A FirstEnergy-branded USB drive from 2009. Critics note that the utility's latest efficiency plan still includes incentives for CFL bulbs.

Custom USB / Creative Commons

A FirstEnergy-branded USB drive from 2009. Critics note that the utility's latest efficiency plan still includes incentives for CFL bulbs.

FirstEnergy could make millions in profits from its energy efficiency plan

Critics say FirstEnergy’s plan to resume its energy efficiency programs in Ohio could let the company take credit for work done by others and make millions of dollars as a result — at customers’ expense.

The utilities’ plan to count those efforts “does not produce energy or cost savings above a business-as-usual case,” said John Seryak in testimony filed last week with the Public Utilities Commission of Ohio on behalf of the Ohio Manufacturers’ Association Energy Group.

At a minimum, the PUCO should make clear that FirstEnergy’s utilities “cannot collect shared-savings incentives on efficiency projects that they did not create or were not involved with,” Seryak said. FirstEnergy would also be able to earn profits on other parts of the proposal.

Overall costs to customers for FirstEnergy’s energy efficiency programs would be more than $322 million plus profits of $117 million over the course of three years, according to the Office of the Ohio Consumers’ Counsel.

‘Offering energy-saving programs’

FirstEnergy had stopped almost all of its energy efficiency programs after Ohio lawmakers imposed a two-year freeze on additional requirements in 2014. The company’s plan to reinstate programs “would offer a menu of energy efficiency programs aimed at helping customers save energy and money,” said a company press release.

But consumer advocates, business organizations and environmental groups disagree and have filed testimony objecting to multiple provisions.

“We are working closely with the PUCO and other stakeholders through a formal process to illustrate the benefits of our energy efficiency programs and to address any concerns they may have,” FirstEnergy spokesperson Doug Colafella said when asked to comment on critics’ objections. “While Ohio’s energy efficiency standards are currently frozen in place at 2014 levels while the legislature considers reforms, FirstEnergy has committed to offering energy-saving programs for customers through May 31, 2024.”

The company made that commitment in a filing in another case that critics have called a “bailout” for FirstEnergy’s struggling coal and nuclear operations. Challenges in that case are pending, and it will likely be appealed.

Even aside from that case, Ohio’s energy efficiency standards and renewable energy standards are set to resume next year. Under current law, then, FirstEnergy’s utilities would have a duty to reduce overall electricity demand for 2017 and beyond.

Questions about cost-effectiveness

Consumer and environmental advocates generally push for programs to reduce energy use on the grounds that they save customers money while cutting down on pollution. Programs required under Ohio law have previously saved customers $2 for every $1 spent on them.

However, various provisions in FirstEnergy’s new plan are not cost-effective, according to critics. Those include “behavioral” and “school education” programs, a smart thermostat program, direct load controls and energy audits, noted Richard Spellman in testimony filed on behalf of the Office of the Ohio Consumers’ Counsel.

For example, data in Spellman’s testimony suggests that for every $1 spent by both FirstEnergy and its customers on audits and education, customers would save just $0.89. That could be due to the costs of having trained experts visit homes and businesses, failure by customers to follow through on recommendations, or a combination of those and other factors.

Those and certain other programs will cost ratepayers more than $100 million, Spellman said. He recommended cutting all non-cost effective programs other than those for low-income consumers.

FirstEnergy also proposes to continue discounting CFL bulbs, despite falling costs and growing popularity of LEDs, noted Trish Demeter of the Ohio Environmental Council.

Profiting from others’ work?

FirstEnergy’s proposal also relies heavily on energy savings that it had no part in creating, said Spellman and other critics.

“It’s almost like ‘The Little Red Hen,’” said Demeter, referring to a children’s story in which no one but the hen does all the work to make bread, but then everyone else wants a piece of it at the end.

Under FirstEnergy’s proposal, she explained, a municipality can do all the work to put together a PACE program for a special energy improvement district. Or, a company can spend substantial amounts of its own money to make capital improvements that save energy.

But then, FirstEnergy’s plan would let it claim credit for and count those or other types of energy savings. “FirstEnergy wants to show up and enjoy all of the benefits” once the program is in place, she said.

Not only that, but FirstEnergy’s plan would count those energy savings towards any profits its utilities could collect as shared savings. “They’re going to count those savings…, and then they’re going to earn a profit on it,” Demeter said.

FirstEnergy’s proposal would also require customers to pay the company’s taxes on those profits, said Seryak.

The PUCO should block those attempts, Spellman said in his testimony. In his view, “a utility should only receive shared savings profits for programs that it develops and administers for the benefit of customers.”

A legal loophole?

The possibility proposed by FirstEnergy stems from a 2014 law that weakened Ohio’s energy efficiency and renewable energy standards and then imposed a two-year freeze on any further obligations under those standards. Among other things, the law let energy efficiency steps taken by other entities count towards the state’s targets.

But other provisions were already in the law that let utilities earn shared savings, or profits, from anything they did beyond what the law required. Existing law also let utilities collect lost distribution revenue for electricity they did not have to deliver because of the energy efficiency standards.

The combination of provisions created an ambiguity in the law, while also potentially eroding the value of energy efficiency programs for consumers.

If some state lawmakers have their way, however, the scenario proposed by FirstEnergy could well become the rule in Ohio.

A draft bill obtained this week from the office of state Sen. Bill Seitz (R-Cincinnati) contains language that would more clearly let FirstEnergy and other Ohio utilities count actions by others towards their ability to earn profits from shared savings. The draft language would also weaken the law further. Among other things, it would change the current “standards” to “provisions” that focus on incentives, while deferring any consequences for noncompliance for at least three to four years.

It’s unclear whether such a bill would be passed by the General Assembly and then approved by Ohio Gov. John Kasich.

“All indications are that this bill would be dead-on-arrival at Governor Kasich’s office,” observed Samantha Williams at the Natural Resources Defense Council. “He has said repeatedly that he won’t tolerate unserious, watered- down legislation on the clean energy standards- and this sub-bill is beyond watered down. It’s a non-starter.”

For now, challengers in the FirstEnergy case want the PUCO to limit the profits FirstEnergy can recover and to require that all activities customers pay for will be cost-effective, as required by Ohio law. In Demeter’s view, FirstEnergy’s plan falls far short of those requirements.

“It’s a lot of freebies. It’s a lot of free-ridership. And it’s a lot of laziness on the company’s part,” Demeter said.

 

CORRECTION: A clarification has been added to note that FirstEnergy’s plan would let it earn shared savings, or profits, for both customer programs and its own programs.

One thought on “FirstEnergy could make millions in profits from its energy efficiency plan

  1. 1). Programs under Ohio law have saved customers close to $9 for every $1 spent. Several organizations insist in under-stating the benefits and the PUCO has refused to comply with the law which requires it to issue annual reports on costs and benefits so there is much confusion.

    2) This problem is caused by the Ohio Republicans who voted along party lines to pass an absurdly written law in 2014 which “allowed” the utilities to count efficiency achieved by independent efforts such as the Federal Appliance Standards or the rare smart industrial company as compliance toward the Ohio standard. It is probably fair to say that the Ohio Republicans are confused about what the goals of the standard are, and neither they nor the PUCO have clarified how these non-utility savings will be recoverable. In the past the PUCO would have issued some non-binding clarification by this time, but the current PUCO is far behind the standards of past years, probably because Governor Kasich won’t stop meddling with their efforts to make the utilities work smoothly. All Kasich agencies are working to undermine clean, cheap energy solutions and are costing Ohio tens of thousands of potential new jobs and billions of dollars of economic activity.

    3) FirstEnergy is the one Ohio utility most likely to promote this strategy since the other three don’t mind overcompliance if they get paid fairly for it. But it is unlikely to amount to millions of dollars of recovery at this point because they haven’t been able to find that many customers so far. That might change. They certainly proposed to find more customer efficiency than they have so far. But the reality is lagging their projections.

    4) Current Ohio law mandates that utility programs be approved before they can get money. And current law requires that the programs be cost-effective by a specific standard which ensures that all customers benefit from the savings, not just the program participant. If FirstEnergy has proposed to be paid hundreds of millions of dollars and the proposed actions don’t result in the direct installation of new efficiency that cuts the need for generating capacity which is worth more than the cost of the programs then the programs are in violation of the law. So the additional savings caused by customers without direct support from FirstEnergy are not allowed to be compensated. Shared Savings are dollars that the utility is allowed to recover because they are a small fraction of the actual verified net savings produced by the measures. If FirstEnergy is allowed to recover additional shared savings for these programs it is not a violation of the law, but it is a violation of common sense and evidence that the PUCO is not doing its job.

    The current case is an excellent place to clear up these misunderstandings. If the PUCO is not making it clear to parties that they intend to do so it is a shame because people should be furious with Ohio Republicans, and not the poor management of FirstEnergy. FirstEnergy is just a badly managed company that should be allowed to flounder along in the market like all the other utilities until they either get their act together or get sold to someone else who does have an act.

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