Ohio SB 310 post mortem: It’s worse than you thought

Blog | June 23, 2014 - 1:13 pm
By Martin Kushler, Senior Fellow

Despite an amazing amount of opposition to the bill from a diverse group of interests (business, environmental, consumer advocates, faith groups, local government, and the general public), the Ohio legislature passed SB 310,and Governor Kasich signed the bill on Friday, the 13 th of June. A very inauspicious day for the state.

For the purpose of maintaining an accurate historical record, there are two key things interested observers need to know about what has transpired. First, the original Ohio energy efficiency resource standard (EERS) enacted in 2008 (SB 221) has been tremendously successful. Second, despite efforts by proponents to characterize this as merely a “pause,” the details of SB 310 reveal that the bill is a hostile and systematic destruction of Ohio’s EERS.

SB 221 Has Been a Strong Success

To begin, it is worth recalling that in 2008, SB 221 passed the Ohio Senate 32-0 and the Ohio House on a 93-1 vote. That fact alone illustrates how profoundly things have changed in the political arena in Ohio. However, lest anyone think the recent reversal is due to a failure of the policy, consider that SB 221 moved Ohio utilities from virtually no energy efficiency savings in the preceding years to dramatic savings accomplishments in just a couple of years.[/no-glossary]

In fact, Ohio utilities have collectively exceeded the savings targets every year since 2009, by an average of more than 50% above the target. Moreover, Ohio utility energy efficiency programs have been very cost-effective. An ACEEE analysis found that the levelized cost of conserved energy had been less than 2 cents/kWh, with net benefits to Ohio ratepayers already exceeding $1 billion.

It is arguably the case that it was the success of SB 221 in saving large amounts of energy that motivated the opponents of energy efficiency to mobilize to pass SB 310.

SB 310 Is a Devastating Attack on the EERS

Although certain political leaders have attempted to portray SB 310 as a benign compromise to merely “pause” Ohio’s EERS for two years, the legislation is actually a carefully crafted and systematic assault on the state’s basic EERS requirements. SB 310 is loaded with specific “poison pill” provisions that weaken, and collectively effectively demolish, the existing EERS policy. Here are some of the primary examples.

Expansion of what “counts” toward the savings target. The PUC is required to count toward the energy savings standard:

  • Any actions customers take on their own that comply with federal energy efficiency standard (i.e., allows a utility to receive credit for all sorts of energy efficiency they had nothing to do with)
  • Any savings from utility actions associated with transmission and distribution infrastructure improvements. (This could be very large, and thereby displace the need to improve customer energy efficiency. Plus, ratepayers already fund these upgrades through rates, so it should not be necessary to support them through an EERS.)

Substantial weakening of the role of EM&V, resulting in exaggerated savings estimates. The PUC is required to:

  • Give saving credit for “the higher of an as found or deemed” savings value (and utilities at their discretion can retroactively apply that back to 2006). This basically eliminates the role for “verification” of savings.

Allowing full “carryover” of excess savings to future years, including retroactive credit for excess savings from prior years.

  • Greatly reduces actual ‘new’ savings required in future years.
  • Essentially turns the annual savings target into a “ceiling”, rather than a floor.

Makes large customer “opt out” much easier, and with little or no accountability

  • Allowing more opt-out without accountability will reduce total savings impacts, and raise rates for all consumers. Industrial programs are the least-cost energy efficiency resource. Bidding these industrial savings into the PJM market lowers wholesale prices, lowering prices for all customers.
Putting it all together

The cumulative effect of these changes to Ohio law cannot be overstated. SB 310 directly removed any requirement for new savings for 2015 and 2016. Taken in aggregate, the “excess” savings from 2009-2012 alone, when carried over as directed, would cover the next year and a half of savings requirement, and that is before rolling in the effects of: retroactively applying the weaker EM&V definitions (which could increase the carry-over); counting toward the savings target the effects of any federal standards; and counting the effects of any transmission or distribution efficiency improvements. Taken together, the effect of these weakening amendments could quite plausibly lead to a situation where a utility would not need to implement any actual customer end-use efficiency programs and still be in “compliance” with the EERS through the end of this decade.

Lest anyone fail to detect the hostile intent of this legislation, there is one last juicy tidbit. Consider the following language from Section 3 of SB 310:

“It is also the intent of the General Assembly to get a better understanding of how energy mandates impact jobs and the economy in Ohio and to minimize government mandates. Because the energy mandates in current law may be unrealistic and unattainable, it is the intent of the General Assembly to review all energy resources as part of its efforts to address energy pricing issues.

Therefore, it is the intent of the General Assembly to enact legislation in the future, after taking into account the recommendations of the Energy Mandates Study Committee, that will reduce the mandates in sections 4928.64 and 4928.66 of the Revised Code…” [emphasis added]

Section 4928.66 is the section of statute that lays out the EERS savings requirements. It would appear that the legislature has pre-ordained the outcome of the provocatively named “Energy Mandates Study Committee.”

Finally, one cannot help but note the irony of Ohio enacting this legislation less than two weeks after the EPA announced the proposed rule under Section 111(d) of the Clean Air Act. SB 310 dramatically weakens Ohio’s policy structure for energy efficiency (as well as renewable energy), just as the importance and value of those resources has become more crucial than ever.

Bottom line: SB 310 was not a moderate compromise and a simple benign “pause” in Ohio’s EERS. It was a multi-faceted assault which, if left unchanged, essentially voids Ohio’s EERS as a policy to require utility energy efficiency programs in Ohio.