July 03, 2019

Robert Kelter

Want lower energy bills in Ohio? Energy Efficiency is the best bet.

Green energy is booming across the Midwest, but in Ohio the legislature is close to passing a bill that would take an unprecedented step backwards.

HB6 would subsidize nuclear and coal power plants, while simultaneously cutting state support for renewable energy and energy efficiency. The irony is that they claim this bill will save customers money and lead to cleaner air, but the the cleanest energy comes from renewables and the best way to save money is with energy efficiency. It’s bad policy to bail out uneconomical nuclear plants, it’s terrible policy to bail out uneconomical coal plants, but it is unjustifiable to eliminate renewable energy and efficiency programs.

I’ve been involved with energy for many years as a senior attorney with the Midwest-based Environmental Law & Policy Center (ELPC) and with my prior position at the Illinois consumer advocate’s office. So, I went to testify to the Ohio House Energy & Natural Resources Committee and the Senate Energy & Public Utilities Committee in opposition to HB6, to emphasize efficiency in particular. Efficiency comes in many forms, from smart thermostats and LED light bulbs to building insulation and modern commercial machinery. Energy policy isn’t top of mind for most folks, but we need to make sure our policies provide environmental and consumer benefits.  Efficiency is the easiest and most affordable option for cleaner air and saving customers money. The Ohio Senate must amend HB6 to preserve these common-sense programs.

Here are some highlights from my testimony:

Energy efficiency saves customers money on their bills

HB6 emphasizes that it will lower the monthly customer charges from $4.39 per month to $2.50 by eliminating the charges for energy efficiency, peak demand reduction, and renewable energy. But these charges are not the whole picture. This characterization ignores the fact that eliminating the monthly charge for efficiency causes customers’ overall electric bills to go up. The reason for this is simple; energy efficiency costs less than generation. While there is a separate charge for energy efficiency on customers’ bills that makes it appear to be an additional charge to their electricity, every unit of energy efficiency replaces a unit of energy generation.

When utilities invest in energy efficiency efforts, it costs customers less for that investment than it would to generate new energy, and it also saves customers money on their energy bills into the future. In fact, AEP indicated in their 2018 report that generating energy cost 5.4 cents per kWh, but energy efficiency programs cost only 3.2 cents per kWh. Hence, any reduction in the current efficiency standards means that customers will pay more for their electricity.

Efficiency efforts are required to be cost-effective

Customers obviously only want to invest in energy efficiency up to the point where it’s cheaper than energy generation. The law requires energy efficiency to be “cost effective,” so the efficiency must cost less than the electricity it replaces. If not, then the Commission will waive the requirement and the utility will only produce the efficiency that costs customers less than generation. So far, it’s worked out great for customers. Analysis from the Midwest Energy Efficiency Alliance shows that for every $1 Ohio utilities have spent on the programs, customers have saved $2.65.

Efficiency measures produce savings for years to come

Every dollar spent on energy efficiency is an investment that will continue to mean energy savings into the future. For example, a utility might discount an efficient furnace, but that furnace might last for 20 years and continue to provide customer savings that can really add up over time. FirstEnergy’s 2017-19 plan stated that Efficiency Programs cost $323 million, but would generate $988 million of customer savings over the course of the plan. AEP’s calculations projected costs of $284 million, with customer savings of $2.2 billion over the life of the customer’s efficiency investment measures (like furnaces). These aren’t cost savings analyses of environmentalists – they are estimates of the utilities, as approved by PUCO. These efficiency programs have helped millions of Ohioans save money across the state.

Everyone benefits from energy efficiency

Energy efficiency reduces demand on electricity, so it saves customers money whether they participate in an efficiency program or not. According to a recent analysis by PUCO staff, Ohio’s energy efficiency programs drive down all energy prices by about 5.7%. Lower demand means lower prices for everyone, but utilities also avoid paying for the most expensive energy. When Ohio customers’ demand for electricity peaks on hot summer days, they have to turn on additional power plants, called “peakers” to meet demand. These plants pollute the most and cost the most to run, driving up prices and healthcare concerns for everyone. The reverse is true too; when utility customers reduce their electricity usage through utility efficiency programs, then we use less of that expensive generation. The result is lower costs for all Ohioans.

There’s a lot more efficiency work to be done to save customers money

Some folks are worried that the low-hanging fruit from efficiency might be gone and therefore utilities will not be able to meet future goals. But in fact, there’s a lot left to do. While it is true that many customers have already invested in energy efficient lighting, many still have not. Many business customers can save more energy very cost-effectively with new efficient lighting options not addressed by federal efficiency standards. Moreover, we have only barely begun to tap the potential for savings from heating and cooling. Very few customers have weatherized homes or businesses, and there is unlimited potential in these areas. Again, the utilities have produced their own analysis on these issues, and even under conservative assumptions regarding achievable potential FirstEnergy would be able to cost-effectively meet Ohio’s existing cumulative energy savings benchmarks through 2027.

Commercial customers could be more energy efficient

In addition to our homes, Ohio businesses have many opportunities for energy efficiency, but commercial customers aren’t taking advantage of energy efficiency opportunities all on their own. According to a recent study, residential customers have the potential for 30.9% efficiency compared to 40.6% for commercial customers and 40.6 for industrial customers. We have heard some commercial and industrial customers testify that they shouldn’t have to pay for energy efficiency because they already invest in efficiency measures to stay competitive. Unfortunately, the facts simply don’t bear this out for a number of reasons.

First, businesses are under pressure to produce quarterly profits and hesitate to make investments with payback periods over one year. Second, most energy managers focus on purchasing the cheapest electricity on the market, not on improving efficiency. Third, commercial and industrial customers like the discounts and rebates that the utility programs offer. Finally, in addition to the general programs that Ohio utilities offer, they’ll send experts out to any customer’s business and customize a program to offer individualized discounts and rebates. This is just the kind of useful, but more time-intensive, program that utilities may simply drop if they can’t be sure that a critical mass of business customers will stay in the programs on a consistent basis.

If you want to reduce carbon and improve air quality then you don’t reduce efficiency

We’ve already covered the ways that eliminating efficiency standards will lead to higher electricity bills, but it will also directly lead to more carbon emissions and worse air quality. If Ohio continues to use high rates of electricity, then we continue to burn fossil fuels, which create carbon emissions and numerous other air pollutants. Asthma is currently the leading chronic condition affecting children in the U.S. and air pollution kills more people each year than smoking. Reducing our energy usage is the easiest and cheapest way to reduce these air pollutants. Everyone is entitled to their opinion on many aspects of this bill, but by no analysis can we reach the conclusion that reducing efficiency results in lower bills or cleaner air.

Voluntary standards are eliminated standards

Under HB6, Ohio would lose state energy efficiency standards that have significantly helped to reduce energy needs, air pollution, and costs for customers. The House bill would give utilities the choice of whether or not they wanted to continue these efficiency programs. Without the motivation of state standards, utilities would be at their own discretion to achieve less savings than they would otherwise. Research shows that energy savings in states with efficiency standards are significantly more cost-effective for customers than those states where the choice is left to utilities. It also means the Commission has less oversight and less ability to protect consumers. We want to be clear that by making the standards voluntary, the legislature would be eliminating most or all of the programs, because we’d lose economies of scale and predictability for the utilities. As I noted before, less efficiency means higher customer bills, both for people in efficiency programs and for all other customers who would benefit from lower prices. Moreover, Ohio would lose numerous social and health benefits.

Conclusion

Energy efficiency is the cheapest and cleanest way to meet customers’ energy needs. It is cheaper and cleaner than nuclear power or natural gas, and the efficiency industry employees thousands of Ohioans. I want to close with a quote from then Senator and now Representative Bill Seitz who said the following:

Energy that is not used at all, through energy efficiency, is the ultimate best choice because it avoids the production of energy in the first place.

Energy that is not used at all (energy efficiency) is the ultimate best choice because it avoids the production of energy in the first place.  All forms of electricity fuel have their drawbacks and risks to human and to animal and plant health, so rather than pick winners and losers in terms of one’s favorite electricity du jour, policies that cost effectively improve energy efficiency are preferred.

We should continue looking for ways to improve the efficiency law, but we should not make the standards voluntary. We urge Ohioans to stand up for common-sense energy efficiency opportunities, and we urge the Senate to fix HB6 and make strong energy efficiency standards.