PUCO approves FirstEnergy's request to suspend popular energy efficiency programs
By John Funk, The Plain Dealer
on November 21, 2014 at 8:00 AM, updated November 21, 2014 at 1:33 PM
COLUMBUS, Ohio -- State regulators on Thursday approved FirstEnergy's request to scuttle most of its consumer energy efficiency programs at the end of the year, ending popular rebates and discounts on Energy Star appliances and lighting and rewards for turning in old appliances.
FirstEnergy is the only Ohio electric company that has asked to end its efficiency programs per a new law enacted last spring.
In a complicated 23-page order that reflected the pitched battle over numerous and almost picayune points that the company and its opponents have fought about in the last 60 days, the Public Utilities Commission came down mostly on the side of the company -- partly because under the new law it had few choices.
In doing so, the commission dismissed many of the objections of the Ohio Hospital Association, the Ohio Manufacturers' Association Energy Group, the Ohio Consumers' Counsel, and a consortium of environmental groups including the Sierra Club, Ohio Environmental Council, the Natural Resources and Defense Council and the Environmental Law and Policy Center.
Most of these opponents will probably appeal, an exercise that seldom changes an outcome before the commission.
The bottom line:
>The majority of FirstEnergy's consumer efficiency programs are going away for at least two years.
But consumers will still pay for these programs through delivery rate increases already in place that the commission refused to reduce, dismissing the arguments of FirstEnergy opponents that fewer efficiency programs should mean a smaller budget to run them.
The commission noted that "regardless of the budget, collection is based on a forecast of the costs to be incurred over a six-month [rate] rider period, not on the budget, and are always subject to true-up to actual costs." In other words, over-collections could be trued up later.
>Lower income home energy audit and efficiency upgrade programs will stay, and a program for commercial and some industrial customers will continue.
> Consumers and other customers will have to keep funding bonuses that FirstEnergy would collect if efficiency projects started this year or earlier come on-line in 2015 and help reduce overall demand more than the 4.5 percent reduction (compared to 2009 levels) already achieved this year.
Known as "shared savings," these bonuses have been awarded to utilities that exceed what since 2009 have been mandated annual benchmark reductions that each Ohio electric utility has had to meet.
The commission earlier capped FirstEnergy's shared savings at $10 million a year. But because the state has frozen these annual benchmarks for two years, leaving the 2014 benchmark of a 4.5 percent reduction in place through 2016, the Ohio Consumers' Council argued the "shared savings" bonus cap should also be reduced.
FirstEnergy countered, and the commission on Thursday agreed, that since the freeze extends the 4.5 percent benchmark through 2015 and 2016, the company would be entitled to collect more "shared savings" if it exceeds 4.5 percent. And consumers would pay a little more to create those bonuses.
> Consumers will also continue to pay under Thursday's ruling for "lost distribution revenues" that the company won earlier. These are fees that the company successfully argued it should receive for cooperating with state mandates that it help its customers buy less electricity by upgrading lighting, appliances and equipment. The current lost distribution fees are slated to expire in 2016.
> FirstEnergy's large industrial customers will be able to opt out of the efficiency programs on Jan. 1, 2015, something they fought furiously to win during the long debates last spring over Senate Bill 310, the new law the froze efficiency rules for two years and which allows utilities to scrap efficiency programs.
> The commission will also allow FirstEnergy to get credit for energy efficiency gains -- and demand reductions -- achieved by some of its customers who are not participating in the official programs. The commission approved this new provision, though the company provided few details about how this program might work, and must return to the commission with details.
The Akron-based company asked the PUCO on Sept. 24 for permission to suspend the bulk of its efficiency programs at least through 2016, citing the new state rules that took effect just 12 days earlier and arguing that it can meet the currently frozen state standards without the programs.
Those changes in state efficiency standards were contained in Senate Bill 310, which FirstEnergy had lobbied lawmakers hard last spring to approve. The company argued that the programs would raise electric rates. Killing the programs would lower rates, it said.
But in presentations to investors, the company's executives had also said the state rules were interfering with normal market growth, meaning power sales.
Several major industrial customers joined with FirstEnergy to upend the state rules. They argued the programs were costing them too much and that they would have installed more efficient equipment without the state's rules in order to stay competitive. Smaller companies argued just the opposite, that they would not have been able to make upgrades -- and stay competitive -- without the assistance.
FirstEnergy's move to get rid of the bulk of its energy efficiency programs comes at a time when the company is also trying to convince the commission to approve a new three-year rate plan that would commit its Ohio distribution companies to buy power for 15 years from two of its large, old power plants rather than rely completely on currently less-expensive power sold on wholesale markets.
Under this instantly controversial proposal also pending before the PUCO, the Illuminating Co., Ohio Edison, and Toledo Edison would have to buy all of the output, at whatever the cost, from the Davis-Besse nuclear power plant near Toledo and the coal-fired W.H. Sammis power plant on the Ohio River about 13 miles north of Steubenville.
The purchase agreement would work this way: After buying the power, the three distribution companies would re-sell it into wholesale markets -- absorbing any losses or, FirstEnergy argues, profiting in future years when wholesale power prices rise. The company has argued that during the 15-year agreement, the deal would save customers up to $2 billion. Opponents have questioned that.
In other words, opponents have countered, FirstEnergy would have the benefits of old-fashioned regulated prices for these two uncompetitive power plants while its entire fleet of power plants would remain unregulated by the state.
In sworn testimony, company executives have told the Commission that without the deal, the company could be forced to close Sammis and Davis-Besse because they cannot compete against modern, gas-fired power plants. They said they expect wholesale market prices eventually to increase significantly, in which case, the Ohio companies buying Davis-Besse and Sammis power would be getting a deal.
Together, Davis-Besse and Sammis have cost the company billions of dollars in safety and pollution control upgrades -- money spent that now would have to be shouldered by rate payers to cover the cost of the more expensive electricity they generate, opponents have countered.
A company spokesman, in an email Thursday, noted that the power purchase agreements would be subject to a "prudence reviews" and that the company would annually submit costs to the PUCO for review.