by Dylan Voorhees, NRCM Clean Energy Director
Senator John Cleveland, Chair
Representative Barry Hobbins, Chair
Joint Standing Committee on Energy, Utilities & Technology
Senator Cleveland and Representative Hobbins,
Unfortunately, the challenge of high energy costs in Maine has become somewhat clichÃ©. Whether it was high natural gas prices driving up electric rates in the previous decade, or high heating oil prices today, Maine is highly dependent on costly, imported fuels. Because we can do so little to affect the price of these fuels, energy efficiency remains a critical strategy to lower costs.
Energy efficiency is a large, cheap, untapped resource in Maine. It is useful to think of energy savings as a resource in the way Pennsylvania thinks of their shale gas as a resource. Like the geologists in Pennsylvania, experts here have estimated the size of the efficiency resource; it’s big. And of course energy efficiency improves the environment instead of polluting it. And it’s generally cheaper.
Unfortunately we’re not tapping as much of this cheap resource as we could as a strategy to lower costs. We simply don’t have the complete policy framework in place to capture it. In fact, Maine is falling behind other states in investing in energy efficiency; and not just in the northeast but across the country in places like Oklahoma or Florida. The consequence is that we’re paying more than we need to.
This is not new information. In 2003, Maine’s Energy Resources Council (sometimes known as the Administration’s “energy cabinet”) produced a report about reducing the state’s dependence on oil. It’s primary recommendation: increasing investments in weatherizing houses. Last week, the Governor’s Energy Office released another report on the same subject. It found: “weatherization of the existing house stock is the most cost-effective strategy that can yield immediate oil reduction benefits.” A decade ago, Maine’s Office of the Public Advocate commissioned a study to estimate the amount of electricity that ratepayers could save through energy efficiency. They found it was considerably more than we were actually achieving. Last year, Efficiency Maine conducted the same kind of potential study. Same story: twice the savings available at extremely cost-effective prices.
We don’t need more studies. What can we do?
We can ignore studies and experience that demonstrates otherwise and just hope that the private sector will invest more in energy efficiency totally on its own. Or we can make greater use of proven strategies to address known market barriers for individuals and businesses, yielding greater savings.
Our strategy for the truly poor: simply use federal tax dollars to pay the cost of weatherizing homes. We need to do as much of that as we can. But government can’t afford to pay the full cost of weatherizing all homes; nor should we. Efficiency Maine has made use of federal money to try different strategies to assist and induce homeowners to invest in energy efficiency. In 2011, Maine started the Home Energy Savings Program, which helped organize private sector contractors and offered technical assistance and $2,500 incentives to achieve whole-house energy savings of 35% across over 3,000 homes. When those funds ran out, Maine moved to a federally-funded, subsidized loan program known as PACE. That was very inexpensive. But only about 400 homes have participated in 18 months. (Experts nationally have long-known that simply offering loans isn’t enough.) Over the last year or so, Efficiency Maine has used an alternative approach of offering small incentives for relatively small savings through direct air-sealing. The idea is to leverage small, concrete success into larger PACE loan projects. That excellent program will run out of funds this summer.
The point is that our strategies have grown more sophisticated as we’ve tried different program approaches, building on experience in other states. (Please remember that dozens of other states have very strong efficiency programs, too, and we should never re-invent the wheel if we don’t have to.) But we’re scratching the surface and dealing with fits and starts so long as we rely on federal funds alone.
On the electricity side, Maine has a long history of success. Just last year our business programsâand businesses typically care much more about electricity costsâhelped achieve $76 million in lifetime savings. These strategies make careful use of market monitoring to best leverage private funds and detailed program evaluations aimed at continuous improvement and ensuring that programs are achieving savings that would not otherwise occur. This is an essential point. It is within this framework that we can identify energy efficiency savings from programs as a specific, quantifiable energy resource. Public Utility Commissions and utilities have known this for decades. ISO-NE has paid providers to “generate” energy savings as a resource for several years; requiring excruciating details to measure and verify it.
That’s where Part A of this bill comes in. In many ways, it is the completion of the framework enacted by the legislature in 2009 that created the Efficiency Maine Trust as an independent entity, designed to capture cost-effective efficiency as a resource. In other ways, it’s coming back to a framework in the 1980’s & 1990′, where the PUC would order utilities like CMP to procure efficiency on behalf of ratepayers as a strategy to avoid higher costs.
The sections in this bill simply the law, removing bureaucratic and sometimes inconsistent statutory clutter that has built up over the last decade. It leaves us with a framework for energy capturing energy efficiency for ratepayers that is more consistent with how Maine and other states assign PUC’s to regulate rates. All electric and gas ratepayers would participate, because all ratepayers benefit and we want to capture achievable, cost-effective available.
Maine is the only state where the legislative body determines the amount (and rate) for efficiency spending on a periodic basis. I know it is a tough forum to state this truth, but not everything is best decided by a legislative body. You create laws that give the PUC a framework for making specific determinations all the time (in your case, often quasi-judicial decisions) about what ratepayers should pay for and how much they should pay. These include very expensive things like transmission lines, non-transmission alternatives or standard offer and other contracts; and smaller things like tree-trimming budgets and line extensions. Instead of a political decision on efficiency, we need an economic oneâa detailed objective analysis of costs and benefits.
There are still many checks and balances to ensure accountability. Not only are PUC commissioners appointed by the Governor and confirmed by the Senate, but so are the Efficiency Maine Trust board members who make proposals to the PUC. Furthermore, the framework for the decision at the PUC is narrow: is it cost-effective? In other words, what will quantifiably lower costs for ratepayers?
The PUC has recently demonstrated its conservative analytical approach to this question when it went through a process to evaluate how much efficiency would be cost-effective. (The bill would further strengthen this process by making it a full adjudicatory proceeding.) It should not be a mystery what the result of passing this bill would be: hundreds of millions of dollars of additional savings for ratepayers. Although they did not agree with 25% of what Efficiency Maine proposed, the PUC still found Maine significantly underinvesting in the lowest cost resource.
Capturing energy efficiency in a utility setting (i.e. electricity, although also somewhat true for natural gas) is not only good for those individuals and businesses who participate in programs. True, they get the largest savings, and they invest considerable amounts of their own money to get it. But all ratepayers benefit from reduced demand on the grid through lower rates. It lowers capacity costs and helps avoid more expensive transmission build-out that would otherwise be included in rates. And it helps suppress energy prices from peak hours that everyone pays. The closer we come to capturing all achievable, cost-effective savings, the more broadly shared the benefits will be. Capturing electric savings at 3-4 cents/kilowatt hour is especially important for businesses. This bill will strengthen Maine’s economy and help our businesses be more profitable.
What of homeowners? I mostly want to comment about heating costs, but I’ll first remind the committee that 40% of the electricity consumed on the grid is by residential customers. You can’t capture all the cheap efficiency resource out there without aggressive efforts to reduce electricity waste in home lighting and appliances. But Parts B & C deal with how to reduce wasted heating energy and lower heating bills.
We know we can get reduce residential inefficiency in two ways: improving efficiency of heating systems and improving efficiency of the buildings themselves. Again, there is clear evidence of market barriers that hinder full economic investment by homeowners (and landlords): lack of information, upfront costs, split-incentives, poor access to the right equipment or installers. And we have good program experience about how to get over many of these barriers. The question is: how do we fund these strategies? We have a big PACE loan fund. We know that is insufficient.
I want to say something about the comparison between saving wasted energy and switching fuels. It simply doesn’t make much sense in most homes to switch from one wasted energy source to another wasted energy source. (Especially if we’re switching from one fuel that we have to import to another we have to import.) As you know, some of our buildings waste 20-40% of their heat that could be cost-effectively avoided. My house had the equivalent of a basketball size hole in the wall across various spots of air leakage.
“One of the most effective and immediate ways we can help people stretch their energy dollars is throughout weatherization.” â So said Maine’s Senator Susan Collins in on op-ed just this week.
It does make sense to help foster investments in more efficient heating systems, regardless of whatever fuel choice a customer is making. As the committee works this bill and others I hope you will maintain a distinction between using public funds for energy efficiency and switching fuels per se. I know this gets complicated where a customer may decide to switch fuels and an incentive for a higher efficiency system enters the equation. You’ve got Efficiency Maine to figure out program details once you set some high level policy.
At a higher level, with limited public funds, spending money to help switch fuels instead of funding efficiency is generally the wrong priority. I’m not opposed to natural gas or wood pellets. But there are two reasons why we should focus on efficiency and weatherization. First, governments shouldn’t decide which fuels are better in the near-term or long-term if we can avoid it. There may be times when we need to put our thumb on the scale, such as reducing pollution. But I think you should be very wary of putting Efficiency Maine in the position of picking which fuel is more affordable over the long-term than another. It is far more straight-forward for them to focus on technologies that save energy, whatever the fuel. Second, fuel providers, whether an oil dealer or a gas utility or a wood pellet dealer are perfectly capable of promoting their fuels. They know it is their interest to persuade people to choose equipment that uses their fuel.
Please remember that the ability to recover costs from the general rate base with a guaranteed rate of return is a form of subsidy. When a utility is promoting its own fuel and has an economic incentive to do so, we probably don’t need that subsidy. Other jurisdictions likewise limit it. I understand that the electric and gas utilities, specifically Bangor Hydro and Summit Gas, may be seeking much more narrow treatment in rates. That is worth further discussion. I hope you will maintain the priority for energy efficiency in that discussion. (And we appreciate that both utilities have taken or proposed some good steps to include efficiency along with their efforts to convert homes to heat pumps or natural gas respectively.)
But not fuel supplier has a significant economic incentive in promoting energy savings itself.
So that is where consumer-funded energy efficiency programs come in. We ask electric and gas consumers to pay a tiny amount on their bill to help lower overall bills by much, much more. Other states are funding weatherization programs this way, too. Remember, most of the rest of country is heated with natural gas, so their gas SBC can fund weatherization!
This is a good place to note that the bill will also ensure that all gas customers in the state have access to programs, and we are set up to capture all achievable cost-effective gas efficiency too. The exclusion of smaller gas utilities is for outdated reasons that no longer apply with the Efficiency Maine Trust doing gas efficiency programs. This is a time when lots of people will be making investments in gas equipment. If we don’t take this opportunity, we’ll lock in over consumption and overspending on natural gas for a long-time to come.
Extending this sensible funding-strategy to heating oil has been a struggle. Speaker of the House Hannah Pingree, in her 2009 bill that became the Efficiency Maine Act, proposed a small surcharge on oil. At the time, a huge federal stimulus fund was arriving, and the legislature postponed a long-term solution. We’ve kicked this can down the road a couple of times. This idea has remained on the table and was included in the recent oil saving report from the Governor’s Energy Office. I hope the committee will grapple hard with identifying additional sources of weatherization funding. This bill gets the conversation going by proposing a voluntary oil surcharge at the wholesale level, and uses a little bit of RGGI money as an incentive to leverage that. I don’t know if it will work, but I know we need policy solutions. Use of some of the RGGI money for heating efficiency is probably a good idea. Part E of the bill allows this.
I know you’ve started discussions about using energy corridor funds primarily for energy efficiency, should those funds materialize, so I don’t need to say more about Part F.
Part D includes some updates to the Efficiency Maine goals which are important but probably not very controversial. Further analysis has told us more about what may actually be achievable. These changes keep the goals ambitious, but not so high as to be functional.
In conclusion, I know you will be actively working this bill as you will some others. I believe it would be unacceptable for the legislature to not take significant action this session to increase energy efficiency. When the economic benefits are so large, when the opportunity to cut costs in the near-term with known savings potential is so clear, any decision not to move forward will be a disservice to Maine people.
Clean Energy Director