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The Ohio Senate
Public Utilities Committee

Testimony on Senate Bill 128

Presented by Jeff Jacobson
Strategic Insight Group, Ltd.

On Behalf of the
Office of the Ohio Consumers’ Counsel

June 1, 2017

Hello Chair Beagle, Vice Chair LaRose, Ranking Minority Member Williams, and members of the Committee.

My name is Jeff Jacobson. I am testifying on behalf of the Office of the Ohio Consumers’ Counsel, the state’s representative of four million residential utility consumers. I am testifying in opposition to S.B. 128 to protect nearly two million residential consumers of FirstEnergy from each paying a lot of money in subsidies to FirstEnergy over 16 years. A conservative projection of what the bill could cost each of two million Ohioans is, on average, up to approximately $1,000—based on a total cost of about $5 billion. That is approximately $5.00 per person per month. The Legislative Service Commission has calculated a “maximum possible cost” (for Senate Bill 128) of more than double this estimate--$11.16 billion. (LSC Fiscal Analysis, page 5, May 17, 2017)

As most of you know, I am a former member of the Ohio House and Senate. I, like most of my former colleagues, voted for electric deregulation in Senate Bill 3—though I will admit to not understanding it well at the time. I had more involvement in the enactment of Senate Bill 221 in 2008, and deserve part of the blame for the slowing of Ohio’s transition to full power plant competition by the decisions we made in that bill.

Today, of the 50 states and the District of Columbia, Ohio has the 18 th highest average residential rate for electricity—meaning 33 states have lower residential rates. (See Attachment 1) Of the restructured states—those who have moved towards the free market—Ohio has the second highest residential price increases from 2008 to 2016. (See Attachment 2)

Ohio has these higher electricity costs for consumers despite being awash in shale oil and natural gas that have given us historically low gas prices. And the U.S. Energy Information Administration has projected natural gas prices to be relatively low and stable for a couple decades or more.

Competition is working in the electric generation market. A recent study by The Ohio State University and Cleveland State University researchers found about $12 billion in consumer savings from the utilities’ competitively bid standard service offers during 2011 to 2015. And the researchers project another $12 billion to be saved in the next five years because of the market-based standard service offer. Given deregulation and favorable natural gas prices in Ohio, our state has a growing number of new gas-fired power plants under construction. (See Attachment 3) We thank the Ohio General Assembly for giving consumers those benefits of the competitive electric generation market.

But there is a problem that is preventing Ohio families and businesses from realizing the full benefits of lower prices in the market. That problem is the continuing requests by Ohio electric utilities—now years after the 1999 deregulation law’s transition period ended—for consumers to pay subsidies above the market price of electricity. The subsidies that two million Ohio consumers have paid to FirstEnergy, since 2000, are measured in the billions of dollars.

The bulk of these subsidies were paid by consumers in the years after deregulation was adopted. But in the past several years there have been instances of utilities asking for and being granted new subsidies. And now these utility efforts to increase the cost of electricity for Ohioans have come to the General Assembly.

Three years ago, FirstEnergy asked for approval of a plan allegedly to stabilize rates, that the Consumers’ Counsel calculated would cost consumers $3.5 billion or more over eight years, or upwards of about $1,000 for each of FirstEnergy's two million consumers. And Ohio regulators approved the essence of the plan, known as a power purchase agreement. But then stakeholders, including OCC, asked the Federal Energy Regulatory Commission to protect customers from the plan’s anti-competitive effects. The Federal Commission stepped in to prevent the subsidy, requiring FirstEnergy to prove that its plan did not negatively impact the electric markets or consumers. That ended FirstEnergy's power purchase subsidy plan.

But FirstEnergy persisted. FirstEnergy presented more proposals to state government until Ohio regulators awarded it $204 million per year for at least three years (and maybe more). FirstEnergy was allowed to charge consumers for a so-called “distribution modernization rider” that doesn’t require a dollar to be spent on modernizing the distribution grid. Since January 1, 2017, FirstEnergy's customers have been paying for that charge, which subsidizes FirstEnergy.

And now FirstEnergy is requesting nearly $5 billion more, or possibly double that per the LSC analysis, for Ohioans to subsidize its nuclear plants. Respectfully, you should stop this cycle of subsidies and give consumers more of the benefit of competition intended under the 1999 law.

On May 18, 2017, FirstEnergy testified that the government should make two million Ohioans pay yet more subsidies, now for the nuclear plants, under the guise of Ohio’s energy security and diversity. But just six years ago FirstEnergy testified to the opposite point before the House Public Utilities Committee: “the real problem with subsidized generation is that regulators would be picking the ‘winners’ and ‘losers’ in the energy market. We’ve been down that road before, and the results weren’t pretty.” (FirstEnergy Testimony, Attachment 4 at p. 5) FirstEnergy’s 2011 testimony statements were true then and just as true now, even though FirstEnergy’s position has now changed. Using FirstEnergy’s earlier testimony as a reference, power plant competition is working for Ohio. Even if the nuclear plants were to close, Ohio has about eight new power plants that are in different stages of planning and construction. Those plants will have to be run economically and will have no ability to obtain a similar subsidy from Ohioans. They will employ Ohioans, and pay Ohio local taxes. If the power produced by the plants clears the regional market, it will cost Ohioans millions less than the two nuclear plants. So then what is this bailout of FirstEnergy and its investors about? FirstEnergy’s financial challenges began to mount with its $4.7 billion acquisition of Allegheny Energy in Pennsylvania about five years ago. It is our understanding that FirstEnergy agreed to absorb $3.8 billion of Allegheny’s debt and to pay a stock premium of approximately 22 to 36 percent.

The effect of this bill is to convert customers into investors, by transferring business risk. But customers should not have to bear the risks for FirstEnergy’s investors. In a capitalist society like the United States, it is investors, bondholders, and lenders who take risks for the potential rewards. Customers already paid billions to FirstEnergy in the early years to transition from regulated generation to unregulated generation. That was an extraordinary, temporary measure to help the utility and its investors. Customers should not be required to pay again.

Here again are words from FirstEnergy six years ago, testifying that its risks are borne by shareholders, not consumers:

At FirstEnergy, we made every effort to meet the letter and spirit of the new law – devoting significant resources to prepare our company, employees and customers for competitive markets.

But more important, all of our generation-related investments – including the risks that accompany them – are now borne by our shareholders, not by customers. ... This change has made us better – leaner, more efficient, and more customer-focused.

Since 1999, our competitive subsidiary FirstEnergy Solutions, has invested nearly $6.4 billion in its generating fleet while adding more than 900 megawatts of power. That’s the equivalent of a large, baseload power plant – and, once again, we’ve brought that additional capacity online at no risk to consumers. (Attachment 4, FirstEnergy testimony at pages 3-4)

There is an additional, related issue for public concern. The bill sacrifices the transparency of information that consumers should have regarding the massive subsidies they would pay to FirstEnergy, in favor of secrecy for information provided by FirstEnergy to the PUCO. The bill provides that: “All financial statements, financial data, and trade secrets submitted to or received by the public utilities commission for purposes of satisfying the criteria as a zero- emissions nuclear resource and any information taken for any purpose from the statements, data, or trade secrets are not public records.” (S.B. 128 Line Nos. 223 – 228). For one matter, trade secrets are already protected under Ohio law. But this bill language would make secret much more information - to include financial statements and financial data - about the basis of consumers’ utility bills. There should be transparency in ratemaking for Ohioans who pay utility bills, and this bill language for secrecy should be rejected along with the rest of the bill.

Chairman Beagle and members of the Public Utilities Committee, I urge you to protect two million Ohioans, businesses and families, in FirstEnergy territory by rejecting Senate Bill 128. Thank you.