The Robert F. Manifold Award is the highest honor of the National Association of State Utility Consumer Advocates, recognizing a lifetime of public service. It was awarded to Bruce Weston for "Dedication and Meritorious Service to the People of Ohio and to NASUCA."
Before
The Ohio House of Representatives
Energy and Natural Resources Committee
Testimony on Substitute House Bill 6
Presented by Michael Haugh
On Behalf of the
Office of the Ohio Consumers’ Counsel
May 8, 2019
Hello Chair Vitale, Vice-Chair Kick, Ranking Member Denson and members of the Committee. Thank you for this opportunity to testify.
My name is Michael Haugh. I have served OCC as a past Assistant Analytical Director and now as a consultant. I am testifying for the Office of the Ohio Consumers’ Counsel. The Consumers’ Counsel is the state’s representative for millions of residential utility customers. My background includes nearly 25 years in the energy industry, working on both the regulated and deregulated sides of the energy markets in government and private industry.
Subsidies are “contagious,” according to PJM’s Independent Market Monitor and watchdog, Dr. Bowring. He is correct. When subsidizing one form of generation, like nuclear power plants, others will line up for their presumed share of the public till. Subsidies will spread as government embarks on the challenge of outthinking the competitive market, redistributing wealth and deciding who is a worthy recipient of corporate welfare at public expense. By the time the Ohio Air Quality Development Authority (OAQDA) makes its status report to the General Assembly In 2029 (lines 233-236), Ohioans will have paid an astounding $3 billion in subsidies to various generators. And the OAQDA is merely providing a report. The bill has no sunset on Ohioans’ funding of power plant subsidies and the Ohio culture of anti-competitive subsidies for electricity. The cure for these contagious subsidies is to not enact this legislation.
The Ohio Consumers’ Counsel commends the General Assembly for its landmark law in 1999 that deregulated power plants. The General Assembly gave consumers the benefit of a competitive power plant market with lower prices and higher innovation. Years later, a FirstEnergy Vice-President emphasized these benefits in testimony before the Ohio House Public Utilities Committee: “...competitive markets work. They deliver the lowest price over the long- term to consumers, and the proof is undeniable.” (Testimony of Leila Vespoli, October 19, 2011)
PJM summarized the benefits of power plant competition in its recent Annual Report for 2018. The following PJM graphic (from the Annual Report, page 16) shows the consumer benefits of power plant competition. Those benefits include significant reductions in electricity prices and air pollution:
Furthermore, it has been said that the total effect of the legislation will be a reduction in consumers’ electric bills. But the bill would need a major rewrite for that to occur.
The General Assembly’s 1999 law ls working for Ohio families and businesses. Deregulation of power plants has contributed to competitive wholesale markets producing billions of dollars in savings for Ohio electric customers. Researchers at The Ohio State University and Cleveland State University concluded in 2016 that Ohioans saved over $15 billion between 2011 and 2015 from competition. They projected savings of over $15 billion between 2016 and 2020. (link https://engagedscholarship.csuohio.edu/urban_facpub/1416/)
In a 2017 Fiscal Note for House Bill 247, the Legislative Service Commission presented a graph showing a decrease in PJM’s wholesale electric rates since 2008. (See Attachment 1, page 2.) Unfortunately for consumers, the LSC graph shows a rise in Ohio retail electric prices since 2009. LSC noted “the lack of correlation between wholesale and retail prices emerges around calendar year 2009, which is the same year that Ohio’s utilities began operating under [electric security plans].” The electric security plans in Ohio’s 2008 energy law were a step back from the 1999 law and have cost Ohioans plenty. They are examples of why making consumers pay subsidies to bail out nuclear power plants is a bad idea.
New generation is being built in Ohio, leveraging the state’s plentiful natural gas reserves that offer some of the lowest natural gas prices in the world. Low natural gas prices will be reflected in lower electric rates for Ohioans, if government interference in the competitive market is minimized. Unlike subsidies that shift business risks to consumers, investors are bearing the risk for these new Ohio power plants in the competitive market. Over 3,100 MW of new natural gas plants are currently producing electricity in Ohio, with another 7,800 MW in various stages of planning. A map of new generation is Attachment 2 to this testimony. According to federal data, Ohio is seventh among states in new power plant generation. (See Attachment 3) Ohio should avoid disrupting its progress in power plant development with this legislation for state government to pick winners and losers in the market.
The Davis-Besse and Perry nuclear plants are not needed for the regional wholesale markets. The market is providing PJM, the electric grid operator, with more than enough power to serve consumers for the next three years. And PJM’s procurement for the 2021/2022 planning year has already been successful without including the Davis-Besse and Perry plants in the mix. PJM states as follows in its 2018 Annual Report at page 12:
In April, PJM released its analysis of planned deactivations for three nuclear plants in Ohio and Pennsylvania owned by FirstEnergy Solutions. The analysis determined that the plants can deactivate without risking the reliability of electric service and concluded that any power delivery issues resulting from the closure of the 908 MW Davis-Besse Nuclear Power Station, and 1,268 MW Perry Nuclear Plant in Ohio ... can be alleviated through transmission expansions already planned for the system and timely completions of new projects. We understand that PJM has identified those transmission expansions as a mere $24 million, related to deactivations of Ohio’s nuclear plants. That can be compared to billions of dollars of subsidies under this Legislation.
Ohio is a net importer of power from the regional grid. That is not a concern for Ohio electricity consumers. Ohio is part of a multi-state market that brings the most efficient and lowest cost power to Ohio families and businesses. Low-cost power provides benefits to all Ohio electric customers and, in turn, helps Ohio’s economy.
Subsidies disrupt markets and in turn harm Ohio customers. Since 1999, consumers have paid Ohio electric utilities over $15 billion in subsidies, as shown on the attached subsidy scorecard. (See Attachment 4) FirstEnergy customers have already paid at least $6.9 billion in power plant subsidies, including for the two Ohio nuclear plants eligible for subsidies under this legislation.
Clean air is obviously good. But having state government choose outcomes in the competitive marketplace is not good. The massive Ohio subsidy for old-technology nuclear power plants can result in investors looking outside of Ohio for building new power plants.
We share the anti-bailout view of AARP. The AARP Policy Book 2019-2020 contains AARP’s policy to “exclude subsidies or bailouts of generation facilities.” https://policybook.aarp.org/node/4361. In a press release on April 26, 2019 opposing the Bill, AARP State Director Barbara Sykes stated “we are firmly opposed to this for all Ohioans, but especially for those age 50+ who are living on fixed incomes.” (Attachment 5) There are some additional problems with this bill that warrant not enacting it or correcting it.
I. The Decoupling Mechanism and Related Terms Will Cost Consumers Plenty New Subsection D (lines 594-599) helps to limit the adverse effects of the decoupling provision on Duke Energy customers. But more changes are needed to protect other utility customers and ensure that they receive some or all of the promised rate reductions. Utilities likely will interpret the decoupling provision (lines 552-564) to allow a guarantee, in future years, of all revenues and profits collected from customers at levels established in 2018 (not just revenue associated with energy efficiency and renewable programs in operation in 2018.) Customers currently pay up to $288 million per year just for energy efficiency program costs and utility profits (shared savings), plus additional amounts for so-called lost revenues. Additionally, lines 395-409 of the Bill allow utilities to seek collection of costs related to renewable energy credit purchases from customers, even if customers do not opt in. (Lines 388- 394) This could allow a utility to charge customers for the decoupling mechanism for these programs while at the same time receiving funds from the Clean Air Fund, essentially resulting in double collection of these revenues. This, as with decoupling, is concerning for consumers and the premise that they will receive lower utility bills.
II. If Energy Efficiency Plans are Allowed to Continue There Should Be More Consumer Protections
Energy Efficiency programs can provide many benefits to customers. Utilities have touted hundreds of millions of dollars in savings annually. At the same time utilities are charging customers hundreds of millions of dollars in profit (shared savings) for these programs. Profits charged by each utility in 2018 were $25 million for AEP, $4 million for Duke, $9 million for DP&L and $12 million for FirstEnergy. That is over $50 million in profits for these programs. It should be noted that DP&L charged customers $9 million in profits on $20 million in program costs. If the energy efficiency programs are to continue there needs to be specific statutes limiting costs and profits charged to consumers by utilities. Profits for utilities offering these programs reduces the effectiveness of the programs and the ability for customers to take control of their bills.
III. The Bill’s Flat Subsidy Charges Harms Residential and Small Commercial Customers, and should be Replaced with a Uniform Subsidy Charge Per Kilowatt Hour, for Fairness Between All Customers
The customer charge for this program should be on a consumption basis, not a flat monthly charge (lines 365-383). For each megawatt generated, emissions are released. Customers causing the emissions should pay the associated costs. The Bill would have residential and commercial class customers each paying roughly 42% of the cost while the industrial class only pays 16%. Energy usage by class in Ohio for 2018 was approximately 36% for residential, 31% for commercial and 34% industrial. (https://www.puco.ohio.gov/puco/index.cfm/industry- information/statistical-reports/electric-customer-choice-switch-rates-and-aggregation-activity/) Charging customers on a per kWh basis is a more equitable allocation of costs and avoids the effect of a regressive tax on residential consumers and smaller businesses.
IV. Eliminate the Utility Purchased Power Agreements in the Bill Section 4928.47 (lines 510-551) should be eliminated. The Bill’s provision to “facilitate and encourage” purchased power agreements between the utility and customers could ultimately result in captive monopoly customers paying millions of dollars to subsidize these agreements for unregulated services, which are instead supposed to be subject to competitive forces. Ohio’s subsidy culture for electricity should end.
Services at a customer’s premise after the utility’s meter (such as wind, solar, and battery storage) are deregulated and should be competitive. Allowing the local utility to fund such agreements with captive customer dollars will afford the utility an unwarranted and unfair competitive advantage. These customer-funded subsidies will be destructive of the markets for these services and of the consumer benefits of lower prices and higher innovation that come with competition. The business risk for these agreements should remain with the customer entering into such agreements and the utility. While it is clear that those are the terms for renewable energy services arrangements ((lines 627-631), those terms do not apply to purchased power agreements. The customer-protective provisions under lines 627-631 for renewable arrangements should apply to purchased power agreements.
Moreover, this section of the proposed law (lines 530 to 543) allows customers entering these agreements to avoid other charges, such as the clean air charge, and any remaining charges, including remaining renewable and energy efficiency charges. The charges these customers avoid would increase rates to the other remaining customers to make up the difference. Moreover, this provision gives the parties to the agreement an advantage over other competitive providers whose customers must continue to pay these charges. These provisions of the Bill should be eliminated.
V. Subsidies Should End Within Five Years; Subsidies Should not be Allowed as a Permanent Business Model for Power Plants
This version of the Bill includes a review of the subsidy program in 2029 (lines 233 to 236), but the review should instead be a sunset and the sunset should be within five years. By 2029, Ohioans will have already funded about $3 billion under the Bill. Leading up to three-year mark of the massive subsidies, the PUCO should determine if subsidies should continue for up to two more years. Customer-funded subsidies should not be tolerated as a long-term business model for power plants in Ohio.
VI. Additional Consumer Protections
This Bill, in effect, allows for utilities to get back into the business of owning power plants. (Lines 515-529) Electric utilities were banned from re-monopolizing power plants, under the 1999 law. Power plants should remain a competitive market without monopoly utilities “competing” at the expense of their captive customers. In this regard, the Bill is flawed for consumer protection because it reintroduces charges to captive utility customers without reinstating regulatory oversight that traditionally would accompany such charges. For example, the bill lacks a requirement for subsidy seekers to prove they lack profits or for PUCO review of profits being charged to customers by the subsidized entities. Also, while considering this major rewrite of Ohio law the General Assembly should eliminate electric security plans These plans from the 2008 law have enabled anti-competitive subsidies charged to Ohioans by electric utilities.
Short of eliminating electric security plans, there are specific elements of the law that should be changed. Those elements for change include but are not limited to provisions allowing electric utilities: to charge consumers for excessive profits (just not “significantly” excessive profits); to withdraw (essentially veto) an electric security plan if the utility doesn’t like the PUCO’s modifications to a plan; to create and cherry-pick unlimited “riders” (charges) for customers to pay; and to propose qualitative factors instead of the quantitative factors of market prices for the PUCO to consider in comparing an electric security plan to a market rate.
Separate from the anti-consumer ratemaking in the 2008 law, another major problem that is costing consumers money is the Ohio Supreme Court’s precedent against refunds to consumers for utility charges found to be unlawful. The Court has noted the unfairness of the lack of refunds for consumers and observed that it is a matter for the legislature to address. Ohio utility consumers have lost over $849 million for lack of refunds since 2008.
In sum, Ohioans have paid billions of dollars to electric utilities to transition to a competitive market, as shown on the attached subsidy scorecard. At a time when Ohioans should be reaping the benefits of low cost, reliable power, segments of the industry continue to push for subsidies and bailouts that are harmful to customers and destructive of the competitive markets that benefit customers. I urge you to protect millions of Ohioans by not enacting this legislation.
Thank you for your time and consideration.