News and Analysis
D.C. Circuit Court Delays Troublesome U.S. EPA Regulation
The D.C. Circuit Court issued a stay on the implementation of the Cross State Air Pollution Rule (CSPAR) this week in response to a 2011 suit filed by the state of Texas.
U.S. EPA was careful to note that the court’s decision to delay implementation of the rule was not a decision on the rule’s merits. The court will hear arguments from U.S. EPA and opponents and make a decision in the future regarding the rule.
The OMA’s Kevin Schmidt penned an op-ed late last year noting the dramatic negative effects this rule will have on Ohio’s economy.
Gas Industry Rocked the New Year?
A Youngstown deep injection well, used to dispose of fracking fluid, is being examined as the cause of increased seismic activity in the area in 2011.
While seismic activity related to injection wells is rare, Governor Kasich halted activity at the injection well and similar facilities in a four mile radius while the Ohio Department of Natural Resources conducts a scientific study .
In response to the latest earthquake, the city of Youngstown passed a moratorium on injection wells. This measure is largely symbolic as the state has exclusive jurisdiction regarding the disposal of fracking material.
AEP Illuminates Which Commercial & Industrial Customers Can Shop in 2012
The recent Public Utilities Commission of Ohio (PUCO) case regarding how AEP-Ohio (AEP) will price electric power to its customers starting in 2012 resulted in a sea change: it will have a market-based pricing model, as opposed to its legacy cost-based pricing model.
The case includes a transition-to-market device whereby 21 percent of AEP’s customer demand for electricity can actively shop in 2012, 31 percent in 2013, 41 percent in 2014, and 100% in 2015. The stepped approach is to protect the utility and its shareholders financially as it makes the pricing model switch.
AEP has indicated its initial allocation of “discounted capacity” ( i.e. who is in the 21 percent able to shop for lower priced power) will go to commercial and industrial customers who submitted 90 day notices (of intention to shop) to AEP prior to September 8, 2011, plus some others who submitted their 90 day notices on September 8. (OMA emailed its members in the AEP service territory a detailed communication yesterday about who can shop in 2012.)
In response to the PUCO’s order, the OMA, through its subsidiary the OMA Energy Group, plans to file an appeal to the Commission to challenge how capacity was allocated in order to increase the ‘shop-able’ capacity available to manufacturers for 2012.
FirstEnergy Efficiency Programs Continue to Pay Rebates
If you’re planning lighting or motor retrofits in 2012, or any other type of energy savings project, and your facility is served by FirstEnergy, look into the rebates available from FirstEnergy before you make your investment.
While pre-approval from FirstEnergy is required of all projects in order to qualify for its rebates, it may well be worth the extra step. For example, lighting projects rebate $0.05 per kilowatt hour reduced annually up to 50% of your total actual project costs.
Here’s a summary of qualifying projects and assistance from OMA.
General Assembly Passes Electric Cost Savings Bill
The Ohio General Assembly passed House Bill 364 which will allow electric distribution utilities to securitize certain deferred costs. This process will allow utilities to lower the interest rate on charges that customers owe them.
An example: AEP-Ohio customers owe the company $650 million for coal used over the past decade. This legislation will lower the interest rate charged on that amount resulting in lower payments for customers.
The OMA successfully worked this week to secure amendments that will keep utilities from gaining new rights to cost recovery. Without these amendments utilities would have had a much easier time charging customers for environmental clean ups that rightfully belong on their ledgers.
PUCO Modifies AEP Settlements
The PUCO approved modified settlements this week regarding electricity rates for AEP customers in 2012. One plan will set generation rates, while the other will set distribution rates.
The approved generation plan marks a dramatic departure from the past in that it requires AEP-Ohio to sell its power plants to an unregulated affiliate and move to “market” pricing. This change will have lasting effects on Ohio consumers: Customers have the ability to pick and choose their electricity supplier, but will have little protection should market prices spike.
Other changes in the PUCO’s orders: the AEP proposed generation rate increase was cut in half, the availability of shopping credits for low-load factor customers (GS-2 customers) was increased, the load accessible to shopping by industrial customers was reduced, and
AEP is permitted to start recovering deferred costs it incurred over the past decade on distribution infrastructure investments.
Some of these modifications, like the reduced access to shopping for industrial customers, are significant and may warrant an appeal by the OMA.
To get a detailed analysis of how these changes will affect your facilities served by AEP, contact Kevin Schmidt at the OMA.
NAM: One Million Jobs from U.S. Shale Gas Resources
The National Association of Manufacturers (NAM) this week unveiled a study on the potential impacts on the U.S. economy from shale gas reserves. The study, conducted by PricewaterhouseCooper, answers the question: “What could a growing shale gas industry mean for manufacturing job creation in the United States going forward?”
The PwC research answer: lower feedstock and energy costs lowering manufacturers’ costs by as much as $11.6 billion annually through 2025, demand growth for chemical, metal and industrial manufacturers, and a potential of one million new jobs in manufacturing by 2025 due to benefits from affordable energy and demand for products used to extract the gas.
Potential headwinds: inadequate infrastructure in some shale gas regions, questions about evolving tax policies, and environmental concerns about hydraulic fracturing. The study notes that the U.S. EPA will release a study of environmental efficts in late 2012.
Meanwhile, states have the opportunity to put in place prudent and responsible environmental protection regimes; Ohio last year established just such a regulatory structure.
Duke Goes to Market
The Public Utility Commission of Ohio (PUCO) recently approved Duke Energy Ohio’s (Duke) Electric Security Plan (ESP). This rate plan will take Duke to a deregulated generation model for the first time in the Cincinnati utility’s history. Now, Duke’s generation will be regulated at the federal wholesale level, and it will not be regulated at the state retail level.
This transition to a market-based utility requires Duke to sell its power plants to an unregulated affiliate by 2014. Once this happens it will be virtually impossible to bring back regulated rates should the electricity market “short circuit” and prices go haywire. Market rates are low and the short-term forecast continues to point to cheap electricity. Longer-term: all bets are off.
OMA Testifies on Securitization
The OMA’s Kevin Schmidt testified this week on Senate Bill 248 and House Bill 346, companion legislation that would allow a utility to refinance debts owed to it from its customers.
The most recent example is a $600 million fuel charge that AEP customers owe the utility for coal that went unpaid in the past decade. Allowing AEP to securitize this debt would be a win-win: customers are able to access cheaper rates and the utility is able to clean up its books.
In the testimony, Schmidt noted that the legislation would allow a utility to securitize debts that are legally binding. As a consumer protection, a utility would not be able to securitize debts that are being challenged at the PUCO or in court.