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Indiana Businesses Support Energy Efficiency. So Why is the Legislature Trying to Gut the State’s Programs?


March 12, 2014 - 2:41pm
By Martin Kushler, Senior Fellow

What began in the Indiana Senate as an ill-advised but simple industrial opt-out bill took an unexpected, hard turn in the Indiana General Assembly last week, morphing into a bill that completely eliminates Indiana’s energy efficiency resource standard (EERS). After some delay (caused in large part by a blitz of publicity and push-back by energy efficiency supporters), the Indiana Senate concurred on the amended bill on Monday, and the legislation now moves to the governor’s desk.

Rumor has it that Governor Pence is not enthusiastic about the expanded scope of the bill, which terminates all existing ratepayer-funded energy efficiency programs at the end of 2014, and eliminates the existing EERS. It would be somewhat surprising, though, if he vetoes a bill that passed the GOP-controlled legislature by wide margins. Nevertheless, energy efficiency businesses and advocates are continuing their appeal to the governor to veto the bill. By law he has seven days from receipt of the bill to make a decision.

Energy efficiency advocates in Indiana, including the Hoosier Environmental Council, Citizens Action Coalition , and Sierra Club, deserve mention for the valiant effort they’ve made (along with the Midwest Energy Efficiency Alliance and ACEEE) to inform and mobilize businesses interested in energy efficiency. Despite the very short time frame created by this surprise attack, an impressive array of business interests have weighed in to oppose the legislation. Honeywell, General Electric, Siemens, JACO, the Alliance for Industrial Efficiency, the Indiana Distributed Energy Alliance, and the Air Conditioning, Heating and Refrigeration Institute all spoke out against the bill. Word on the street is that these efforts have opened a lot of eyes to the benefits of energy efficiency and caused some re-thinking, but the initial momentum of the sneak attack and the votes cast early in the game made it impossible to stop the bill in the legislature.

A key part of the messaging in support of the bill has been promulgated by utility trade associations like the Indiana Energy Association, which claims the bill doesn’t “kill” energy efficiency, because utilities like energy efficiency and will propose programs on their own without the mandate. In plain language, however, the bill does terminate all of the existing programs, and the track record of the Indiana utilities on “voluntary” energy efficiency programs is not encouraging. Prior to the 2009 Indiana Utility Regulatory Commission (IURC) order that created the current programs, Indiana utilities were saving almost no energy through energy efficiency programs (ranking 41st in the nation in savings as a percentage of sales). In the first full year under the IURC requirements, the efficiency programs saved nearly 50 times as much energy as the utilities had on their own. An independent evaluation, required under the order, documented that the programs were quite cost-effective, with a utility cost test benefit-cost ratio of 2.0 to 1.

What are the lessons for other states? Indiana has some unique elements that helped contribute to this attack. For example, the current programs and EERS were created by IURC order rather than legislation, and this “turf” issue has contributed to the lack of support for the current programs in the legislature. Also, there is “utility resentment” over the fact that a portion of the programs are required to be administered through an independent statewide administrator. On the other hand, some aspects of the situation in Indiana are held in common with many states, including opposition from large, powerful industrial customer groups and from anti-mandate conservative legislators, as well as the historical reluctance of many utilities to truly embrace aggressive energy efficiency savings goals.

Perhaps the most important lesson for other states is to educate policymakers about the great benefits of, and widespread support for, energy efficiency programs---especially from the many businesses that benefit directly from them. In the current political climate, not many states can afford to be sanguine about their existing structural support for utility sector energy efficiency efforts. Being proactive about communicating the benefits can hopefully help build a wall of defense against the kind of surprise attack that just occurred in Indiana.