Looking at the Reasons Behind Ohio's Energy Efficiency Mandate Freeze
Originally published by: Green Builder Media — January 5, 2015
The following article was produced and published by the source linked to above, who is solely responsible for its content. SBC Magazine is publishing this story to raise awareness of information publicly available online and does not verify the accuracy of the author’s claims. As a consequence, SBC cannot vouch for the validity of any facts, claims or opinions made in the article.
EARLIER THIS YEAR, Ohio approved a two-year freeze on all energy efficiency and renewable energy mandates, keeping them at 2014 levels. After signing the bill, Ohio Governor John Kasich felt he had made the correct decision, because “most people are unhappy with it – which means I got it exactly right.” Predictably, environmental groups are not happy with the legislation. What’s even more newsworthy is that most investor-owned utilities plan to maintain their energy efficiency programs anyway. Then why the need to take action?
In May 2008, Ohio passed legislation (SB 221: bit.ly/1zALP4V) containing energy efficiency requirements for investor-owned utilities and also established the Ohio Alternative Energy Portfolio Standard (AEPS). Electric utilities were required to implement energy efficiency and peak demand reduction programs that produced a cumulative electricity savings of 22 percent by the end of 2025. Specific annual benchmarks were laid out, as seen in this table from DSIRE: bit.ly/1wUc4QH. In addition, utilities were required to reduce peak demand by 1 percent in the first year (2009), and 0.75 percent annually from 2010 to 2018.
Energy efficiency measures would include financial incentives to recycle old appliances, such as refrigerators or CRT televisions, efficient equipment upgrade rebates and discounted energy audits. Renewable investments could encompass the expansion of solar and wind sources, by either creating solar and/or wind farms or offering incentives for customer-owned solar panels on private property.
In late March 2014, the Ohio Senate proposed a temporary freeze on required electric savings and peak demand reduction. Senate Bill 310 also called for the creation of a 12-person Energy Mandates Study Committee. This committee was tasked with comparing the actual cost (to consumers) of existing mandated energy efficiency projects and renewable energy power plants against the projected future cost of such programs, assuming the mandates were to continue increase annually. The committee has until mid-December 2015 to produce the study. Finally, new rules would be passed requiring every utility, investor-owned or otherwise, to disclose the costs of such programs on every customer’s bill. For a typical household, these costs come to about $3 per month.
Justifying the Freeze
The cost of energy efficiency programs seems to be one of a handful of factors influencing investor-owned utility FirstEnergy Corporation to support of SB 310. They claim customers are paying more in rate increases than they’re saving. According to FirstEnergy, energy efficiency requirements are also making it harder for them to sell more power. Finally, power from wind farms is causing coal-fired plants to ramp down production.
Timken, a global steel and bearing manufacturer/supplier based in North Canton, Ohio, wanted to opt out of the SB 221 rules, as they felt they were unneeded. Energy-efficient equipment is crucial to their profit margin, and mandates harm their profit-making ability. Alcoa, a Pittsburgh-based aluminum producer, had a similar opinion, and also felt the utility programs were redundant.
State Rep. Peter Stautberg, a Cincinnati-area Republican, said the mandates were achievable when they were passed in 2008, but aren’t now. He prefers to see utilities craft their own energy efficiency programs and buy renewable energy on the open market.
According to a media report, other business groups, including the Ohio Energy Group (representing the state’s largest industrial users) and Ohio Chamber of Commerce, also supported SB 310.
Energy, Environment and the Economy
Some organizations opposed SB 310 based on environmental/air quality concerns. Others wondered if this bill had anything to do with Rule 111.d, which targets carbon emissions from power plants.
The Sierra Club called the action “grossly irresponsible.” Meanwhile, the American Lung Association thought the bill would result in the continued exposure of Ohio citizens to “the negative health effects related to additional power plant emissions.” Moms Clean Air Force, which has a presence in 10 states including Ohio, advocated for the state’s children who “struggle [...] with asthma and other lung diseases.”
The National Wildlife Federation, the Ohio Environmental Council and the Environmental Defense Fund felt that this bill, in combination with other states’ efforts to attract clean energy jobs and investments, would harm Ohio’s economy.
The Natural Resources Defense Council feels this legislation will be revisited sooner rather than later due to 111.d. Samantha Williams, NRDC attorney, said, “Energy efficiency and renewable energy are the biggest tools in cost-effectively reaching the U.S. EPA’s new carbon pollution goals. Once decision makers digest the new clean power plan, they are going to have to reopen the toolbox that this law essentially shuts.”
In contrast to Timken, ArcelorMittal, a multi-national steel manufacturer based in Luxembourg with six facilities in Ohio, embraced SB 221 and built a more efficient production line. As a result, they get to avoid paying the customer rate increases for the next 10 years.
ArcelorMittal is not the only manufacturer to appear unaffected by SB 221. The Ohio Manufacturers Association and companies such as Honda, Whirlpool and Anheuser-Busch opposed SB 310, along with a multitude of religious leaders.
Much Ado About Nothing?
In a poll conducted by The Columbus Dispatch, all but one of the utilities (FirstEnergy) plan to maintain their energy efficiency programs. American Electric Power (AEP) and Duke Energy have gone on the record, saying they will continue their energy efficiency programs and renewable power investments. Dayton Power and Light will keep its plan operational “through at least 2015.”
Those groups who were up in arms about the passage of SB 310 are now in wait-and-see mode, as the utilities have until late 2014 to tell state regulators what they plan to do. Ted Ford, CEO of Ohio Advanced Energy Economy, a trade group for clean-energy companies, took a very diplomatic approach when he said, “It’s early, and we need to see how the new law is interpreted and implemented.”
Short-Term, Negative Impact
When the original bill (SB 221) was passed, it had long-term goals. As a result, utility AEP appropriately secured long-term contracts with wind farms and solar arrays to meet their renewable energy investment requirements. FirstEnergy purchased Ohio-based renewable energy credits (RECs) in 2011 to aid in compliance.
Prior to the passage of SB 310, Ohio’s solar & solar REC (SREC) market was growing, with SRECs selling between $40 and $45 each. Now? Prices plummeted to $18 each before moving up to $20 each as of press time. Meanwhile, growth in Ohio’s solar industry has stagnated. New solar capacity is being added at a tenth (or less) of the pre-SB 310 rate. Solar manufacturers and installers are targeting work in other states in order to stay in business.
To make matters worse, SB 310 removed the in-state requirement on the purchase of RECs and SRECs. This provides utilities with the ability to seek optimal pricing, which is a good thing for consumers since, according to FirstEnergy spokesman Doug Colafella, the “costs of the credits are passed directly through to the state’s electricity consumers.” The potential downside is that as FirstEnergy seeks to purchase “250,000 RECs and 5,100 SRECs,” they could very well buy those from another state, which would be another blow to Ohio’s renewable energy industry.
Things get a little dizzying when one examines FirstEnergy’s shifting public stance on this debate. William Ridmann, the company’s top executive for rates & regulatory affairs, said the temporary rate increases created by the mandates cost $1 billion, and those could balloon to $5 billion by 2017 when the incremental efficiency increases return. He also said “consumers on average are paying about $4.50 a month in extra charges to pay for the efficiency programs.” Yet in 2012, they filed a “three-year plan that balances near-term energy savings opportunities among all rate classes with longer-term programs that continue to create jobs and build capacity for delivering greater energy and demand reduction impacts in the future.” And in a 2013 report filed to the Public Utilities Commission that reflected on FirstEnergy’s costs and benefits for 2012-2013, it was determined that “for every $1 spent on energy efficiency, customers had saved more than $2 in power costs.” The company would later distance themselves from their own findings, citing lack of participation and complex math.
We can understand the need to evaluate such a significant ratepayer-funded requirement. However, halting the program for two years to gather potentially unreliable data seems a bit extreme. On the flip side, the data that everyone is most likely concerned about, the effect of SB 221 and/or SB 310 on the overall state economy, won’t be discernible for years. By the time that data is obtainable, it’ll be too late to correct any problems and a lot of time will have been lost.
Questionable data, harm to a growing industry, potential loss of intrastate commerce: Is that what the Governor and legislature were seeking? We doubt it. Hopefully, state legislators will give a chilly reception to any attempt to make permanent the current two-year pause in efficiency gains.