A Tale of Bright Highs and Dark Lows: The State of Energy Efficiency in the Midwest

by Julia Friedman and Ian Adams, Midwest Energy Efficiency Alliance (MEEA)

The Midwest has a long history of supporting energy efficiency. In 1983, Minnesota was the first state to pilot a statewide energy efficiency program. Since then six Midwestern states have adopted some form of an energy savings target, also known as an Energy Efficiency Portfolio Standard (EEPS).[1] Of these states, in 2011 and 2012, Michigan, Ohio, and Illinois all exceeded their energy efficiency targets.[2]

These policies have spurred significant investment in energy efficiency – dollars that are spent locally to create jobs and support plant retrofits, home weatherization, capital improvements in public facilities, small business energy efficiency improvements, and education campaigns among other initiatives. As of May 2014, investment in electric and natural gas energy efficiency reached $1.67 billion.

Investing in energy efficiency is an investment in the least-cost energy resource. In 2014, the Lawrence Berkeley National Laboratory reported that the Midwest has the lowest levelized cost of saved energy of any region in the country. All of the states examined in the Midwest offer energy efficiency programs with a levelized cost under 2 cents/kwh.[3]

Michigan serves as a prime example of a state that has capitalized on the strong return on investment provided by energy efficiency. Under Michigan’s statewide Energy Optimization (EO) Standard, electric utilities achieved 125% of their EO targets in 2012. On a cost basis, for each dollar spent on utility EO programs during 2012, it is estimated that customers benefit from approximately $3.83 in avoided energy costs (on a net present value basis)[4] and the aggregated simple payback for all measures implemented through Energy Optimization programs is only 2.3 years.

While some states in the Midwest have an EEPS, others have moved forward with energy efficiency in a non-mandated policy environment. Since 2010, the Missouri Public Service Commission approved regulated utilities’ three-year demand-side management (DSM) plans and Kentucky adopted a voluntary 1% energy savings goal. In Missouri and Kentucky, utility energy efficiency programs are able to claim cost-recovery, lost revenue recovery, and additional incentives, subject to the public service commissions’ approval.

Despite the evidence that energy efficiency is a cost-effective investment, Energy Efficiency Portfolio Standards (EEPS) are under attack across the region. In March 2014, Indiana became the first state to repeal its EEPS with the passage of Senate Bill 340 (SB 340). SB 340 not only eliminates the statewide mandate for energy efficiency that was established in 2009, it also terminates existing energy efficiency programs at the end of the calendar year, and precludes the Indiana Utility Regulatory Commission (IURC) from selecting a third party administrator for future energy efficiency programs.

This legislation was passed despite the fact that an independent evaluation found Energizing Indiana’s portfolio of programs (the statewide, utility energy efficiency programs administered by a third party) saved two dollars for every dollar spent in 2013.  Residents and businesses that took advantage of utilities’ energy efficiency programs were highly satisfied with them, as reported in an independent audit of the state’s demand side management programs in 2013.

In Ohio, Senate Bill 310 was recently signed into law by Governor Kasich. This legislation halted the energy efficiency resource standard for two years and made a number of changes to the way this policy was structured. Senate Bill 310 essentially ends the requirement for new investment in energy efficiency in the state of Ohio until at least 2017.

Although some large electricity users supported this bill, many in the business community opposed this legislation. Members of the faith community, consumer advocacy groups, and sustainable energy advocates also opposed this legislation. It is not hard to see why: energy efficiency has very strong support in Ohio. A survey conducted in April 2014 found that 86 percent of Ohio voters support mandated utility energy efficiency programs, with 49 percent strongly supporting the rules.

Moreover, between 2009 and 2012, $456 million was invested in energy efficiency. These investments have already yielded $1.03 billion in savings to date, a return on investment of more than two to one. Over the lifetime of these measures, these investments will result in $4.15 billion in savings.

Beyond the attacks on states’ EEPS, a number of other trends are affecting the Midwest region. As a region with a large industrial base, the cost of large consumers’ participation in utilities’ DSM programs continues to be ripe for debate. As large consumers of electricity, these customers contribute the largest amounts to efficiency programs. Responding to pressure from these customers, some states have changed the way large users pay for and participate in industrial efficiency programs, either through self-direct programs or an opt-out. Good self-direct programs allow a customer to decide how to spend their efficiency fees and require measurement and verification of this efficiency investment, just as they would for other efficiency program investment. In Wisconsin and Michigan, large consumers that initially elected to participate in self-direct programs are now opting back into utilities’ DSM programs.

Two positive trends in the Midwest are the expansion and diversification of mechanisms used to finance energy efficiency and the adoption of the newest building energy codes and benchmarking legislation. Currently, authorizing legislation or other authority for Property Assessed Clean Energy (PACE) financing has been enacted in six Midwest states. On-bill financing programs are also currently being used, or in a pilot phase, in seven Midwestern states. These programs allow customers to finance energy efficiency improvements and repay the associated costs, plus interest, through monthly energy savings.

The Midwest is also a leader in the nation with building energy codes as three states have already adopted the 2012 IECC residential building energy code and the 2012 IECC commercial building energy code. Building energy benchmarking is also taking hold in a number of states and municipalities across the region.

Finally, states across the Midwest are exploring the implications of the recently released U.S. EPA’s Clean Power Plan (related to section 111d of the Clean Air Act), which sets carbon emission rate targets for every state. The proposed rule utilizes end-use energy efficiency as one of the building blocks upon which a state can achieve compliance by 2030. It is estimated that Illinois, Iowa, Michigan, Minnesota, South Dakota, and Wisconsin can achieve at least a 10% reduction from their baseline emission rates through end-use energy efficiency.[5] While questions about the inclusion of energy efficiency into a state’s compliance plan remain as the rulemaking process proceeds, it is important for businesses, policymakers, and utilities alike to recognize the opportunities surrounding energy efficiency to achieve environmental, grid reliability, and economic development goals. Midwestern investment in energy efficiency will exceed $1.78 billion for 2014 alone. Energy efficiency is a driver within the economies of each Midwestern state, it is essential that this lowest cost supply side resource be recognized and utilized to the maximum opportunity.


  1. Litz, Franz. EPA’s Draft Guidelines to States for the Development of State 111(d) Plans. Litz Energy Strategies. Presentation to the RE-AMP Annual Meeting. Chicago. May 2014.
  2. Moreover, this calculation does not account for ancillary environmental, health, and grid resiliency benefits.
  3. Despite the passage Senate Bill 310 in Ohio, the state’s energy efficiency resource standard is effectively in place.
  4. Downs, Annie and Celia Cui. Energy Efficiency Resource Standards: A New Progress Report on State Experiences. American Council for an Energy-Efficient Economy. April 2014. http://aceee.org/sites/default/files/publications/researchreports/u1403.pdf
  5. Billingsley, Megan et.al. The Program Administrator Cost of Saved Energy for Utility Customer-Funded Energy Efficiency Programs. Lawrence Berkeley National Laboratory. March 2014. http://eetd.lbl.gov/news/article/57600/program-administrator-cost-of-s

The Midwest Energy Efficiency Alliance (MEEA), is a membership organization of state and local governments, energy utilities, research institutes, manufacturers, energy service providers, and advocacy organizations working to advance energy efficiency in the 13-Midwestern states. Founded in 2000, the nonprofit organization has worked collaboratively with all stakeholders to support programs, policies, education and training initiatives, and emerging technologies that have produced significant energy efficiency investment, energy and cost savings, economic growth, and enhanced environmental preservation across the region.