How to Quash Energy Efficiency: Four Ways to Thwart Progress

Energy efficiency is a no-brainer.

It’s cheaper than power generation of any kind, it’s clean, and it’s an economic stimulant in its own right. “Energy efficiency”—to put it in context—is any activity, policy or technology that results in less consumption while ensuring the same level of service. It’s hard not to like. Even so, it remains a significant, untapped reserve almost everywhere in the world, and—perhaps most embarrassingly—it’s still a vast, underused resource right here in the U.S.

Because utilities are regulated largely by state governments, it falls to states to encourage and incentivize energy efficiency, and many have done so. The American Council for an Energy-Efficient Economy publishes an annual scorecard, and this past year it gave shout-outs to 10 states that have created comprehensive and rigorous energy-efficiency programs in recent years: Massachusetts, California, Rhode Island, Oregon, Vermont, Connecticut, New York, Washington, Maryland and Minnesota.

Accolades for the most-improved states on the energy-efficiency curve went to Arkansas, the District of Columbia, Kentucky and Wisconsin.

Where was everybody else?

Many states, I’m sorry to report, are not just missing the efficiency movement but are avidly dodging it, succumbing to energy- and utility-industry pressure to either roll back programs or kill them outright before they make a difference.

While efficiency is in the best interest of ratepayers—because it’s a big money saver— executives at many big energy-related companies see it not as a path to long-term economic health and well-being for all but as a threat to their bottom line (since most utilities make more money when they sell more electricity).

Plenty has been written on “best practices” in energy efficiency. One common principle is that good efficiency programs result in measurable savings across all customer classes and uses and are available to any customer who wants to participate. The corollary to that—what might be called “worst practices”—are not discussed so often.

Here are four of them:

• Breeding uncertainty by putting the brakes on public funding for efficiency programs. Indiana’s political leadership takes the cake here. In 2014, it became the first state in the country to actually roll back its energy-efficiency standards, and the bill that did so also removed funding for an independently administered, statewide program called Energizing Indiana. Utilities did nothing to fill the void, and the projected consumer savings from efficiency programs in Indiana plummeted.
• Allowing industrial customers to opt out of ratepayer-funded efficiency programs. Both the Ohio and Indiana legislatures voted recently to allow industrial customers to duck energy-efficiency standards, leaving their compliance largely voluntary. Because industrial users tend not to implement efficiency improvements that don’t show a payoff within a year or two, most don’t want to take part in these initiatives, depriving efficiency initiatives of a large pool of cost-effective savings. In Indiana, 65 to 80 percent of customers, depending on the utility, are deemed “industrial.”
• Compensating utilities for efficiency programs that don’t even exist. Ohio comes to mind again here. The Public Utilities Commission of Ohio recently allowed FirstEnergy, one of the big electricity providers in the Midwest, to drop an energy-efficiency program and to continue to charge customers for it. Ratepayers are supposed to get a refund someday while FirstEnergy, in the meantime, gets a windfall.
• Over-screening for “cost effectiveness.” Florida Power & Light in a recent regulatory dispute presented a blizzard of questionable arcana in support of its argument that its energy-efficiency program was simply not cost effective in the short term. The Florida Public Service Commission gave in to FPL in December, rejecting an alternative proposal that would have saved customers $4-5 billion, according to the utility’s own analysis.

Roadblocks to energy efficiency ultimately cost ratepayers, of course. That’s because ratepayers are the ones who pay through higher electricity bills that would be much lower if laggards like Indiana, Ohio, and Florida got with the program and followed examples set by those states that embrace the energy-efficiency initiatives.

Anna Sommer is president of Sommer Energy, a utility-regulation consulting firm.