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Governor Strickland's Energy Plan


Energy, Jobs and Progress for Ohio

Introduction

Energy is at the core of Ohio’s economic and environmental health. Energy built our past; energy sustains our present; and, energy holds the promise of an even brighter future.  That future is ours to shape.

The production and use of electricity is the central element of Ohio’s energy economy.   Assuring an adequate supply of affordable energy service is a basic responsibility of government, and all Ohioans have the right to a basic level of energy service.

How we decide to generate, distribute and price electricity can be the foundation on which new industries, rewarding jobs and a safer, cleaner, healthier environment can be built.  The right choices in fulfilling this responsibility can make us leaders on our nation’s journey to energy independence and economic prosperity.  The time to make the right decisions is now.

In early May 2007, Governor Ted Strickland articulated principles to guide the development of an Ohio Energy Compact as we construct a plan to secure Ohio’s electricity security.  He called upon electric utilities, environmental advocates, customers of all sizes, regulators, business and political leaders to set aside narrow self interest and to partner in a joint investment in Ohio’s future. The Governor and his staff then met with representatives of all key stakeholder groups, listening and learning from those different perspectives on the electricity challenge and its possible solutions.

This Turnaround Ohio proposal outlines specific measures based upon these principles and stakeholder conversations.  Governor Strickland’s vision is to develop a comprehensive, long-term approach to the challenges and opportunities of supplying Ohio’s electricity, recognizing that reliable, affordable, and sustainable electric power is essential to Ohio’s future. 

The Governor proposes a non-partisan solution that will treat all stakeholders fairly to protect jobs, stimulate economic growth and protect our environment. 

As stewards of the public trust, we can afford to do no less.

Principle One: We must establish a stable balance between the protections of regulation and the opportunities of competitive markets

There is broad consensus that deregulation has failed to deliver an efficient, competitive market that can meet the needs of Ohio’s economy in an affordable, reliable, and sustainable manner.  The Administration recognizes that there are considerable legal obstacles to a full return to a regulated system. At the same time, we understand the realities of the condition of the current market and conclude that we must address the potential economic impact of non-competitive market pricing on Ohio’s businesses and residents.  Our challenge - and opportunity - is to harness the power of market incentives and apply them toward not only utilities’ quarterly bottom line profits, but also toward Ohio’s future overall prosperity.

  • Market Determination. Expert and casual observers alike agree that the market for electric power is presently neither fully efficient nor fair.  The Administration proposes establishing clear PUCO authority to determine the conditions under which the market for retail generation service may be declared efficient and competitive, and under what conditions it may be just and reasonable for a supplier to charge market-based retail rates.

    The Administration proposes that electric distribution utilities must file a Standard Service Offer regarding electric power service with the PUCO, and may opt for either a “market rate plan” or an “electricity security plan.”

  • Market Rate Plans.  Utilities applying for approval of a market-based plan must meet the following conditions:

    • Demonstrate that markets are efficient and competitive in accordance with Section 4929.02, ORC;

    • Open their service territories to competitive service providers on a reasonable and non-discriminatory basis that does not impose unnecessary costs or undue burdens on such competitors;

    • Be subject to the PUCO requiring the utility to file cost and market price information to ensure that the plan will not impose undue rate increases on consumers;

    • Demonstrate that the proposed plan is just and reasonable;

    • Include in the plan reasonable medium and long-term components and reasonable product offers;

    • Demonstrate that purchases supporting the plan must be reasonable and prudent; and

    • Subject such plans to audit.

  • Electricity Security Plans.  Utilities opting to submit energy security plans shall include reasonable cost estimations of generating assets to be included into their rate base, subject to PUCO approval. 

    • The valuation of existing generation assets must take into account the degree to which Ohio ratepayers have already paid for those assets and the degree to which those assets have been depreciated.

    • Costs associated with qualified environmental compliance activities may be passed through to customers.

    • New power plants may be included into utilities’ rate bases, consistent with resource planning projections and certification of need.

    • Construction-work-in-progress may be authorized by the PUCO for up to the first three commercial deployments of either next-generation clean coal and/or advanced nuclear power plants.

  • Transferred Generation Assets.  Until the market becomes efficient and competitive as anticipated by SB 3, the Administration concludes that utility affiliates that receive generation assets must fulfill a continuing obligation to serve Ohio retail consumers.  Accordingly, the Administration proposes that a utility affiliate company that has received ownership of power plants through a corporation separation plan retains the responsibility to assure that retail consumers in the territory of its affiliate receive an amount of electricity that is:  first, at least equal to the expected output of those power plants; and second, priced under just and reasonable rates taking into account Ohio ratepayers’ investment in those power plants.  Such an affiliate may apply for a waiver of the requirement to offer retail electric generation services.  The PUCO may grant such a waiver if it finds, following notice and hearing, the applicant has demonstrated that:

    • The market for electric generation services is competitive and efficient in accordance with the state policy enumerated in Section 4929.02 ORC; or

    • The affiliate has entered or has made a reasonable written offer to enter into a contract with the EDU, from which it received generation assets, to provide generation services to the EDU in quantities, under terms and at rates that are at least as favorable to the purchaser as the quantities, terms and rates at which it otherwise would be required to offer retail electric generation services.

Principle Two:   Policies to stimulate renewable and advanced energy production in Ohio are instrumental in attracting investment in related energy technology manufacturing.

Ohio already has the industrial base, technical resources, and skilled labor necessary to build the technologies and systems that will power the future. The missing ingredient is a clear policy signal that Ohio is the right place for advanced energy technology investment.  This Administration offers its leadership in expanding the role of renewable and advanced energy in Ohio.

  • Advanced Energy Portfolio Standard.  Nearly half of the States are developing or have implemented some sort of portfolio standard to accelerate deployment of new energy technologies.  The Administration proposes that Ohio adopt an advanced energy portfolio standard to encourage development and deployment of next-generation energy technologies, including renewables1, clean coal2, advanced nuclear, fuel cells and cogeneration as well as emerging technologies that may reach the level of commercial deployment and are today unidentified.  The standard should include clear timelines and numerical targets to be developed with the benefit of technical analysis and due process at the PUCO, guided by the following boundaries:

    • By 2025, a minimum of 25% of the electricity sold in Ohio must be generated from advanced energy technologies. 

    • No less than half of this amount shall be generated from renewable energy resources.

    • At least half of the total advanced energy requirement must be met through assets sited in Ohio, and aspecific “carve-out” requirement for solar power must be adopted to reflect and reinforce Ohio’s leadership in solar energy technologies.

  • Standby Charges.  Standby charges require users of distribution generation to pay steep fees to utilities for backup power, but the evolution of technology and policy now offer a better alternative.  We should recognize the flexibility of today’s regional grid systems and provide reasonable and just compensation to utilities while simultaneously providing incentives for significantly increased distributed generation in all customer classes.  Accordingly, the Administration proposes the PUCO determine that the generation portion of standby charges currently based on “peak load” requirements be replaced by charges based on “typical load” requirements, to be trued up based on actual usage data in events requiring backup power from the grid.

  • Interconnection Standards.  Although Ohio has in place standards governing distributed generation interconnection, practical application of these rules has yielded mixed results.  To accelerate deployment of distributed generation systems that bolster the energy delivery infrastructure and diversify our energy mix, the Administration proposes the PUCO further simplify and streamline Ohio’s interconnection standards to make them more consistent and user-friendly.

  • Net Metering.  Distributed generation holds great promise to bolster the energy delivery grid and complement power generating stations.  Net metering provisions, however, have proven unsuccessful in realizing the full potential of distributed generation in Ohio.  To stimulate wider adoption of distributed generation technologies, the Administration proposes the PUCO investigate and implement measures to enhance the functionality of net metering in Ohio.

Principle Three:  Transparency and accountability are priorities throughout the Strickland Administration.

We can restore lost faith in both government and public utilities by designing clear, “common sense” plans and being responsible for accomplishing them. Senate Bill 3, passed in 1999, assumed that markets would become efficient and competitive, and that the State would protect consumers from market deficiencies, as well as from the ability of suppliers to exercise unreasonable market power.  The reality is that markets have not achieved efficiency, have not protected consumers, and have failed to stimulate the investments required to meet our growing energy needs. We must ensure that these goals are met before making the transition to relying entirely on markets for Ohio’s electric power supply.  Transparency and accountability provide a sound basis for public and private sharing of the investments required to achieve those goals.

  • Define “Public.” There must be a clarification about the meaning of the term “public” in public utility.  The Administration proposes renewed emphasis on “public service,” “public obligation,” and “public benefit.”

  • Transparency.  The development of efficient and competitive markets requires that power markets be sufficiently transparent, and that market participants can manage uncertainty, effectively hedge risk, and have confidence that the market is not subject to strategic manipulation. 

    • Price Signals. An effective electricity system benefits from all classes of consumers having access to time differentiated changes in the actual cost of electric service. Accordingly, the Administration proposes the PUCO take actions to accelerate the availability and expand the implementation of real-time pricing and time-of-use tariffs.

    • Side Deals and Special Contracts. The practice of side deals being struck in the course of rate cases is longstanding.  However, the secretive nature of such arrangements severely limits the information available to the PUCO in the course of the regulation of electric utilities.  The Administration proposes requiring that all side deals, as well as special contracts, be filed with the PUCO in a manner that protects proprietary information, with the penalty of rate cases being removed from consideration upon discovery of any related side deal that has not been appropriately filed with the Commission.

  • Accountability. Service interruptions and power quality problems represent a significant cost to Ohio businesses and other consumers, as well as limiting competitiveness in the modern, increasingly digital economy. In exchange for revenue streams provided by Ohio ratepayers, the Administration calls upon electric utilities to work through the PUCO to clearly define, measure and report on the critical public service they provide.

    • Performance Metrics.  Customers deserve to understand the performance they receive for the money they pay to Ohio’s electric utilities.  The Administration proposes that the PUCO staff produce and make publicly accessible an annual report, written in plain language, providing timely information on indicators of quality of service, including reliability and other related metrics for electric utilities serving Ohio customers.

    • Performance Targets. In order to harness market forces to improve the quality of service provided to customers by Ohio’s electric utilities, the Administration proposes that all electric rates include corresponding performance targets for quality of service metrics.  Through due process, the PUCO shall establish formulas for financial incentives and penalties for utilities’ over- and under-performance with these metrics, progress on which shall be reported in plain language, and made readily available by the PUCO to the public.

Principle Four: Customers deserve equal footing with utilities.

The complexity of these issues creates an imbalance of knowledge and expertise that can create a disproportionate influence of utilities in electric power decision-making. In an era of expensive energy, there is increased tension between the historical social responsibility of what we call public utilities and the driver of private sector return on investment. We must exercise vigilance in determining whether electric power markets are efficient and competitive, and we must restore public confidence by protecting consumers from market deficiencies and suppliers’ market power. We must work together constantly to make sure the public understands the issues and the consequences of our actions.

  • Inclusion. Organizations representing customer groups will enjoy equal footing with all other stakeholders in consultations and negotiations with the Administration on electric regulation and, as currently allowable under law, with the PUCO.

  • Balance. All electric rates must recognize the degree to which Ohio ratepayer investment has built the capital assets of the state’s public utilities.  While utilities are entitled to fair returns, suppliers do not have a fundamental right to take advantage of the failure of markets to develop as anticipated to charge undue prices for power from generators built with ratepayer funds.  The benefits of, and responsibility for, both ongoing and future investment must be clearly shared by ratepayers and shareholders.

  • Demand Response. Among the most effective tools consumers can use to exercise choice as utility customers is the ability to adjust usage in response to actual, as opposed to average, electricity prices.   Accordingly, the Administration proposes the PUCO be directed to accelerate implementation of measures promoting demand response, including, but not limited to, availability of time-sensitive pricing and deployment of advanced metering infrastructure.

  • Aggregation.  To address the imbalance that the size of the customer creates, some consumers find better prices by pooling their purchases. The Administration supports continuation of municipal opt-out aggregation and proposes that PUCO establish frameworks to facilitate demand response aggregation and to establish rules for aggregation by political subdivisions other than municipalities.

  • Federal Energy Advocate.  Many issues with significant economic impact are no longer under the jurisdiction of the state but rather under the authority of the Federal Energy Regulatory Commission (FERC).  It is essential that the PUCO be empowered through a clear mandate to aggressively pursue the interests of Ohio ratepayers before the FERC.  Accordingly, the Administration proposes creation of a Federal Energy Advocate function at the PUCO and specific authority for the Commission to examine the value of Ohio’s current participation in Regional Transmission Organizations and to publish an analysis of whether continued participation is in the interests of Ohio electric customers.

Principle Five: Modernizing Ohio’s electric infrastructure must be a high priority.

Our power plants, transmission lines, and distribution networks are showing their age. We must broaden the restructuring debate to include our energy delivery system, not just our generation capacity. It is our responsibility to marshal the resources to meet the needs of the 21st Century economy in Ohio.

  • Modernization Plans. For those utilities that opt for Electricity Security Plans, the Administration proposes requiring development and submittal of long-term energy delivery infrastructure modernization plans, in addition to restoring the practice of regular integrated resource planning.  In this context, single-issue rate cases for high-priority investments and system upgrades would be allowable under the framework of energy infrastructure modernization.

  • Ohio Air Quality Development Authority.  To underscore the importance of reliable, affordable, and sustainable energy for Ohio, the Administration directs the Ohio Air Quality Development Authority to take on additional responsibilities to:

    • Get the best rate for electricity for State facilities, State-supported colleges and universities, interested local governments, and willing school districts through pooled purchases;

    • Provide better cost financing for new generation projects;

    • Act as a statewide entity to encourage and provide incentives for investments in energy efficiency;

    • Lead Ohio deployment of renewable energy installations;

    • Develop tools to provide incentives for early deployments of next-generation baseload generation systems, including clean coal generation facilities with carbon capture and sequestration and advanced nuclear power plants, and reduce the cost of associated risks;

    • Invest in and coordinate State-supported energy R&D; and

    • Develop and implement tools to make better cost power available to key industrial and other sectors.

Principle Six:  Energy efficiency must be a central element in addressing electric regulation.

Emerging “smart energy” technologies intersect with looming electric generation capacity shortages to create a unique opportunity to deploy our most affordable, available, and sustainable energy resource: energy efficiency. 

  • Energy Efficiency Standard.  The Administration proposes establishing an energy efficiency standard that requires Ohio utilities to acquire no less than 25% of projected growth in electricity use and 10% of total peak demand by 2025 through energy efficiency measures.  To encourage compliance, PUCO may treat efficiency as a production cost based upon achievement of predetermined energy savings.  Financial and other penalties also shall be developed and enforced by the PUCO for failure to demonstrate adequate energy efficiency improvement.

  • Consumption Data.  Energy efficiency projects require data to establish a baseline against which to measure progress, but access to such information often proves unnecessarily difficult, particularly for smaller customers.  To facilitate energy efficiency initiatives across Ohio, the Administration proposes that the PUCO require historical electricity usage data be made available by electric utilities for the past three years, in an accessible electronic format, upon customer request.

  • Decoupling.  The Administration recognizes the importance of energy efficiency and notes that the proposed approaches may need to be supplemented by more effective measures.  Accordingly, the Administration proposes authorizing the PUCO to design and implement a system to decouple electric utility revenues from energy sales, if other measures fail to adequately promote energy efficiency.

Principle Seven:  Ohio’s electric power sector must be prepared for the ever-growing influence that will be exerted by environmental issues, especially global climate change.

Understanding that new power plants are built with expected operating lives of 30-50 years, Ohio’s vulnerability to future climate change policy is heightened by our coal-intensive economy. We must develop coherent, transparent means of giving appropriate incentives to technologies that can adapt successfully to eventual carbon controls.  In addition to the environmentally-relevant measures discussed in other parts of this document, such as renewable energy and clean coal deployment, the Administration seeks progress in the following areas:

  • Life-Cycle Analysis. Recognizing that not all technologies and not all sites are equal, the Administration proposes requiring site-specific, life-cycle analysis of greenhouse gas emissions in the course of environmental impact and siting analyses for all new electric power generation projects.  In addition, utilities should be required to provide similar information for all existing generation assets serving Ohio customers.

  • Carbon Planning.  Greenhouse gas emission constraints are nearly certain to come into force at the federal level during the lifetime of any new power generation facility, and are very likely to become relevant for many existing power plants as well.  In this context, the Administration proposes requiring carbon control planning (note: planning, not controls) for all existing and new GHG-emitting power generation facilities.

  • Greenhouse Gas Reporting.  Recognizing that power plant emissions represent the largest single sector share of Ohio’s greenhouse gas emissions, and in order to prepare Ohio’s utilities for the eventual passage of federal climate change legislation, the Administration proposes requiring greenhouse gas emissions reporting for all electric power generation facilities through The Climate Registry, a voluntary greenhouse gas registry of which Ohio was one of over 30 founding state participants.

  • Carbon Sequestration.  In no uncertain terms, coal-based electric power generation represents Ohio’s primary vulnerability to future global climate change policies.  Until federal regulations are developed to govern the geologic sequestration of carbon dioxide, the Administration proposes legislative authority to develop an interim regulatory framework to facilitate pilot and demonstration carbon sequestration projects, including enhanced oil recovery activities that also result in permanent carbon disposal.


1 “Renewables” refers to biomass, geothermal, solar, new low-impact hydro, anaerobic digestors, wind and municipal waste or garbage if converted to a clean burning fuel prior to use for electric power generation.

2 “Clean coal” refers to coal-based electric power generation facilities that control or prevent emissions of carbon dioxide at a level at least 80% less than  the emissions of the generating facility without the technologies; the definition also includes facilities using waste coal as a the primary fuel source.

 

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