Energy Management

PUCO Acts on AEP Rate Case

By order issued Wednesday, the Public Utilities Commission of Ohio (PUCO) required certain AEP customers to pay higher than market rates for AEP "capacity" through May 31st.   The effect of this order is to protect AEP from its retail competitors for three and one-half months.
AEP had asked the commission to set a capacity rate of $255 per megawatt day.  This is more than double the current market rate of $116, set by annual regional auctions (the rate is set to go to $16 on June 1).  "Capacity" rates are charges for use of a utility's infrastructure.
Exempted from this order are the first 21% of load of each customer class that shops (the industrial class block is apparently full), and customers in governmental aggregation groups approved on or before November 8, 2011.

The commission ordered hearings to begin no later than April 17 to determine a long-term compensation mechanism for capacity.

Also, the commission said it "expects that AEP-Ohio will look to recent commission precedent for guidance in formulating its modified ESP in considering how to best ensure its customers have market-based standard service offer pricing in an efficient and expeditious manner."  This seems to tell AEP to look to the recently approved Duke case for direction.

OMA energy counsel Bricker & Eckler LLC, prepared a summary of the actions which can be found here.

Please contact Kevin Schmidt to find out how you might participate in this process moving forward. 

Pipeline Developer at Odds with Ohio

A developer of an ethane pipeline is trying to avoid state jurisdiction and push thousands of barrels of ethane a day to Texas.  Rather than feed Ohio industry, Houston-based Enterprise Products’ planned pipeline would start in Pennsylvania and run through Ohio to transport the resource to Texas where it says the demand is the greatest.

Ethane comes out of the ground along with natural gas and is a valuable product in plastics manufacturing.  If ethane is considered a gas, Ohio has jurisdiction over the development of the pipeline; if it is considered a liquid, Ohio does not.  Since ethane is only a liquid under pressure the state is asserting jurisdiction.  

Governor Previews Energy Legislation

In the first of a series of meetings, this one in Cleveland, Governor Kasich previewed elements of energy legislation to be introduced in the General Assembly in March with a June target for passing the package.

The governor outlined ten “pillars” of the proposed energy policy:  shale, generation, electricity transmission and distribution, workforce training, compressed natural gas (CNG) &alternative fuels, cogeneration/waste heat recovery, energy efficiency, coal, regulatory reform, and renewables.  

Battle Looms Over AEP-Ohio's Rates

In the wake of the Public Utility Commission of Ohio (PUCO) decision last week to revoke the previously approved AEP-Ohio (AEP) rate plan, AEP has filed motions both at the PUCO (motion) and at the Federal Energy Regulatory Commission (FERC) (motion) seeking permission to charge "cost based" rates for its capacity rather than "market" rates.  Capacity refers to the cost that a utility incurs to have power plants available to serve its customers.  It makes up an important portion of the generation rate.
 
In its filings, AEP claims that if its requested relief is not granted the result will be "confiscatory," as it will be required to supply its capacity to third-party competitor suppliers below cost.  In a Columbus Dispatch article this week, AEP indicated that without cost-based capacity rates,  it will be forced to consider all options - including laying off employees, stopping investments in Ohio, and potentially moving its headquarters.
 
In response to AEP's motion, FirstEnergy Solutions, a third party supplier, filed a challenge to AEP's request noting that until January 1, 2012, AEP has historically charged customers market rates for capacity.  FES argued: there is no mechanism in law for AEP to "cherry pick" portions of the rejected rate plan and that its request should be denied. 

The PUCO agenda does not have the issue docketed for next week. 

New Ohio Shale Study: 65,000 New Jobs by 2014

A new study of the potential economic effects of the Ohio oil and gas shale beds finds:  "By 2014 the incremental economic activity in the state of Ohio from that year’s expected expenditure of $6.4 billion in oil and gas field development is expected to result in 65,680 jobs and $3.3 billion in labor income, or an average income of $50,225 per job."

The study modeled economic impacts through 2014.  The estimated results:  "The models indicate that outputs are expected to amount to nearly ten billion dollars per year by 2014, with another $500 million in tax revenue generated.  It is expected that these numbers are likely to continue in this range in the years following 2014, although leasing and midstream infrastructure activity will significantly slow down."

The researchers, a team from Cleveland State University, The Ohio State University and Marietta College, believe the estimates are conservative and will change as more data from the Utica formation becomes available.  03/01/2012

PUCO Hits Reset Button on AEP Rate Case

In the face of an outcry from a segment of AEP-Ohio ratepayers, the Public Utilities Commission of Ohio (PUCO) yesterday rejected AEP-Ohio’s “Electric Security Plan” settlement.

AEP-Ohio had sought authority to spin off its generating assets into a separate, new affiliate, leaving the existing entity as a “wires-only” company that provides distribution and transmission services.  Throughout the case, AEP-Ohio represented that it would bid all of its generating assets into a regional auction (PJM’s RPM base residual auction). 

However, the filings made by AEP-Ohio at the Federal Energy Regulatory Commission in the last few weeks reveal that AEP-Ohio actually intended to transfer some assets to other affiliate companies and might not bid into the regional market auction. 
The PUCO said that because of AEP-Ohio’s contradictory statements, the PUCO could not be sure that the settlement was in the public interest.  Thus, the PUCO revoked the authority for AEP-Ohio to transfer its generating assets.

The PUCO also found that two provisions intended to provide a gradual transition to market-based rates for larger customers who have higher load factors (use electricity more consistently) actually disproportionately impacted smaller, lower load factor customers.  The PUCO noted that AEP-Ohio represented during the hearing that smaller customers’ actual rate increases would not exceed 30%.  However, “the actual impacts suffered by a significant number of GS-2 customers (lower load factor customers) appear to have vastly exceeded AEP-Ohio’s representations at hearing.”

For these reasons, the PUCO rejected the settlement and ordered AEP-Ohio to file new tariffs by February 28, 2012, that reset the rates back to those in effect in 2011 with several exceptions: the new, higher fuel adjustment rider will apply; the environmental investment carrying cost rider will apply at 2011 levels; and, the prior capacity price for shopping customers will apply (the market or PJM RPM price). 

The result of this change is that AEP-Ohio customers may shop load to competitive providers freely, accessing current favorable market prices.

The OMA welcomed the decision:  “Starting over from the beginning is a prudent course of action given the magnitude of what’s at stake and the critical need in Ohio for competitive electricity rate structures. “ 

Mysterious Clean Energy Ballot Issue Takes Step Forward

Attorney General Mike DeWine said the group "Yes for Ohio's Energy Future" got the required minimum number of signatures and wrote a “fair and truthful” summary of the proposed constitutional amendment.  This means the group can begin collecting the signatures needed to have the language placed on the November ballot.  The ballot issue would allow Ohio to issue $1.3 billion in bonds to fund clean energy infrastructure.
 
The group pushing the ballot issue remains mysterious and questions are emerging about its language.  Among the quirks in the language include a newly created Ohio Energy Initiative Commission that would be incorporated in the state of Delaware and specific language prohibiting the Ohio General Assembly from passing laws directing the funds. 

Study Highlighting Ohio's Energy Efficient Lighting Industry Released

The Natural Resources Defense Council (NRDC) released a study entitled "Better Bulbs, Better Jobs" this week that identified Ohio as worldwide leader in the development and production of energy efficient lighting.  The study profiled seven Ohio businesses that research and manufacture energy efficient light bulbs and noted Ohio has gained 1500 jobs in the industry. 

$1.3 Billion for Clean Energy Bonds Proposed

A group called “Yes for Ohio’s Energy Future” is pursuing an amendment to the Ohio Constitution which would allow the state to issue $1.3 billion dollars in debt to fund “clean energy” projects.  The group will need to collect 385,253 valid signatures to get the issue on the ballot. 

The Columbus Dispatch reports that the petition asks Ohioans to approve issuing bonds beginning next year and running through 2023 for the purpose of funding infrastructure, research and development of “clean-energy initiatives.” 

Chesapeake Energy Addresses OMA Energy Committee

The OMA Energy Committee this week heard from Matt Hammond of Chesapeake Energy and Rick Simmers of Ohio Department of Natural Resources about the development of Ohio’s shale resources.  Hammond provided a detailed presentation on the industry, how fracking works, and the opportunities in Ohio. 

Full committee materials can be found here. Join the OMA Energy Management community to receive meeting notices and materials. 

U.S. EPA Publishes Final Utility MACT Rule

The National Association of Manufacturers (NAM) reports that U.S. EPA published the final Utility MACT rule this week.  The NAM also reported that Senator Inhofe introduced a resolution that would repeal the regulation. 

The rule has been cited by numerous utilities as the reason for shutting down coal-fired power plants.  The rule will result in increased electricity prices by decreasing the supply of electricity, as well as requiring billions of dollars in environmental control technologies at the surviving plants. 

An American Coalition for Clean Coal Electricity study on the economic effects of this rule can be found here.

PUCO To Modify AEP Rate Case, Again

The Public Utilities Commission of Ohio (PUCO) issued a press release today stating it is working on a plan that will address the large price increases certain small businesses are experiencing under the current AEP rate plan. 
Chairman Todd Snitchler stated, “My fellow commissioners and I are deeply troubled by what we have heard from business owners, elected officials, and the governor on this issue...  Now that we have a full understanding of the impacts, we are actively developing a plan to resolve the rate impacts faced by affected General Service 2 customers.” 

The OMA supports this latest PUCO action on the AEP rate case. 

Senate Considers Blast Furnace CoGen Bill

The Senate held sponsor testimony on Senate Bill 289 this week which would add blast furnace co-generation to the definition of renewable energy.  Making blast furnace co-generation a renewable resource gives project developers additional financing tools through the sale of renewable energy credits. 

The OMA supports a broader inclusion of co-generation technologies in the renewable energy definition in order to benefit a range of industrial applications. 

Shale Gas Community Costs – Lessons from North Dakota

Everyday there is growing excitement about the economic potential of shale gas plays from the Marcellus and Utica gas reserves buried deep under eastern Ohio.  As energy companies gain approvals to extract, refine, and transport the gases, policymakers need to consider costs of an oil and gas boom on a community. 

North Dakota has benefitted from significant oil production in recent years; its local leadership has catalogued lessons learned.  The mayor of  Watford City, located near the epicenter of the activity, details 10 Things We Wish We Knew.  In a presentation to the North Dakota State Senate, the mayor says cost challenges to city services, infrastructure and education are close to a breaking point.  A study by Minot State University and Dickinson State University catalogs skyrocketing housing costs, housing shortages, overwhelmed emergency response demands, and impacts to the community lifestyle in general!

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Renewable Energy Repeal Receives a Hearing

Senator Kris Jordan's (R-Delaware) legislation to repeal the state's advanced and renewable energy mandate received a hearing this week in the Senate Public Utilities Committee.  Senate Bill 216 is a complete repeal of the law requiring utilities to invest incrementally in renewable and advanced energy.  The senator argued the repeal is necessary because the mandate will raise rates; renewable energy advocates contend that the mandate supports innovation and expansion of a promising renewable energy industry.
 
As a consumer protection, the mandate in current law contains a 3 percent cost cap, meaning a utility does not need to comply if compliance would increase costs to customers by more than 3 percent. 

FirstEnergy Announces EPA Compliance Strategy - Shutter Plants

FirstEnergy announced that its subsidiaries in multiple states will shut down power plants to respond to U.S. EPA's relentless assault on affordable coal.  In its press release FirstEnergy said that the plant shut downs will eliminate approximately 10% of its total electricity supply.
 
American Electric Power and Duke Energy Ohio both announced plant closures planned for next year in response to the U.S. EPA's war on coal. 

In response to the FirstEnergy announcement Senator Rob Portman issued a press release saying, "There is no reason Ohioans should have to choose between holding onto a good paying job and protecting the environment."  Legislation authored by Portman would require U.S. EPA to measure the economic costs of regulations before promulgating rules.  The Regulatory Accountability Act of 2011 passed the U.S. House in bipartisan fashion last year. 

PUCO Expands Shopping in AEP Territory

The Public Utilities Commission of Ohio (PUCO) issued an order this week that is intended to expand the opportunity for manufacturers and others in the AEP-Ohio territory to shop for competitive retail electric rates.
In the order the PUCO said that aggregation programs passed by government jurisdictions in  the November 2011 election and earlier are not subject to any shopping limitations.  This action has the effect of expanding the 21% cap that AEP had placed on its shoppable load for 2012.

The PUCO order enables mercantile customers (those using 700,000 kWh of electricity or more a year) to opt in to aggregation programs passed by jurisdictions in which they are sited.  Prior to the order, many such consumers were closed out of the 21% shopping block, and stood in a queue to shop in 2013 and beyond.  Since market rates are below the standard utility offer, this order can provide much needed energy savings, particularly to the job producing manufacturers.
 
The OMA, through its subsidiary the OMA Energy Group, is analyzing the effect of this order and will be in a position to provide specific advice to members in the coming weeks. It is unclear how AEP will respond legally to the order.   If your facility is situated in AEP territory, and your city, county, municipality, township, or village has in place or passed an aggregation program referendum this past November, contact the OMA's Kevin Schmidt to learn if you might have an option to receive a competitive offer for electric service. 

Shale Gas: Ohio Competes for Chemical Cracker

Ohio, West Virginia and Pennsylvania are engaged in a contest to lure a $2 billion ethane cracker plant planned by Shell Chemical.  This week West Virginia enacted legislation to slash taxes on machinery, equipment and real estate for 25 years for large-scale investments.  The following day, the West Virginia governor flew to Houston to court Shell with the new tax incentives.  Ohio Governor Kasich had already travelled to Houston to tout Ohio’s competitive tax structure. 

“Manufacturers are well aware that Ohio permanently eliminated tax on all forms of personal property in 2005.  West Virginia's new tax incentive plays catch-up with Ohio,” commented the OMA’s Ryan Augsburger. 

The project has been estimated to mean 2,400 direct jobs and more than 12,000 indirect jobs.  Join the OMA Energy Management Community to follow Ohio's shale gas developments. 

Fracking Fluid Disposal Moratorium Proposed

Representative Bob Hagan (D-Youngstown) introduced legislation (House Bill 418) this week which would impose a moratorium on the disposal of fracking fluid in deep injection wells.  This proposal is in reaction to the theory that earthquakes can be triggered by injection well activity.  There is already proposed legislation to place a moratorium on Ohio “fracking.”

A recent study by Quinnipiac University reported that Ohioans are split on the issue.  While Ohioans overwhelmingly support the development of shale resources, when questioned about fracking specifically a majority of those polled said they needed more information.  The full poll can be found here; the fracking questions start at question 39. 

Governor Pushes Additional Taxes on Oil and Gas

Governor Kasich announced his intention to push for new taxes and fees on the oil and gas industry.  Specifically, the Governor is advocating for “impact fees” to help cover the costs of maintaining local infrastructure and expanding the state’s severance tax, a tax on entities that consume the state's natural resources, to encompass natural-gas liquids.

The Governor stated, “At some point, these counties are going to benefit, but in the early years, when it comes to the erosion of roads and infrastructure, we need to make sure that these locals are going to be in a position to manage their infrastructure.”

It is likely that these modifications will be included in the mid-year budget review  bill expected sometime in March.  

OMA Energy Group Pushing for Improvements to AEP Rate Case

The OMA Energy Group is asking the Public Utilities Commission of Ohio (PUCO) to make improvements to its recent decision on AEP-Ohio’s rate plan for 2012-2015.  Specifically, the Energy Group is asking the PUCO to allow manufacturers to have greater access to cheap market prices.

The Energy Group’s application for rehearing argues that manufacturers, the largest economic contributor to Ohio’s economy, should be able to access the residential shopping block if that block is not fully subscribed by residential customers.  In some instances GS-2 customers, smaller users that may use power unevenly, are experiencing large price increases.  Providing these customers with shopping opportunities will help keep small manufacturers in AEP-Ohio’s service territory competitive.