Pence proposes utilities set own energy-efficiency goals

Rather than setting a statewide mandate for energy efficiency, Gov. Mike Pence is proposing a policy would allow electric utilities to set their own goals.

The governor's office drafted a bill that will be carried by Senate Utilities Committee Chairman Jim Merritt, who said it could be filed this week. Merritt was the author last year of Senate Bill 340, which dismantled the energy-efficiency program created in 2009 under former Gov. Mitch Daniels. That program put the state on track for a 2-percent reduction in electricity use by 2019.

Pence allowed SB 340 to become law without his signature and promised to come up with a new policy. Environmental and consumer advocates who are familiar with the governor's bill were disappointed that it didn't set a statewide target for reducing energy use.

“That is the most important piece of the policy,” said Kerwin Olson, executive director of the Citizens Action Coalition.

Daniels' program, known as Energizing Indiana, was designed to reduce energy use through efficiency programs offered statewide. Energy providers funded the initiative out of rates paid by their customers.

Services included home assessments, weatherization for low-income houses, and providing rebates to businesses that installed more efficient equipment or appliances. Energy companies still could offer separate efficiency programs on their own.

Critics of the Energizing Indiana program complained that it cost too much—especially for manufacturers and other big businesses—while providing few tangible benefits. Merritt, the author of SB 340, originally sought to exempt businesses from paying the Energize Indiana fee. But the House amended the bill to eliminate the program.

Dan Schmidt, Pence's energy policy director, said the Daniels administration's mandate lacked teeth, and that 2 percent was an arbitrary figure.

Pence's bill requires utilities to plan for energy savings. Schmidt argued that the targets they set for their own service territories will be more meaningful. “I think it is a more reasoned position to say we want to be sure the goal is relative to something.”

Schmidt thinks the utilities have built-in incentives to encourage energy savings, although their business is to sell as much electricity as possible. For one, efficiency helps the utilities avoid the cost of generating more power, he said. They also have a public-service role in providing reliable electricity, he said.

The bill requires investor-owned utilities, which includes Indianapolis Power & Light Co. and Duke Energy, to file energy-efficiency plans every three years with the Indiana Utility Regulatory Commission, starting in 2017.

Utilities are already coming up with their own energy-efficiency plans for 2015, because Energizing Indiana was phased out with the passage of SB 340.

Pence's bill also would allow the biggest electricity users to opt out of the utility company programs, a policy that Citizens Action Coalition says puts the cost burden on small businesses and residents.

Merritt said the governor’s bill is “pro-ratepayer,” and it means that the state will continue to reduce energy use but at a lower cost than was projected for the Daniels plan.

The state made significant strides toward the 2-percent goal, but Merritt said it was through low-hanging fruit such as replacing inefficient home light bulbs and weatherization. The next stage of energy savings was about to become too expensive, he said. Industrial customers especially objected to being forced to pay for energy-efficiency programs that didn’t fit their highly specialized needs.

“They have found the utility programs to be of little value to them,” said Jennifer Terry, attorney for Indiana Industrial Energy Consumers, which represents 26 of the state’s largest manufacturing electricity customers.

The industrial group supports continuing to allow large users to opt out, Terry said.

The opt-out provision applies to any customer with peak demand of 1 megawatt or more, which could include other types of big energy users, such as hospitals and shopping malls.

Utilities would pass the cost of energy-efficiency programs to ratepayers. Consumer and environmental groups are especially concerned about the way utilities will be allowed to calculate those costs.

The costs include administrative overhead and so-called “lost revenue.” The utilities calculate the difference in energy used by, for example, incandescent and compact fluorescent light bulbs, and then assign a dollar amount to the revenue they might have generated.

“When people complain about the cost of efficiency programs, it's lost revenue,” Sierra Club of Indiana spokeswoman Jodi Perras said. “It really compounds the cost of these programs.”

Schmidt said utilities would be allowed to recoup only the lost revenue associated with fixed costs, such as transmission lines, but not the money related to power generation, he said.