach. Rather than scaling back energy efficiency investments funded through utility rates, lawmakers expanded them as part of a broader affordability package. Earlier this year, Gov. JB Pritzker (D) signed the Clean and Reliable Grid Affordability Act,38 which expands energy efficiency programs, modernizes the grid, and includes other measures aimed at reducing utility bills and long-term system costs. The law substantially increases utility-funded energy efficiency investments, including nearly $192 million annually for income-qualified households.39 Those investments are recovered through regulated utility rates. The governor’s office estimates the law will save Illinois consumers $13.4 billion over the next two decades.40 After reviewing analysis prepared by the Illinois Power Agency, the Clean Grid Alliance concluded that the law is expected to save consumers roughly $13 for every $1 invested.41
New Jersey is also taking a forward-looking approach.42 Following Maryland’s lead, Gov. Mikie Sherrill (D) signed legislation requiring large data centers to pay their fair share of grid infrastructure costs, while also encouraging investments in distributed energy resources, including energy efficiency, that help lower system costs.43
Additionally, states have other options to improve affordability without cutting energy efficiency. Similar to the approach long used in California,44 states can adopt a “loading order” that requires utilities to pursue all cost-effective energy efficiency before investing in more expensive generation and grid infrastructure. States can also expand innovative financing models such as Pay As You Save (PAYS®),45 which Missouri has implemented46 and Virginia is now exploring,47 and follow Maryland’s and New Jersey’s lead by ensuring that large new electricity users, including AI data centers, pay their fair share of grid costs. As Rewiring America has argued,48 states should treat buildings as energy infrastructure by investing in energy efficiency, electrification, and other distributed energy resources that can help meet growing electricity demand while lowering customer bills and overall system costs.49 As outlined in CAP’s recent electricity affordability report, policymakers should also accelerate low-cost clean energy deployment, modernize and expand the electricity grid, and provide targeted support to help stabilize residential electricity bills.50
See also
Conclusion
Energy efficiency should not be simply another line item on a utility bill; it should be viewed as preventive care for the energy system. Policymakers should be cautious about sacrificing long-term affordability for short-term bill relief, and efficiency programs must be designed with sustained savings in mind. States do not have to choose between near-term affordability and long-term savings. The most durable affordability strategy pairs immediate bill relief with continued investment in the resources that lower energy costs over time.
Acknowledgments
The author would like to thank Trevor Higgins, Shannon Baker-Branstetter, Angelo Villagomez, Kat So, Bill Rapp, Meghan Miller, Steve Bonitatibus, and Cindy Murphy-Tofig of the Center for American Progress; Mark Kresowik of the American Council for an Energy-Efficient Economy; Max Toth of Clean Energy Works; and Jamie DeMarco for their contributions to this report.