A new law aimed at decreasing energy usage in Indiana might not save consumers money as advertised and could leave the state at risk of violating federal emissions rules, environmentalists say.
The U.S. Environmental Protection Agency's Clean Power Plan, set to be finalized this summer, would require states to cut carbon dioxide emissions by 30 percent by 2030 in an effort to reduce the pollution linked to global warming.
Republican Gov. Mike Pence on Wednesday signed Indiana's plan to reduce energy usage, which will allow major utility companies to develop their own energy-efficiency programs and charge customers to implement them.
The measure acts as a replacement for Energizing Indiana, the previous statewide initiative that provided utility consumers with low-income home weatherization, free in-home energy audits and other services.
The proposal has been largely criticized by opponents and environmentalists, who question whether utilities, which sell electricity, should be in charge of programs that reduce their own sales.
"The utility makes money selling energy and now they're in charge of reducing energy," said Rep. Matt Pierce, D-Bloomington, who opposed the bill. "That doesn't make sense."
Energy-efficiency programs typically require companies to meet specific energy-reduction goals within a set time frame. To meet requirements, utilities can implement certain programs that help businesses to cut waste and homeowners to improve the efficiency of their homes.
Jodi Perras, director of the Sierra Club's Beyond Coal campaign in Indiana, said programs can include home energy audits, where light bulbs, shower heads and water pipes are replaced. Companies can also offer rebates for buying a more efficient furnace or kitchen appliance.
Energizing Indiana, which offered many of those services, was eliminated by lawmakers last year after large industrial and commercial customers complained that the program provided them with few benefits, was too costly to run and set unrealistic goals.
Republican Sen. Jim Merritt of Indianapolis said the "goal of Energizing Indiana was admirable, but it wasn't achievable," and a more realistic approach was needed.
However, lawmakers will probably need to revise the new law in as little as three years to further adapt to federal requirements, Merritt said.
The new initiative allows a utility company to create energy-efficiency plans at least every three years based on what it believes is reasonable. The Indiana Utility Regulatory Commission has the final say on whether the programs and goals — if any are set — are appropriate.
Experts say any effort toward energy efficiency is a positive for Indiana but contend the bill lacks basic elements necessary for such programs to be successful.
Rebecca Stanfield, the Midwest deputy director for policy at the Natural Resources Defense Council, said an effective program should have solid targets that utilities must meet and also require utilities to use programs that are more cost effective than building another plant.
"Those are two really critical elements," Stanfield said. "Indiana's plan has neither."
Other states such as Arizona, Utah and Kansas have seen significant results with programs that hold utilities accountable with stricter requirements.
An Arizona policy adopted in 2010 set specific goals that regulated electric utilities must meet. Since then, Arizona climbed from the 29th to the 15th most energy-efficient state in the country, and ratepayers are projected to save billions by 2030, according to the American Council for an Energy Efficient Economy.
But financial incentives, given to utility companies to help make up for a reduction in sales and revenue, could prevent Indiana consumers from seeing much savings.
"It's a legitimate issue to make sure they can reduce energy but still maintain financial health," Stanfield said. But she contended that Indiana's law "pits utilities against their customers."
A provision in the law allows utilities to charge customers for "lost revenue," or the electricity they do not sell when consumers or businesses opt for more efficient options.
Pierce said most states that allow this type of incentive cap the recovery period to a short time frame, but there's almost no limit on the amount Indiana's utilities can recover.
"It's hard to imagine this resulting in very much savings," Stanfield said.
Pence last week didn't directly answer questions of how the mechanism would save ratepayers money when utility companies will be allowed to charge consumers in a virtually uncapped way.
"I do believe in my heart that in the long term, by having policy that promotes energy efficiency in the state of Indiana, it's going to be a win for Hoosiers, for Hoosier ratepayers and Hoosier businesses," he said.