House Consumer Affairs Committee Hears Update On Act 129 Energy Efficiency Program

The House Consumer Affairs Committee Tuesday held a hearing on the Act 129 Energy Efficiency Program requiring electric utilities to decrease their peak and overall electric demand.

Gladys Brown, Chair of the Public Utility Commission, said the success of the programs under Act 129 has lowered Pennsylvania’s overall carbon footprint. After providing an overview of the act and it is implementation, she offered the following five modifications to further elevate the program and benefit its participants:

— The PUC requests the authority to increase program budgets where necessary to obtain additional, incremental peak demand and energy consumption reductions. This increase would track with changes to the Bureau of Labor Statistics Electric Price Index for the region, and could be implemented once every five years.

— The Act requires a minimum $1,000,000 penalty for non-compliance, even if an EDC misses compliance by only one MWh.

The Commission believes language mandating only an upper limit would be beneficial.

— The Total Resource Cost (TRC) only allows for the accounting of 15 years of costs and benefits. Many resources, such as solar arrays or combined heat and power facilities, last longer than 15 years. As such, the Commission recommends allowing for the entire effective life of a measure.

— The Act gives the Commission 120 days to review the EDCs' propose plans. Increasing this timeline to 180 days would be prudent to give all stakeholders and the Commission more time to thoroughly review proposed plans.

— The Act requires the Commission to file annual reports to the legislature. The Commission believes a requirement of one report per phase or for a report every five years would be a prudent amendment. This allows more data to be compiled in the report, thereby making it more valuable.

Terrance Fitzpatrick, President & CEO, Energy Association of Pennsylvania, provided an overview of Act 129 and reported that electric distribution companies (EDCs), with the exception of one which was penalized, have met the mandates of the law.

He added that the EDCs are on track to meet additional consumption reduction targets ordered by the Public Utility Commission in Phase II.

Fitzpatrick reviewed the cost recovery allowed to EDCs and said EDCs spent nearly $250 million last year on Act 129 programs, which he noted is ultimately borne by ratepayers.

He noted the PUC did not order additional peak demand reduction requirements in Phase II, but has proposed additional requirements for Phase III based upon a finding that additional peak demand reductions can be designed to be cost effective.

Kevin Sunday, Manager of Government Affairs for the PA Chamber of Business and Industry, reported that Pennsylvania has the 15th highest average residential retail electricity price in the nation but commercial and industrial rates are, on a per-kilowatt hour basis, much more competitive compared to that of other states.

He said the private sector has been forced to expend considerable amounts of capital to comply with alternative energy and energy efficiency mandates over the past decade.

He cited PUC data that Act 129 cost more than $1.7 billion in 2009-2013 and said it can be “reasonably projected that over the next three years, utilities will spend roughly an additional $735 million to comply with the new targets - all of which will be borne by ratepayers.”

Greg Geller, Director of Regulatory & Government Affairs, EnerNOC, a provider of energy intelligence software. He explained energy is often one of the largest cost drivers for businesses, governments, and institutions, yet it is rarely managed as closely as other expenses.

Robert Altenburg, Director, PennFuture Energy Center for Enterprise and the Environment, argued Phase I of Act 129 was a success, noting that all of the participating EDCs exceeded their final targets for both energy efficiency and demand reduction, “and they did so while remaining significantly under budget.”

He cited the findings of the PUC’s statewide evaluator, which reported the program returned more than $2.40 in savings for every dollar spent. Additionally, carbon pollution was reduced by more than 3.4 million tons.

Altenburg said Phase II is exceeding its goals and he expects the programs in Phase III will once again more than pay for themselves.
Despite these successes, Altenburg offered a number of improvements to the law. He argued that the two percent spending cap means Pennsylvania can only achieve a fraction of what is cost effective and, due to the effects of inflation this cap is effectively declining.

He suggested the Legislature consider removing the spending cap, protect existing gains, build on the success by expanding to the gas utilities, and rethink rate designs to encourage energy efficiency.

Michael Messer, Manager of Energy and Regulatory Affairs for Linde, LLC, on behalf of the Industrial Energy Consumers of PA, reported large consumers are ahead of Act 129 and are seeking voluntary opt-out from the act, as is authorized in 15 other states.

He explained Act 129 does not assist large consumers’ efforts and represents an unrecoverable cost increase and further noted that major and traditional efficiency projects are not supported by Act 129.

Messer argued that Act 129 cannot be fixed to address major projects, projects already in-service or incompatible with Act 129 funding and said the act imposes “significant” unrecoverable costs.

Speaking to the proposed opt-out, Messer argued it would be limited to large consumers, who are highly motivated to energy efficiency regardless of Act 129. He said the opt-out would not impact jobs and utility programs would be “right sized” to provide funding for consumers seeing benefit.

Rich Selverian, President of McGrann Associates and President of the Keystone Energy Efficiency Alliance, offered his thoughts on how to make Pennsylvania’s economy stronger through pro-business policies on energy.

He pointed out that programs initiated by Act 129 have generated nearly $2 billion of benefits to Pennsylvania electric customers and demonstrated a significant positive return on investment for each $1 spent.

He offered seven points about how energy efficiency is vitally linked to Pennsylvania’s economy: in Pennsylvania, energy efficiency companies have seen job creation largely due to smart policy; the economic benefits of energy efficiency have been widespread; there is significantly more energy efficiency to gain in Pennsylvania; Pennsylvania is just starting to see the potential of the utility programs; utility energy efficiency programs work when they engage all customer classes; changing the program to support opt-outs would only help the few at the expense of the many; and the PUC has responsibly managed these programs.  

Rep. Bob Godshall (R-Montgomery) serves as Majority Chair and Rep. Peter Daley (D-Washington) serves as Minority Chair.