Backers reconsider sweeping energy bill after Ohio Senate’s latest changes

By Nick Evans
Ohio Capital Journal

Ohio state senators unveiled yet another version of their sweeping energy bill Tuesday with changes that earned praise from some but had several other supporters reconsidering their position.

“As you can see, we are balancing on the head of needle — we made the first witness happier and the second witness sadder,” committee chairman Sen. Brian Chavez, R-Marietta, quipped between speakers.

“I can assure you,” he added, “I’m not on any utility’s Christmas card list.”

The latest iteration of Ohio Senate Bill 2 includes several provisions clarifying the timing of the rate-making process. It also incorporates a three-year window for rate-setting cases requested by utilities at the last hearing. Under the changes, regulators would “true-up” rates annually based on the utilities’ actual costs. Lawmakers were a bit puzzled why utilities couldn’t just set rates annually, but drafted changes anyway.

The new bill also allows utilities focused on distribution — think FirstEnergy, AEP, Duke and AES — to provide so-called “behind the meter” power generation services. The idea is to build a mini power plant dedicated to providing power for an individual customer, and it’s gained in popularity with the proliferation of power-hungry data centers. But allowing distributors into that market reverses a core element of Ohio’s deregulated energy system which has kept distribution separate from generation for decades.

But those changes, calibrated to earn support from energy giants, pushed a handful of other interest groups out of the supporters’ column. Speaking after the committee hearing, the bill’s sponsor, Sen. Bill Reineke, R-Tiffin, said they’d likely have more changes in time for a hearing next week.

Still, committee members did hear from a few supporters, including Joe Price who represents several large industrial firms through the organization Ohio Energy Group. Among the group’s members are auto manufacturers, steel producers, and food companies.

“For all these companies,” Price explained, “energy is one of their top expenses, and so very small changes to energy policy can have very big impacts for our members’ ability to compete.”

In particular, Price highlighted interruptible rate programs. The agreements allow large energy users to cut a deal with distributors for lower rates in exchange for agreeing to shutdown operations when the grid is stressed.

“These are real benefit,” he argued. “For example, during winter storm Elliott, two years ago, there was an emergency called on Dec. 23 for four hours and Dec. 24 for 14 hours. Otherwise, if we had not shut off the factories there could there have been blackouts or some situation that would not be good for other customers.”

Electric Power Supply Association President and CEO Todd Snitchler represents several independent power companies. He spoke favorably about SB 2’s explicit prohibitions on distributors entering the generation market and the elimination of so-called electric security plans which allow companies to charge customers for planned grid improvements.

Both provisions have been a part of the bill from the outset, so lawmakers asked what he made of allowing companies to set rates on a three-year basis with annual adjustments.

Snitchler said, “I think that the three-year program can be functional and it can work so long as it has the appropriate guardrails in place.”

He argued the approach would give “line of sight” to both utilities and consumers on where rates will likely be in the coming years.

Kim Boyko, an attorney representing the Ohio Manufacturing Association was deeply frustrated with the committee’s changes. As Chairman Chavez got up to testify on legislation in a different committee, she pointed out that “with version three, OMA is no longer a supportive proponent of the bill.”

Boyko argued utilities focused on distribution shouldn’t be allowed to get into behind the meter power generation. The legislation allows them to do so, but not to recover costs from rate payers for building bespoke power plants.

Not so fast, Boyko insisted, zeroing in on the bill’s use of “reasonable arrangement” to describe the agreements between the utility and the customer.

“There’s a reasonable arrangement statute, (ORC) 4905. 31, that says delta revenues — not costs — delta revenues,” she explained. “So, discounts and any rates can be provided to manufacturers or to other businesses when they file these reasonable arrangements, and those costs can be passed on to customers.”

She also argued the three-year forecasted rate proposal would give utilities too much leeway to game the system. Instead of operating a socket wrench ratcheting rates down to utlities’ costs, Boyko argued, they’ll more likely set a baseline that utilities will crank higher over the life the settlement.

“I don’t know how any manufacturer is going to be able to come and stay in Ohio and have predictability or rate stability or rate certainty on what their energy costs would be in Ohio,” she argued.

Instead, she urged lawmakers to leave the rate-setting system in place with the new “shot clock” requirements to ensure cases get settled quickly.

Another previous supporter expressing doubts about the bill was David Proaño, speaking on behalf of the Ohio Energy Leadership Council, another coalition of energy intensive companies.

“We do think that the amendments are a decided turn against consumers, unfortunately,” he said.

Like Boyko, Proaño criticized the three-year rate forecast. He acknowledged the bill includes provisions for reconciling rates on an annual basis, but argued “the problem is that takes a lot of time.” Utilities are laying out proposals with $2-3 billion in assets, Proaño said, which is a lot for regulators to sort through.

In the meantime, he added, what happens if consumers are getting rates that are too high?

“From my reading of the statute, it only adds, it only allows increases to rates,” he said.

“It talks about the rates can increase for increases in the capital used by the utility,” Proaño continued. “It doesn’t allow really for decreases, and it’s uncertain whether or not if the consumer overpays in the meantime, for the reconciliation, it’s not clear in the bill that those rate refunds are going to come back.”

Ohio Consumers Counsel Maureen Willis urged lawmakers to try again. She argued the latest version of bill, “dash three” because it is the third such iteration, represents a “detour” from many of consumer protections in prior versions of the bill.

She warned so-called “mini-rate cases” don’t have adequate consumer protections. While the bill sets an upper dollar limit on capital expenditures, it doesn’t limit how often utilities can apply or that the investment meet existing “used and useful” standards.

Willis argued mini-rate cases should be limited to circumstances that are “truly unexpected and outside the utilities control.” Ordinary upkeep or smart grid investments don’t cut it, she said, and definitely not expenditures to replace power plants.

“Consumers could end up paying for new plant and old plant at the same time that has been retired and not being used to provide utility service,” she said. “That would be unfair to consumers.”

Willis particularly harsh toward lawmakers’ willingness to allowing distribution companies to provide to behind-the-meter power generation.

“This is a U-turn on the path to regulatory form,” she argued. “While behind-the-meter generation is good idea. It should be competitively provided, not provided by a monopoly utility in the distribution business.”

“Utility involvement means less competition, potential cost shifting and risk to utility consumers in Ohio,” she continued. “Policing guarantees of no cost recovery related to utility behind the meter generation is an impossible job.”

But state Sens. Shane Wilkin, R-Hillsboro, and Jerry Cirino, R-Kirtland, were skeptical. If a business owner wants to pay for it, they pressed Willis, who cares who builds their power plant?

She argued that allowing utilities which operate as regulated monopolies into a market with companies that don’t have a captive consumer base to lean on is fundamentally unfair.

“It’s an uneven playing field,” she said. “And we know what happens when there’s uneven playing field — the strong players shut the weaker players out.”