Indiana governor to decide fate of energy efficiency standard
Jeffrey Tomich, E&E reporter
Published: Wednesday, March 12, 2014
The future of Indiana's 2-year-old energy savings mandate is in the hands of Republican Gov. Mike Pence after the state Senate overwhelmingly voted yesterday to end the program on Dec. 31.
The Senate voted 37-8 in favor of S.B. 340, which would eliminate a requirement for Indiana investor-owned utilities to reduce retail electricity sales by 2 percent by 2019.
More than half of all states have implemented energy efficiency standards -- an effort to reduce energy demand, lower utility bills and cut power plant emissions. The mandates, which require utilities to reduce kilowatt-hour sales and allow them to recover program costs, are credited with helping shrink power use across the Midwest (EnergyWire, Feb. 18).
In most cases, the standards were approved by state legislatures. But the Energizing Indiana program was authorized in 2009 by the Indiana Utility Regulatory Commission, which determined utilities weren't doing enough on their own to reduce energy use.
The program took effect in 2012 with the support of then-Gov. Mitch Daniels (R) and has so far saved consumers 979.3 million kWh -- the equivalent energy usage of 78,000 homes -- according to a running ticker on the Energizing Indiana website.
The measure that threatens to end the efficiency mandate began as a bill that would have allowed industrial energy users to opt out of utility programs on the premise that they have plenty of incentive to cut out energy waste.
That bill was passed by the Indiana Senate, but when it reached the House it morphed into broader legislation that threatens to end the efficiency mandate entirely.
The original sponsor of the bill, longtime state Sen. Jim Merritt (R), issued a statement Monday saying the bill would pause the program while the utility commission analyzed the benefits. The IURC is required to produce a report for the General Assembly by Aug. 15.
Merritt said the program, created without legislative input, has cost ratepayers $500 million since 2009 and would cost an additional $1.9 billion by the end of 2019.
"We need to be sure this expensive program, funded by ratepayers, is a worthwhile and valuable investment," he said. "While Energizing Indiana was able to generate energy savings in its initial years of operation, experts indicate the program is struggling to find additional ways to save ratepayers' costs."
Energize Indiana supporters say the bill would do more than pause the state's efficiency mandate.
"The reality is it kills efficiency in the state of Indiana," said Kerwin Olson of the Citizens Action Coalition, a consumer and environmental advocacy group. "This bill is just a dramatic overreach. The programs are working, and they're effective."
As amended, the bill would prohibit the utility commission from setting energy-saving targets or goals, or using a third-party administrator. It would, however, allow utilities to recover costs of efficiency programs as they do now under the standard.
On the fence
It generally takes several days for a bill passed by the Legislature to make its way to the governor's desk, after which he has seven days to veto it. The bill becomes law if Pence doesn't act.
Olson believes there's a fifty-fifty chance the governor will veto it. Environmental groups and consumer advocates are keeping up a full-court press to influence Pence's decision.
And it's not just activists making the case. A coalition of companies, including General Electric Co., Honeywell International Inc. and Siemens AG, sent a letter to Pence on Friday urging him to veto the bill if the Senate approves it. The companies said the legislation would hurt manufacturers that produce heating and air conditioning equipment as well as the small contractors that sell related services, costing the state 1,600 direct and indirect jobs.
So far, Pence hasn't indicated how he'll come down on the issue.
"The governor recognizes the important role energy efficiency has to play in Indiana's energy portfolio," spokeswoman Kara Brooks said in an emailed statement. "SB340 proposes a departure from Indiana's current program and the governor is carefully weighing whether this is best for Indiana."
Edwin Simcox, head of the Indiana Energy Association, a group of investor-owned utilities, said utilities' concerns are about the program's cost and the effect on rates. Utilities agreed with the decision to "press the pause button," he said, but the group didn't go to the Legislature with the idea to kill the efficiency standard.
"This is a very costly program to the ratepayer," he said. But "this was not an industry bill."
The Indiana Energy Association also has concerns about the ability of Energizing Indiana to be cost-effective in future years.
"The low-hanging fruit is gone," Simcox said. "Meeting these metrics going forward will be more difficult to achieve."
'Giant step backward'
Energizing Indiana costs residential consumers about $2 to $3 a month, though large electricity users can pay millions of dollars -- a reason they lobbied for the ability to opt out. It provides five "core" services, including rebates for energy-efficient light bulbs, weatherization upgrades for low-income consumers and incentives for businesses that install more efficient equipment or appliances.
While the program fell short of its energy savings goals in the first year, and required utilities to issue refunds, the program more than met its goals for cost-effectiveness, supporters said.
In testimony to the Indiana Legislature earlier this year, Indiana Office of Utility Consumer Counselor David Stippler said the efficiency program generally has been successful. But he urged flexibility in making any needed changes based on evolving energy markets and the economy.
"Energy savings have been achieved and, for the most part, have been cost-effective as compared to the cost of building new power plants," Stippler said at the time. "However, as we move beyond 2013, we become more concerned about future costs to Indiana ratepayers with regard to the level of energy saving mandates previously established in light of the changing regulatory landscape and other considerations."
The future of energy efficiency in Indiana has implications not just for customer bills but also for utilities' need to add electric generation in coming years.
A December analysis by the State Utility Forecasting Group at Purdue University showed energy efficiency and demand response programs were expected to reduce total electricity demand in the state by 1,800 megawatts over the next 20 years. The same report projects Indiana consumers face a 32 percent increase in electricity rates over the next decade.
Robert Kelter, senior attorney with Environmental Law & Policy Center, a group that advocates for energy efficiency throughout the region, said energy efficiency is the best way to hold down electricity bills, and the Indiana measure runs counter to what many of the state's neighbors are doing when it comes to energy policy.
"This is a giant step backward for Indiana," he said. "While Iowa, Michigan, Illinois and Ohio move forward, Indiana residents are going to pay more than they should for electricity."