At the hearing on Wednesday of the House Public Utilities Committee, Chairman Peter Stautberg (R-Cincinnati) made it clear that everything was on the table as far as discussing policy matters, as representatives for Ohio’s manufacturing groups gave committee members an idea of what is working and what is clearly not working since 127-SB221 (Schuler) was signed into law by Gov. Ted Strickland in 2008. The only issue they all agreed on is that the advanced and renewable energy benchmarks are a barrier to attracting manufacturing business to Ohio. 

Ohio’s energy policy sets an Advanced Energy Portfolio Standard (AEPS) that by 2025, at least 25 percent of all electricity sold in the state must come from alternative energy resources, such as clean coal and nuclear. At least half of the standard — 12.5 percent of electricity sold — must be generated by renewable sources such as wind and solar. At least half of the renewable energy must be generated within Ohio, which one panelist said, “has caused some problems.” 

The utilities can file with the Public Utilities Commission of Ohio (PUCO) for a waiver if the cost to procure renewable generation will cause the price of power to increase by more than 3 percent.

Kevin Schmidt, director of public policy services for the Ohio Manufacturers’ Association (OMA), commented that sustainability requirements can create profitable new market opportunities, but must be economically feasible.

“Companies must be responsive to consumer and shareholder demand for corporate responsibility relative to energy and environmental regulations,” Schmidt said. “Companies are increasingly focused on carbon management and ‘green’ products and processes. Such initiatives must be economically sustainable for manufacturers and not merely regulatory impositions. Companies may want to make greener products and adapt their processes, but cannot always pass along the higher prices for these products in competitive global markets.”

Michael Kurtz representing the Ohio Energy Group (OEG), agreed with Schmidt and said renewable energy is less reliable and is generally two or three times more expensive than conventional generation.

“Right now, the lowest cost new generation is probably combined cycle natural gas,” he added.

Each of the three panelists — Schmidt, Kurtz and Sam Randazzo, legal counsel for the Industrial Energy Users of Ohio — all pointed out that when SB221 was being debated the wealth of shale gas in the state was not realized. 

“We believe there is a fundamental inconsistency promoting the divestiture of existing generation in order to move to a fully deregulated market on the one hand, and then having state government, not a market, dictate the type of generating resources Ohioans are required to buy on the other,” Kurtz explained.

Rep. Mike Foley (D-Cleveland) asked each of the panelists if they are against the renewable standards. Randazzo pointed out that he was the only one against them during the debate over SB221. While he said he does agree renewables should be discussed, “here is an area we don’t need state government.”

Randazzo’s testimony stressed his definition of regulation, stating that the purpose of economic regulation is to “simulate results that would occur in an efficient competitive market.”

Randazzo also said he does not agree to letting industrial energy customers “opt-out” of purchasing advanced energy as suggested by Kurtz during his testimony as a policy change that would help or maintain the economic competitiveness of Ohio industries and provide incentives for new companies to relocate in the state. 

Kurtz clarified that the “opt-out” for companies would not change the benchmarks or increase costs on other consumer classes.

“We think it is a bad idea for everyone,” Randazzo said. Instead Randazzo suggested that the provisions requiring renewable benchmarks be suspended by the Legislature until an economic review can be completed as to the impact or “unintended consequences” of setting renewable energy mandates. This report would also include energy efficiency and demand reduction programs.

Schmidt agreed and said especially with the increase in natural gas supplies in the state, that a technical review could be warranted. Kurtz agreed as well, and suggested that it be more targeted for manufacturers.

Foley questioned how manufacturing companies are concerned with meeting the benchmarks when the mandate is for the utility companies and not individual consumers.  Schmidt explained that the mandates are imposed on the utility but through a rider the cost comes to the end-user.

Randazzo described it as an unfunded mandate to consumers.

Schmidt said that policy should not come before technology.

Rep. Ron Amstutz (R-Wooster), who was described by Randazzo as the “father of electric deregulation” since his legislation in 1992, asked about socializing energy costs across customer classes and who pays for the “delta revenue.”

Randazzo said this issue has been wrestled with at the PUCO for over a decade. He explained the provisions in SB221 that provide for reasonable arrangements or a specialized electric rate to further economic development (ORC 4905.31). 

“Through competitive bidding customers have not needed to have a delta revenue issue,” Randazzo said pointing to FirstEnergy Solutions as an example of going to market and its resulting in lower rates for its customers. He added that this is an example of how to leverage the market base rate to deal with delta revenue costs and not billing its customers. 

Schmidt said the OMA sees unique arrangements for energy as a way for Ohio to leverage economic development opportunities and bring companies into the state and get a competitive utility rate. He mentioned the PUCO’s new tariff — “off the shelf” — program designed to incentivize new businesses to receive discounts if they relocate or expand in the state. 

The OMA also is doing a study with Cleveland State University to look at Ohio and competing states regarding energy rates, energy needs of various types of manufacturing businesses, and environmental mandates, in the hopes of answering the big question about what is a competitive rate.

Randazzo said unlike the natural gas markets, the electric markets are still progressing and the reasonable arrangement to leveraging market forces will be more successful.

Rep. Anne Gonzalez (R-Westerville) asked if each of the panelists accepted the rise and declines of the market. 

Randazzo answered that the regulatory design is to simulate market forces. “It is not possible to not have regulation that defies what’s going on in the market. Yes, we endorse and favor markets respecting the realities of market forces.”

Additionally, Randazzo pointed out times in history when due to “bad behavior” the markets were manipulated as in the case of Enron.

Kurtz had a different view of market rates with respect to a recent push by American Electric Power (AEP) and Duke Energy to divest their generating assets, resulting in the transfer of the power plants to corporate affiliates not regulated by the PUCO, as FirstEnergy did in creating FirstEnergy Solutions to control its generation. 

Kurtz said in the recent electric security plan proposal from AEP pending before the PUCO, “Pushing for utilities to divest their power plants may not be the best policy for Ohio customers. Only time will tell. If utilities do not own their power plants, there cannot be a cost-based standard service offer option that customers could choose if market rates are very high. Customers would permanently lose their hedge against large market spikes in the market rates.”

He added that OEG reluctantly agreed to AEP’s stipulation that would require Ohio Power and Columbus Southern Power to divest all of their existing generation. “Even after divestiture, as long as a utility operates within an ESP as opposed to an MRO, the PUCO still has some jurisdiction over generation,” he said including jurisdiction over rate design and economic development, as well as new power plants dedicated to Ohio customers on a cost-basis.