house public utilities committee briefing september 29, 2011 presented by staff of the public...

House Public Utilities Committee Briefing September 29, 2011 Presented by Staff of the Public Utilities Commission of Ohio Jodi Bair, Director, Utilities Beth Trombold, Director, Economic Development and Public Affairs Kim Wissman, Director, Energy and Environment

Overview of Electric Grid

Ohios Electric Generation Resource Mix

Initiating a Rate Case 6 Why? By a company to obtain more revenue; by a customer through a complaint case; or by the PUCO through a Commission Ordered Investigation (COI) How? Company makes a Pre-Filing Notice (PFN) and informs mayors and legislative bodies 30 days before filing the full application at the Commission Application filed no earlier than 30 days after the PFN Company has the burden of proof in the request for an increase in rates Company files work papers, testimony and a set of proposed rates Company publishes notice once a week for 2 weeks in newspapers

Rate Case Steps 7 Staff investigates the companys expenses, revenues and investment Revenue Requirement the amount of money that allows the company to cover expenses and earn a fair return on investment Rate Design how the revenue be collected from the various classes (residential, commercial, industrial) and based upon cost- of-service (i.e. the charge levied against a customer is proportional to the expense of service to the customer)

Rate Case Procedure 8 Staff Report is filed - usually within 5 months of the application. (not a statutory timeline) Objections to the Staff report must be filed within 30 days. (supported by testimony) Objections & Testimony frame the issues if not objected to, then Staff report carries the burden

The Parties to a Rate Case 9 The Attorney Generals office represents the PUCO Staff in the hearing and /or negotiations Office of Consumers Counsel (state agency representing residential consumers) Commercial customers Industrial customers Cities

Rate Case Hearings 10 Publish notice of upcoming hearings Two types of hearings: 1.Public Hearing: the public gets to hear about the proposed rate change an make comments. Public hearings are held in the communities affected by the application. 2.Evidentiary Hearing: an attorney examiner presides and witnesses testify to support their positions and are subject to cross-examination from other parties. PUCO staff testify at the evidentiary hearing in support of the staff report.

After the Hearings 11 Parties file briefs with the Commission within a time established by the PUCO attorney examiner. Usually file initial briefs and reply briefs. PUCO attorney examiner writes an order and circulates it to the Commissioners. The Commissioners provide input and vote on the order at a commission meeting. PUCO Order is issued within 275 days of the application filing otherwise the company can put requested rates into effect subject to refund. Applications for Rehearing must be filed within 30 days. Any issue appealed to the Ohio Supreme Court must be raised in the application for rehearing

Appeal of Commission Order 12 Appealing party must file a notice of appeal with the Ohio Supreme Court within 60 days of the date of denial of the application for rehearing by the Commission. No deadline in which the Court must act; however, the Court must hear PUCO appeals. Most appeals to the Ohio Supreme Court are discretionary the court chooses what it will hear. Court can affirm/agree with the Commission order. Court can reverse the PUCO decision. Court can reverse and remand to the Commission

Rate Case Timeline Month 1 Commission accepts the filing/application within 30 days, establishes test year & Staff investigation begins Month 5 Staff Report filed Month 6 Objections to Staff report filed within 30 days (with supporting testimony) Months 7 & 8 Local public hearing & evidentiary hearing completed Briefs filed Month 9 Commission issues decision (275 days) Applications for Rehearing before Commission Appeal to Ohio Supreme Court 13

Why Regulation? Electricity has historically been considered a natural monopoly. Entry into this market required huge investments in infrastructure. Electricity was considered a public good. Very few people could make the investment to get into the electric business and those who did could take advantage of the monopoly.

FERC Order 888 (1996) and Order 2000 (1999) Determined the public interest would be best served by a competitive wholesale market Provided for non-discriminatory and open-access on the transmission system Required transmission owners to join an Independent System Operator

History of Electric Restructuring in Ohio Senate Bill 3 A 1999 law effective January 2001 restructured Ohios electric industry allowed customers to shop for electricity provided a five-year market development period Turn of the Century System Unbundling of vertically integrated system Customers served by generator of choice Transmission and distribution remain regulated For generation, the rate of return system of regulation replaced by competition

Issues Under Restructuring Unbundling Market Power Transitional Issues Independent System Operation Social Issues Environmental Issues Taxes

Generation (or supply) Shop for this Transmission Remains regulated by FERC Distribution Remains regulated by PUCO and provided by your local utility Unbundling

Bundled Rates Rates were previously a bundle of costs for different services. Generation Transmission Distribution Ancillary Services Specific Surcharges Total Rates Specific Surcharges Generation Transmission Distribution Ancillary Services

Unbundled Rates Ancillary Services Generation Transmission Distribution Specific Surcharges Total Rates Electric Restructuring would unbundle the rates so the generation component could be shopped for, and priced at market. The bill anticipated that market rates would be lower than regulated rates.

Transitional Issues Temporary issues pertaining only to the period of transition from a regulated to a competitive industry. Timing How soon full competition can begin Stranded Costs Production Regulatory

Social Issues Universal Service Provider of Last Resort Low Income Programs Consumer Education Metering & Billing Unfair & Deceptive Practices Price Disclosure Slamming Cramming

Focus Regulatory Shift to Market Monitoring & Development The ability to control prices and product quality Vertical A vertically integrated company favors its own or an affiliates generation over alternatives through non-price barriers. A single supplier or group of suppliers has a strategic advantage in terms of access to customers relative to other suppliers. Horizontal A single supplier or group of suppliers has undue influence on the price of the product due to concentration of market share that can be used strategically.

Market Development Period 5 year market development period during which time rates are frozen Local utility delivers electricity and maintains infrastructure Utility is default supplier

Suppliers must be certified for consumer protection PUCO certifies all electric suppliers Suppliers are reviewed for: technical capabilities financial capabilities managerial capabilities Ensures these companies are qualified to do business in Ohio

Governmental Aggregation: the power of group buying Ohio Electric Choice allowed for local governments to join all of the customers in a community into a single buying group. Most cases opt-out is used Community passes a ballot issue Everyone in community automatically enrolled and a supplier is chosen for the group Everyone given a chance to opt- out or say you dont want to participate

What happened during the Market Development Period? Initial results early during the period showed significant switching in some service territories primarily due to high costs in the northern part of Ohio. Governmental aggregation was the success story in Ohio. The moderate-to-low priced utilities experienced little, if any, customer switching. The success of government aggregation aside, it was apparent that a fully competitive market had not developed as quickly as envisioned by lawmakers in Senate Bill 3.

PLUS... Many other things happened during the 5-year Market Development Period The California crisis and Enron scandals Extreme volatility and upward movement of market prices (due to rising gas prices, rising coal prices, and construction facilities not matching the projected increases in demand) And the slower than expected development of Independent System Operators for the transmission systems

Ohio Electric Choice The move to Rate Stabilization Plans As the end of the market development period neared, there were a limited number of competitive electric suppliers and low degree of market activity. Therefore, there was concern that an immediate shift to market-based rates in 2006 would not be in the best interest of customers. To avoid rate sticker shock and gradually transition customers to market-based rates, the PUCO worked with Ohios electric utilities and stakeholders to develop Rate Stabilization Plans (RSPs). Most Rate Stabilization Plans lasted through 2008.

Energy, Jobs and Progress Plan September 2007 The plan was a comprehensive, long-term approach to the challenges of supplying reliable and affordable power. It also had to address the approaching expiration of the Rate Stabilization Plans. Attract energy jobs of the future through an Ohio advanced energy portfolio standard. Ensure affordable and stable energy prices to protect Ohio consumers and existing Ohio jobs.

Middle-ground Approach to Electricity Regulation Evidence demonstrated few competitive options existed at the retail level. Did not close the door on market pricing, but required a demonstration that competition is effective. Action was necessary to secure Ohios energy future. PUCO can set rates and allow utilities to recoup the cost for new generation and modernization of the electric system.

S.B. 221 Policy Principles Availability of adequate, reliable, safe, efficient, nondiscriminatory and reasonably priced retail electric service Diversity of electricity supplies and suppliers Encourage innovation and market access for cost-effective supply- and demand-side retail electric service Transmission and distribution availability Recognize continuing emergence of competitive electricity market through development and implementation of flexible regulatory treatment Provide coherent, transparent means of giving appropriate incentives to technologies that can adapt successfully to potential environmental mandates

Reasonable Arrangements Section 4905.31 To facilitate the state's effectiveness in the global economy, promote job growth and retention in the state, ensure the availability of reasonably priced electric service, promote energy efficiency and provide a means of giving appropriate incentives to technologies that can adapt successfully to environmental mandates. Filed by: company, OR mercantile customer Provides Flexibility Cost recovery for: economic development/job retention revenue foregone from peak demand reduction/energy efficiency programs advanced metering/meter replacement

Infrastructure Investment Independent power producer can build ORC Section 4928.143 -- Allows distribution utility to get rate recovery for building/owning generation dedicated to Ohio consumers

Ohio Alternative Energy Portfolio Standard 25% by 2025 25% of retail electricity sold by: Ohios electric distribution utilities American Electric Power, Dayton Power & Light, Duke Energy, and First Energy, or; Competitive electric service companies Must be generated from alternative sources: Renewable energy sources Advanced energy technology

SB 221 25% (of total kWh) by 2025 Half may be from advanced energy resources At least half from renewable,.5% solar At least half of renewable through facilities located in the state, remainder deliverable Compliance payments/forfeitures Cost of compliance not to exceed three percent of otherwise acquired

RPS Policies Renewable portfolio standard Renewable portfolio goal www.dsireusa.orgwww.dsireusa.org / September 2011 Solar water heating eligible * Extra credit for solar or customer-sited renewables Includes non-renewable alternative resources Minimum solar or customer-sited requirement UT: 20% by 202* DC 29 states + DC and PR have an RPS (8 states have goals) 29 states + DC and PR have an RPS (8 states have goals)

RPS Policies with Solar/DG Provisions Renewable portfolio standard with solar / distributed generation (DG) provision Renewable portfolio goal with solar / DG provision www.dsireusa.orgwww.dsireusa.org / September 2011 Solar water heating counts toward solar / DG provision TX: double credit for non-wind (non-wind goal: 500 MW) DC Delaware allows certain fuel cell systems to qualify for the PV carve-out 16 states + DC have an RPS with solar/DG provisions

SolarWind Geothermal Fuel Cells StorageBiomass Hydroelectric Qualified Renewable Resources

By end of year Renewable Energy Solar Energy 20090.25%0.004% 20100.5%0.01% 20111%0.03% 20121.5%0.06% 20132%0.09% 20142.5%0.12% 20153.5%0.15% 20164.5%0.18% 20175.5%0.22% 20186.5%0.26% 20197.5%0.3% 20208.5%0.34% 20219.5%0.38% 202210.5%0.42% 202311.5%0.46% 2024 +12.5%0.5% Benchmarks

Alternative Energy Benchmarks (including advanced)

Renewable Energy Credits New Ohio Renewable Energy Credit (REC) trading market created by new law in 2009 1 REC = 1 mWh of electricity generated Utilities may own renewable facilities or purchase RECs to meet the renewable portion of the standard PUCO certifies resources; established tracking systems will issue and track RECs RECs have a 5-year lifetime following their acquisition Energy and RECs may be sold as separate commodities

Penalties Utilities and electric service companies subject to compliance payments if annual renewable and solar benchmarks are not met. Non Solar: Started at $45/mWh in 2009 2011 penalty payment is $45.93 Solar: $450/mWh in 2009 and declines over time 2011 penalty payment is $400/mWH for solar Exceptions: force majeure; 3% cost cap

Certification Application REN certification is not mandatory for any renewable project, but necessary to create RECs eligible for Ohio utility compliance No fee to apply May certify facilities prior to commercial operation Application will focus on: Resource/technology utilized Placed in-service date Deliverability to the state One-time review (unless significant change to facility in future) Interested person may seek intervention and request hearing on certification Certification status will be conveyed to applicable attribute tracking system

YEARFILINGS 2009 186 2010 1,072 2011 (as of 9/23) 2,608 TOTAL: 3,866 REN Applications Received

CERTIFIED RENEWABLE TOTALS RESOURCE CERTIFIED FACILITIESCERTIFIED CAPACITY (MW) TOTALSOHIOCONTIGUOUSTOTALSOHIOCONTIGUOUS BIOGAS - ANAEROBIC DIGESTION 5325.23.51.8 BIOGAS - FOOD PROCESSING 3302.5 0 BIOGAS - LANDFILL GAS 32923342.6107.8234.8 BIOMASS - WASTEWATER TREATMENT 1100.30.340 BIOMASS - WOOD WASTE 110177 0 BIOMASS - PAPER MANUFACTURING 431 **COFIRING** BIOMASS - UTILITY SCALE COFIRING 660 COAL MINE METHANE 11049 0 HYDROELECTRIC 3121231.1122 SOLAR PHOTOVOLTAIC 3,1904162,77410636.169.6 SOLID WASTE 3219842.855 WIND 3417 2,04113.92,027.2 TOTALS:3,2834632,8202,944.34342,510.4 current through 9/26/2011

Wind Momentum Federal PTC (Production Tax Credit) State Renewable Portfolio Standards (RPS) Technological Improvements Price Volatility for Other Fuels (i.e., Natural Gas) Interest in Green Power / Clean Energy Sources Climate Change / Energy Independence

Wind farms in Ohio can help provide renewable resources to meet Ohios Alternative Energy Portfolio Standards But Also: A small wind generator owned by a retail customer may enable the customer to use a renewable resource to offset his electrical demand and potentially earn a credit for net metering on his electric bill.

Qualified Biomass Resources Biogas: landfill methane gas or anaerobic digestion of organic materials such as animal waste, bio- solids, food waste, agricultural crops and residues, solid waste Agricultural crops, tree crops, crop by-products and residues Wood and paper manufacturing waste Forestry or vegetation waste Algae

Utility-scale biomass projects 9 utility applications filed for plants using biomass or biomass co-fired with coal or pet coke 1 private 200 MW (2012) plant certified Utility RFPs have been issued for biomass fuel Ohio Solid Biofuel Working Group to promote fuel supply development

Advanced Energy Resources Clean coal Nuclear Fuel cells Customer Co-generation Advanced solid waste conversion Utility generation plant or demand-side management efficiency measures RECs not created from advanced resources

Energy Efficiency and Demand Reduction Benchmarks - SB 221 (OAC 4901:1-39) Establishes requirements and processes to determine specific benchmarks for energy efficiency and peak reduction programs Establishes energy usage and demand baselines for measuring annual energy savings and demand reductions Provides mechanisms by which investments achieve energy savings and demand reductions by mercantile customers in their own facilities and can be recognized in electric utility programs as contributing to specific levels of energy savings and demand reductions.

Energy Efficiency Resource Standards www.dsireusa.org / September 2011 Energy efficiency resource goal Energy efficiency resource standard DE Policy includes natural gas savings requirements or goals Note: See following slide for a brief summary of policy details. For more details on EERS policies, see www.dsireusa.org and www.aceee.org/topics/eers.www.dsireusa.org www.aceee.org/topics/eers 20 states have an EERS (5 states have goals) 20 states have an EERS (5 states have goals) MA, RI

Electricity Consumption in Investor-Owned Electric Utility Service Areas in Ohio October 2008 December 2009

Energy Efficiency Requirement 22% + Reduction by 2025 Could result in annual usage at 13.8 million mWh below 2007 Peak Demand Reduction Standard 7.75% by 2018 Tariffs and special contracts available to commit the demand reduction Customers enrolled in RTO demand response programs are counted if customer commits the peak demand reduction

Peak Demand Reduction and Energy Efficiency Benchmarks

Each Electric Distribution Utility filed a report identifying the 2009 baselines and benchmarks Each Electric Distribution Utility filed a program portfolio plan for energy efficiency and peak reduction programs Upon approval of the program portfolio plan, an Electric distribution utility may seek cost recovery Each year, on April 15 th, the Electric Distribution utility must file a portfolio status report that demonstrates its compliance status with its benchmarks and provides an assessment of its performance.

Mercantile Customer Applications to commit Energy Efficiency and Peak Demand Reduction Ohio Administrative Code 4901:1-39-05(F) Permits a mercantile customer to file individually or jointly with an electric utility, an application to commit the customers existing demand reduction, demand response, and energy efficiency programs for integration with the utilitys program Expectation the mercantile customers were to be exempt from the EE/PDR Rider of the tariff they are taking service Pilot Program adopted by the Commission for ease of application and administration

* As of 9/28/2011

40+ Electric Suppliers in Ohio AEP Retail Energy AK Electric Supply LLC Algonquin Energy Services, Inc. American PowerNet Management LP APN StarFirst LP ARCELORMITTAL USA LLC Blue Pilot Energy, LLC BlueStar Energy Solutions Border Energy Electric Services, Inc. Champion Energy Services, LLC CINCINNATI BELL ENERGY PA LLC Commerce Energy Inc. Constellation NewEnergy, Inc. Direct Energy Business, LLC Direct Energy Services, LLC DOMINION RETAIL INC DPL Energy Resources, Inc. Duke Energy Retail Sales, LLC Eagle Energy, LLC Energy Plus Holdings, LLC Exelon Energy Company FirstEnergy Solutions Corp. Gateway Energy Services Corporation GDF Suez Energy Resources NA, Inc. GearyEnergy, LLC Glacial Energy of Ohio, Inc. Hess Corporation Integrys Energy Services, Inc. Liberty Power Delaware, LLC Liberty Power Holdings, LLC Linde Energy Services, Inc. MC SQUARED ENERGY SERVICES LLC MidAmerican Energy Company NextEra Energy Services Ohio, LLC Noble Americas Energy Solutions LLC NOPEC, Inc. Palmco Energy OH, LLC SMART Papers Holdings, LLC Spark Energy, L.P. STARION ENERGY PA INC TEXAS RETAIL ENERGY LLC Vectren Retail, LLC

INSERT Switching STATS

Things that havent changed: Same safe, reliable service. Local utility still delivers the electricity. Local utility still maintains the poles and wires. Still call your local utility in case of a power outage. Still get service even if choose not to change. Low income programs like PIPP continue.

Ohio Power Siting Board

To support sound energy policies that provide for the installation of energy capacity and transmission infrastructure for the benefit of the Ohio citizens, promoting the states economic interests, and protecting the environment and land use. Ohio Power Siting Board Mission Statement

Ohio Power Siting Board Member Agencies Public Utilities Commission of Ohio - Chairman Ohio Environmental Protection Agency Ohio Department of Development Ohio Department of Health Ohio Department of Natural Resources Ohio Department of Agriculture Public Member Four Legislative Members 2 from Ohio House of Representatives 2 from the Ohio Senate

OPSB Jurisdiction Definition of Major Utility Facility: A generating plant of 50 megawatts or more An electric transmission line of 125 kilovolts or greater A gas or natural gas transmission line capable of transporting gas at or greater than 125 pounds per square inch of pressure

HB 562 (2008) More recently, the passage of in 2008, gave the Board additional oversight regarding commercial wind farms Wind facilities greater than 5 MW This bill also directed the Board to adopt certification rules for the construction, operation and maintenance of wind-powered electric generation facilities The rules outline requirements for aesthetics, setback, noise levels, ice throw, blade sheer and shadow flicker

OPSB Process Pre-Application meetings Pre-Application Public Informational meeting Application submitted Completeness Review (no more than 60 days) Letter of Completeness Proof of Service Board Entry establishing Filing Date & Hearing schedule Public Notice published by Applicant Staff Report (15 days prior to public hearing) Public Hearing (no less than 60 nor more than 90 days from filing) Adjudicatory Hearing (within days of public hearing) Board Decision Appeal Process (30 days for rehearing filing from Board decision, 30 days for Board decision on rehearing, 60 days for any Appeal to Ohio Supreme Court)

OPSB Decision The need for the (transmission) facility The probable environmental impact Whether the facility represents the minimum adverse environmental impact considering the technology that is available and the nature and economics of the various alternatives Compliance with all air and water pollution control and solid waste disposal laws and regulations Consistent with regional plans for expansion of the electric power grid, and the interests of electric system economy and reliability Public interest, convenience and necessity Impact on agricultural lands Water conservation practices

OPSB Summary One-Stop Siting Process Timely action: Approximately 6 to 12 months for applications, with statutory time mandates; even more expedited schedules may be an option under certain circumstances Regulatory certainty: process is known and well practiced Sole jurisdiction: local and public participation welcome in the process, but sole decision rests with the state (OPSB) Our siting process is fair and efficient and has been put forth as an example for others to follow Having seen our success, several states and countries have adopted new siting legislation modeled after Ohios statute

OPSB TRANSMISSION APPLICATIONS (1998-2011) ELECTRIC TRANSMISSION SUMMARY Number Of CasesMilesEstimated Costs Certified - Operational 11 71.7 $40,825,000 Certified - Not Yet Online 6 36.0 $58,200,000 Certification Pending 4 66.9 $8,558,400 TRANSMISSION LINE TOTALS: 21 174.6 $107,583,400 VOLTAGE LEVEL STATS (kV) Number Of CasesMilesEstimated Costs ACTIVE 138 17 133.2 $83,712,400 345 4 41.4 $23,871,000 765 - - - GAS TRANSMISSION SUMMARY Number Of CasesMilesEstimated Costs Certified - Operational 13 109.4 $125,095,623 Certified - Not Yet Online - - - Certification Pending 3 241.5 $559,944,714 TRANSMISSION LINE TOTALS: 16 350.85 $685,040,337

OPSB CONSTRUCTION NOTICES/LETTERs OF NOTIFICATIONS (1998-2011) ELECTRIC LETTER OF NOTIFICATIONS Number Of CasesMilesEstimated Costs Operational, Completed 170 138.1 $124,332,728 Not Yet Completed 19 27.6 $30,170,096 TOTALS: 189 165.7 $154,502,824 ELECTRIC CONSTRUCTION NOTICES Number Of CasesEstimated Costs Operational, Completed 74 $71,748,886 Not Yet Completed 9 $71,748,886 TOTALS: 83 $143,497,772 GAS LETTER OF NOTIFICATIONS Number Of CasesMilesEstimated Costs Operational, Completed 13 156.7 $125,095,623 Not Yet Completed 5 6.0 - TOTALS: 18 162.7 $125,095,623 GAS CONSTRUCTION NOTICES Number Of CasesEstimated Costs Operational, Completed 69 $56,779,585 Not Yet Completed 15 $19,886,000 TOTALS: 84 $76,665,585

OPSB ELECTRIC GENERATION APPLICATIONS (1998-2011) GENERATION SUMMARY Number Of CasesCapacity (MW)Estimated Costs Certified - Operational 167,460 $2,951,633,700 Certified - Not Yet Online 187,229 $8,223,870,497 Certification Pending 91,653 $1,195,000,000 GENERATION TOTALS: 4316,342 $12,370,504,197 GENERATION CASES BY FACILITY TYPE Number Of Active Cases Capacity (MW)Estimated Costs Coal (i.e. IGCC) 4 2,169 $3,974,400,000 Cogeneration-Waste Heat 4 405 $524,831,197 Combined-Cycle 6 4,797 $1,571,000,000 Compressed Air 1 2,700 $1,650,000,000 Simple-Cycle 11 4,525 $1,537,190,000 Wind 17 1,746 $3,113,083,000 FACILITY TOTALS: 43 16,342 $12,370,504,197

house public utilities committee briefing september 29, 2011 presented by staff of the public...

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