Gutting Efficiency Would Be a Step Backward for Iowa

As cities and states across the nation ratchet up energy efficiency programs because of their health, environmental and financial benefits, Iowa is threatening to move in the opposite direction.  

A regressive bill (Senate File 2311) sent to Gov. Kim Reynolds’ desk would devastate the successful—and popular—utility-run efficiency programs in the state.

She should veto the harmful measure. It would saddle consumers with a projected $2 billion in unnecessary energy costs, jeopardize a critical source of job growth—one that the Governor herself has cheered for boosting the state’s economy—and undermine Iowa’s leadership in promoting clean energy and a healthier environment. It puts energy efficiency programs on the chopping block, and goes even further by weakening solar policy, and removing consumer protections and oversight.

The bill is bad for Iowa. 

Here’s how the bill would harm energy efficiency

First, it would cap spending on efficiency programs to 2 percent of electric utilities’ retail revenues and 1.5 percent for natural gas utilities, as well as a 2 percent cap on demand response programs. The cap alone would slash funding for efficiency initiatives by about two-thirds, creating some of the worst impacts on gas programs.

Second, as if that weren’t enough, the bill also subjects programs to an impossible gauntlet which—if they fail to clear—will further undermine energy efficiency by allowing customers to opt out of having even a modest portion of their utility payments go to efficiency programs.

That gauntlet is the unreasonable—and unnecessary—standard called the “Ratepayer Impact” (or “RIM”) test. While all efficiency programs are (and should be) subject to cost-effectiveness screens, the RIM test is an outlier, having been rejected since its emergence in the 1980s by the vast majority of states. In fact, the RIM test serves to so thoroughly exclude otherwise valuable efficiency programs, that when it was first introduced in the Northwest three decades ago stakeholders took to calling it the “hardly any winners” test.

Indeed, when one looks at how MidAmerican Energy and Alliant Energy’s electric energy efficiency programs that are currently being considered at the Iowa Utilities Board would fare under this draconian standard, the odds are not good. Nearly all of those programs would fail to clear the hurdle.

All of this adds up to a tenuous situation for energy efficiency—and the savings it brings customers. The efficiency programs at risk include home energy audits and rebates to consumers for buying energy-saving appliances, and utility efforts to encourage businesses and residents to lower electricity demand, including during peak periods. These programs help keep down utility rates, prevent harmful pollution and make Iowa businesses competitive.

So, the question is…

Why mess with success? 

Since 2009, the state’s utility-run efficiency programs have produced an energy savings equal to about 10 percent of customers’ total annual electricity needs, according to an Energy Futures Group analysis.

In 2016 alone, the efficiency programs for MidAmerican and Alliant produced nearly $400 million in net savings, the utilities’ own analysis found. Every $1 invested in energy efficiency programs saves consumers $2 in energy costs.

Cuts to the programs over the next decade from the new legislation would likely result in $2 billion of unnecessary energy costs, the Energy Futures Group analysis found.

The programs benefit all Iowans

Efficiency leads to lower utility system costs, which benefit all consumers.

Iowa’s efficiency programs replace the need for costly new power plants and for infrastructure investments. Indeed, since 2009, the Iowa utilities’ programs have eliminated the need for two-and-a-half new 500 MW power plants. Similarly, MidAmerican, the state’s largest utility, has estimated that efficiency programs helped save $50 million on capital investments in electricity infrastructure in 2016 alone.

Stakeholders agree. “Energy efficiency is working well,’’ Iowa Consumer Advocate Mark R. Schuling has said, warning that the bill will lead to higher rates for customers.

The programs enjoy broad—and bipartisan—support

The legislation goes against the Iowa’s own state energy plan, developed in late 2016 under then-Lt. Gov. Reynolds.

“Increasing the deployment of energy efficiency activities not only makes economic sense, but also has strong support from Iowans,” the plan says.

Polling shows Iowans—Democrats and Republicans alike—strongly support energy efficiency programs, including increasing requirements for utilities to invest in energy efficiency improvements to homes and businesses.

The programs benefit Iowa’s economy

The legislation would “stifle a growing, prosperous industry” in Iowa, the sustainability-focused business group Environmental Entrepreneurs (E2) has warned. In 2016, more than 20,000 Iowans worked in energy efficiency jobs such as retrofitting homes and businesses to make them more energy efficient. Clean energy jobs grew almost 12 times faster than overall jobs in Iowa, a trend that Gov. Reynolds celebrated last year.

When Iowans invest in energy efficiency they keep more dollars in their pocket, which they can spend at local businesses.

The legislation also goes against the trend in other states, including the Midwest. Blue and red states alike have been embracing smarter energy use. Michigan, with a Republican governor, enacted legislation in 2016 to increase investment in energy efficiency. Illinois, also with a Republican governor, enacted legislation in 2016 that incentivizes utilities to achieve more energy efficiency savings for its customers. Colorado, Maryland and Nevada last year enacted legislation to further promote energy efficiency.

Opportunities for further energy and money savings are possible

Robust energy efficiency programs are needed if Iowa is to realize even more financial benefits from reduced energy use, as well as the public health and environmental benefits they provide.

And there’s a deep well of efficiency to tap in the coming years. Iowa utilities’ own assessments show the potential for 17 percent of the state’s electricity use and 15 percent of natural gas use could be cost-effectively saved through efficiency over the next decade.

Governor Reynolds now has an opportunity to do what’s right for the state’s economy and the health and well-being of Iowans, an opportunity that was seized upon little more than a year ago by a fellow Midwest Republican Governor. In late 2016, Ohio Gov. John Kasich vetoed a bill that would have effectively repealed that state’s energy efficiency and renewable energy mandates. The bill, he noted, would “deal a setback to efforts that are succeeding in helping businesses and homeowners reduce their energy use through increased efficiency.”

Iowa Gov. Reynolds should do the same and take her veto pen to SF 2311.

About the Authors

Samantha Williams

Staff Attorney, Midwest program

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