CenterPoint Energy is using customer-funded cash incentives and free luxury vacations to encourage Minnesota builders to install fossil gas appliances in new homes, boosting its sales and lining builders’ pockets even as data show electric appliances provide more savings for utility customers.
Through a suite of incentive programs, CenterPoint offers builders payments and “Builders Club” points for each gas appliance installed in new residential construction projects. Together, these incentives are designed to reward builders who push fossil gas appliances on customers, effectively locking in years of fossil gas consumption despite affordable, lower-emission electric alternatives. Minnesota regulators will consider curtailing the customer-funded builder incentives as part of CenterPoint’s latest rate case. Mediation to resolve CenterPoint’s spending and rates begins this week.
Update: CenterPoint filed an agreement on March 14 that would require it to stop using customer money to fund its residential water heater program, which pays Minnesota builders to install fossil gas water heaters in new construction. The deal followed negotiations between CenterPoint and several intervenors in the utility’s current rate case and is subject to approval by the Minnesota Public Utilities Commission. It does not address CenterPoint’s participation in the Builders Club free vacation and gift program. The agreement would not prohibit CenterPoint from offering gas water heater incentives using company profits.
Expanding fossil gas infrastructure and consumption in new developments is a cornerstone of CenterPoint’s strategy to deliver returns to its shareholders. Utility executives last fall outlined plans to add 800 miles of new gas pipeline annually as part of a multibillion-dollar investment in gas infrastructure, and singled out anticipated growth in the Minneapolis area. CenterPoint uses builder incentives to keep Minnesotans tethered to fossil gas despite mounting calls from scientists, policymakers, and customers to reduce the harmful methane emissions it causes.
With operations in Arkansas, Indiana, Louisiana, Minnesota, Mississippi, Ohio, Oklahoma, and Texas, CenterPoint is one of the largest gas utilities in the country. The utility last year acknowledged the climate crisis when it pledged to achieve net-zero emissions for its operations by 2035. But more than 80 percent of emissions tied to CenterPoint come from its customers’ use of gas in their homes and businesses. The utility’s builder incentives add to these emissions and deny customers the opportunity to consider other viable options to cut their energy use and utility bills.
Installing Gas Appliances – Redeeming Points for Vacations
CenterPoint is the only Minnesota utility listed as a participant in Builders Club North, part of a larger national organization that allows contractors to accrue points when they install products from approved vendors that pay a fee to enroll. Builders redeem these points for prizes, including sports tickets and tropical vacations. This month, the club hosted a five-night, all-inclusive trip to Playa Mujeres, Mexico, at the cost of 69,500 points per person. Last year, the club took builders to Croatia. Builders can also attend local outings and sporting events that require fewer points to participate.
For a builder constructing a new subdivision, choosing all fossil gas appliances offers a glidepath to free vacations, especially if the builder also uses club-approved vendors for cabinets, flooring, and other essentials. CenterPoint doles out 1,000 points a pop to builders who put CenterPoint marketing materials like brochures and rugs in model homes. In addition, the utility awards 300 points for each gas water heater, furnace, or boiler. Gas ranges, fireplaces, dryers, grills, and garage heating systems net builders another 25 points apiece. Across multiple homes, points for gas appliances add up quickly.
Jake Schwietering, CenterPoint’s liaison with Minnesota builders, is pictured in several Builders Club monthly newsletters at outings and networking events. In addition, the newsletter included a “sponsor highlight” featuring CenterPoint last year. It is unclear if CenterPoint passes Builders Club membership fees onto its customers, though past regulatory filings indicate the utility has sought customer cost recovery for meals, a golf outing, and meetings related to the program. Neither CenterPoint nor the Builders Club responded to requests for comment.
Customer-Funded Incentives are Combined with Builders Club Points
The free vacation scheme is linked to CenterPoint’s residential water heater program, which sweetens the deal with customer-funded incentives for builders who install qualifying gas water heaters. In fact, CenterPoint only offers Builders Club points for other gas appliances if a builder also installs a gas water heater on-site. CenterPoint has asked the Minnesota Public Utilities Commission to let it spend nearly a quarter of a million dollars in customer money annually to cover water heater incentives in coming years. Mediation over that proposal and CenterPoint’s broader spending and rates is scheduled to begin Thursday.
CenterPoint’s longtime practice of using customer money to artificially tip the scales toward gas appliances – including water heaters – has come under scrutiny before. In 2020, a rate case settlement halved CenterPoint’s initial request to pump $497,468 per year into such programs, the bulk of which was earmarked for gas water heater incentives.
Separately, CenterPoint offers builders a cash “trade ally incentive” for the installation of gas water heaters, furnaces, boilers, and more in commercial, industrial, and multifamily projects. For instance, the utility provides $40 to an installer for each forced-air furnace (92%-93.9% AFUE). After the installer provides CenterPoint with rebate applications, the utility mails incentive checks on a quarterly basis.
In a 2006 regulatory filing, CenterPoint said it began providing cash incentives to builders who installed gas water heaters “to address an increasing threat to the installation of gas water heaters in the residential market.” This “threat” had three prongs: higher installation costs for gas water heaters compared with electric models, state energy code changes that required costly power-venting for gas water heaters, and new housing development in areas where CenterPoint competed with electric cooperatives for water heater load. A 2009 CenterPoint filing ties together customer-funded water heater incentives and the Builders Club, which the utility said targets “builders that are most likely to face electric provider competition.”
In a November 2021 filing outlining its latest proposal to funnel $239,958 of customer money annually into water heater incentives, CenterPoint said the program’s purpose is to “educate and assist … customers and trade allies, such as builders, consulting engineers, and equipment vendors, on the various benefits of natural gas service.” But the utility’s assertion that gas water heaters are best for customers relies on a shaky analysis that undervalues electric heat pump alternatives.
Increasingly Cost-Effective Heat Pump Water Heaters Poised for “Explosive Growth”
CenterPoint hinges its push for gas water heaters on the claim that gas water heaters cost less, up front and over the long term, than electric options. This could be the case for some electric resistance water heaters but electric heat pump models are significantly more efficient – they use up to 70% less electricity than a standard electric water heater, according to the U.S. Environmental Protection Agency.
“While it may be true that some natural gas water heaters have lower operating costs than some electric water heaters, it is not categorically true that natural gas water heaters have lower operating costs and higher energy efficiency than electric water heaters,” the Minnesota Attorney General’s Office said in a filing this month rebuking CenterPoint’s water heater program. “In fact, the lowest-cost and highest-efficiency water heaters available today are electric heat pump water heaters.”
In Minneapolis, a single-family home with electric appliances and heating has annual utility costs that are 9 percent lower than a comparable home with gas, according to a 2020 analysis by the Rocky Mountain Institute. Heat pump water heaters deliver “significant savings” even if electricity costs more per unit than gas, RMI found.
Plus, unlike their gas counterparts, electric water heaters can provide utilities valuable flexibility in managing demand and matching customers’ consumption to renewable generation. Another Minnesota utility, Great River Energy, touts that utility programs leveraging electric water heaters in this way can save customers up to $200 per year.
Another recent RMI report forecasted “explosive market growth” for electric heat pump water heaters this decade, citing technological improvements, climate-conscious consumers and policies, and opportunities for contractors to become familiar with the product.
Still, CenterPoint insists gas water heater incentives deliver long-term benefits to its customers. The utility’s theory is that more gas consumption across more water heaters spreads system costs more widely to “reduce the overall costs of service for all customers.” But the Attorney General’s Office highlighted a significant gap in that reasoning.
“CenterPoint’s argument ignores the fact that virtually all of its residential natural gas customers are also customers of an electric utility,” the agency said in its February filing. “If a new home installs an electric water heater instead of a gas water heater, that additional electricity consumption would exert downward pressure on the consumer’s electric rates.”
The Attorney General’s Office conceded the gas water heater incentive program “undoubtedly benefits CenterPoint by increasing its sales” but said customers face a different outlook. Using CenterPoint’s own methodology, the agency calculated that installing electric heat pump water heaters would deliver more than $800,000 in yearly customer savings – more than four times the impact CenterPoint calculated for gas water heaters. At those numbers, the gas water heater incentive program provides less benefit to customers, even before considering the nearly quarter-million-dollar annual program cost.
“Because CenterPoint’s proposed Residential Water Heater Program would be a net detriment to consumers, it is not in the public interest and should be rejected,” the Attorney General’s Office argued in its February filing.
CenterPoint’s renewed request to fund gas water heater incentives on customers’ dime comes amid a meteoric rise in gas bills. Higher bills trace back to February 2021 when Winter Storm Uri swept through Texas, killing hundreds and rocking the state’s ailing infrastructure. Grid failures sent gas prices suddenly skyward, leaving CenterPoint’s Minnesota customers on the hook to pay back hundreds of millions of dollars in those costs on monthly gas bills in coming years.