Act 129 Opt-Out
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.
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 in early 2019 to get a Voluntary Opt-Out for the next Act 129 Phase starting in 2021.
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 3 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
Many of Pennsylvania’s large industrial customers are energy-intensive, trade-exposed (EITE) 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. This is why 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 customers have such a strong commitment to energy efficiency. Large industrial 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 of its production inputs – including energy – simply will not survive in a competitive world.
Operation of the Opt-Out
The operation of the Opt-Out is quite simple and fair. Each large customer would have the choice to “Stay-In” or “Opt-Out” of the Act 129 EE&C Program on a Phase-by-Phase basis. For Phase 4, this would coincide with the commencement of Phase 4 on June 1, 2021.
The opt-out does not seek the end of large customer participation in the Act 129 EE&C Program. Each large customer is best qualified to represent its own interests and should be given the choice of participation for each program phase of Act 129 that the PUC approves.
If a large customer exercised its choice to Opt-Out of an EE&C Program phase, those accounts it opted-out would be out of the program phase for the entire phase period. The large customer would pay no surcharges but would also receive no grant payments or other services from the program. Simultaneously, the utility would remove that consumer’s load from their Act 129 budget and targets.
The Opt-Out Will NOT Reduce Energy Efficiency Attainment
The Opt-Out will not change the degree of energy efficiency attainment in Pennsylvania. It is important to understand that Pennsylvania’s Act 129 programs rarely influence a large customer’s decision on whether to implement an energy efficiency project.
Data from the U.S. Energy Information Administration and U.S. Bureau of Economic Analysis presented in the chart here shows a steady 52% decrease in Industrial Energy Intensity going back to 1987. The behaviors exhibited by large industrial customers over this time are not a function of any federal or state energy efficiency program. Rather, set of the behaviors that produced this data are simply what is required to survive in an increasingly competitive global market. Large EITE businesses need to use energy as efficiently as possible or they do not survive. The Act 129 EE&C Programs did not create the incentive for large consumers to aggressively pursue energy efficiency and giving these same consumers the ability to Opt-Out of these EE&C Programs will not take that incentive away. In fact, in many cases, the Act 129 EE&C Program simply adds administrative cost diverting funds away from actual energy efficiency projects that the large customer wish to pursue. Just as they have done for years before the Act 129 EE&C program, these large customers that opt-out of the utility administered program will continue self-implementing energy efficiency projects and providing system benefits to all customers.
The Opt-Out Will NOT Increase EE&C Program Cost to Other Customers
There would be no change to the costs paid by other ratepayers. Act 129 established a spending level for electric distribution companies to comply with the energy efficiency requirements of 2% of their 2006 total revenue. With the opt-out, the spending requirement by the electric utility will be reduced by the amount of revenue associated with the large customer accounts opting out of the EE&C Program phase. The net effect: the cost to ratepayers that do not Opt-Out will not change.
The Opt-Out Will NOT Reduce Funding to Other Large Consumers
Because the targets for the EE&C Program serving large industrial customers are proportionately reduced to correspond to the load of the customers Opting Out, the surcharges, grants/rebates and other services for the remaining customers will stay the same.
The Opt-Out Will NOT Reduce Funding to Small Businesses & Residential Consumers
The utilities develop and maintain separate Act 129 EE&C Programs by customer classes. The EE&C Program targets, surcharges, grants/rebates and other services for residential customers are entirely separate from the EE&C Programs serving large industrial customers. Therefore, the opt-out will not have an impact on Small Businesses or Residential Consumers.
The Opt-Out DOES NOT Create Significant Program Administrative Issues
The Opt-Out allows a single choice to be performed before the utility finalizes its Act 129 Compliance Plan. This solution was designed to minimize the impact on Utility planning efforts. Other states providing an Opt-Out allow decisions to be made on an annual basis, a far greater management effort than this one-time selection for an entire program phase, and those states have not reported any administrative hardship.
The Opt-Out DOES NOT Reduce Energy Jobs in the Commonwealth
As noted above, the large 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.