Office of the Ohio Consumers' Counsel

2008 Annual Report

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Government Relations

The Office of the Ohio Consumers’ Counsel (OCC) played a significant role in the drafting and passing of Amended Substitute Senate Bill 221, one of the important pieces of legislation signed into law during the past year.

Gov. Ted Strickland signed Am. SB 221 into law May 1, 2008. This law will change the way electric utilities establish rates for their customers and create the framework for the introduction and development of new environmentally-friendly technologies in Ohio for the foreseeable future.

The OCC has been deeply involved in outreach efforts to state and federal lawmakers as it has advocated for the interests of residential consumers since its establishment by the General Assembly in 1976. In 2008, more than ever, the OCC’s presence was felt at the Statehouse as the landmark energy legislation worked its way through the negotiations process.

Janine L. Migden-Ostrander, Consumers’ Counsel, monitored the progress of Am. SB 221 by attending many of the hearings and by testifying about critical components of the measure favorable to the interests of consumers and in keeping with the OCC’s goal of promoting energy efficiency efforts and increasing reliance on renewable sources of energy.

While the enactment of alternative energy standards was a significant achievement for Ohioans, many aspects of the final product, such as the potential for the utilities to request large rate increases to residential consumers, are of concern to the OCC. This is especially true given the troubled nature of Ohio’s economy at the current time.

Under Am. SB 221, electric utilities can file for rate increases outside normal ratemaking procedures. The cost to consumers could reach into the hundreds of millions or billions of dollars without a requirement for audits or hearings. The timeline for completion of rate cases also was a concern for the OCC. The Public Utilities Commission of Ohio (PUCO), under Am. SB 221, will have 150 days to complete its review of a utility’s first rate proposal. The OCC’s position is that this timeline was restrictive and that a proper review and analysis of a proposal would be inhibited.

Some of the key provisions of Am. SB 221 are as follows:

Energy efficiency

A 22 percent reduction in energy demand by 2025; and
Benchmarks and penalties for failure to meet the standards.

The OCC welcomed legislative approval of energy initiatives it had advocated during the past two years. Am. SB 221 included the adoption of the OCC’s recommended level of energy efficiency as well as other related provisions.

Alternative energy

By 2025, 25 percent of electricity sold in Ohio must come from alternative energy sources;
12.5 percent of this standard must come from renewable resources, such as wind energy or solar; and
12.5 percent of the standard must also come from alternative energy services in Ohio, thereby promoting growth and energy independence for this state.

The OCC considered the renewable energy mandate a prime objective during its participation in the negotiations and found the benchmarks and penalties for noncompliance to be in the public interest.

Regulated vs. market rates

By Jan. 1, 2009, each electric utility must file an Electric Security Plan (ESP) with the PUCO. (Dayton Power & Light may continue its current rate plan through 2009);
Electric utilities may propose charging a Market Rate Option (MRO), which would include a competitive bidding process for generation service;
FirstEnergy, which has separated its generating assets into a separate affiliate, owns power plants and may transition to a full Market Rate Option;
If AEP, DP&L or Duke propose charging market rates, they must do so on a phase-in basis, with 90 percent of its rates determined under the Electric Security Plan in the first year; and
A comparison between the ESP rate and MRO must result in the option that is more favorable to consumers in the aggregate.

The OCC was successful in gaining a comparison between the Electric Security Plan and Market rates; however, the agency continues to take the position that Am. SB 221 should maintain the flexibility to ensure that each utility offers the lowest cost option to its customers.

The OCC also was concerned that Electric Security Plan rates will not be established using the traditional ratemaking process, which requires that rates be set based on cost. Our office maintains that generation and distribution rates must be subject to this process so that costs can be verified as just, reasonable and prudent.

Excess earnings

The PUCO must consider annually whether a rate determined under an Electric Security Plan resulted in excess earnings for the utility; and
If the term of the Electric Security Plan exceeds three years, this consideration will occur every four years.

The OCC supports the concept of monitoring excess earnings and holding utilities accountable if customers are overcharged.

Elimination of regulatory transition charges

Regulatory Transition Charges (RTCs), which reflect costs incurred by the utilities prior to deregulation and most of which will have been fully recovered by 2008, are eliminated.

Removal of RTCs is an important victory for the OCC. In FirstEnergy’s territory, this provision in Am. SB 221 resulted in a savings to customers of $590 million and more modest savings in other utility service territories.

Potential rate increases

Electric utilities can file for automatic increases outside the normal ratemaking process to recover generation costs such as environmental, fuel, operation and maintenance, and providing standby and default service;
Costs of new power plants may be recovered prior to customers receiving benefits from their construction. The utility must demonstrate a proven need for the plant and competitive sourcing for construction; and
Distribution costs may be included in the utility’s Electric Security Plan, thereby sidestepping the ratemaking process and avoiding examination of their necessity.

The OCC was concerned about the long-term potential for significant rate increases to customers and took the position that cost recovery should take place in a manner allowing the OCC to present a sufficient case on their behalf. The OCC will continue presenting its recommendations to the PUCO and advocating to protect consumers from prohibitive cost increases during a time of recession.

Additional utility initiatives introduced in 2008 included:

HB 487- Introduced by Rep. Jim McGregor (R-Gahanna) on Feb. 21, 2008, HB 487 would have established alternative energy benchmarks for electric distribution utilities and electric service companies, provided for renewable energy credits and required gas emission and carbon control planning for generating facilities. Janine Migden-Ostrander testified before the House Public Utilities Committee on behalf of this legislation on Feb. 28, 2008. While HB 487 failed to leave the committee, many of the renewable/ advanced energy standards and energy benchmarks supported by the OCC were incorporated into Am. SB 221.

HB 72- Introduced earlier in the session, Rep. Clyde Evans’ (R-Rio Grande) bill would have created a task force to study broadband and wireless communication. With the end of the legislative term in 2008, this bill died in the Public Utilities Committee.

HB 250- Introduced earlier in the session by Rep. Shannon Jones (R-Springboro), this bill would have created revenue decoupling mechanisms for natural gas companies. This bill was incorporated into Am SB 221.

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