Utilities fall short on efficiency spending

Indiana’s largest power companies are set to reimburse their customers $32 million after falling short on spending for energy efficiency last year.

Six of the largest electricity and gas providers budgeted $74.4 million for Energizing Indiana, a state-mandated energy-saving initiative the companies fund out of rates paid by customers.

But the companies spent only $42.4 million, according to a July 9 regulatory filing.

State officials say the unspent money has to go back to customers, but they would not elaborate on how that would happen because those decisions are still being ironed out.

Energizing Indiana program coordinators blame the shortfall on first-year growing pains after the program’s launch in January 2012.

Nuss Nuss

In an encouraging sign, the program spent only 57 percent of its total budget in 2012, but managed to achieve 73 percent of its energy-saving goal since power companies achieved a lower-than-expected cost per kilowatt hour conserved.

“We’re actually coming in cheaper and more efficiently and getting the same [energy] savings,” said Bob Nuss, managing director for Energizing Indiana.

The program’s origins date back almost a decade: The Indiana Utility Regulatory Commission launched an investigation in 2004 into whether power companies’ energy-efficiency programs were actually effective. At the time, each company ran its own programs.

After five years of public hearings, state officials decided the companies were not effectively running programs on their own.

So in 2009, the IURC pulled together six of the largest power providers: Duke Energy, Indianapolis Power and Light, Indiana Michigan Power, Northern Indiana Public Services Co., Vectren and the Indiana Municipal Power Agency.

The Indiana Office of the Utility Consumer Counselor, the Indiana Industrial Group and the Citizens Action Coalition—a utility watchdog—also joined the group, which regulators charged with devising a set of statewide programs that would more effectively reduce energy use.

The solution was Energizing Indiana, an initiative that would require the power companies to financially support energy-efficiency programs offered statewide—not just for their own customers.

Five “core programs” offer services ranging from weatherization for low-income houses to providing rebates to businesses that install more efficient equipment or appliances. Companies still offer separate programs on their own.

The commission set up a contract with Atlanta-based consultant GoodCents to run Energizing Indiana through 2015, with an option to extend the agreement. The power companies pay GoodCents by adding charges to monthly bills. Charges vary from company to company, but they usually amount to a few dollars per month for residential customers.

The problem was that the new program didn’t work as effectively as it was supposed to in its first year.

“I wouldn’t say we were happy with it,” Nuss said. “We expected much better. We were hoping for much better.”

First-year fumbles

Energizing Indiana reported achieving 73 percent of its goal for the amount of electricity it helped customers save. Projected savings amounted to 416.7 million kilowatt hours—compared to more than 30 billion that the federal government says Indiana consumes in a year.

Companies, regulators, consumer advocates and outside evaluators agreed that Energizing Indiana missed its marks in 2012 because it was the first year.

“It’s very hard to judge just on one year, let alone the startup year,” said Anthony Swinger, a spokesman for the Office of the Utility Consumer Counselor.

An outside review agreed.

Hiring and training bogged down the program, and the goals were “aggressive,” wrote TecMarket Works of Oregon, Wis., in its annual review.

“Simply put, in the opinion of the Evaluation Team, there was not enough ramp-up time, allowing for the levels of increasing participation needed to meet the first year’s savings targets,” the report noted.

Goals were especially aggressive because Energizing Indiana launched a year late after delays in setting up contracts. The state, in response, compressed three years’ worth of goals into two years, Nuss said.

The commission also underestimated the number of homes heated with natural gas instead of electricity, which provided much less demand for electricity-related services.

Olson Olson

It did not help that the program started out marketing itself through direct mail, he said, which did not work well.

“There were a lot of assumptions built in the program from the very beginning,” he said.

For instance, Energizing Indiana assumed half of all homes it audited would need water-heater wraps. As it turned out, 1 percent needed wraps.

Reimbursements ahead

Danielle McGrath said the utilities are still working on how they will reimburse customers.

Duke Energy, the biggest funder for Energizing Indiana, will cut back a monthly Energizing Indiana fee of $3.66, on average, for each residential customer to compensate for last year, said spokesman Lew Middleton.

The company collected $28.5 million, but spent only $14.9 million for the program.

Duke has since reduced its monthly fee to an average of $2.91, but that does not yet reflect reimbursements for last year, Middleton said.

IPL over-budgeted by $6.6 million; Indiana Michigan by $2.2 million; NIPSCO by $4.7 million; Vectren by $2.2 million; and IMPA, which is a collection of small municipal utility offices, by $2.6 million.

Challenges continue

Energizing Indiana has continued to miss this year’s energy-savings goals, which are even more ambitious than last year.

The initiative aimed to reduce consumption by 574 million kilowatt hours last year. The mark is a total 851 million for 2013.

A July 31 report shows that, as of June 30, Energizing Indiana has reached 26 percent of its goal at the year’s halfway point.

That is largely because one of the five programs, the biggest one, is dragging everything down.

The commercial and industrial category, which provides rebates to businesses for efficiency upgrades, accounts for more than half the total goal. But its energy savings are only about 30 percent of where they should be at this point. The program finished 2012 at 63 percent of its goal.

Kerwin Olson, executive director of the Citizens Action Coalition, acknowledged Energizing Indiana has had a lot of challenges outside its control. But he also has questions.

“How interested are these utilities in seeing their customers use less energy?” he asked, rhetorically. Also, “the industrial customers will tell you they have every interest to use less energy. Yet they do everything in their power to bog down these programs.”

Many large industrial customers already have their own efficiency program, and consider efficiency tactics trade secrets, he said.

Nuss said Energizing Indiana is trying to ramp up marketing and outreach to businesses so it can catch up.

The program is trying to zero in on businesses in health care, banking, automotive manufacturing and convenience stores, where Energizing Indiana and the power companies have strong connections to the industries’ leaders.

“We’re trying … everything we can to figure out how to get these customers,” he said.•

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