Our new research shows that utility customers would pay a hefty price if more large customers were allowed to opt out of energy efficiency programs. In Ohio’s case, they would pay billions of dollars. Fundamental fairness suggests that because these programs benefit everyone, everyone should pay for them.
The Ohio legislature is weighing whether to allow more large customers such as manufacturers to leave customer-funded energy efficiency programs. When a large customer opts out, it no longer has to pay the programs’ costs. We’ve published several blog posts and papers about the potential problems with this policy. You can read those posts here, here, and here.
Our report estimates the opt-out costs for Ohio, which introduced a limited policy for large customers in 2014. Now the state is debating whether to expand this policy to exempt more customers. The policy would reduce opportunities for Ohio utilities to save energy and substantially increase costs for their customers, who have benefitted from program savings for the past decade.
Higher Utility Costs
The primary benefit of energy efficiency programs is to reduce utility system costs. These costs include energy, generating capacity, and transmission/distribution infrastructure. An expanded opt-out would increase electric demand, leading to higher utility system costs. Increased costs would ultimately lead to higher electric rates and bills for all customers in Ohio.
Our Ohio analysis focuses on a midrange scenario that assumes 35% of total customers opt out over the next 10 years. We estimate that utility system costs could increase by approximately $1.85 billion under an expanded opt-out. The majority of increased costs from the opt-out would be collected from all customers in Ohio through increased rates. There would also be cost impacts beyond what we estimated in our analysis. In a previous study, ACEEE estimated the value of market price suppression could exceed $2 billion by 2020 based on meeting Ohio’s original energy efficiency goals. All Ohio electric customers will have to pay these higher costs.
Higher Health Costs
Energy efficiency also reduces air pollution by lessening reliance on traditional power plants. Air emissions from fossil fuel power plants contain several harmful pollutants such as sulfur dioxide, nitrogen oxides, mercury, and particulate matter. These pollutants cause damage to human health. Several studies have quantified the economic value of health harms related to electric power pollution. An expanded opt-out would increase health-related costs because of an increase in traditional power plant air pollution.
We estimate that the increased health costs for Ohio could be up to $1.27 billion under an expanded opt-out. This value is also based on the midrange scenario assuming 35% of total customers opt out over the next 10 years. Under this scenario, we estimate an increase of over 18,000 tons of SO2, 5,700 tons of NOx, 1,800 tons of PM 2.5, and 7.3 million tons of CO2.
Higher Bills for Large Customers
Participating in energy efficiency programs can substantially reduce customer bills. These savings are invaluable to many businesses that seek to reduce costs. They also spur economic growth as businesses can reinvest instead of paying higher electricity bills.
Ironically, opting out of efficiency programs is likely to end up costing large customers more than $3.3 billion. While businesses are less likely to make investments with payback periods longer than two to three years, regulated utilities routinely make longer-term investments. By reducing project costs through utility rebates, companies can make investments they would not have made without the program.
Opting Out of Opt-out
Our analysis estimates substantial cost increases for Ohio: total utility system costs would exceed $1.85 billion from 2015 to 2024, increased health-related costs would exceed $1.2 billion, and customers would lose more than $3.3 billion in bill savings from not participating in programs. Also, an expanded opt-out policy would also likely reduce jobs and lower the state gross domestic product, based on analysis we’ve done in other states.
We highlight costs of an expanded opt-out policy in Ohio but expect similar consequences in other states. Policymakers should opt out of policies that increase costs for customers and work instead to improve efficiency programs that benefit us all.