Energy Efficiency in the Midwest: What Do Actions in Indiana and Ohio Mean for the Rest of the Region?

by Stacey Paradis, Deputy Director, Midwest Energy Efficiency Alliance

Indiana repealed its energy efficiency portfolio standard (EEPS) in April. Energizing Indiana and other mandated energy efficiency programs will cease on December 31, 2014. Ohio “paused” its EEPS in June and was also the first state to repeal its renewable energy standard. Efficiency programs already approved by the Public Utilities Commission of Ohio will run through their contracted dates, but no additional investments will be mandated in Ohio. What does this mean for energy efficiency in the Midwest?

Energy efficiency investment in the Midwest is projected to total more than $1.78 billion in 2014. Recent legislative actions in Indiana and Ohio mean that this investment will drop to an estimated $1.67 billion in 2015. But this isn’t the whole story. State & Local Energy Report (Winter 2014) reported on the amazing upsurge in energy efficiency investment since 2007, calling the Midwest the “gateway to energy efficiency.” Even with recent actions in Indiana and Ohio, the Midwest’s investment in and commitment to energy efficiency shouldn’t change. The business case for energy efficiency remains strong, but elected officials need to recognize this least-cost, supply-side resource as a future opportunity for their citizens and businesses.

Currently, five states in the Midwest have EEPS (Illinois, Iowa, Michigan, Minnesota, and Wisconsin) and both Kentucky and Missouri have strong investments in energy efficiency without mandates. Although the legislature did “pause” the mandate in Ohio, utilities will continue to run already approved programs through 2015–16.

Unfortunately, no new investment in energy efficiency will occur until at least 2017. The story in Indiana is somewhat more hopeful, as all five investor-owned utilities have filed proposed efficiency plans for 2015, but those are only for the period of one year. For energy efficiency to truly maximize its potential in state economies, and for consumers and businesses, elected leaders need to ensure long-term, consistent commitment for energy efficiency.

Energy Efficiency Is the Least-Cost Energy Resource

Investing in energy efficiency is an investment in the least-cost energy resource. In 2014, the Lawrence Berkeley National Laboratory reported that the Midwest has the lowest levelized cost of saved energy of any region in the country, as shown in the graph. All of the states examined in the Midwest offer energy efficiency programs with a levelized cost of less than 2 cents per kilowatt-hour.

Values in this figure are based on the 2009-2011 data in the LBNL DSM Program Impacts Database. CSE values are for program administrator costs and based on gross savings. Savings are levelized at 6% real discount rate. The savings-weighted average CSE is calculated using all savings and expenditures at the level of analysis. The inter-quartile range and median CSE values are calculated for each program type.

Energy Efficiency Is Cost Effective, with a 2-to-1 Rate of Return

The Indiana legislation was passed despite the fact that an independent evaluation of third-party-administered, statewide energy efficiency programs (Energizing Indiana) found that the programs saved two dollars for every dollar spent in 2013. Residents and businesses that took advantage of utilities’ energy efficiency programs were highly satisfied with them, as reported in an independent audit of the state’s demand-side management programs in 2013.

In Ohio, many in the business community, including the Ohio Manufacturers’ Association, opposed the legislation. Members of the faith community, consumer advocacy groups, and sustainable energy advocates also opposed this legislation. A survey conducted in April 2014 found that 86% of Ohio voters support mandated utility energy efficiency programs, with 49% strongly supporting the rules. Moreover, between 2009 and 2012, $456 million was invested in energy efficiency. These investments have already yielded $1.03 billion in savings to date, a return on investment of more than 2-to-1. Over the lifetime of these measures, these investments will result in $4.15 billion in savings in Ohio.

In both Indiana and Ohio, numerous media stories were written about the coalitions of manufacturers, including Johnson Controls, Honeywell, Ingersoll Rand, and Lockheed Martin, that support energy efficiency. Collectively, these companies employ tens of thousands of workers in just those two states. These businesses recognized the economic benefits of long-term energy efficiency programs, and they value the impressive rate of return.

Energy Efficiency Will Be a Compliance Tool to Meet New Clean Air Requirements

The EPA’s proposed Clean Power Plan creates even greater potential for energy efficiency deployment. It is estimated that Illinois, Iowa, Michigan, Minnesota, South Dakota, and Wisconsin can achieve at least a 10% reduction from their baseline emission rates through end-use energy efficiency. Long-term energy efficiency programs provide states with a compliance tool to meet these aggressive targets.

What we know is that energy efficiency can be a driver in state and local economies, directly benefits consumers and local businesses, and generates a rate of return of more than 2-to-1. Energy efficiency also provides a framework and programs for states to achieve substantial energy savings and lower emissions. Elected officials should support energy efficiency by ensuring that there are regulatory systems in place to support long-term investment.

Indiana Governor Mike Pence has stated that “by reducing our need for electricity, we reduce our need to build expensive power plants at a cost to Hoosier ratepayers. For this reason, I believe that energy efficiency is an important part of our ‘all of the above’ energy strategy.” He is right—energy efficiency is an economic tool that benefits local economies in each Midwestern state. It is essential that this least-cost, supply-side resource be recognized and utilized at every opportunity.