The Midwest: Gateway to Energy Efficiency

by Christopher Weber

For much of the twentieth century, the Midwest was where energy went to be spent. Its brawny factories and populous cities used enormous amounts of power to manufacture products for the entire world.

Now, the Midwest has turned to saving energy as a way out of its prolonged economic doldrums. Its annual efficiency spending is projected to hit $1.8 billion by 2015. That’s a sea change in a region long seen as an energy efficiency laggard.

The reversal is largely due to efficiency programs in states such as Illinois, Ohio, Michigan, Iowa, Wisconsin, and Minnesota and anchored by progressive policies: innovative utility-run programs, open sharing of ideas, and a focus on using efficiency to restore the region’s competitiveness.

The Midwest’s rapid mobilization is measurable. Take, for instance, the shifting efficiency rankings for seven Midwestern states: Illinois, Indiana, Iowa, Minnesota, Michigan, Ohio, and Wisconsin. Every year, the nonprofit American Council for an Energy-Efficient Economy (ACEEE), located in Washington, D.C., issues a scorecard that ranks the states based on their energy efficiency policy and program efforts. In 2006, the average ranking for these seven states was 23. By 2013, the average ranking had climbed to 16, with four Midwestern states in the top 12. Among the states the ACEEE has named “most improved” are Ohio (in 2008 and 2013), Michigan (in 2011 and 2012), and Illinois (in 2011, when it tied with Michigan). That the long-stagnant Midwest can change so rapidly bodes well for other states and regions where efficiency has yet to take hold.

How did the Midwest become of a showcase of energy efficiency? There is not one answer to this question, but many. Some states, like Wisconsin, put long-term programs in place. Some, like Minnesota, established aggressive short-term goals. And some, like Illinois, have done both.

A New Starting Line

A few Midwestern states tackled efficiency long ago. Minnesota, for instance, inaugurated an efficiency pilot program as far back as 1980. Minnesota utilities launched efficiency programs in 1993. By and large, though, most Midwestern states had done very little as late as 2007. That’s the view of Robert Kelter, an attorney at the Environmental Law and Policy Center in Chicago who has worked as an efficiency advocate for almost 25 years. “When we went through deregulation in the 1990s, energy efficiency fell off the map,” Kelter said. “In the states going through deregulation, there was a movement away from utility-run programs and a sense that the market would take care of everything.”

Two pacts by members of the Midwestern Governors Association (MGA), in 2007 and 2009, created a new starting line and inaugurated a pattern of setting aggressive goals. In addition to benchmarks for renewables, biofuels, and carbon capture, the 2007 MGA Summit urged states to ramp up to 2% annual savings through energy efficiency for natural gas and electric use by 2015, and “an additional 2% in improvements every year thereafter.”

Within 18 months of the governors’ 2007 pact, Illinois, Michigan, and Ohio adopted energy efficiency resource standards of between 1% and 2%. The pact itself was nonbinding, but Midwestern governors signed on and sought their own state standards to fill a perceived vacuum in leadership. As Jim Doyle, then the governor of Wisconsin, told the New York Times, “In the absence of a federal plan we have to move forward … federal plan or no federal plan, the Midwest is uniquely positioned to be a major force in the developing new energy world.”

In other words, leaders of Midwestern states saw an opportunity for savings—and feared being left out of the new energy economy. One example is Mitch Daniels, who served as Indiana’s governor from 2005 to 2013 and saw energy efficiency as an economic resource. Under Daniel’s watch, in 2010 the state put into effect a plan to reach 2% in annual electricity savings by 2019.

Even in the states that did not adopt new standards, the governors’ pact renewed conversation on energy efficiency. Iowa had previously mandated a statewide collaborative to develop new efficiency programs. Utilities were required to negotiate five-year plans incorporating energy efficiency targets set by the state.

Spurred by the governors’ pact, the Iowa Utilities Board considered a statewide standard of 1.5%. It ultimately declined to adopt it, as energy efficiency was already mandated within the statute for all rate-regulated utilities. Each utility is required to include energy efficiency when proposing their five-year plans. Iowa’s largest utilities, MidAmerican Energy and Alliant Energy, have been saving more than 1.4% through energy efficiency since 2009.

Bipartisan Efforts (No, Really!)

Unlike traditional bastions of efficiency such as the West Coast and Northeast, the Midwest contains proud red states as well as states where the political parties are evenly matched. This parity complicates the passing of any piece of legislation, let alone one as far-reaching as efficiency standards.

Yet across the Midwest, efficiency has proven a rare exception to the usual partisan gridlock. Passing the efficiency standard “was a very bipartisan effort in Ohio,” Trish Demeter reported. She currently works for the Ohio Environmental Council, but in 2007 she was an aide in the state’s legislature and watched the Ohio energy bill emerge. “The original bill containing the state’s efficiency standards made it through the entire legislature with only one no vote. It wasn’t just environmental advocates or Democrats.”

Remarkably, much of that bipartisanship has endured the inevitable changes in governorships and legislative seats. According to Nancy Lange, public utilities commissioner in Minnesota, “We haven’t had a waxing and waning of a commitment to energy efficiency. Energy efficiency enjoys bipartisan support. There’s been a steady progress toward greater savings across different administrations.”

What keeps efficiency programs off the chopping block? Their clear record of savings. “The programs are extremely cost effective,” Lange explained. “Even with healthy incentive levels awarded to utilities, customers are still achieving energy savings of around two cents a kilowatt hour, well below the retail cost of electricity. That’s hard to argue against.”

These new standards coalesced with several factors—ARRA weatherization funds, prescient utility executives, and an intense focus on economic development—to create a sense of regional momentum.

As Valerie Brader, senior policy advisor to Michigan governor Rick Snyder, recalled, “Energy efficiency took off about the same time as ARRA money started coming in and the 2008 legislation in Michigan. The number of people on the ground offering energy audits really went up. Rebates came in from utilities. New programs came in that helped with financing. There was a surge on a bunch of different fronts.”

Utilities Seize the Moment, Make Common Cause

Even before the new efficiency standards passed, utilities had bought into the idea of efficiency, from high-level executives to front-line program staff. This early commitment explains, in part, their rapid mobilization. A lot of the planning had already been done by the time the standards passed.

“The utilities need to get credit because they took the commitment seriously,” Lange said.

Robert Kelter credits utilities like ComEd and Ameren Illinois with embracing efficiency. “They made a determination at the highest levels of the companies to embrace efficiency and run the best programs they could.”

Utilities did not view efficiency as a matter of internal operations. They actively sought to collaborate with other utilities and stakeholders. Among these collaborative efforts are the following:

  • A recycling program jointly run by four Ohio utilities that replaced 21,000 old refrigerators
  • A new home construction program, also in Ohio, co-run by Columbia Gas and AEP Ohio
  • An efficiency planning effort for three Iowa utilities led by the state’s Office of Consumer Advocate (Utilities)
  • Collaborative education programs by Nicor Gas and ComEd in Illinois and by DTE Energy, Consumers Energy, and the Lansing Board of Water and Light in Michigan
  • An 11-mile “Energy Innovation Corridor” in which Xcel Energy partnered with CenterPoint Energy as well as numerous government agencies and nonprofits

There is one notable exception to the utilities’ embrace of efficiency. In 2012 and 2013, First Energy got a bill introduced in the Ohio legislature that would have watered down state efficiency standards. First Energy’s dissent stands out; it’s the only utility in the region to dig in and fight so publicly against increased reliance on efficiency.

Utilities played nice, but the parallel efforts occurring throughout the Midwest created a sense of peer pressure among the states. Efficiency emerged as one more front on which states competed—sometimes in a friendly fashion, sometimes not—to attract investment.

As John Quakenbush, chair of the Michigan Public Service Commission, put it: “If other states are doing efficiency and you’re being left behind, you’re at a competitive disadvantage.”

Doug Scott, chair of the Illinois Commerce Commission, agrees. “You always have that competitive nature between states. It’s healthy to be pushing each other on something like energy efficiency. The more the surrounding states are doing similar things as we are, the less we run into the question of, ‘Are we regulating to the point that businesses are going to go another place?’”

Linking Efficiency With Economic Development

Energy efficiency has a special role to play in the rebuilding of the Midwestern economy. After decades of closing factories and job losses, economic development is the great theme of every government program, and efficiency has taken a place in the conversation about development.

High energy costs are a problem throughout the Midwest. In Michigan, a state already ravaged by job losses, households use 38% more energy than the national average.

“In Michigan, we’ve got to be an efficiency leader because we have the incentive to be,” Brader said. “We’re looking at what we can do to be more competitive. Some Midwestern states have coal mines next a coal plant. We don’t have that. We have to import 56% of our fuel. The less we need, the more competitive we can be. We’re going to be able to need to do the whole efficiency toolkit to bring down those costs.”

In a sense, states are merely following the private sector’s example in pursuing efficiency. The auto industry, for example, began to examine ways to trim the energy footprint of its manufacturing plants in the 1990s.

Around the same time, Ohio became a hub for manufacturers of energy-efficient lighting.

In recent years, Midwestern states and utilities have sought to confer the competitive advantage of efficiency to all kinds of industries.

In Wisconsin, this means cutting the energy bills on dairy equipment. Focus on Energy, Wisconsin’s energy efficiency program, offers farmers custom incentives on the latest processing equipment. A new electric milk pasteurizer, for example, is eligible for an incentive of approximately $1,500. Not only will this upgrade save approximately 11,000 kWh (and $1,100) per year, it kills microorganisms more efficiently and can result in a longer shelf life for milk. That’s two additional business advantages made possible by an energy efficiency program.

According to Chad Bulman of CB&I, program administrator for Focus on Energy, state programs can actually confer a competitive advantage to private businesses. “We work directly with a lot of Wisconsin businesses—retailers, contractors, manufacturers, and distributors—to help them do business better. If we can help them use energy efficiency as a selling tool, then we can help their bottom line.”

Building on such successes, Midwestern states such as Michigan and Ohio are now looking to continue the growth of their efficiency programs. Michigan just completed a study that showed enormous potential for additional efficiency savings. Since taking office in 2011, Ohio governor John Kasich, a Republican, has initiated efforts to overhaul state buildings and vehicle fleets for greater efficiency. He also signed a law giving Ohio utilities a green light to pursue combined heat and power (CHP) as part of their efficiency programs. CHP, also known as cogeneration, can achieve tremendous savings by capturing the heat normally lost at power plants and using that “waste” heat in factories or other facilities that need steam. Illinois, Iowa, and Missouri are now considering similar CHP measures.

Meanwhile, the quest for efficiency continues to push into new areas. In January 2014, the Illinois Commerce Commission ordered utilities to integrate smart devices, such as consumers’ smartphones, into their energy efficiency and demand response plans.

In these states and throughout the region, energy efficiency shines as a bright beacon of progress visible from coast to coast.