This post was updated on June 20, 2017. Just think about the number of interactions we have with electricity each day – from our alarm clocks to our toasters to our smart phones and the lights in our homes and offices. Electricity is undeniably important to our lives and our economy. And unprecedented energy innovation […]

Remember the old “money booths,” in which game show participants got to grab as many dollars as they could before the timer went off? Well, FirstEnergy’s the lucky contestant; everyday Ohioans are supplying the cash, and the Public Utilities Commission of Ohio (PUCO) is refusing to call time. The PUCO is still deciding whether to […]

Energy Secretary Rick Perry’s so-called grid reliability study will be nothing more than thinly-veiled propaganda for the coal industry and a tool to justify expensive government handouts to outdated power plants. How do we know? The tactic is ripped straight from FirstEnergy’s well-worn subsidy playbook. The Ohio-based utility has relentlessly sought a massive, customer-funded bailout […]

Talk about a disruptive technology. The “world's leading software platform for digital assets,” blockchain may be little known, but it could revolutionize electricity markets. What is blockchain? Blockchain, in short, is a secure, decentralized, and highly efficient way to manage and keep track of infinite transactions. Rather than being stored on a central server, peer-to-peer […]

By Dick Munson

By: Dick Munson, Midwest clean energy director, and Andrew Barbeau, senior clean energy consultant

“Efficiency is good.” That’s the mantra, a known truth, shared by both business executives and environmentalists, who eliminate waste to increase profits and reduce pollution.

When it comes to electricity, efficiency also has proven effective. Whereas power consumption a few decades ago was rising annually at more than 7 percent, the introduction of inexpensive and efficient lightbulbs, refrigerators, and smart heating and cooling has recently led to slight declines in energy consumption, even as the economy boomed and population increased.

Efficiency may be good and effective, but it is inherently hard to calculate. How do you prove the negative? Virtually every state has wrestled with the same questions of how and why electricity use didn’t happen. States with energy efficiency standards – requirements for local utilities to incentivize customers to reduce their energy use year after year – want to know if the investments are cost-effective. With new approaches to calculating energy efficiency, Illinois is tackling that question head on.

Questioning efficiency’s impact

Over the years, some have challenged the merits of energy efficiency programs. A particular target has been federal and state weatherization programs – public-sector investments to insulate low-income homes in order to reduce heating and cooling costs and improve quality of life for the people who live in them.  

The programs also were designed to improve the welfare of low-income residents and provide jobs in target communities.

A few studies have questioned whether these programs can be justified based on electricity cost savings alone, but this inquiry misses the bigger picture: The programs also were designed to improve the welfare of low-income residents and provide jobs in target communities.

Others have wondered whether it’s possible to measure the impact incentives have on efficiency changes. Catherine Wolfram, a director for the Economic and Analysis and Policy Group at the University of California, Berkeley’s Energy Institute at Haas School of Business, appropriately describes how measuring the impacts of energy-efficiency programs requires “disentangling which energy consumption changes can be credited to the program, and which would have happened anyway.”

So, an important question for assessing energy efficiency programs is this: Is there a system in place to separate the direct results (gains in energy efficiency) from the reductions that would have happened regardless?

Fortunately, most states with mature utility-run energy efficiency programs have been tackling this challenge for some time. State public utility commissions, which regulate utilities, typically implement the following measures:

• Hire third-party evaluators to determine whether utility-run programs create more benefits than costs (known as the Total Resource Cost test),
• Investigate the Net-to-Gross ratios for efficiency efforts, determining how much savings a utility can actually claim credit for as a result of its policy measures, and
• Utilize randomized control trials to compare the behavior of regular customers versus those that get incentives to save energy.

And improvements are on the way. As smart meter deployment spreads in states throughout the country, the new granular data presents opportunities for utilities and regulators to get an even more accurate measure of the impact of energy efficiency programs. Peering into half-hour blocks of energy use across a utility’s service territory, for example, could assure regulators that savings will be achieved. 

Is there a system in place to separate the direct results (gains in energy efficiency) from the reductions that would have happened regardless?

To take efficiency to the next level, it’s essential that regulators and utilities are confident in the impact of energy efficiency measures.

Illinois efficiency

Environmental Defense Fund has already helped Illinois become significantly more energy-efficient, but the state is on a path to go further.

One of the key elements of the Future Energy Jobs Act, which became law late last year, is a shift in energy-efficiency goals to an improved approach called “cumulative persistent savings.” This ensures customers see the benefits of energy efficiency savings over not just months, but over decades. Specifically, the bipartisan legislation calls for ComEd, the state’s largest utility, to achieve a 21.5 percent long-term reduction in energy use by its customers by 2030. In order words, even if the utility’s previous energy savings disappear, “cumulative persistent savings” guarantee the utility will meet ambitious long-term efficiency goals. The utility is already beginning to update its energy-saving options as a result of the Future Energy Jobs Act.

Proving the Negative: The Challenge of Calculating Energy Efficiency
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Illinois also is shifting to incentivized, performance-based ratemaking for energy efficiency programs; the utilities will lose revenue – by up to 200 basis points, or up to 2 percent – if their programs’ verified savings don’t meet targets. Conversely, it also provides a bonus when the companies exceed those goals. Such performance-based ratemaking provides clear financial incentive for utilities to run their efficiency programs effectively, and for regulators to get the data right.

If we are to slash energy-use – creating significant greenhouse gas reductions – we need to get beyond past debates and push into data-driven calculations, understanding causality and mobilizing incentives. By incorporating bold new approaches, Illinois will become part of this emerging debate and analysis, helping show that efficiency is more than "good” and “effective” – it has real, measurable results.

By Dick Munson

The U.S. electric grid is old and frayed, yet innovative technologies – modern sensors, smart meters, and advanced telecommunications – offer hope to update it to become more modern, efficient, and clean. What all these smart-grid tools have in common is data. How we utilize the enormous quantities of information about how we move and use electricity will have major impacts on markets, customers, the environment, and our future electricity system.

The Illinois Commerce Commission (ICC) recognized this when, in mid-February, they approved an energy data-sharing program for Illinois’ largest electric utility, Commonwealth Edison (ComEd). The program, developed and advanced by Environmental Defense Fund (EDF) and Citizens Utility Board (CUB), allows companies and researchers access to anonymous energy-use data from ComEd’s nearly 4 million smart meters.

This will encourage the development of energy-saving products and services designed to help Illinoisans save money. The data also will allow rooftop solar companies, energy efficiency providers, non-profits, researchers, cities, and other clean energy innovators to see which neighborhoods and blocks have the greatest potential for money-saving clean energy projects ─ ensuring no community is left behind. Moreover, this information will spur new offerings from smart home and appliance manufacturers, energy management specialists, HVAC and lighting companies, as well as market researchers.

Deeply-rooted benefits

Much like the economic and customer benefits from digital phone data, electricity data benefits multiple bottom lines:

• Customers –On one level, data can empower electricity consumers, allowing them to save money and reduce pollution. That’s why EDF and CUB created an Open Access Data Framework that sets the standards by which consumers can gain access to their data and work with third-party providers to act on it. The framework incorporates the Green Button Initiative that enables customers to download their energy usage data and use it to take advantage of online energy management services. Some studies have found the availability of real-time energy-use data leads to energy-efficiency gains of 15 percent.

How Electricity Data Can Clean Up the Economy
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• Utility companies – Data can also help traditional power plants improve operations. More information about both utility transmission and distribution systems can enable small and intermittent generators, like rooftop solar panels and wind turbines, to integrate smoothly onto and bolster the electric grid.
• Entrepreneurs – The sharing of distribution-level data can fundamentally change the way utilities and third-parties operate, creating a more level playing field and opening the door for entrepreneurs to offer innovative new services to customers. As Val Jensen, ComEd Senior Vice President of Customer Operations, put it, “One of the great benefits of smart meter technology is the availability of data that will enable a growing sector of energy tech companies to design new products and pricing programs that will help customers save money and meet the growing interest for more choice and personalized services.”

• Researchers – Anonymous usage data – the type in the newly approved ComEd program – compiles energy usage statistics without including any personal information about customers. By ensuring confidentiality, the new program will open access to unidentified interval energy usage data for all zip codes where smart meters have been deployed. This type of information will be invaluable when assessing which areas and neighborhoods could benefit themselves and the grid the most from clean energy projects.

Illinois leading the way

Illinois is not the only state embracing the financial and environmental benefits of electricity data. A similar effort is being considered in New York as part of the Reforming the Energy Vision proceeding currently before state regulators. With states like Illinois and New York determined to prove what access to power data can do, we have even more hope in modernizing our electric grid and building the foundation for a clean economy.

By Dick Munson

Last week, the U.S. inaugurated a new president who has vowed to abandon the landmark Paris climate agreement and roll back bedrock American environmental protections.

But turn to the states and you’ll find a different story, even in the red states that elected President Trump. In fact, Republican governors in the Midwest are prioritizing economic growth and job creation by accelerating investments in energy efficiency and renewable energy. In the few weeks after the election, leaders in Illinois, Ohio, and Michigan have adopted new policies that help tackle climate change and grow the clean energy economy.

Illinois

With passage of the Future Energy Jobs Bill, Illinois sent an important signal to the rest of the nation: We can create policies that grow the economy, save customers money, and protect the planet.

Supported by a Republican governor, Bruce Rauner, and a Democratic legislature, the law will lead to $12-15 billion in additional private-sector investment coming to Illinois and create tens of thousands of new jobs. The bill includes provisions for doubling the size of the state’s energy efficiency portfolio, which will lower customers’ electricity bills, and building 4,300 megawatts of new wind and solar generation by 2030.

3 Republican Governors Embrace Clean Energy’s Economic Promise
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These advances put Illinois on track to achieve a nearly 56-percent reduction in greenhouse-gas emissions from the power sector, well beyond what the Clean Power Plan – the nation’s first-ever limit on carbon pollution from power plants – would require. Gov. Rauner said the legislation “allows us to protect jobs, ratepayers, and taxpayers.”

Ohio

In nearby Ohio, Republican governor John Kasich in late December vetoed legislation that would have gutted efficiency and renewable investments in the Buckeye State.

The Ohio legislators behind the bill sought to challenge climate science and restrict competition in electricity markets. But Gov. Kasich stood up to that extreme position, seeking to advance economic development and customer choice instead. Of the decision, Gov. Kasich said, “Ohio workers cannot afford to take a step backward from the economic gains that we have made in recent years.”

Michigan

In Michigan, Republican governor Rick Snyder recently signed a bill that extends and improves the state’s efficiency and renewable standards. The bill, adopted by a Republican legislature, removes the existing cap on energy efficiency program spending, adds tiered incentives to encourage utilities to exceed the efficiency target, and increases the previous Renewable Portfolio Standard requirement for clean electricity from 10 to 15 percent. Gov. Snyder said, “This was one of the finest illustrations of good, bipartisan, and broad-based work I’ve seen in my time as governor.”

These recent bipartisan advances reflect not only a stronger coalition of environmental and clean energy advocates, but also well-organized groups of major corporations seeking investment and cost-saving opportunities from . Finally, they reveal growing support from conservative groups, who want customers to enjoy energy options and markets that allow new competitors to thrive.

As federal leaders back away from climate action and to make our air and water dirtier, Midwestern Republicans are advancing policies that lower harmful pollution and help people save money on their electric bills, while spurring private-sector investment, creating jobs, and saving billions of dollars in wasted energy. These commitments, moreover, are occurring in the very region that proved so critical in the presidential election. The new administration would be wise to listen to fellow Republicans and embrace clean energy’s economic promise.

By Dick Munson

A new set of leaders today enter the White House. As they consider measures to enhance roads and bridges, they also should focus on America’s electricity infrastructure. By focusing on investment, efficiency, and markets as their policy foundation, the U.S. will have a world-class electricity system that will advance our economy into the 21st century.

Electricity is a marvel, something even physicists don’t fully understand, yet it is the foundation for our entire economy. Think for a moment about how many interactions you’ve had just this morning with electric power – from your alarm clock, to your radio or television, to your hair dryer or shaver, to your computer or smart phone, and on and on.

Moreover, electricity generation and delivery constitute our nation’s largest industry in terms of capital investment. Less flattering, electric generators are the biggest source of harmful pollution.

U.S. electricity infrastructure is old and frayed. More than 70 percent of our grid – the lines and transformers that deliver electricity to our homes and businesses – is at least 25 years old. The average power plant in this country is 34 years old. Luckily, modern technologies are transforming the grid. And what’s more, new players are entering – and bringing innovation into – the once-monopolized and risk-adverse electricity industry. Unfortunately, its regulation is still stuck in the past. Let’s change that, starting at the federal level.

The cost of America’s old grid

On any given day, this old system causes half a million Americans to lose power for two or more hours. Our system, in fact, is shockingly unreliable compared to those in every other developed nation, putting the U.S. at a competitive disadvantage: We suffer some 360 minutes of outages each year, compared with just 16 minutes for Korea, 15 for Germany, and only 11 for Japan.

One more statistic: The length of a U.S. power outage averages 120 minutes and that number is growing, while in the rest of the industrialized world it’s less than ten minutes and shrinking.

Such unreliability is expensive. You may not care much if your lights are off for 120 minutes, but computer-based businesses lose millions and millions of dollars when the electric current flickers even a tiny amount. According to Navigant Research, we pay for twice as many power plants as we actually need – and suffer their pollution – because of “the massive inefficiencies built into this system.”

We pay for twice as many power plants as we need.

How technology changed the energy landscape

Enter modern technology. Fracking and horizontal-drilling capabilities have vastly lowered the cost of natural gas. This has caused the dramatic and recent shift in how we generate electricity, from coal to natural gas – which has led to lower costs and less climate change causing greenhouse gas emissions.

The diversity of power options, moreover, is increasing. Prices for solar power modules have fallen 70 percent in the past six years. Wind power costs have dropped 58 percent in the past five years.  Battery prices have fallen approximately 14 percent annually since 2007.

These are remarkable advances, but arguably the most significant technological change in the electricity industry is the introduction of innovative sensors, smart meters, and advanced communication technologies. These tools are attracting hundreds of entrepreneurs and deep-pocketed players – as well as their investment and jobs – into what long has been an innovation-adverse, monopoly-dominated industry.

All these new smart-grid technologies provide enormous quantities of data. How we utilize that data will have major impacts on consumers, the environment, and the future electricity system. The proliferation of these sensors and digital communication devices, for instance, can allow traditional generators to improve the operation of their power plants. They allow small and intermittent generators, like rooftop solar panels and wind turbines, to integrate smoothly onto and bolster the electric grid. On top of that, they’re opening the door for clever companies to help consumers better manage their energy use in ways that save money and cut pollution. Some studies have found that just the availability of real-time energy-use data leads to energy efficiency gains of 15 percent.

The availability of real-time energy-use data leads to energy efficiency gains of 15 percent.

Businesses are taking notice

New players are entering energy markets. Google recently entered the electricity business by buying big blocks of renewable energy for its large data centers, and by acquiring Nest, the maker of smart thermostats and home devices. Google sees opportunity and profits in using innovative technologies to help Americans better manage their energy use. Like Google, Silicon Valley innovators Apple and Facebook are also are well on their way to meeting internal commitments to 100 percent renewable energy.

It’s not just big tech companies who are starting to participate. Walmart, the world’s largest retailer, used to buy all its power from local utilities. Last year, however, it met 26 percent of its electricity needs from its own solar panels and wind turbines. And it’s planning to increase that number to 100 percent.

Google and Walmart are two of the big names, yet there are hundreds of new entrepreneurs and small firms bringing innovation and investment into the electricity industry. These new players are advancing modern technologies and introducing new services to consumers, all while increasing the grid’s reliability. They are transforming an industry long dominated by state-based monopoly utilities into something more diverse, vibrant, competitive, and innovative.

In short, this combination of new technologies and new players means this ain’t your grandfather’s power grid – unfortunately, it’s just regulated that way.

This combination of new technologies and new players means this ain’t your grandfather’s power grid.

How can regulation catch up?

The regulation of the electricity industry is byzantine. While most electricity companies are privately or investor owned, the federal government controls some of the largest utilities (such as TVA and BPA), while others are managed by municipal governments or rural coops. In some states, electricity generators compete in open markets, while in other states the generation of power – as well as its delivery – is controlled by a monopoly that enjoys guaranteed profits and freedom from competitors.

Although electrons don’t care about state boundaries, state public utility commissions regulate power markets within those boundaries while the Federal Energy Regulatory Commission (FERC) oversees wholesale or interstate markets – and the feds and states often battle over jurisdiction. Separate agencies regulate the pollution that results from electricity generation. The complexities go on and on.

This is why our leaders should consider the following broad themes or goals when developing energy policies:

• Infrastructure-investment. As federal leadership considers infrastructure legislation, they should think of modernizing our frayed electricity system. This would provide some public-sector resources but, more importantly, stimulate investments from new private-sector players.
• Efficiency. Any environmental legislation should include a focus on efficiency – or stimulate the innovative technologies that cut costly waste from the system.
• Markets. Markets and competition – rather than bailouts and monopolies are key. We have a chance with modern technologies, the availability of massive amounts of data, and the arrival of new competitors to increase reliability, lower costs, as well as reduce pollution.

With these three guiding principles in mind, we at Environmental Defense Fund hope the new federal administration includes a focus on modernizing our electricity infrastructure when evaluating how to meet the country’s overall infrastructure needs.

This blog was adapted from a speech Dick Munson gave in December 2016 to the Congressional Research Service.

By Dick Munson

Market forces and technology are increasingly making old, dirty power plants uneconomic, which creates an opportunity for clean energy progress and cleaner air. However, outdated rules and entrenched interests can complicate the path to a healthier energy economy, as evidenced by a new settlement in Ohio.

The Public Utilities Commission of Ohio (PUCO) recently approved an American Electric Power (AEP) settlement that contains both promising and discouraging components.

The PUCO decision forces AEP to reconsider its ownership of power-generating plants. Realizing old coal-fired units can no longer compete against newer natural-gas and renewable facilities in deregulated markets, AEP suggests it faces two options, one being to ask Ohio legislators to overturn the state’s deregulation law, allowing AEP to return to the less-risky days of guaranteed profits on any of its power plants.

However, a recent study by Ohio State University and Cleveland State University found that the competition enabled by deregulation allowed Ohio customers, businesses, and industries to save $15 billion on electricity over the past four years and is expected to save the same amount by 2020. If the state were to return to a regulated system, Ohioans could miss out on those billions of savings.

Decision breakdown

The good: AEP will decommission 1,500 megawatts (MW) of coal-fired capacity, as well as install 900 MW of solar and wind projects – enough to power almost 2,000 homes for a year. The order also requires AEP to develop a grid modernization plan and develop most of the solar projects within Ohio’s Appalachian region.

Recent AEP Decision in Ohio a Mixed Bag for Clean Energy
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The not-so-good: The PUCO approved subsidies for AEP’s share of two uneconomic coal plants that are part of the Ohio Valley Electric Corporation (OVEC). Although the 440 MW covered by the order is less than a fifth of AEP’s initial bailout request – which Environmental Defense Fund (EDF) challenged and the Federal Energy Regulatory Commission blocked, it is still an unnecessary handout.

As the electricity sector evolves, EDF will work to clear the way for progress, challenging efforts like the PUCO’s coal plant bailout – while leaving the clean energy pieces intact.

Legacy costs

With this deal, AEP is trying to get money for its uneconomic power plants – even though it has already been compensated for them.

In 1999, Ohio decided to create a competitive retail electric market. The revised law recognized that, as a result of the transition to a competitive market, some utilities would have legacy costs, or the difference between the original cost of the power plants and the plants’ new market value. When the utilities purchased or built these plants, the utilities had a monopoly on generation service, assuring them of full cost recovery. But under a competitive structure, the utilities’ customers can choose to buy power from competitive suppliers at a lower price, so utilities may no longer be able to recover the plants’ costs. Therefore legacy costs, known as “transition charges”, represent the difference between the plants’ original cost and the plants’ fair market value at the time restructuring occurred. The utilities were given 10 years to recover their legacy costs through mandatory charges that all customers had to pay.

The PUCO’s order allows AEP to keep billing all customers in its distribution territory to cover the OVEC plants’ transition costs, even if the customers buy power from a different competitive supplier and despite that the 10-year window has expired. This is unlawful, and Ohio customers should not have to continue to pay for those plants.

AEP’s options

At a time when old coal-fired units can’t compete against newer natural-gas and renewable facilities in deregulated markets, the PUCO decision forces AEP to reconsider its role in Ohio.

AEP suggests that its first option is to simply sell its power plants and concentrate on being a distribution monopoly that would purchase its power from other generating utilities.

The second option is to ask Ohio legislators to end the state’s competitive energy market. This proposed alternative would return the Ohio electricity market to the days of guaranteed profits on any power plants, including AEP’s uneconomic coal-fired ones. According to SNL Energy, AEP’s chairman suggests such a profit guarantee – referred to below as “pricing signals” – would encourage the utility to invest in the state:

From an Ohio perspective, we really see a limitation for the ability for utilities like us, who are focused on long-term sustainability and the ability to invest for the long term, to have those pricing signals so that we can invest in new types of generation, whether it's natural gas … [or] renewables in the state."

But again, studies show that Ohio customers saved $15 billion on electricity in the deregulated market over the past four years. Similar billions of savings are expected by 2020, which Ohioans could lose out on under a re-regulated market.

The decision in Ohio reflects the challenges presented by the broader industry transition away from uneconomic coal plants. Although there were a few wins for clean energy, AEP should not have been granted subsidies for those outdated power plants, nor should it be allowed to re-regulate the state’s electricity market. EDF, among others, will work to ensure neither ultimately comes to pass, so Ohioans can enjoy a clean, thriving energy economy and environment.

Photo source: Wikimedia Commons/D Sharon Pruitt

By Dick Munson

Coal-heavy utilities in the Midwest have mustered a new argument to secure subsidies for their uneconomic power plants. They used to suggest the plants were needed to maintain reliability, until regional grid operators declared there was plenty of generation to ensure the lights stayed on. They then attempted to argue the plants provided jobs and taxes to the local communities, until conservative economists highlighted the inefficiency of subsidies.

Now several utility executives, including the chief executive officer of American Electric Power (AEP), are trying to regale regulators with the importance of baseload generation. The argument goes something like this: Since some power plants – largely nuclear reactors and coal-fired power plants – have a hard time ramping up and down in response to changing electricity demand, the grid needs those units to operate all the time, to provide a “base” output of power.

Such last-century thinking, however, ignores the phenomenal advances provided by modern sensors, smart meters, and telecommunications. A combination of dynamic power options – like demand response (crediting homes and business for using less electricity when the power grid is stressed), renewable energy, and battery storage, among others – allow the grid to respond more nimbly than ever before. Rather than propping up old, lumbering baseload generators, we should prioritize a more modern, cleaner grid that focuses on flexibility and diversity.

Linking the Polar Vortex and FirstEnergy’s subsidies

After 2014’s Polar Vortex caused reliability issues, utility executives effectively leveraged the opportunity to get a better deal for their baseload units. They convinced PJM and other grid operators to provide higher capacity payments to power plants that operate year-round, including during peak-demand periods in both the summer and winter.

As a result, some utilities operating baseload coal and nuclear units made hundreds of millions of additional dollars – simply for continuing what they had already been doing. For many utilities, however, even that windfall was not enough to enable old and inefficient plants to compete with other generators, particularly natural-gas-fired units. Power company executives, in response, turned to states for subsidies.

The most prominent appeal came from Ohio-based FirstEnergy, which initially requested $4 billion to keep several baseload units operating. When the Federal Energy Regulatory Commission (FERC) ruled that such subsidies illegally distorted competitive markets, the utility upped its request to $12 billion and tried to avoid federal oversight by claiming the bailout was not related to any particular power plants. The Public Utilities Commission of Ohio (PUCO) recently offered the utility $600 million, with seemingly no strings attached.

The odd thing about that ruling, which the PUCO chairman himself admitted was “undoubtedly unconventional,” is the regulators went on and on about the importance of modernizing the grid – the very actions that would bring our energy system into the 21st century and reduce the need for baseload capacity. Then they simply provided FirstEnergy with an enormous subsidy that will enable it to keep operating outdated and dirty power plants, without any requirement to modernize the grid.

The baseload argument spreads

AEP’s chairman, Nick Akins, hopes his utility soon gets a similar deal to what the PUCO gave FirstEnergy. “You see states reaching out trying to do something to provide support for these types of assets,” he said. Those “types of assets” are not the sophisticated resources that will lead to a cleaner, more efficient electric grid.

Atkins and his utility colleagues may be trying to reframe the subsidy debates, yet other utility decision-makers recognize the opportunity at hand:

I think what we see in the future is the whole concept of a baseload power plant going away. Power plants have to be much more dynamic in terms of how they operate in the marketplace, much more flexible, much more integrated renewables and other demand response technologies,” said Cris Eugster, Chief Strategy Officer for San Antonio’s CPS Energy.

Between the falling cost of clean energy resources and new technology constantly being unveiled, there are more power options than ever before. No doubt it will take time to transition. But regulators and executives should be focused on how best to modernize the grid in ways that encourage diversity and flexibility, while minimizing the need for outdated baseload generators.

By Dick Munson

On any given day, half a million Americans lose power for two or more hours. Those blackouts cost our economy billions of dollars. 70 percent of the U.S. grid that delivers electricity to our homes and businesses is at least 25 years old, and comparatively we endure more outages than other developed nations. We suffer some 360 minutes of outages each year, compared with just 16 minutes for Korea, 15 for Germany, and 11 for Japan.

A new book – The Grid: The Fraying Wires Between Americans and Our Energy Future – offers these and other insights about the challenges of modernizing America’s electric grid – the set of wires and transformers that transmit and deliver power. According to the author, McGill University professor and cultural anthropologist Gretchen Bakke, our current system is “worn down, it’s patched up, and every hoped-for improvement is expensive and bureaucratically bemired.”

But change could be on the horizon. With a new president and Congress taking office in January, legislation to address America’s deteriorating infrastructure, like bridges and lead-laden water pipes, will likely be debated. High on their list of priorities should be new policies encouraging private-sector investment and innovation in the electricity sector.

Here are four ideas from Bakke that the new Congress and administration should keep in mind as they consider legislation that will lay the groundwork for America’s energy future.

Fraying Wires: How Policymakers Can Fix America’s Electricity Infrastructure
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Encourage competition via data

Smart meters, internet-enabled devices that communicate detailed information to utilities about their customers’ electricity use, are a first step toward reimagining our grid, Bakke notes. Yet she also points out that the devices initially offer more benefits to the utilities than to their customers. It doesn’t have to be that way. Customers deserve access to their own smart meter data so they can gain more control over their energy use and costs. But right now, most Americans (even those with smart meters installed) don’t have access to their own energy data in a way that’s useful.

Lack of access prevents third parties and technologies, such as smart thermostats, from digesting and synthesizing data into actionable steps that increase efficiency and lower pollution. Moreover, the enormous quantities of data from these modern devices can allow state utility commissions and power companies to design rate structures and other policies that shift electricity use around the clock. This can help cut their expenses and eliminate the need for costly new and dirty “peaker” plants that operate only a few hours each year when demand is high. Policymakers should allow greater access to customer data by municipalities, third-party service providers, and customers themselves.re"]

Connect a microgrid system

Bakke pays particular attention to microgrids thereby providing greater security and reliability. She notes the U.S. military is converting all of its domestic bases to microgrids that can be “islanded” and protected during storms or other disruptions. Google is doing the same for its headquarters and data centers.

“Our grid could just as well be an amalgamation of 10,000 microgrids as a single system,” writes the author. “So long as microgrids can function interoperably with each other, and do so most of the time, they are indistinguishable from the end user’s point of view from the grid we already have. The difference is resiliency.”

Fund the race to storage

Improving the system involves far more than simply adding lots of solar panels and wind turbines. In fact, because sun and wind aren’t constant and we’re still studying how best to store electricity, these new ways of cleanly making electricity add complexity to the grid’s efficient and reliable operation. Bakke focuses on storage, which she calls the “holy grail” because “it allows us to build an electric world that…has the flexibility to move and change with whatever the 21st century will throw at us.”

Creative legislation

Bakke correctly notes that the grid is not just a technological system. She writes that it’s “also a legal one, a business one, a political one, a cultural one, and a weather-driven one.” Reforming – or, as she puts it, “reimagining” – the grid requires addressing a complex collection of integrated challenges. It requires confronting the “behemoths of old power” who will oppose any transformations that threaten their profits.

Bakke correctly notes that the grid is not just a technological system.

She does not claim to know what the grid will look like in 30 years. Yet she argues “we now live in the era of infrastructural dreaming” of a “grid so jam-packed with computerization that it sparkles.”

She forsees a common platform that “would need to be open to all the strange sorts of things people are dreaming up and building today (from vehicle to grid-enabled self-driving car pods to nanogrids) and to the boring old stuff we’re stuck with for the moment (like natural gas combustion plants and old coal or nuclear).”

Bakke’s perspective is critical as both Republicans and Democrats increasingly discuss ways to improve and upgrade our nation’s infrastructure. While most of those debates focus on roads and water treatment facilities, perhaps the most important infrastructure is the grid.

Electricity is critical to our modern economy. The U.S. can no longer afford frequent blackouts. It needs to integrate sustainable and non-polluting resources. It must empower both consumers and entrepreneurs. It requires, according to Bakke, “a self-healing, processor-dense, intelligent grid.”

By Dick Munson

Ohio policymakers are at a crossroads. They can create jobs, grow the economy, cut pollution, and save customers money by rebuilding the state’s renewable and energy efficiency policies, or they can continue to let Ohio fall behind in the clean energy economy.

A little background: In 2014, the Ohio Legislature placed a two-year freeze on the state’s energy efficiency and renewable energy standards as a result of political pressure from Ohio’s largest power company, FirstEnergy, among others. The standards required electric utilities to generate 12.5 percent of electricity sales from renewable sources, as well as reduce energy consumption 22 percent by 2025 through efficiency programs. Since the freeze, Ohio has lost millions of dollars in energy investment and jobs, and lags behind nearly every other state in percentage of renewable energy generated.

Now that the two years are almost up, it’s time for Ohio to decide how to move forward – if at all – on its clean energy standards. Fortunately, according to a new report from Environmental Defense Fund and The Nature Conservancy, there are at least three achievable routes to reinstate the renewable and efficiency standards – each of which would provide substantial economic and health benefits to the state at a value of $3 to $5 billion by 2030.

Reinvigorating Ohio’s Clean Energy Standards Could Save $5B by 2030. Here’s How.
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Billions in benefits

To evaluate the most financially beneficial mix of clean energy resources, the report, Grounds for Optimism: Options for Empowering Ohio’s Energy Market, produced three forecasts of the state’s electricity market. The scenarios include an Accelerated Efficiency case, an Intermediate Pathway that provides a balanced mix of renewables and efficiency, and an Expanded Renewables case. These scenarios are compared against a baseline that models an extended freeze of Ohio’s renewable and energy-efficiency standards.

All three scenarios are based on clear trends and achievable targets within the state’s growing clean energy industry. Furthermore, each would enable Ohio to meet the goals of the Clean Power Plan, the nation’s first-ever limit on carbon pollution from power plants.

The forecasts show the renewable energy and energy efficiency industries in Ohio are expected to:

• Create between 82,300 and 136,000 new jobs in Ohio, with the wind industry serving as one of the largest contributors.
• Enhance Ohio’s GDP by $6.7 billion to $10.7 billion by 2030,
• Provide between $28.8 million and $50.9 million in savings for Ohio electricity customers by 2030, and
• Provide between $3 and $5 billion in net benefits by 2030.

In comparison, the baseline – maintaining the freeze – would create zero new jobs, grow the state’s economy by zero dollars, and provide zero savings for Ohioans.

Moreover, how we generate electricity significantly impacts public health. Currently, “Ohio’s coal-heavy generating fleet creates billions in public health costs that are borne by citizens,” according to the report. By increasing renewable energy and efficiency, Ohioans would avoid asthma attacks, heart attacks, pulmonary issues, and other illnesses that would otherwise occur under the baseline. And public health benefits grow over time: The value would exceed $1 billion every year from 2030 onward in all three scenarios.

Governor Kasich seeks standards

Ohio Governor John Kasich recently attended The Texas Tribune festival, where he was asked about his stance on the Buckeye State’s clean energy standards. Although he feels the original policies were overly ambitious, he was very clear on his message to the Ohio legislature, stating, “If you try to kill the standards […], I’ll veto the bill and we’ll go to the higher standards. I’m committed to it.”

In other words, Governor Kasich is determined to see Ohio thaw the freeze and begin to rebuild its clean energy prowess.

If the legislature is wondering how to go about doing so, this new report from The Nature Conservancy and Environmental Defense Fund can serve as a roadmap to getting the Buckeye State back on track. It clearly lays out three paths for creating jobs and growing the state’s economy, while lowering electricity bills and healthcare costs for Ohioans in the long run. The analysis offers flexibility and an array of options, all of which are far superior to letting the freeze stand, or replacing the standards with a toothless goal. The clean energy choices are there – take your pick, Ohio.

Download the full report here and the factsheet here.

By Dick Munson

In a long-awaited decision, the Public Utilities Commission of Ohio (PUCO) yesterday approved a $600-million electricity rate plan for FirstEnergy.

One read of the decision is, regulators killed the Ohio-based utility giant’s massive bailout and ordered the utility to modernize its grid. If accurate, this would be an incredible victory: Dirty power plants would not be subsidized, FirstEnergy would not be rewarded for its poor business decisions, and the company would invest in measures that increase efficiency and welcome clean-energy resources.

Ah, if the PUCO order were only so clear. On the one hand, it does seem the regulators are giving FirstEnergy $600 million upfront and requiring it to spend those funds on grid-modernization programs the PUCO will approve in the future. Yet, the more realistic read is, Ohio regulators are simply handing FirstEnergy $600 million in hopes the subsidy will allow the utility to improve its balance sheet. Then, FirstEnergy will (hopefully) propose grid-modernization efforts that the PUCO will consider and fund down the line. In other words, the PUCO is providing FirstEnergy a no-strings-attached subsidy.

The decision is unusual and a bit difficult to interpret – even the PUCO chairman admits the approach is “undoubtedly unconventional.” The only certainty is that this issue will not die. Environmental Defense Fund and its allies will continue to press the PUCO and the Ohio Supreme Court to ensure the $600 million goes toward building a cleaner, more modern electric grid.

FirstEnergy’s bailout background

A little history here is helpful. About two years ago, FirstEnergy requested a $4-billion bailout to keep operating its old, uneconomic, and dirty power plants. The PUCO agreed, but the Federal Energy Regulatory Commission (FERC) objected, saying the $4 billion was an illegal subsidy that would distort competitive electricity markets. In order to avoid FERC jurisdiction, FirstEnergy then revised its $4-billion-bailout request to remove the part related to the continued operation of any power plants. It also asked for another $4 billion to reduce its debt – caused by its own bad business decisions – as well as yet another $4 billion to justify keeping its corporate headquarters in Ohio.

A few months ago, the PUCO staff recommended the utility receive only $600 million – just 5 percent of the utility’s $12-billion request – in order to reduce its debt. That proposal was premised on the belief such funds would improve FirstEnergy’s credit rating, allowing the utility to obtain capital and invest in grid modernization. However, the PUCO staff’s recommendation didn’t require any of the $600 million to be spent on grid modernization – it was more along the lines of wishful thinking.

Ohio Regulators Deliver 'Undoubtedly Unconventional' Decision in FirstEnergy Bailout Case
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An ambiguous order

Yesterday, the PUCO commissioners essentially accepted the staff’s recommendation. Yet some portions of its order suggest the $600 million must be spent to improve the utility’s distribution system.

The order declares that the approved funds “should be conditioned upon the implementation of all grid modernization programs approved by the Commission.” It even states that the PUCO will annually review FirstEnergy’s grid-modernization progress and adjust its receipts, “including any over- or under-recoveries.” So, if FirstEnergy ends up spending less on grid modernization than it earned in new revenues, it would have to make up the difference through credits to customers, for example.

Yet, hidden in the 192-page document are other lines saying the regulators “will not place restrictions on the use” of the funds and that FirstEnergy may use the resources “to indirectly support grid modernization investments.” The operative word, of course, is “indirectly,” and the regulators suggest such “investments” could “include outstanding pension obligations, reducing debt, or taking other steps to reduce the long-term costs of accessing capital.” In other words, FirstEnergy could use the money solely to reduce its debt, without the need to show any connection to grid-modernization efforts.

The PUCO also ruled that the $600 million in revenue would not be subject to an earnings test, which would require FirstEnergy to refund any revenues collected from customers that significantly exceed the utility’s cost of providing service. By excluding these revenues from an earnings test, the PUCO made it more likely that the money will not be used for grid modernization. 

The PUCO decision is an important step in the FirstEnergy saga, but it is far from the end.

What happens next?

The PUCO decision is an important step in the FirstEnergy saga, but it is far from the end. Parties, including EDF, will ask the Ohio Supreme Court to consider whether the PUCO’s “undoubtedly unconventional” approach is legal. The PUCO itself will need to clarify what grid-modernization initiatives it supports. Most likely, FirstEnergy – which received a measly 5 percent of its plea – will appeal to Ohio legislators for a larger bailout as well as protection from competition.

How the FirstEnergy situation shakes out has national significance. As one former FERC commissioner noted, subsidizing uneconomic power plants or poorly-managed utilities is the major challenge facing the electricity industry at this critical juncture in its evolution. These “out-of-market constructs” being debated in Ohio would distort price signals in the electricity market and lead to “a really, really unsustainable future.” The outcome will signal whether electricity markets rely on competition or monopolies, on markets or subsidies.

The PUCO is so close to a great decision. Rejecting the bailout and ordering grid modernization would be a victory for markets, investment in Ohio, efficiency, customers, and the environment. Here’s hoping the PUCO itself or the Ohio Supreme Court provides such clarity and progress.

By Dick Munson

The U.S. economy is wonderfully dynamic. New businesses launch daily, creating jobs and providing tax revenues for schools and police. Innovative technologies are introduced, offering customers more choice and improved services. Sometimes, of course, those new firms and devices replace existing institutions and products.

Today’s electricity industry is no exception. Technological advances are helping hundreds of new businesses deploy wind turbines and solar panels, build new natural-gas generators, and install monitors and controls that increase the efficiency of buildings and factories. At the same time, uneconomic and often dirty power plants are closing – within the past few years more than 10,000 megawatts of electric capacity in Ohio alone have closed or been announced to close.

Such closures can be good for customers, since they enjoy lower costs from the modern technologies. Closures can also be good for public health and the environment, since old units no longer spew mercury, carbon dioxide, and other harmful pollutants into the air.

Plant closures, however, also impact energy workers and their local communities. As the country’s energy system transitions from coal to cleaner ways of making electricity, companies and policymakers should support and provide resources for those most affected – so everyone may benefit from the clean energy economy.

Supporting communities

When old plants close, power companies often create new jobs in the same communities by building more modern facilities that use existing transmission lines to move energy from the plants to customers. But sometimes, people lose their jobs and local governments lose tax revenue.

Some companies use the threat of job losses when asking states for subsidies and bailouts to keep outdated power plants online. These old power plants cost more to operate and are dirtier than making electricity using newer technology. Rather than support a failing system, utilities and government would be wise to design policies that help everyone transition to the more modern energy system.

How Clean Energy’s Rising Tide Can Lift All Boats
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Nuclear decommission funds offer one model for managing energy industry transitions: The government requires reactor owners to set aside funds to pay for closure – including dismantling plants, cleaning sites, and storing radioactive waste. Comparable trust funds require excavating companies to clean up the contamination from abandoned coal mines.

Utilities and governments could provide similar assistance to workers and communities when power plants close. Workers could obtain other jobs at the utility or receive outplacement assistance, including the cost for tuition or job retraining. PG&E, for example, recently announced the closure of its Diablo Canyon nuclear reactor and included a commitment to help employees and the community transition. Through a $90 million grant in Pennsylvania, the federal POWER + program is hiring ex-miners to help clean up coal waste and prepare the ground for new developments like housing and bike paths.

Federal lawmakers could also spur investments in efficiency and renewable energy in order to create more clean energy jobs, or help transition coal workers to existing ones. A new study from the Harvard Business Review examined the costs and benefits of retraining coal workers for employment in the fast-growing solar industry, showing there are a wide variety of opportunities – all with attractive annual pay.

Energy transition for all

Our energy system is on unstoppable course to a cleaner grid, and coal is on its way out. It should be state and utility policy, however, to provide a thoughtful transition for the workers and communities in the shadow of abandoned units. This means helping those who benefit from associated tax revenue, including the schools, police, and firefighters, as well as assisting the plant’s workers with acquiring new skills and, more importantly, new jobs themselves.

America’s dynamic economy provides better services at lower costs, which benefits all customers. Dynamism, however, also forces change, which can be disruptive to some. In our evolving energy system, we need to ensure everyone – including the disrupted – gains from the arrival of innovative technologies, entrepreneurs, and new companies.

By Dick Munson

We all know exercise is good for our hearts and bodies, and who doesn’t enjoy stepping on the scale after weeks of good workouts to confirm progress was made?

In a way, power companies are just like people.

As they begin to invest in smart meters and other grid modernization efforts, utilities want to know how well they do. Are grid programs fulfilling environmental promises and cutting pollution? Can they measure success and prove to investors and regulators they’re making smart decisions?

To that effect, Illinois’ largest electricity provider, Commonwealth Edison, is the first in the country to adopt a new tool that calculates clean air benefits from investments such as advanced meters.

Beyond bringing tangible rewards to ComEd, this little-noticed milestone can have major implications for the entire power industry.

$2.6 billion for smart grid paved way

After Illinois passed the Energy Infrastructure Modernization Act in 2011, channeling $2.6 billion to ComEd to modernize the grid, the company began to replace customers’ conventional electric meters with advanced meters. The new devices make it easier to provide energy savings programs and other clean energy services, while helping the utility reduce outages.

The company is now more than half-way there, having deployed more than 2 million meters across its territory, along with other sensing and control technology.

This is where the first-of-its kind metric comes in.

ComEd started to use the measurement tool earlier this year to calculate and report greenhouse to state regulators gas savings from its new and advanced energy infrastructure. It was developed in collaboration with Environmental Defense Fund and the Citizens Utility Board, Illinois’ premiere utility watchdog.

The initiative serves, in essence, as a pilot project for other power companies that share ComEd’s objectives to build a modern grid and be held accountable to investors and the public they serve.

New tool measures smart grid benefits. A game changer for our power industry?
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This metric…does what, exactly?

By determining the carbon value of a kilowatt-hour of electricity for all 8,760 hours in a single year, the new metric can pinpoint how much pollution the advanced meters are keeping out of the air.

For example, when power comes from high-carbon coal, using a kWh of this electricity results in more carbon pollution than when power is coming from mostly low-carbon wind or solar.

Advanced meters can also open the door for numerous clean energy and smart grid tools, such as energy efficiency and demand response, which rewards customers for conserving electricity when the grid needs it most. The metric will be able to track the greenhouse gas reductions associated with all of these efforts, and more.

Rewards too good to pass up

As ComEd continues its advanced meter rollout, the utility hopes to be rewarded accordingly. Illinois offers higher earnings for utilities that show they’re meeting the goals of the state’s grid modernization plan.

As the company gains more experience with the metric’s use, it will also be able to incorporate the findings into future plans and make more informed investment decisions going forward.

ComEd may be first out of the gate with this innovative tool, but it probably won’t be the last in our growing clean energy economy.

By Dick Munson

My head feels whipsawed by the wildly changing proposals to bail out FirstEnergy’s uneconomic and dirty power plants. The latest development in this ongoing saga occurred June 29, when the Public Utility Commission of Ohio (PUCO) staff recommended a new subsidy solution for the utility behemoth: $131 million per year over three years.

While this proposal is, blessedly, 90 percent less than FirstEnergy’s original $4 billion bailout proposal, it’s still an unnecessary subsidy that Ohio taxpayers should not be forced to shoulder. Hearings on whether the PUCO commissioners should approve the deal begin today.

There may be a saving grace, however: The new proposal seems to be illegal. PUCO staffers suggest this “refurbished” bailout is needed to enhance FirstEnergy’s credit rating. (The theory here is the utility is in such financial straits because of bad business decisions that rating agencies, such as Moody’s and Standard and Poor’s, may downgrade the utility’s rating below investment grade, which would make any new financing efforts more expensive.) The relevant law does allow the commission to make such grants, but only “in case of any emergency.” FirstEnergy may not be flush, but it’s not about to close the doors, and it has seen its stock price rise some 10 percent in the past few weeks.

FirstEnergy, of course, doesn’t want to suggest publicly it faces an “emergency,” since such a statement would frighten investors and tank its stock price. Yet privately, the utility does seem to use those threats at the PUCO, as evidenced by the staff suggesting FirstEnergy obtain the $131 million annual subsidy only if it keeps its headquarters in Ohio.

PUCO staffers suggest the bailout would provide benefits to Ohio. They argue, for instance, the subsidies would be used to modernize the grid, yet the company has not submitted, nor has the PUCO approved, a grid-modernization plan. PUCO rules require utilities to show the benefits of such investments outweigh the costs. The company must also show it can recover those costs after it’s proved the money was spent prudently. Neither of these steps are being taken. The PUCO staffers are recommending FirstEnergy receive the money before making any grid modernization investments, and without any showing the money has been spent prudently. Moreover, the staff is not recommending any restrictions be placed on the funds, allowing the company to use the subsidy in any way it pleases, like increasing the dividend to its shareholders rather than upgrade the grid.

Ohio Regulators Attempt to Keep FirstEnergy Afloat with New Subsidy Proposal
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This latest proposal comes after more than a year of back-and-forth negotiations between FirstEnergy, state regulators, federal regulators, and opposition from consumer and environmental advocates.

Starting in August 2014, the giant utility initially sought $4 billion to underwrite power purchase agreements that would have allowed one FirstEnergy affiliate to buy expensive power from another FirstEnergy affiliate. Despite opposition from the state’s manufacturers, consumers, environmentalists, and competitive electricity suppliers, the Public Utility Commission of Ohio (PUCO) in March 2016 actually approved the bailout. Fortunately, the Federal Energy Regulatory Commission (FERC) shortly thereafter required FirstEnergy to prove it followed a competitive procurement process for this contract. Of course, FirstEnergy could not make this showing so it withdrew its proposal.

FirstEnergy in late May proposed another $4 billion bailout, but this time tried to shield it from FERC review. This time the corporation suggested the subsidy go directly to its electricity-distribution affiliate, without guaranteeing the uneconomic power plants would continue to operate. Environmental Defense Fund (EDF) and others suggested the sleight of hand did not even pass the laugh test.

Rejecting any and all such subsidies would be best for Ohio’s manufacturers, consumers, and environment.

PUCO staff in late June agreed this new proposal should be rejected, but their latest solution – $131 million per year over three years – is no solution at all. It’s yet another bad deal for Ohioans.

FirstEnergy’s justifications may be hurting my head, but one fact remains constant: The utility giant doesn’t need, nor deserve, a bailout. Rejecting any and all such subsidies would be best for Ohio’s manufacturers, consumers, and environment.

By Dick Munson

It’s not usually a good idea to dis federal regulators. FirstEnergy doesn’t seem to care.

Almost two months ago, the Federal Energy Regulatory Commission (FERC) ruled against the Ohio-based utility giant’s request to bail out its uneconomic power plants. FirstEnergy then tweaked its proposal to obtain the same result but, according to its CEO, “without the need for…FERC approval.”

To “FERC-proof” its bailout scheme, FirstEnergy now tries to mockingly call its subsidy a “surcharge” rather than a “power purchase agreement (PPA).” Put another way, by simply changing the wording of the original bailout, the utility’s sleight of hand aims to skirt federal oversight.

Environmental Defense Fund (EDF) is joining the Electric Power Supply Association (EPSA) and others in asking FERC to overturn this end-run attempt – something we’re calling FirstEnergy’s “Virtual PPA.” It’s virtually the same as the original rotten deal, and it’s just as bad for customers, clean air, and markets. 

FirstEnergy’s “new” deal has the same results

The utility does deserve credit for persistence and creativity, yet its new proposal doesn’t even pass the laugh test. To avoid FERC jurisdiction, for instance, FirstEnergy now claims its subsidy will no longer guarantee the operation of its uneconomic power plants. Yet the utility’s new surcharge is contingent on the continued operation of virtually the same number of megawatts of its nuclear and fossil generation. A virtual guarantee.

FirstEnergy’s original bailout was based on the explicit sale of power, which falls under FERC’s jurisdiction in a regional market. FirstEnergy now claims its electricity-generating affiliate will no longer be selling “electricity itself” to its electricity-distributing affiliate, but instead will be selling “the ability to provide it when necessary.” Unfortunately for the utility, that phrase is the very definition of providing “capacity,” which FERC has the authority to regulate as well.

Federal Regulators Should (Again) Block FirstEnergy’s Sneaky Attempts to Evade Oversight
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FirstEnergy also conveniently forgets it’s a large company with several affiliates – and there are clear rules prohibiting one affiliate from providing special treatment to another. A few months ago FERC ruled it illegal for FirstEnergy’s generation affiliate to sell power at inflated rates to its distribution affiliate. Now FirstEnergy wants to have the surcharge go to the distribution affiliate, trying to hide the fact the extra revenue will flow back to the parent company, which will be used to keep the generation affiliate’s uneconomic power plants operating. Different path, but virtually the same end point. FERC has a time-honored saying for that deception: “One may not presume the right to do indirectly what one may not do directly.”[1] In other words, don’t think you can get your way by simply pretending you’re taking a new approach.

The EDF/EPSA protest is even more direct, stating: “A bribe is still a bribe if it is paid to the politician’s spouse, and a capacity payment is still a capacity payment if it is transferred up to the common parent through a dividend or other intra-corporate transfer.”

The subsidy also allows old and uneconomic power plants to continue spewing pollutants, well beyond when market forces would have forced their closure.

Creative wording and rerouting doesn’t stop the money from ending up in the exact same place, performing the exact same role.

Regulators must once again stand up for competition

The utility’s convoluted arguments reveal it’s speaking out of both sides of its mouth. When addressing state regulators at the Public Utilities Commission of Ohio (PUCO), it claims the new proposal is little changed from its previous plea, hoping Buckeye State regulators again will quickly rubber stamp the subsidy. Yet when addressing FERC, it claims the new proposal is an entirely different animal over which federal regulators no longer have jurisdiction.

Why is this regulatory dissing important? For one, FirstEnergy’s greedy request will hurt customers, to the tune of $3.6-$5.15 billion, according to the Ohio Consumers’ Counsel.[2] That’s a lot of money. As noted by the Northwest Ohio Aggregation Council and ten Northwest Ohio communities, “(w)hen all the jargon is stripped away, the [FirstEnergy scheme] requires regular people to pay an extra month’s electric bill each year for eight years.”[3]

The subsidy also allows old and uneconomic power plants to continue spewing pollutants, well beyond when market forces would have forced their closure. Furthermore, FirstEnergy’s requested bailout would disrupt electricity markets, making it harder for innovative and clean generators to compete.

The utility’s new bailout plea is nothing more than a blatant attempt to flout FERC’s previous directives and make a mockery of affiliate-subsidy restrictions. A virtual PPA is still a PPA, no matter how creatively you word it. Having been dissed, federal regulators should see through FirstEnergy’s latest sleight of hand and again protect competitive markets.

[1] Tennessee Gas Pipeline Co., L.L.C., 143 FERC ¶ 61,128 at P 61 (2013).

[2] Motion to Intervene and Comments in Support of the Office of the Ohio Consumers’ Counsel at 2, Docket No. EL16-34-000 (filed Jan. 27, 2016)

[3] Motion to Intervene and Comments in Support of the Northwest Ohio Aggregation Council, Lucas County, the City of Toledo, the City of Perrysburg, the City of Sylvania, the City of Maumee, the Village of Waterville, the Village of Holland, the Village of Ottawa Hills, the City of Northwood and Lake Township at 2, Docket No. EL16-34-000 (filed Feb. 23, 2016)

By Dick Munson

At least in theory, government officials are supposed to monitor electric utilities and ensure they do not abuse their monopoly power. For more than a century, these independent regulators have protected customers from unfair, above-market prices and provided a check on giant corporations.

That social contract is being tested in Ohio.

In an unprecedented move, the Public Utilities Commission of Ohio (PUCO) today allowed FirstEnergy to seek a new power plant bailout – a full day before opponents were to offer their objections. So, without listening to the arguments against the deal, the PUCO rubberstamped the utility’s request for a rehearing.

Unfortunately, this is not the PUCO’s first rubber-stamping. FirstEnergy’s original proposal would have forced customers to pay $4 billion to subsidize the utility’s old and dirty power plants, which could no longer compete in the market. That proposal was almost laughable since the power plants were not needed, and certainly not at such a high price – other companies proposed to offer the same amount of electricity at significantly lower prices.

Many organizations and advocates spoke out against the deal. But even though groups like the Ohio Consumers’ Counsel and Ohio Manufacturers’ Association complained the subsidies would hurt the state’s customers and industries, the PUCO granted the politically-powerful utility’s bailout – in less than six minutes of formal consideration.

To the agency’s great embarrassment, the Federal Energy Regulatory Commission (FERC) quickly overturned the original PUCO decision, declaring Ohio’s subsidies illegally distorted competitive markets. (FERC has jurisdiction over wholesale power markets, of which Ohio is a part.)

FirstEnergy responded with a sleight of hand, asking the PUCO to send the subsidy to its distribution-monopoly affiliate rather than its generation-company affiliate – a creative move to avoid further FERC oversight. Most likely FERC will see through this sham, but that doesn’t seem to be stopping the PUCO from pushing through FirstEnergy’s radically “new” proposal.

Although regulators and the regulated should be separated, the relationship in Ohio appears to be quite cozy. For example, the announcement of the recent PUCO chairman’s departure came not from the PUCO but, amazingly enough, from FirstEnergy’s own chairman, who praised the regulator for doing a great job.

The PUCO’s action today suggests commissioners care more about appeasing a politically-connected company than protecting customers or considering both sides of an argument. That decision should make the Ohio Supreme Court realize these regulators are not independent, nor are they fulfilling their primary purpose: regulating fairly. Since FirstEnergy’s new proposal still reflects illegal exchanges among the utility’s affiliates, it will further embarrass the PUCO when federal regulators or the Ohio Supreme Court rule against the new bailout proposal.

Perhaps more importantly, today’s PUCO ruling forces a reconsideration of the regulatory contract. We need independent oversight of monopolies. We need regulating rather than rubber-stamping.

By Dick Munson

You have to give some credit to FirstEnergy. It does hire creative lawyers.

After the Federal Energy Regulatory Commission (FERC) effectively killed the utility giant’s $4-billion bailout request to keep its uneconomic power plants online, those expensive attorneys figured they could redefine a few words and restore the subsidies. In an attempt to thwart FERC’s decision, the utility is asking the Public Utilities Commission of Ohio (PUCO) to consider “modifications” to its bailout plan. However, these changes will still result in increased customer bills at the rate of $4 billion.

For almost two years, FirstEnergy argued it needed to prop up its uneconomic generators with “power purchase agreements” (PPA) between the utility and its affiliate companies. After federal regulators declared such transactions were illegal because they distorted competitive markets, FirstEnergy lawyers are now saying, “Just kidding!” Instead of using the term “PPAs,” the utility now prefers “surcharges,” skirting FERC’s ruling and hoping it won’t notice there’s been no real change.

The utility also hires creative accountants. FirstEnergy’s original proposal would have the PPAs reflect the actual costs of producing electricity from these old power plants. Now those accountants are saying, “Just kidding!” So instead of actual costs (which require FERC review), the “surcharges” would be based on estimated power production costs – guesses the utility made 18 months ago that have already proven to be way off base.

A Bailout by Any Other Name: FirstEnergy Still Trying to Stick It to Ohio Customers
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These number crunchers also no longer care about actual contracts, so long as they secure the higher rates. Without the official agreements in place, it now seems a handshake among the utility’s affiliates will do, meaning state regulators don’t have to regulate those “deals.”

FirstEnergy wants more money and wants it now. The utility is asking the PUCO to embrace this totally new (but basically the same) approach within the next couple of weeks – so the power firm can start charging higher rates by the first of June. In its rush for profits, the utility wants to avoid hearings, filings, and investigations – those pesky things that regulators usually do.

You have to give FirstEnergy credit for chutzpah. With a straight face, its lawyers and accountants still say the $4-billion bailout will “protect customers,” the very people who will be stuck with higher electricity bills. Of course, the real beneficiary of these legal and accounting sleights of hand is the utility, who’s hoping to recover from a stock downgrade after the FERC ruling.

FERC stepped in to protect Ohioans in this case, but now FirstEnergy is trying to flex its political muscle in the state again.

As we’ve noted before, FirstEnergy also hires powerful lobbyists, many of whom are the friends and former staffers of key politicians. The power company contributes generously to lawmakers and their favorite causes, which seems to usually ensure it gets what it wants in Ohio. FERC stepped in to protect Ohioans in this case, but now FirstEnergy is trying to flex its political muscle in the state again.

If the lawyers and accountants were being honest with their wording, rather than creative, they’d describe the “new” FirstEnergy bailout for what it is and always has been – “corporate cronyism.” Here’s hoping Ohio regulators – all of whom are self-described conservatives who embrace markets over subsidies – will mock FirstEnergy’s new proposal. Call it creative, but still flawed – and still essentially a bailout.

Photo credit: © Oleg Prikhodko / istockphoto.com

By Dick Munson

America got a rare unanimous decision from the Supreme Court this week in a case that has widespread implications for our electric grid, as well as the markets and regulations that govern and move it.

The case was Hughes v. Talen Energy Marketing (docket no. 14-614). The Court decided it 8-to-0, with Justice Ginsburg writing the opinion.

It centered on a Maryland decision to guarantee fixed revenues for an electric generator. Typically, generators are paid through wholesale markets, regulated by the Federal Energy Regulatory Commission (FERC). These wholesale markets keep prices down and costs competitive by only paying for the lowest-cost resources necessary to keep the system running. By guaranteeing money for a generator, no matter how competitive it was in the market, Maryland effectively muted the price signal and ensured that electricity from this particular resource would be paid – regardless of how costly it might be for consumers.

The Supreme Court found that Maryland’s guarantee had interfered with the wholesale markets, which are regulated at the federal level.

The dispute is one of many cases the Supreme Court has taken up on the question of jurisdiction over energy between states and the federal government. At issue here was whether (and to what extent) Maryland’s decision could interfere with federal, competitive wholesale markets. The Court was unanimous, ruling that Maryland’s scheme improperly usurped FERC’s exclusive jurisdiction over wholesale power prices. In doing so, the Court upheld the validity of the cost-effective, competitive marketplace regulated by FERC.

SCOTUS Continues Trend of Protecting Competitive Markets. Here’s Why it Matters for Ohio.
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This decision is good news for ensuring that we only use cost-effective, efficient electric resources. Conversely, it’s bad news for energy deals and contracts that do the opposite – that is, costly resources that undermine a well-functioning, cost-effective market process. These costly, wholesale market-muting deals were the particular target of the Court. Other types of state actions to incent electric resources – including clean resources – were left untouched by the Court’s opinion.

The Decision states:

“Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures ‘untethered to a generator’s wholesale market participation.’” (Decision, page 15)

This decision and limitation make clear that the law does not allow for uneconomic state actions that mute or effectively ignore wholesale market signals and prices. That’s why the Supreme Court’s decision may also be bad news for the uneconomic Ohio coal bailouts.

This decision and limitation make clear that the law does not allow for uneconomic state actions that mute or effectively ignore wholesale market signals and prices.

Those coal bailouts — in which Ohio companies were allowed to keep inefficient, dirty, and costly coal plants running by charging Ohio consumers more money — similarly undermine a competitive marketplace.

A decision in favor of Maryland’s scheme would have given validity to the Ohio coal bailouts. But by deciding against Maryland, the court clearly indicated that the law prohibits actions that “infringe on FERC’s exclusive authority to set wholesale” prices. (Decision, page 10)

So the Ohio coal bailouts – bailouts done between affiliate companies, behind closed doors – continue to find no support in law.

The Supreme Court opinion was a welcome decision for those of us who support affordable clean energy, a strong and reliable electric grid, and government transparency. It protects the integrity of competitive markets with a sharp eye on consumers, and thereby raises serious questions about the lawfulness of actions such as the uneconomic, consumer-callous coal plant bailouts in Ohio.