By Bill Dawson
A decade ago,Texas was the national pace-setter on one key policy issue related to energy efficiency – the establishment of an energy-saving target for electric power producers.
As an advocacy group’s latest annual ranking shows, however, other states have surged ahead in recent years with ambitious new actions aimed at achieving greater efficiency.
From 2009 to 2010, Texas fell from 23rd to 32nd place in the ranking, tying with New Hampshire for the biggest drop in the state-by-state comparison issued last week by the American Council for an Energy Efficient Economy (ACEEE). In the group’s 2008 report, Texas was in 19th place.
Texas’ lagging performance in the area where it once led all states – the commitment to set energy-savings goals for utilities – is just one variable in the ACEEE ranking, but aptly illustrates Texas’ continuing fall.
ACEE awarded from zero to four points for state actions related to these targets. Twenty-one states received two, three or four points in the latest report. Texas was one of five states that received one point. Connecticut got half a point.
Texas became the first state to set an efficiency target for utilities in 1999, when the Legislature directed electric utilities to offset 10 percent of the growth in power consumption through incentives and other actions spurring efficiency measures by their customers, such as the purchase of energy-efficient appliances.
Utility customers pay for these efficiency programs, which are governed by state regulations. Efficiency advocates say they help all Texans, regardless of whether they respond by saving energy themselves, because of general benefits such as reduced air pollution from power plants that burn fossil fuels.
Still, the trajectory of policymakers’ actions on the issue in the last few years clearly reflects growing concerns about paying the up-front costs needed to improve efficiency during the down economy that has lingered since the recession and financial crisis of 2007.
Early that year, lawmakers doubled the state’s original efficiency standard for utilities, raising the original 10-percent target to a 20-percent demand-growth offset, to be met before 2010. Legislators at the same time also instructed the Public Utility Commission to examine the possibility of even higher targets.
The bill also asked for an analysis of whether to raise the target to 30 percent in 2010 and 50 percent in 2015. A resulting consultant’s report, delivered to the PUC in 2008 found that a 50 percent target could be achieved economically in most areas, with net savings of nearly $12 billion.
The 2007 bill’s main sponsor, San Antonio Republican Joe Straus, was the new House speaker in 2009, and chances seemed good that a bill to boost the target well above 20 percent, perhaps all the way to 50 percent, would win passage in that year’s legislative session.
As time was running out near the session’s end, however, House and Senate sponsors could not agree on the goal or on cost provisions.
Other efficiency measures also seemed to have good prospects in 2009, earning legislators’ preliminary approval, but they likewise failed to win final passage whey they were caught in a legislative logjam.
Early this year, some efficiency advocates regarded PUC adoption of a 50 percent target as highly probable when the commissioners began considering such a proposal from the agency staff. But after receiving comments from dozens of companies, organizations, governmental entities and individuals, they eventually approved a more modest plan in August – bumping the efficiency target from 20 percent to 25 percent of demand growth by 2012, then to 30 percent in 2013.
Commenters arguing for close attention to customer costs included the city of Houston and a coalition of cities served by Dallas-based Oncor, the state’s largest electricity transmission and distribution business, which provides power in North and West Texas.
A pair of advocates for consumers, Texas Legal Services Center and Texas Ratepayers’ Organization to Save Energy, jointly supported [pdf] environmentalists and other efficiency advocates in calling for a 50-percent target, but also voiced concern “that program costs will increase without any real increase in energy efficiency benefits.”
The two groups offered this droll observation:
Many of the comments filed [on the proposed 50-percent goal] exemplify parties representing special interests in a rulemaking. The utilities claim that the energy efficiency goals are too high but the performance bonuses [for meeting or exceeding efficiency goals] are too low. Large customers support energy efficiency programs but ask that other classes of customers pay for them. Manufacturers and contractors support the goals and the technology neutral concept around which the programs are supposed to be structured while asking for their own technologies to receive special mention in the rule.
PUC Chairman Barry Smitherman, a Republican, wrote [pdf] a memo in July, proposing the less ambitious targets that the commission adopted in August. In the memo, he noted that the state has made “good progress” in boosting efficiency through the utility rule, achieving energy savings “far above” legislative directives.
“However,” Smitherman wrote, “energy efficiency measures require that money be extracted from ratepayers today to pay for up-front costs, which translates over time into energy savings.” He added:
In other words, with the increase in the energy efficiency goals, also come an increase in costs to consumers to pay for the investment necessary to meet these goals. The discussion at the [PUC] workshop [on the issue] reaffirmed my concerns with some of the estimated costs for the higher goals in the out years, and the resulting impact on ratepayers. Especially in these difficult economic times, I am unwilling to burden ratepayers with continuing cost increases. The balance between expanding the goals without an excessive increase in costs must be found.
The efficiency goals adopted by the commission also held utilities’ bonuses (for meeting or exceeding goals) at their current level and capped customers’ costs at no more than two times the current level. In 2011 and 2012, for instance, residential customers would pay the higher of two amounts – $1.30 per month or $0.0001 cents per kilowatt hour.
Smitherman said in his memo, however, that he doubted utilities would spend up to the capped amounts since they collectively exceeded their energy-savings goal for 2009. He also said he expects energy efficiency to come up again in the 2011 legislative session.
Such renewed consideration by lawmakers is expected to be catalyzed partly by a study that the Legislature ordered in 2009, which has collected and examined potential “no-regrets” strategies for reducing greenhouse-gas emissions.
Cost considerations have been crucial in determining what actions might qualify as offering “no regrets.” According to the 2009 statute introduced by Sen. Kirk Watson, an Austin Democrat, the study authors must conclude that such a strategy would result in net savings for consumers or businesses, impose no financial cost to them, or “help Texas businesses maintain global competitiveness.”
A draft version of the report, prepared by State Energy Conservation Office and an advisory committee, tentatively has identified a number of strategies that appear to meet those criteria. Many of them involve boosting energy efficiency in buildings, vehicles and equipment. The final version of the report is scheduled to be presented to lawmakers by the end of December.
Reacting to the new ACEEE report, a trio of Texas environmental organizations – Environment Texas, the Sierra Club’s Lone Star Chapter and Public Citizen – issued a joint statement that looked ahead to the 2011 legislative session as an opportunity for addressing what they called the state’s “staggering drop” in the state-by-state efficiency ranking.
Cyrus Reed of the Sierra Club noted that comprehensive Sunset reviews of the state’s chief environmental, housing, water and energy agencies that began this year will culminate in legislative scrutiny of their operations next year.
Joyce Yao of Environment Texas said the groups want lawmakers to create an independent Energy Efficiency Office “to benefit consumers, save the state a substantial amount of money and streamline state processes.”
The groups also called on the state to adopt stricter efficiency standards for new buildings. Texas officials announced in June that statewide standards will become stricter – bringing them into sync with a 2009 international code – in January 2012 for one-family homes and in April 2011 for other buildings.
Environment Texas praised the change at the time it was announced, but also pointed out that major Texas cities, including Dallas, Houston, San Antonio and Austin, had already adopted stricter efficiency building standards and that a new and stricter international code will have been adopted as a model by the time the 2009 single-family rules take effect across Texas in 2012.