By State Sen. Jim Merritt (R-Indianapolis)
As chair of the Indiana Senate Committee on Utilities and a former member of the 21st Century Energy Task Force, I’ve spent much of my legislative career guiding our state’s energy policies. Indiana is now at a crossroads in energy policy development. Now is the time to advance energy policies that lead Indiana toward a more sustainable and cost-effective energy future. A key component of this new direction lies in the increased use of self-generated energy.
Self-generation includes cogeneration – the private production of electricity and other forms of energy, such as hot water or steam, needed to power a business. Cogeneration was championed in the 1970s as an efficient means of pursuing greater American energy independence. Self-generation is broader, contemplating private investment to obtain energy through a variety of sources. Indiana businesses already harness hundreds of megawatts of self-generated power. There is the potential for hundreds more, as shown by a recently announced project at Tate & Lyle in Lafayette.
Indiana’s energy landscape is rapidly evolving. Numerous Indiana utilities have recently developed long-term plans to shift from coal-burning generation toward more diverse, lower cost and sustainable means of generating power, including the use of natural gas, wind and solar. As the evolution begins, the time is right for us to recognize the important role privately owned self-generation can also play in powering Indiana’s future.
Why? Because self-generation will help Indiana transition to a new mix of energy generation. For every megawatt of privately self-generated energy, there is a reduction in the investment utilities have to make, saving all customers money over time. Promoting self-generation also encourages utilities to be more cost-conscious and keep their own rates competitive, which benefits all customers.
The self-generation option aids a core component of our state’s economy by helping Indiana manufacturers remain competitive as they respond to growing calls for greater sustainability and cost-efficiency. Self-generation can also provide added reliability and resilience for customers without added costs to other ratepayers.
If self-generation provides so many potential benefits, why is it not expanding in Indiana? In part, because Indiana has been too resistant to embrace its full potential. Over the years, the General Assembly has limited the expansion of self-generation. We have required large-scale self-generation to be located on or “adjacent to” the facility that will use it, effectively foreclosing access to self-generation if it doesn’t fit within the physical footprint of a facility. That restriction impedes private investment in self-generation that requires more space.
In response to efforts to encourage self-generation, some will argue that doing so will invariably harm other ratepayers. First, we need to recognize that utilities exist to serve the public, not the other way around. Customers should have flexibility, not an obligation to maintain usage of utility services. Second, utilities can continue to put their existing infrastructure to use by selling electricity in the energy markets to generate revenues or by retiring uneconomic assets.
A policy embracing self-generation can coexist with the needs of electric utilities to serve customers, enabling new utility assets to be sized properly to account for self-generation for the benefit of all. We should demand utility companies act reasonably and responsibly to serve customers and control costs and prices. Third, customers who self-generate typically do not generate all of their own power, and will therefore continue to receive utility service and contribute to utility costs.
Finally, the Indiana Utility Regulatory Commission, not the legislature, is the correct entity with the expertise to allocate utility costs fairly and equitably among ratepayers, including customers that self-generate.
If we take steps to truly embrace the potential of self-generation, instead of hamper it, Indiana will benefit from private investments that will help stem rising utility costs and lead us to a brighter, more sustainable energy future.