Indiana Update: Legislature Missing the Point

New Report Shows that the Indiana Legislature Is Missing the Point on Efficiency

Allison Donnelly for Zondits, August 29, 2014

In March, the Indiana legislature passed a bill to defund the state’s energy efficiency program, Energizing Indiana, which became law when the governor chose not to veto it. A new report requested by the Indiana Utility Regulatory Commission shows that the program was benefitting the state, and – unsurprisingly – the decision to ax the program went counter to the state’s interest.

The report used four common cost-effectiveness tests to determine the program’s benefits by asking:

  • Will the total costs of energy in the utility service territory decrease? (Total resource cost test)
  • Will the participant benefit over the measure life? (Participant cost test)
  • Will utility bills decrease? (Utility cost test)
  • Will utility rates decrease? (Ratepayer impact measure test)

For Energizing Indiana, the researchers found that the answers to the first three questions were all yes, some resoundingly. For every dollar invested in the Energize Indiana programs, the state received a benefit of more than a dollar. This result was especially significant for the residential lighting program – where there was a $3.03 benefit for each dollar spent – and the commercial and industrial incentives, which made $5.49 in benefits for each dollar. A 450% return on investment like that is a stat that any entrepreneur would drool over. The only program offered at a cost was the low-income weatherization program – which is offered as a benefit to the public interest and therefore has a different goal than the others.

Politically speaking though, it was the answer to the last question that caused the legislature to repeal the program – even though it shouldn’t have. Ignoring the fact that customer utility bills would actually decrease, many people have latched on to the fact that the program would cause utility rates to increase. Let’s deconstruct that.

Let’s say you’re a business owner with an office in Bloomington, Indiana: population 82,000. You use about 7,500 kWh a month, which makes your utility bill to Duke Energy right around $700. In 2013, your bill told you that you paid a little over $17 – 2.5% of your bill – for Indiana’s Energy Efficiency programs. Now, say you decide to replace all of those old T12 linear fluorescents in your office with T8s through the Energizing Indiana program. Not only do you get a nice rebate check per light, but all of the energy you’re saving means that your electricity usage drops 9%. Your bill is calculated as Usage × Rate = Bill. So now, even though your electric bill went up 2.5%, your usage went down 9%, which means because of this program your bill went down 6.5%. Because you participated in the program, you’re paying $45 less for your electricity each month and you are benefitting.

Here’s a recap of the Energizing Indiana program:

  • For every dollar spent on efficiency measures through the program, the state reaps more than a dollar’s benefit.
  • For commercial and industrial customers, every dollar spent by the program leads to nearly $5.50 in benefits. That’s a 450% ROI.
  • Participation in the program will make a customer’s utility bill decrease, usually more than enough to offset a rate increase.

So, that leaves the big question: Why is Indiana getting rid of this program?