How Midwest states are pursuing efficiency amid trend against mandates
American Council for an Energy-Efficiency Economy
While the political landscape in Midwest states shows a growing reluctance to mandate utility spending on energy efficiency, some states are still gaining ground in reducing energy use by approaching it from different sectors.
The American Council for an Energy Efficient Economy’s latest energy efficiency scorecard — a national grading system of states with the strongest efficiency policies in place — shows the Midwest region all over the map, from states in the top 10 (Minnesota) to dead last (North Dakota).
But advocates say the evolving criteria for grades mean more efforts are being taken into account beyond traditional statewide efficiency standards requiring utility investments. While states like Minnesota are still seen as having strong, years-long efforts, others are increasingly recognized for efforts in sectors like combined heat and power, transportation and building codes.
“The scorecard is always an evolving document,” said Stacey Paradis, executive director of the Midwest Energy Efficiency Alliance. “The (ACEEE) has a lot of points set up to particularly favor mandated standards, but the nice thing about this year is they also did recognize states that aren’t in a mandate environment but are increasing their investment in efficiency.”
Missouri, for example, is recognized for having the “most dramatic improvement” among states this year, moving up 12 rankings, despite relying on voluntary goals rather than a dedicated energy efficiency resource standard.
Beyond utility savings, Missouri also gained points in the transportation sector, combined heat and power, state government-led programs, enabling Property Assessed Clean Energy financing and for working with the Midwest Energy Efficiency Alliance to develop a compliance study of residential building codes.
“In addition, efforts to strengthen energy efficiency are a cornerstone of Missouri’s recently released 2015 Comprehensive State Energy Plan, which lays out a roadmap to continue to build upon the state’s success,” the report says.
Moving away from mandates
Despite the distance on the scorecard between Indiana (42), Ohio (29) and Michigan (11), each has shown how state politics are driving policies away from clean energy mandates. For Plains states, standards have generally remained off the table.
Indiana — for a variety off reasons — eliminated its efficiency standard in 2014; Ohio’s has been on hold since 2014, though Gov. John Kasich has threatened to veto any plan to eliminate it.
[See article below for more details on Indiana.]
In Michigan, lawmakers for over a year have drawn up proposals that would make efficiency spending part of an Integrated Resource Plan. Gov. Rick Snyder’s administration, however, simply wants to see efficiency play a major role in its plan to cut emissions.
Paradis said a “big clip” of states that adopted standards between 2007 and 2010. The Republican wave election of 2010 — which included conservatives regaining the governor’s office in Ohio, Michigan and Wisconsin — marked a turning point, advocates say.
“We have had a lot of political change since then — a lot of new governors and, in particular, a change in state legislatures with the rise of the tea party. Generally speaking, it’s not opposition to energy efficiency, just mandates of any kind. It has made the environment less hospitable to those policies,” Paradis said.
But state regulators can still intervene and decide on cost recovery mechanisms and other incentives to encourage investing, a criteria that’s included in the ACEEE scorecard.
“There is more talk that way,” Paradis said. “We recognize the political environment in the Midwest.”
However, others say abandoning efficiency standards won’t produce the same cost-saving and emission-reducing outcomes.
“Indiana is a real good example of states that have taken a significant step backward in the past couple of years,” said Martin Kushler, a senior fellow for ACEEE who is based in Michigan. “They are probably the most noteworthy in the Midwest and their experience is very instructive.”
Kushler added that Ohio is in a “somewhat similar situation” by freezing its clean energy standards.
“States with an EERS policy in place have shown average energy efficiency spending and savings levels more than three times as high as states without an EERS policy,” the report says.
Paradis added: “There is just not as much certainty when you don’t have a mandate in place.”
In Michigan, Kushler and the Snyder administration have advocated for eliminating the 1 percent spending cap as part of the electric efficiency standard.
“It restrains the ability to save much more than the standard requires,” Kushler said. “It makes no sense to cap spending on the least expensive” form of energy.
Additionally, Michigan lawmakers are considering extending decoupling mechanisms and other financial incentives for utilities that invest more in efficiency.
Other ways of investing
States are also credited in the ACEEE scorecard for policies related to transportation, building codes, combined heat and power, and appliance and equipment standards.
While the top-ranking states pursuing these sectors are generally on the East and West coasts, Paradis said they are a growing trend in the Midwest.
Missouri, Illinois and Michigan — which has moved up 22 spots since its 2007 ranking — were each recognized for a greater focus on efficiency requirements in building codes.
Combined heat and power, or CHP, is another sector considered in the ACEEE scorecard.
“While CHP is known for its energy efficiency benefits, few states actively identify it as an energy resource akin to more traditional sources such as centralized power plants,” the report says.
Minnesota and Illinois ranked highest in the Midwest for CHP-friendly policies, which include interconnection and recognition within the overall efficiency standard. Paradis says converting to CHP as a power source, though, comes with a caveat.
“The issue that comes up with CHP is that some consider it fuel-switching to natural gas, which is a big issue,” she said. “We leave it to regulatory bodies to determine what the function of CHP is and follow their lead.”
‘We’ll continue to see improvement’
Rounding out the Midwest and the ACEEE scorecard as a whole are the Dakotas and Kansas, which have stayed at the bottom of the pack for years.
Those states gained a few points on the scorecard related to transportation, building codes, CHP and state government-led initiatives.
At this point, though, advocates see those states more as educational opportunities for policymakers on “what’s doable” and perhaps starting with pilot programs absent efficiency standards, Paradis said.
“Overall, we’re happy. There’s always work to be done in the Midwest. There are some great models of things happening here that rival things on the coast,” Paradis said, referring to programs in Illinois, Minnesota and Iowa. “We just need to keep working to spread to the rest of the states.”
Before being dismantled, Indiana’s efficiency program was effective
“Bittersweet” is how Citizens Action Coalition Executive Director Kerwin Olson described a recent performance report for Energizing Indiana, an energy efficiency program that was canceled during its third year of existence, by state legislation hastily passed in spring 2014.
“I told you so” may be the more blunt sentiment from many clean-energy and energy efficiency advocates.
That’s because the report, done by the independent company GoodCents, showed that Energizing Indiana resulted in energy savings of about 11 million megawatt hours, significant cost savings and created almost 19,000 jobs.
“The evidence clearly displays that the programs were incredibly cost-effective, generating significant cost-savings for customers,” said Olson. “And perhaps the biggest implication here was the impact on jobs and the impact on customer utility bills.”
Republican legislators pushing a bill to end the program argued that the energy efficiency mandates that drove it were too expensive. That bill, SB 340, also quashed the energy efficiency targets that had been set for utilities and ended the role of an independent administrator (GoodCents) to evaluate the programs.
The Indiana Utility Regulatory Commission created Energizing Indiana through a 2009 order after an extensive process involving state legislators and with the support of then-Gov. Mitch Daniels, a Republican. It was the first program of its type to be shuttled by a state legislature.
Republican Gov. Mike Pence did not sign SB 340, but he also declined to veto it,allowing it to become law.
Rep. Matt Pierce, a Bloomington Democrat and also an opponent of SB 340, said the recent Energizing Indiana report “just validates” what advocates said in defense of the original program.
“The current [House] majority is not very interested in science or facts, they’re pretty much driven by ideology.”
“The current [House] majority is not very interested in science or facts, they’re pretty much driven by ideology,” he continued. “They just did not like the idea of government being proactive in promoting energy efficiency.”
Impressive results
The report filed with the IURC on June 9 quantifies Energizing Indiana’s impact in its third year and over the course of the program. It covers the utilities Duke Energy, Indianapolis Power & Light, Indiana Michigan Power Company, Northern Indiana Public Service Company and Vectren.
Energizing Indiana consisted of five components: home assessments, weatherizations for low-income households, energy efficiency for schools, discounts for more efficient residential lighting and commercial and industrial rebates for efficiency investments.
The report found that overall the program was cost-effective and all of the individual components were also cost effective in their own right, with the exception of the low-income weatherization program.
In the second year the school program, which includes an education component, was not cost-effective, but by the third year it was.
The commercial and industrial rebates drove about half of the energy savings, the report found, and the lighting program accounted for about a quarter of the savings. The analysis took into account “freeriders” who would have made efficiency improvements even without the program, and “spillover savings” that were not part of the Energizing Indiana program but were influenced by it.
The report notes that its estimate of spillover savings was conservative, meaning the true savings could have been greater. The analysis also accounted for jobs that could have been lost because of the effects of the program.
Job creation
To measure employment impacts, the study used three different approaches drawn from other accepted studies.
The report notes that Energizing Indiana created direct jobs in the administration and implementation of the program. Indirect jobs were created in manufacturing, delivering, installing and otherwise meeting increased demand for energy-efficient products that were purchased thanks to the program. For example, the program would have created jobs for people installing insulation or new windows.
Finally, the report notes, “As energy-efficient products are used, energy is saved, causing the customer’s facilities to be more efficient, reducing energy bills. This allows those cost savings to be spent in ways that produce jobs.”
While the utility and power-generation industries and the jobs they support could have been hurt by the program, the report explains that dollars saved on bills have a greater economic ripple effect than the amount paid to the utility company through bills.
“The dollars saved by participants who use less energy do not enter the utility industry via the payment of a utility bill but instead are spent in the more labor-intensive industries associated with discretionary spending (clothing, food, education, home repair, retail sales, etc.),” the report says.
Moving backwards
The Energizing Indiana analysis found that the cost of saved energy, or CSE, was less than 4 cents per kilowatt-hour. This is a positive finding and in line with similar programs around the nation, according to Marty Kushler, senior fellow at the American Council for an Energy-Efficient Economy.
ACEEE’s 2014 analysis of utility energy efficiency programs in 20 states across the nation found an average CSE of 2.8 cents per kilowatt-hour. It also noted: “Electricity efficiency programs are one half to one third the cost of alternative new electricity resource options such as building new power plants.”
“This was a very high-quality evaluation,” Kushler said of the Energizing Indiana report. “It was noteworthy within the industry for the process. Indiana should be congratulated for setting up that evaluation process and for the positive results that were seen. It’s definitely backward to have done away with these programs. Canceling the program was not at all a data-based decision, it was a philosophical objection.”
Kushler recently made similar comments to Midwest Energy News about active legislative attempts in Michigan to do away with its energy efficiency program, despite findings from state regulators that the program saves ratepayers nearly $4 for every dollar spent. The two states appear on a similar course to replace efficiency standards with utility-driven programs, which clean-energy advocates say would weaken efficiency programs.
ACEEE publishes an annual scorecard judging states’ commitment to energy efficiency. In 2014, Indiana ranked 40th — a tumble of 13 spots from the year before driven largely by SB 340, the scorecard notes.
A troubling history
SB 340 was originally written to allow industrial users to opt out of energy efficiency programs. It was later amended to end the entire program and passed with no debate in the legislature and with no public input.
Large industrial companies had been the primary funders of the energy efficiency programs carried out under the bill: Residents had seen an increase of $2 or $3 per household per month.
It appeared to local experts that utility companies were driving the bill, presumably seeking to be released from the requirement that they make “good faith” efforts to reduce demand by 2 percent by 2019.
“It was a horrifically bad idea to not at least wait for a report of any kind, to not at least study the program, study the impacts of the commission order that created the resource standard, like other states have done prior to taking this drastic step,” Olson said.
“It’s clear that energy efficiency has tremendous impacts on our economy [by] creating jobs, saving folks money. Before, we couldn’t answer the question ‘how many jobs’ [were created], but now we know. This was a horribly short-sighted, abrupt decision by the General Assembly to cancel something that was serving the public.”
The lead sponsors of SB 340 — state Rep. Heath Van Natter and state Sen. James Merritt — did not return requests for comment.
A poor replacement
Pence has said that he still supports energy efficiency as part of an “all of the above” strategy. Another bill — SB 412, signed by Pence on May 6 — is meant to be the replacement for the repealed program.
But that bill relies on utilities drafting their own energy efficiency plans and, by the end of 2017, filing three-year demand-side management plans.
But advocates say the plans submitted by utilities so far will not do much to spark efficiency improvements. The law also allows industrial customers to opt out of efficiency programs.
“Governor Pence did not push to end Energizing Indiana,” said spokesperson Kara Brooks. “The Indiana legislature pushed the bill that ended the program in 2014. Governor Pence reluctantly let the bill become law without his signature, while promising to propose a new approach in the 2015 session.
“Governor Pence kept his promise by proposing SB 412, which passed the legislature with bipartisan support. Under the new law, for the first time ever, Indiana statute will require utilities to pursue energy efficiency, codifying the importance of energy efficiency’s role in Indiana’s energy mix.”
But Olson said that replacing Energizing Indiana with SB 412 “really put the nail in the coffin of energy efficiency.”
“It’s tying the commission’s hands, putting energy efficiency programs in the hands of energy companies whose main goal is to sell energy,” he said.
Pierce noted that changing the state’s energy efficiency policies or bringing back any elements of Energizing Indiana would require legislation.
“That’s not likely to happen until we have some change in the makeup of the legislature next election,” Pierce said. “The problem with the current Republican majority is they’re very backward-looking, all about preserving the status quo, the [interests of] the utilities, the coal industry.”
ACEEE is a member of RE-AMP, which also publishes Midwest Energy News.