Correction: SEA 412 was passed in 2015; a previous version of this story gave an incorrect date for the bill’s passage.
A report released this week by an Indiana watchdog group confirms what many consumer and energy efficiency advocates had long feared: that the rollback of Indiana’s energy efficiency mandate in 2014 has had serious costs.
An analysis commissioned by the Citizens Action Coalition found ratepayers and utilities have missed out on almost $150 million in savings that would have accrued between 2015 to 2019. It also concluded that the legislation meant to replace the canceled program has done little to fill the gap.
The dollar amount includes savings on generation avoided minus the cost of implementing energy efficiency programs. The report notes that for every utility in every year studied, the avoided costs of generation were greater than the cost of implementing efficiency measures, meaning all ratepayers in the state would have saved money every year had the program remained in effect.
The Indiana Utility Regulatory Commission adopted an energy efficiency resource standard in December 2009 under Republican Gov. Mitch Daniels. They required the state’s utilities to cut energy delivery by an average of 2 percent per year, after controlling for weather. Programs provided home energy assessments, low-income weatherization, and lighting and other efficiency rebates for homeowners, businesses and schools.
Studies showed those programs, known together as Energizing Indiana, were successful in reducing energy use, saving customers money and creating jobs. But in March 2014 the state’s Republican-controlled legislature passed a bill (SEA 340) canceling the program. Then-Governor Mike Pence did not veto or sign the bill, meaning that it became law and made Indiana the first state nationwide to repeal its energy efficiency standard.
The next year, the legislature passed another law (SEA 412) that was billed as a replacement for the canceled standard, ordering utilities to come up with their own energy savings plans. Advocates, including the Citizens Action Coalition, argued that utilities’ would not come up with and implement plans robust enough to match the kind of savings that Energizing Indiana had achieved.
Citizens Action Coalition executive director Kerwin Olson said SEA 412 “effectively allows the utilities to establish their own energy efficiency goals and handsomely rewards utilities for achieving goals that they set for themselves, while providing the [regulatory commission] little to no authority to influence those goals. The legislature tied the hands of the regulators and put the utilities squarely in the driver’s seat, letting them have their cake and eat it too.”
Both laws also allowed large customers using more than a megawatt of energy to opt out of efficiency programs, with the rationale that they would be pursuing energy efficiency of their own volition in order to save money.
The analysis, conducted by the Applied Economics Clinic, ranked the state’s five investor-owned utilities in terms of how much their performance lagged without the mandate compared to the energy they would have been ordered to save under it.
Duke Energy had the biggest disparity, distributing 280 Gwh on average more per year than it would have otherwise, the study found, with customers missing out on total savings of about $54 million as a result. Vectren, the state’s smallest utility, had the smallest lag at 40 Gwh average per year. The other utilities studied were Indiana Michigan Power Company (I&M), Indianapolis Power and Light Company (IPL), and Northern Indiana Public Service Company (NIPSCO).
On average, each utility distributed 93 Gwh more in 2017 because of the rollback; and an additional 229 Gwh per utility on average will be used in 2019. The study calculated the cost of additional generation based on figures published by NIPSCO for cost savings per kilowatt-hour of avoided generation; the other utilities don’t publish such figures.
A June policy brief also commissioned by Citizens Action Coalition noted that asking utilities to design their own efficiency plans is especially problematic since utilities are allowed to recoup from their ratepayers “lost revenues” caused by efficiency programs; and many advocates fear that utilities overcharge or don’t fairly calculate lost revenue.
The state’s regulatory commission initially put a cap on how much utilities could charge their customers for efficiency-related lost revenues after the replacement law was passed, but that cap is no longer in effect, according to the brief.
After 2014, four out of the five utilities spent significantly less on energy efficiency programs than they had when the efficiency standard was in effect, the June brief states. NIPSCO’s spending on efficiency dropped by $6.6 million on average per year, and Duke’s by $1.2 million. Meanwhile Indianapolis Power & Light actually spent significantly more, at $25 million up from $21 million per year. That brief also showed that with the exception of NIPSCO, utilities got less bang for their buck – less savings per dollar of investment — after the repeal of the state efficiency mandate.
Energy savings after the repeal also leaned more heavily on behavior changes than installation of hardware or other physical measures, for all the utilities except IPL. Citizens Action Coalition called this problematic, since hardware and infrastructure changes have a longer guaranteed shelf-life and don’t depend on the customer continuing behaviors.
Jobs at risk
The energy efficiency repeal has hit not only customers but the job market and larger economy, the studies show.
A previous audit commissioned by the state found that between 2012 and 2014, about 19,000 jobs were created thanks to Energizing Indiana. The recent study showed that energy efficiency job creation dropped off sharply once the program was canceled.
In a separate analysis, the Midwest Energy Efficiency Alliance (MEEA) found that 1,662 energy efficiency jobs were created in Indiana in 2014, but only 1,039 in 2015, after the program ended.
Energy efficiency, meanwhile, remains an important job sector in the state, with between 38,000 and 50,000 energy efficiency-related jobs existing according to several studies.
Advocates see the cancellation of Energizing Indiana as an ongoing liability, endangering the longevity of jobs already created and missing the opportunity for more job creation in the future. Supporters of energy efficiency standards across the political spectrum say that it should not be a partisan issue, especially given its job creation potential.
“That’s part of the irony here,” said Olson. “A Republican legislature and then Republican Governor Mike Pence repealed policies put in place by a Republican administration. Those policies were established not because Governor Daniels was an environmentalist. Rather, Governor Daniels recognized that the utilities were not going to meaningfully invest in energy efficiency without a nudge, or a stick. And he understood that meaningful energy efficiency programs would invite tremendous investment in Indiana, create much needed jobs, and provide a boost to the Indiana economy.”
The Indiana Conservative Alliance for Energy is among the groups that wants to see an energy efficiency mandate restored.
“Expanding the use of renewable energy and energy efficiency will improve our competitiveness and help create Indiana’s next level economy by sending a strong signal that Indiana wants to lead the nation in emerging technologies,” said alliance executive director Tim Phelps. “Job creators — and most importantly some of our state’s largest employers — are looking for more efficiency and renewable energy options when they are deciding where to locate.”
Citizens Action Coalition attorney Jennifer Washburn said energy efficiency helps in-state manufacturers making everything from insulation to smart thermostats, as well as HVAC contractors, electricians, and others who are part of state’s energy efficiency economy. Instead of being controversial, she said, efficiency should be “good Hoosier common sense.”