Repeal of House Bill 6

Before
The Ohio Senate
Energy and Public Utilities Committee

Testimony on Senate Bill 346

By
Jeff Jacobson, Strategic Insight Group
On Behalf of the Office of the Ohio Consumers’ Counsel

November 10, 2020

Hello Chair Wilson, Vice-Chair McColley, Ranking Member Williams and members of the Senate Energy and Public Utilities Committee. I hope you and your colleagues are well. Consumers’ Counsel Weston and I thank you – and the sponsors of Senate Bill 346 – for this opportunity to testify as a proponent of this bill to repeal House Bill 6. Last year we testified seven times against the now tainted House Bill 6. Attached is the Resolution opposing House Bill 6, by the Consumers’ Counsel Board. Also attached is Consumers’ Counsel Weston’s letter to the Senate recommending a prompt repeal of House Bill 6.

Since the enactment of House Bill 6 there have been a U.S. Criminal Complaint,¹ arrests, a change in the House Speakership, two guilty pleas, and FirstEnergy’s firings of its CEO and two Vice Presidents. FirstEnergy announced that the terminations of its executive leadership were for violations of “certain FirstEnergy policies and its code of conduct.”

FirstEnergy (and its former generation subsidiary) like to make money the old- fashioned way – by convincing government to give them other people’s money. Business has been good, with FirstEnergy collecting $10 billion dollars in subsidies from Ohioans since Ohio’s landmark electric deregulation law in 1999. OCC’s attached Subsidy Scorecard shows that, since 1999, consumers have paid Ohio electric utilities nearly $15 billion in subsidies. The billion-dollar subsidy that Ohioans will pay for FirstEnergy’s former power plant subsidiary (now called Energy Harbor) is just the latest subsidy at consumer expense.

It is unfortunate for consumers that FirstEnergy returned to seek more subsidies for these two nuclear plants given that consumers paid FirstEnergy $7 billion to transition its power plants to competition under the 1999 law that was to end subsidies. The expectation then, under Revised Code 4928.38, was that consumers would not pay power plant subsidies in the future. But as the old expression goes, the more things change, the more they remain the same. And paying massive subsidies for FirstEnergy is more of the same for two million FirstEnergy consumers.

The jewel for consumers in the 1999 electric deregulation law is power plant competition. That competition lowers electric prices and increases innovation for the benefit of Ohio consumers. Market competition, not government, should decide where capital will be deployed for future innovation in power plants. Ultimately, the market will show the way to the future, including with renewable energy.

Frankly, we think the government should abstain from interfering in the market, with prime examples of interference being the subsidizing of nuclear and coal power plants in House Bill 6. We are agnostic on fuel source, and find it particularly dismaying that Ohio is favoring uneconomic, polluting coal plants by subsidizing them at consumer expense, whether by House Bill 6 or by the past actions of the PUCO. The market is favoring natural gas power plants, among others, which is good for synergy with Ohio’s own gas resources and for low electricity prices to Ohio families and businesses. In the not too distant future, we expect the competitive market will support more renewable energy, as its price declines and innovations occur in related technologies including battery storage.

In November 2017, the Legislative Services Commission prepared the following chart regarding then House Bill 247 by Representative Romanchuk. The chart shows how the regional wholesale power plant market (red line) is working to lower electric prices for Ohioans but the Ohio retail market (blue line) is not. Note how LSC shows the regional wholesale rate declining while the Ohio retail rate is rising. The LSC report is attached.

The House Bill 6 subsidies for the two former FirstEnergy nuclear plants will be $150 million per year through 2027. The bill also continued the PUCO’s bailout of the 1950s OVEC coal power plants through 2030, at public expense, at a price tag of nearly a half-billion dollars or more. The bill also subsidizes large utility-scale solar plants at about $20 million per year through December 31, 2027.

House Bill 6 also contains a so-called “decoupling” subsidy for FirstEnergy. The decoupling subsidy gets less attention than the power plant subsidies, but it is the other bailout. Decoupling is a ratemaking measure that decouples, or in other words separates, a utility’s revenues from its sales. Utilities would say it helps encourage them to offer energy efficiency programs by having consumers pay the utility for revenues it loses due to consumers using energy efficiency. Utilities like (or love) decoupling when their revenues are declining. That’s because, as stated, their regulator can require payments from consumers to make the utilities whole for their reduced revenues.

In justifying decoupling, utilities like to say that decoupling is balanced in that it could result in a payment to customers if revenues are higher (and not just a payment to utilities if their revenues are lower). But it virtually never happens that consumers get a payment. That’s because decoupling tends to be implemented in a one-sided way to help utilities at consumer expense. For example, we don’t think it’s mere coincidence that House Bill 6 allows FirstEnergy to benefit by decoupling to a reference year (2018) that had some of the highest temperatures ever recorded (meaning also higher electric sales revenues for FirstEnergy). We’re not fans of decoupling charges, but House Bill 6 has maybe the worst example of decoupling we’ve ever seen for consumers. The House Bill 6 decoupling for FirstEnergy lacks any alleged redeeming quality such as being driven by support for energy efficiency programs (which are canceled in House Bill 6). It is corporate welfare at its worst. Indeed, FirstEnergy’s former (and recently terminated) CEO referred to the decoupling benefit as helping the company be “recession proof.” No doubt many Ohioans suffering from the pandemic emergency would like to be recession- proof.

The Ohio Manufacturers’ Association estimates that FirstEnergy could charge consumers a total of about $355 million over six years through 2024 (or longer until FirstEnergy files a distribution rate case) for this decoupling bailout. OMA’s analysis can be found at this link: https://ohiomfg.informz.net/ohiomfg/data/images/- %20HB%206%20Decoupling%20101%20Memo%20-%209.17.2020%20- %20FINAL.pdf

In a repeal of House Bill 6, consumers should be freed from funding this outrageous decoupling subsidy for FirstEnergy.

The benefits bestowed on FirstEnergy in House Bill 6 were part of a trilogy of legislation in the House. On a similar timeline, FirstEnergy received a benefit for its profits in the state budget bill (Enrolled Am. Sub. House Bill 166, pages 1393-1394). And House Bill 246 was then introduced as (bad) legislation to “reform” OCC (and the PUCO), after OCC announced its opposition to House Bill 6 and to the budget bill provision benefiting FirstEnergy.

For these reasons and before we even get to the subject of the United States Criminal Complaint regarding House Bill 6, we support a repeal of the bill. But we are here today to support Senate Bill 346 for a prompt repeal of House Bill 6 because House Bill 6 is tainted by the allegations contained within the federal Criminal Complaint, as the Governor has said. FirstEnergy, a key player in the House Bill 6 process both as the former owner of the nuclear plants and as a beneficiary of the bill, is understood to be prominently referenced in the Criminal Complaints (though FirstEnergy has not been named or charged with a crime to date). FirstEnergy obviously thinks it was involved in something bad regarding House Bill 6 because it just fired its top executives after an internal investigation by its Board. And in the attached filing at the Securities and Exchange Commission, FirstEnergy acknowledged that it is being investigated by the Securities and Exchange Commission for possible securities law violations and that it is at risk of potential criminal or civil liabilities and sanctions.

In supporting repeal, we are also moved by our revulsion at the effort to subvert the referendum process for Ohioans. That subversive effort contributed to denying Ohioans their rightful opportunity to vote on repealing House Bill 6.

Now, we know some have said that House Bill 6 saves consumers money, because it eliminates the charges for green energy mandates for renewables and energy efficiency. But we are guided by two concerns. First, we don’t think a goal of ending the green energy mandates justifies enabling the government and a big utility to interfere in the competitive market for power plant competition, as in House Bill 6. Second and more importantly, this tainted bill must be repealed – and repealed promptly – out of respect for the public in whose name these processes of their state government are conducted. Further, we don’t think the case has been adequately made that the calculation of the cost savings of House Bill 6 favor its retention. The Legislative Services Commission acknowledged, in questions about its testimony before the House Select Committee on September 10, 2020, that its May 20, 2020 fiscal analysis does not account for the savings that consumers receive from energy efficiency. And LSC then also acknowledged on questioning that its analysis does not account for the negative impact on the market resulting from power plant subsidies.

Regarding the negative impact of House Bill 6 on the market, its passage already drove out investors from two Ohio natural gas plants: the Lordstown Energy Center’s 940 MW natural gas-fired plant (see attached news story) and the Troy Generation Facility’s 700 MW duel fuel plant (in Luckey, Ohio). Both were cancelled. Those cancellations mean a loss of $1.6 billion of investment in Ohio, along with lost jobs.

The case for repeal is further underscored by another event. Energy Harbor announced a stock buy-back requiring hundreds of millions of dollars despite it allegedly being a financially challenged company in need of a customer-funded bailout for nuclear power plants. In this regard, we recommend that this Committee require FirstEnergy and Energy Harbor to both soon publicly testify before the Committee. Note that renewable energy is a good thing that should compete in the market on its merits. We think increasingly it will succeed in the market.

Also, while energy efficiency is a good thing, we prefer an approach to energy efficiency where consumers shop on their own in the market for their energy efficiency measures, without big utilities and government arranging it. We particularly object to the utilities charging consumers for profits (so-called “shared savings”) on their energy efficiency programs. The legislature allowed utility profits on energy efficiency in the 2008 energy law and the PUCO has liberally granted it (up until very recently). Examples of this imposition on consumers’ electric bills include energy efficiency profits of $25.7 million by AEP, $7.0 million by DP&L, $10.3 million by Duke, and $12.7 million by FirstEnergy, just in 2018.

So we support Senate Bill 346 for an immediate repeal, especially given the background of the U.S. criminal allegations on top of the anti-consumer power plant and decoupling subsidies. House Bill 6 is tainted and it should go. Even if not all the allegations turn out to be crimes, the federal government’s information is revealing of undue influence by FirstEnergy and possibly one or more other utilities, and there unfortunately were extreme efforts to defeat the ballot initiative at the cost of Ohioans’ right to vote.

But having said that, we prefer the repeal approach in House Bill 772 by Representative Romanchuk. House Bill 772 would, among other things, repeal the coal subsidy, the nuclear power plant subsidy and the decoupling subsidy. Also, House Bill 772 would prohibit the PUCO from reinstating the subsidy for the uneconomic, polluting OVEC coal power plants. And the bill would require that refunds be made to consumers for the subsidies they paid for the coal plants and decoupling under House Bill 6. Making Ohioans subsidize coal plants is bad for consumers’ pocketbooks and bad for the environment. House Bill 772 is competitively neutral, as it would not subsidize power plants or restore the formerly mandated utility programs for energy efficiency and renewable energy.

House Bill 772 also would repeal Section 5 of House Bill 6, which is a provision requiring the Ohio Development Services Agency to seek a waiver from the federal government regarding assistance to low-income Ohioans. This waiver is to enable ODSA to increase the use of the federal Low-Income Home Energy Assistance Program (“HEAP”) funds for subsidizing weatherization. But that weatherization subsidy reduces

HEAP funds available for utility bill assistance to help keep at-risk Ohioans connected to their utility service, especially during the emergency of the pandemic and its aftermath. The primary concern here should be to keep at-risk Ohioans connected to their energy utility services. That is accomplished by HEAP bill payment assistance much more so than weatherization. Many of our fellow Ohioans are in desperate need of money during the pandemic, so bill payment assistance is especially needed now. Weatherizing a home (that likely would be done for a landlord, not for the consumer) is a far greater expenditure of the limited HEAP funds per consumer than bill payment assistance. That means using HEAP funds for weatherization helps just a fraction of the Ohioans who can be helped using HEAP for bill payment assistance. To protect Ohioans in need, House Bill 772 rightly would repeal this provision of House Bill 6.

As mentioned, another issue in the House Bill 6 trilogy is the budget bill (House Bill 166) provision that could allow FirstEnergy to retain excess profits at consumer expense. The provision is in Revised Code Section 4928.143(E). That budget bill provision should also be repealed, such as by House Bill 740.

Thank you for your time and consideration.

1 https://assets.documentcloud.org/documents/6999130/Ohio-House-complaint…