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HB 6 Takes Away Cost Savings from Energy Efficiency Programs

Miranda Leppla, June 24, 2019

You may be hearing a lot about a nuclear bailout and House Bill 6 right now if you live in Ohio. So what’s the deal with House Bill 6? Our sister organization, the OEC Action Fund, is opposed to the bill for a number of reasons. I’m going to focus on just one particularly troublesome aspect of the bill that doesn’t get a lot of coverage in the media but one that is incredibly important to Ohio’s environment: Ohio’s energy efficiency standard. HB 6 proposes to repeal this standard, thereby removing the savings we, as Ohio electricity customers, receive on our electricity bills each month thanks to these energy efficiency programs. 

For a little more background: Our energy efficiency standards require our utilities to reduce the amount of energy consumed in their territory by a certain percentage each year. This is done through various programs like discounted light bulbs, rebates for high efficiency appliances, and more. (You can learn more about efficiency from here!) Most Ohioans take advantage of these cost-saving programs, but even those who don’t directly participate still receive benefits from them.

How so? Well, Resource Insight, Inc. recently released a new study on one category of benefits we get from Ohio utilities’ energy efficiency programs: the reduction of wholesale electricity prices from reducing market demand.

Wait. What?

Yes, we know energy efficiency seems complicated! But let’s boil it down: 

Ohio is part of a regional energy market–PJM–that ensures a 13 state region has access to reliable electricity service, including managing how energy is purchased. So in Ohio, energy suppliers purchase energy through markets run by PJM, and then we pay for our energy based on what they have to pay. When our state, as a whole, uses less energy (for our purposes here, an “energy load reduction”), these suppliers have to buy less energy–both for our expected consumption and to back us up, in the event of severe weather or other disruptions, making sure we have enough energy at all times. When demand for energy is reduced, suppliers have to purchase less energy from more expensive sources, and in turn, our bills go down as energy customers.  

The new Resource Insight study examines the effect of this energy load reduction on prices in the PJM markets, and determined that, whether or not Ohioans actively take part in the efficiency programs offered by their utilities, the overall effect of reducing demand for energy as a result of the energy efficiency standards was that residential customers’ bills were lower by approximately $2 per month (independent of other, additional benefits!)

Simply put: even if an Ohio homeowner or business owner does not take advantage of an energy efficiency rebate or incentive or take steps to make their home or business more energy efficient, they are still benefiting from Ohio’s mandatory energy efficiency standard by getting lower electricity prices. And for Ohio’s residential customers, that means an electricity bill that is about $2 less per month than it would be otherwise. This $2 savings is in addition to the $7.71 that Ohioans save each month thanks to the efficiency standards if they are taking advantage of the programs. 

Ohio’s energy efficiency standards save all of us money in Ohio. House Bill 6 would repeal these cost-beneficial, energy-saving, carbon-reducing policies — making our bills go up, our air less clean, and our health worse

Resource Insight, Inc. Report Highlights:

  • The report examines the effect of energy load reduction on prices in the energy and capacity markets in Ohio, one of five customer benefits produced by the utility efficiency programs.
  • Because Ohio’s Energy Efficiency Resource Standards (EERS) reduces demand for energy, the market-clearing price is lowered for energy suppliers, who in turn pass on those savings to their customers in the form of lower electricity cost.
    • Using the 2017 utility energy efficiency program details, the study computed the average effect in a year in the 2020s of running the 2017 programs over a long period of time.  Reducing demand reduces the market-clearing price for energy paid by suppliers in restructured states, which in turn lowers the price of electricty offered to customers by their supplier. This effect is referred to as “price suppression”, and is in addition to other savings that customers receive from efficiency programs.
  • Reduction in energy load also mitigates the prices paid during annual PJM auction for capacity requirements. 
    • The analysis found that for both the areas of Ohio that generally have RTO pricing as well as the two Ohio zones that separated from RTO pricing, there are across the board savings on the capacity pricing component. 
  • In sum, the total price benefit from price suppression of continuing to run Ohio’s energy-efficiency programs, combining the energy and capacity price reductions, is approximately $2 per month for an average residential customer.