Why Opt-Outs Are Bad Policy: A Response to Senate Bill 805

This past week, one year after PEC first wrote to the members of the Senate Consumer Protection and Professional Licensure Committee expressing concerns with SB805, we were included in a Philadelphia Inquirer article about why energy efficiency advocates oppose this bill. Here’s a synopsis of why we share their concerns.

What SB805 Would Do
Lindsay Baxter
PEC Program Manager for Energy & Climate Lindsay Baxter

SB805 would allow large commercial and industrial customers to opt-out of Pennsylvania’s Act 129 Energy Efficiency and Conservation Program. This Program has been considered a very successful energy efficiency program, also resulting in the lowering of electricity rates for all Pennsylvanians. These savings have consistently outweighed program costs. The benefits are even greater when you add in the associated savings in water, natural gas, or the resulting environmental and public health benefits.

Under the program, every electricity customer pays a small surcharge to their electricity distribution company (EDC) to finance the program. Similarly, every customer is eligible to receive financial incentives and, often, technical assistance from the EDC to make energy efficiency improvements in their facility or home. The state’s EDCs have consistently achieved their electricity demand reduction targets, and these savings have come from all customer sectors, including residential, industrial, commercial, and institutional.

Large and industrial users would like the option to opt-out of the program, no longer paying the surcharge and making themselves ineligible to receive incentives or assistance. Their reasoning is that large users are able to self-finance energy efficiency, and that many facilities have already made significant improvements, so the surcharge they pay does not benefit them through incentives, and rather, pays for improvements in other customer classes.

Act 129 Benefits All Ratepayers, Not Just Program Participants

While not all customers choose to make changes to their buildings or facilities, all customers unquestionably benefit from the program, as it lowers electricity rates across the board.

Why is this?

All electricity providers must secure a reliable supply of power for their customers. Traditionally this has meant purchasing electricity from generators, such as coal-fired power plants and wind farms. However, programs like Act 129 have shown that investing in energy efficiency and demand response can be another, often more cost-effective way of balancing supply and demand. Investing in energy savings reduces the amount the utility needs to purchase for its customers, resulting in cost savings time and again.

Demand response, which compensates users for reducing electricity demand during peak periods to limit stress on the grid, has resulted in significant savings for all customers. In fact, according to PJM, demand response reduced consumer electricity costs by $11.8 billion in 2013-14. Given that large industrial and commercial users are those most likely to participate in the Demand Response portion of Act 129, allowing them to opt-out reduces the potential for these savings to continue for all Pennsylvania ratepayers.

Why Opt-Outs are Bad Policy

The electricity grid is a shared system. All users who are connected to the grid benefit from improvements. While Act 129 does not result in new infrastructure, it increases the reliability and resiliency of the entire grid system by reducing the demand. Allowing large users to opt-out will reduce the effectiveness of Act 129 in a number of ways:

  • By allowing some users to opt-out of paying the surcharge, it reduces the pool of money for system-wide improvements under the program, placing more of the burden on smaller customers, like homes, churches, small businesses, and schools.
  • Because efficiency improvements at large facilities tend to cost less per kilowatt-hour of electricity saved, they improve the cost-effectiveness of the entire program, allowing for greater investments at smaller customer sites without going over the spending cap. This amendment would end these efficiencies.
  • The proposed legislation would also change the length of Phase III implementation from five to three years. This change means that more resources are used on plan development and review, rather than on actual energy efficiency projects.

For these reasons, PEC opposes the changes proposed in SB805 to the Act 129 Program. The opt-out provides benefits a very small number of customers at the expense of the rest of Pennsylvania’s ratepayers. Energy efficiency provides the dual benefit of providing cost savings while also reducing greenhouse gas emissions. We should be looking to bolster efficiency measures, not limit them.