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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,” 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.

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