Act 129 Self-Directed Energy Efficiency Option  

Issue:

Act 129 is an effective incentive for energy conservation – but not for all ratepayers. Many large industrial customers in Pennsylvania are energy intensive operations. Energy costs are one of the driving forces in their productivity and bottom line. Ongoing viability and future investments are highly susceptible to even small changes in energy costs.  For this reason, this customer class already has far more motivation to maximize their energy efficiency efforts than any encouragement that might come from the utility-administered EE&C Plans under Act 129.

Conservatively, large C&I customers have been required by statute to contribute nearly $400 million since the inception of Act 129.  This is despite the fact that they continue to make their own more informed independent investments in EE/DSM, effectively being required to pay twice for EE/DSM while potentially subsidizing competitors utilizing the utilities’ programs.  For instance one IECPA member company has paid $732,000 into the Phase 3 program and has only received $25,000 in energy efficiency project support at their facility.  Another member paid $902,688 in just the two years of 2017 & 2018 while only receiving $154,000 in energy efficiency project support at their facility during that time frame. Act 129 charges are a significant, added cost to the electric distribution utility bill for manufacturing customers - as much as 36% of the utility bill!

 IECPA Position:

The Act 129 Energy Efficiency & Conservation program has not materially increased the degree that large energy intensive businesses have implemented energy efficiency, but it has added surcharges which a) unnecessary waste money on EE&C program administrative cost that could otherwise be invested in self-funded energy efficiency projects and b) increase energy costs diverting significant dollars away from economic growth projects and more jobs.

IECPA’s effort will be to pass a bill through both the Senate and House to get a Self-Directed Energy Efficiency Program option!

Background:

Signed into law on October 15, 2008, PA Act 129 requires PA Public Utility Commission to develop an Energy Efficiency and Conservation Program (EE&C Program) for electric distribution companies serving >100,000 customers. Utilities are required to achieve electric demand and electric consumption reductions as stated by the law. Utilities manage programs to reduce consumption and demand by collecting money through a monthly EE&C Program surcharge and then using this money to issue grants to utility customers to implement energy efficiency projects. We are currently in Phase 4 of the program:

Phase 1            6/1/09 – 5/31/13

Phase 2            6/1/13 – 5/31/16

Phase 3            6/1/16 – 5/31/21

Phase 4            6/1/21 - 5/31/26

 Many of Pennsylvania’s large industrial manufacturing customers are energy-intensive, trade-exposed manufacturers.  An ‘energy-intensive’ business is one whose production processes require so much energy that small changes in energy price translate into large changes in costs.  A ‘trade-exposed’ business is one competing against many similar businesses in other states and/or in other countries for the same customers.  A ‘trade-exposed’ business cannot pass even small cost increases on to its customers without risking the loss of that business to a competitor with a better price.  Therefore, Pennsylvania’s large industrial customers maintain a laser focus on labor, raw materials, capital and all other production costs, but especially energy.  

 This also explains why these same large industrial manufacturing customers have such a strong commitment to energy efficiency.  These manufacturing customers have completed hundreds of millions of dollars in investments in energy efficiency projects.  The overwhelming majority of those investments were not funded through Act 129.   Energy efficiency, like all other productivity improvement initiatives, is a matter of survival for these businesses.  A trade-exposed business that fails to make the most efficient use of all production inputs – including energy – simply will not survive in a competitive world.

The Self-Directed Program Will NOT Reduce Energy Efficiency Attainment.

Large energy intensive manufacturers started energy efficiency long before Act 129 in 2008 and will continue long after.  Projects were always self-funded without Act 129 and benefited all Pennsylvanians.

·         No large manufacturing customer is a “Free Rider” on the System.  Energy costs are 30% to 70% of manufacturing costs providing self-motivation to reduce usage and costs.  Employee goals and salary policies recognize and reward energy efficiency initiatives.

 ·         Unlike other energy generation resources, energy efficiency has a direct operational benefit to the individual customer.  State policy should not require a manufacturing customer to subsidize / pay for energy efficiency projects at other manufacturing facilities which may be owned by their competitors.

 ·         The Act 129 financial grants available to the manufacturing customers are minimal compared to manufacturing customer energy efficiency project costs (only 1% to 5% of project costs) and do not influence efficiency project implementation.

 ·         Act 129 overhead cost simply waste manufacturing customer dollars that could otherwise be invested in self-funded energy efficiency projects.

 ·         Act 129 program has cost manufacturing customers nearly $400 million.  Act 129 charges are a significant, added cost to the electric distribution utility bill for manufacturing customers - as much as 36% of the utility bill!

The Self-Directed Program Will NOT Reduce Funding to Small Businesses & Residential Consumers.

The utilities develop and maintain separate Act 129 programs by customer classes.  The program targets, surcharges, grants/rebates and other services for residential customers are entirely separate from the programs serving manufacturing customers.  The Industrial Manufacturing Customer Self-Directed Energy Efficiency Program will not have an impact on any other customer.  Whatever funds would have been collected from the industrial manufacturing customer who chooses the self-directed program are simply paid back to that customer and the utility counts the energy efficiency achived by that customers self-directed program towards the utility’s overall Act 129 requirement.

 The Industrial Manufacturing Customer Self-Directed Energy Efficiency Program does not seek the end of manufacturing customer participation in Act 129.  Each large manufacturing customer is best qualified to represent its own interests and should be given the choice of participation in Act 129 or the ability to utilize their self-directed program.

·         The Self-Directed Program DOES NOT Reduce Energy Jobs in the Commonwealth.

The manufacturing customers who qualify for the Opt-Out have maintained a strong focus on energy efficiency for several years.  They have mature, aggressive energy efficiency programs.  These self-funded energy efficiency programs were in place before enactment of Act 129 – in several cases many years before Act 129.  Hence, even with the Opt-Out Pennsylvania’s degree of energy efficiency attainment will not change and the energy efficiency products and services purchased by these large customer self-funded programs will not change. 

Act 129-Type Programs have been modified in 29 States to now provide an opt-out or self-directed program for large manufacturing customers. https://database.aceee.org/state/self-direct

 Neighboring State Examples:

 Illinois

Electric customers with greater than 10 MW of demand in any 30-minute period are exempt from programs.

 Indiana

The opt-out applies to the five investor-owned electric utilities. Eligible customers are those that operate a single site with at least one meter constituting more than 1 MW demand for any one billing period within the previous 12 months to opt out of programs. Documentation is not required. No evaluation is conducted. About 70%-80% of eligible load has opted out.

 Kentucky

Duke Energy offers a self-direct program option only to customers that take transmission service on rate TT, thus are described as having “energy intensive processes” and are therefore eligible under statute for such a program. Customers in a self-direct program do not pay any of the cost of the Duke Energy efficiency programs and are not eligible to join them. Duke does not measure or verify the savings of a self-direct program.

Industrial rate class customer statewide are eligible to opt out. About 80% of eligible load has opted out, with the remaining 20% made up primarily of TVA customers. Documentation is not required.

 Michigan

Self-direct is available statewide. Customers must have had an annual peak demand in the preceding year of at least 1 megawatt in the aggregate at all sites. The customer may use the amount of funds that would otherwise have been paid to the utility provider for energy efficiency programs. They must, however, submit the portion of the EE funds that would have been collected and used for low-income programs to their utility provider. They then calculate the energy savings achieved and provide it to their utility provider.

North Carolina

In North Carolina, all industrial class electric customers are eligible for opt-out. By Commission Rule R8-69 (d), all large commercial class customers are eligible for opt-out provided they use more than 1 million kWhs and if, at their own expense, they have implemented in the past or plant to implement in the future alternative measures in accordance with stated, quantifiable goals. Approximately 8,000 electric customers and 50% of the electric load is opted out.

 Ohio

Self-direct options are available for large customers in Ohio. Under SB 221, a mercantile customer, which is a commercial or industrial customer that consumes more than 700,000 kWh per year, may enter into a special arrangement with an electric utility to integrate the customer’s demand reduction, demand-response, or energy efficiency programs with those of the electric utility. If the specified reduction levels are met, the customer can request exemption from the cost recovery mechanism.

South Carolina

Industrial, manufacturing or retail commercial customers with 1,000,000 kWh annual usage or greater are eligible to opt-out. Self-certification only is required. Roughly 50% of eligible load is opted-out.

 Virginia

Certain large customers are exempt from paying for the costs of new energy efficiency programs. Dominion Power customers may qualify for their opt-out program by having average demands between 500kW and 10MW. Customers over 10 MW do not participate in the state's energy efficiency programming by law. Once customers opt-out, they cannot take advantage of existing programming nor be charged for it. Customers must show that they have already made energy efficiency investments or plan to in the future. Customers must submit measurement and verification reports yearly in support of their opting out of programs funded by a cost-recovery mechanism (CRM).

 West Virginia

Opt out is developed individually by utilities. Customers with demand of 1 MW or greater may opt out. Participants must document that they have achieved similar/equivalent savings on their own in order to retain opt-out status. Claims of energy and/or demand reduction are certified to utilities with future evaluation by the Commission to take place in a later proceeding. The method has not been specified. Approximately 20 large customers have opted out.