Fast-Tracked Opt-Out Legislation Would Derail Indiana’s Successful Energy Efficiency Resource Standard

Blog Post | February 24, 2014 - 3:54 pm
By Martin Kushler, Senior Fellow

Proposed legislation in Indiana (SB 340) would devastate the state’s very promising energy efficiency programs, which were created under order of the Indiana Utility Regulatory Commission (IURC) in 2009. SB 340 would allow any customer of 1 MW demand or greater to immediately “opt out” of paying any rate charges to support energy efficiency programs. This would not only exclude industrial customers (which account for 47% of the load in Indiana), but many large commercial and institutional customers as well. Essentially, this bill would take over half the state’s load (and many of the most cost-effective energy efficiency opportunities) “off the table” for providing utility system energy efficiency resources in Indiana.

This attack comes as a surprise because the current programs are actually working quite well. Indiana recently achieved full-scale implementation of the statewide energy efficiency programs, and the initial results have been very positive. This recent progress helped the state move up six spots in the rankings of ACEEE’s 2013 State Energy Efficiency Scorecard to 27th. An independent evaluation conducted on the first full year of programs (2012) reported a benefit-cost ratio of 2.0 to 1 for the total portfolio of energy efficiency programs (meaning two dollars of reduced utility system costs were saved for every dollar spent on the programs). Furthermore, as is common in most states, the benefit-cost ratio for the commercial and industrial programs (3.19 to 1) was the highest of any sector, making it particularly counter-productive to remove industrial customers from the mix.

The industrial customer representatives promoting this bill have historically opposed requirements to pay for energy efficiency programs. However, the IURC listened to those arguments in 2009 and decided (as have most states) that energy efficiency is an important and valuable utility system resource that all customers should pay for, just like a power plant. The proposed bill would reject that decision and allow large commercial and industrial customers to simply avoid paying for any energy efficiency resource.

Supporters of energy efficiency are working to rally opposition to SB 340, but are hampered by the fact that this bill was dropped without advance warning and is being rushed through the legislature on a very fast track. Presumably this is to avoid allowing the bill’s negative impacts to reach the public’s attention, since opinion surveys have repeatedly shown strong public support for energy efficiency.

If this opt-out legislation moves forward, it would keep Indiana from harnessing what is clearly some of the cheapest, cleanest, and most reliable utility system resource available to the state. Future electricity costs will be higher for all Indiana ratepayers, because much more expensive electric generation resources will have to be procured instead. The Indiana legislature should act in the best interests of the state and not let the abundance of energy efficiency opportunities for large customers fall off the table.