Amid weaker law, regulators hand Indiana efficiency advocates a win

Energy efficiency in Indiana took a big hit in 2014 with the passage of a bill that killed the state’s successful Energizing Indiana program and its Energy Efficiency Resource Standard.

But efficiency and consumer advocates ended 2015 on a bright note, thanks to a December 30 order by the Indiana Utility Regulatory Commission denying proposals from the utility NIPSCO regarding its efficiency program.

Last summer the Citizens Action Coalition and the Indiana Office of Utility Consumer Counsel had bemoaned NIPSCO’s proposal as an example of how grim efficiency’s prospects were since the elimination of the state standard.

They also argued the proposal would unfairly saddle customers with inflated costs for efficiency, through the way it charged them for lost revenues and through what they called undeserved performance incentives.

However, the commission found that NIPSCO’s proposal did not comply with SB 412, the law passed in lieu of the state standard. While advocates have described SB 412 as a weak replacement for the previous efficiency standard, they are happy with the way the commission invoked it in its recent order.

And they are not surprised, since the commission had developed and authorized the Energizing Indiana program, which took effect in 2012.

“Let’s keep in mind that the negative things, the bad things that had occurred in Indiana with energy efficiency came from the legislature,” said Citizens Action Coalition executive director Kerwin Olson. “This commission by and large has been very supportive of demand side management programs. They recognize the benefits that energy efficiency delivers, not only to ratepayers but to the economy.”

The commission also found that NIPSCO’s proposed efficiency program didn’t square with the utility’s latest Integrated Resource Plan, which describes how a utility plans to meet their customers’ demand and what sources of generation they will draw on.

The commission’s decision means that NIPSCO has to resubmit an energy efficiency and evaluation plan in 2017, though it is not clear in what month, according to Citizens Action Coalition assistant counsel Jennifer Washburn.

“We’re extremely pleased, all in all the commission signaled that they want more energy efficiency and want it to cost less for ratepayers,” Washburn said. “The utilities probably weren’t expecting this. We’re really excited to have this type of ruling especially with what we’ve been through and with what we saw in the proposal. It’s a significant difference.”

NIPSCO did not respond to a call and email seeking comment.

No pancaking

Under state law, utilities are allowed to recoup “lost revenues” from efficiency programs. The ways those revenues are calculated are part of the proposals that must be approved by the commission. Citizens Action Coalition’s expert witness Natalie Mims described in testimony how under NIPSCO’s proposal, customers would be hurt by the “pancake effect” of lost revenues.

The Office of Utility Consumer Counsel, a public office meant to protect customers, and the Industrial Group of large electric customers also testified about such concerns.

NIPSCO had proposed that they be able to recoup lost revenues for efficiency measures taken in a given year for multiple years into the future. As the commission’s decision summarized it, the utility “would still be collecting lost revenues in 2025 for measures installed in 2016, along with lost revenues for measures installed during 2017-2025.”

“It just has this compounding effect where the savings are maybe staying the same or dropping but the lost revenues would get bigger, so every year these energy efficiency programs get more and more expensive and not a dime is going into job creation or manufacturers who are doing the actual work,” said Washburn.

Citizens Action Coalition argued that the utility should only be able to collect lost revenues for a given measure for three years or for the life of the measure, whichever is shorter.

The commission decided that lost revenues could be collected for four years, the length of a measure or until the utility’s next rate case, whichever happened first. Washburn said the coalition is satisfied with this concept.

“By over-incentivizing utility companies, you effectively steal one of the benefits of energy efficiency away from consumers and deliver it to the utility,” said Olson. “One of the primary reasons Citizens Action Coalition supports energy efficiency is it’s one of the cheapest sources of energy out there. Consumers should see reduced monthly utility bills.

“Our fear was if this lifetime recovery of lost revenues continued, you’ll see programs far more expensive than they should be, and see energy efficiency just priced out of the marketplace.”

Puffed-up performance incentives?

Critics were also concerned about “performance incentives” that NIPSCO sought as a reward for undertaking efficiency measures.

NIPSCO requested being allowed to collect a share of the energy savings achieved, up to 15 percent of the cost of administering the energy efficiency program.

Critics complained that NIPSCO was seeking a cut of savings that was too high and that would kick in even when it didn’t make its efficiency goals. The Citizens Action Coalition also lamented that the goals set by NIPSCO were too low – only 0.6 percent energy savings compared to prior retail sales for 2016-2018. Such modest goals would not deserve an extra reward, advocates said.

Meanwhile the Office of Utility Consumer Counsel argued, and the commission agreed, that evidence shows performance incentives would not likely change whether NIPSCO made its goals, and that it appeared NIPSCO was likely to make its stated goals even without incentives.

Under the efficiency standard, the utility was supposed to save two percent per year compared to the previous year’s sales, an “aggressive” goal more deserving of incentives, as the commission noted in its finding.

Mims argued that NIPSCO should only be able to receive an incentive if it made at least 70 percent of its savings goals, and that it should only be eligible to collect incentives if lost revenue payments were limited to three years or less.

She also argued that the proposed “shared savings” model, which is in effect in 12 other states, encourages utilities to “emphasize investments in low-cost programs that will not serve all customer classes equally.”

Vigilance going forward

While the December 30 ruling clearly signals the commission’s position and its interpretation of the requirements of SB 412, NIPSCO could still request performance incentives, different ways of collecting lost revenues and other measures in the proposal they submit in 2017.

The specifics of the energy efficiency program will also be hammered out in the new plan. The Industrial Group, Office of Utility Consumer Counsel and Citizens Action Coalition are part of NIPSCO’s oversight board, giving them an official channel for input on program design and other issues.

The Citizens Action Coalition has developed recommendations for the energy efficiency program, and Washburn said they are hopeful that NIPSCO will take those into account and involve the group in ongoing discussion about the program.

Among other things, the Citizens Action Coalition suggested that NIPSCO offer residential efficiency programs targeted at new construction, multi-family buildings and manufactured homes; and that they offer programs to reduce the up-front costs for schools improving their efficiency through lighting, air temperature controls, information technology, occupancy sensors and other measures.

The group is also asking NIPSCO not to reduce its weatherization program for low-income people, as it has proposed doing.

Meanwhile, three other utilities have demand side management cases pending before the commission.

“If Energizing Indiana had still been in effect, NIPSCO’s plan would have achieved twice as much efficiency as they’ve filed for,” said Olson. “We’re somewhat back to square one, but at least we have a new energy law that sets some criteria and bars that utilities have to climb over to get these DSM plans approved. At this point the commission said ‘not good’ enough to NIPSCO. Let’s hope they continue to do that until these utility companies file meaningful and robust programs.”

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