If Indiana is against energy efficiency, then what are they for?

Indiana's governor, Mike Pence has a serious decision to make.  The Indiana General Assembly has come out against energy efficiency with an overwhelming vote to end the popular, and by most accounts effective, Energizing Indiana program.  Senate Bill 340 originally sought to give large industrial customers a chance to opt-out of the program - shifting more of the responsibility to small and mid-sized customers.  The House hijacked it, however, and turned it into a bill that as of December 31, 2014 would make it illegal for the Indiana regulatory commission to require an energy efficiency program.  In 2009, that regulatory body enacted the program to help drive energy efficiency and boost job growth in the state, keeping up with programs enacted in most of the neighboring states.  Since its inception, the program has created as many as 5,000 permanent, direct jobs, resulted in three times as many indirect jobs, and saved almost a billion kilowatt hours at a cost of approximately $500 million.

More importantly, the programs have reduced demand by 100 MW, and if continued would reduce it by almost 1800 MW in 2020 when the program would have cost $2 billion.  We often think of building new power plants to meet increased demand, but given the size of our current demand, we can offset increases by reducing usage elsewhere.  Every dollar we spend on permanent energy efficiency avoids us having to build a power plant.  Currently, the reductions of energy efficiency cost about $5 per kilowatt of power.  By 2020, the 1800 MW reduction will have cost about $1 per kilowatt.  Compared with $6 per kilowatt of nuclear, $2.3 per kilowatt for coal, and $1 per kilowatt for natural gas, the investment makes the most economic sense.  This is especially true when factoring in the job creation impact.  Energy efficiency creates twice as many jobs per dollar invested as any of the fossil fuels, and just slightly more than nuclear energy.

The reason for the backlash against the bill comes from the utility industry in Indiana.  Although they accurately claim no direct sponsorship of the bill, their interests get ignored if the program continues. In Indiana, unlike other states, the utilities still control both the generation assets and the delivery network, and their profits are coupled to usage: as people use more energy, they receive more revenue and profit.  In deregulated states, utilities can decouple their charges from usage, recouping the cost of investment even as usage flattens out or drops.  Although this creates a whole set of issues that all utilities will have to deal with by changing their business model, it at least gives the utility economic incentive to improve reliability and efficiency.

The other issue, and perhaps more important one, comes from the fact that the program resulted not from direct legislation, but rather from a legal order from a regulatory agency.  Although fully supported by the governor at the time, and even the majority of the legislature, the program did not come from a newly enacted law as in other nearby states.  This perceived "over-reach" provides an opportunity for those who would oppose the effect to claim that the rules do not have the appropriate legitimacy.

Both of the objections raise valid arguments, and after nearly four years, it makes sense to revisit programs to make sure they maintain relevancy and effectiveness.  Mike Pence has a hard decision because his own party did not deliver him the most important thing he needs right now....

Options.

By making it an all-or-nothing, the governor faces the decision to either eliminate jobs and create a further burden on the middle class, or further enrage a portion of the corporate base.  (I should note that business groups come down on both sides of this issue as many large and small businesses have seen growth in the marketplace because of the program.)  If the legislature had proposed a fix that addressed the concerns of utilities, and provided some realistic relief for large corporate customers, the decision would not be about a politically-charged ending of a program, but rather a fix.  There are many possibilities the legislature could have proposed: scaling the contribution based upon customer size, fully deregulating the utilities to allow them to decouple cost from usage, and/or setting the rate of contribution at the cost of new investment to ensure that energy efficiency targets only the most cost-effective programs.  Any of these would have made reasonable sense, and given the governor options.

But right now, he really has no options.  He must veto this bill and tell the Assembly to start anew.