Ohio ratemaking reform bill would give more favors to utilities, critics say

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Ohio utilities haven’t asked to increase electricity rates in more than a decade — but that doesn’t mean customers aren’t paying more.

Instead, utilities have sidestepped the comprehensive and relatively transparent regulatory process for setting rates ever since a 2008 state law made it easier for companies to collect more money from customers by tacking on extra bill charges, known as riders.

In one extreme example the Energy News Network reported on in 2019, the bill for a single lamppost maintained by a Cleveland neighborhood group had jumped from around $8 a month in 2008 to nearly $70 a month, primarily due to the new charges. 

There’s now widespread and bipartisan agreement — from consumer advocates to conservative state lawmakers — that the system needs to be fixed, but the debate around a recent legislative proposal shows there’s still little consensus around what those reforms should include.

The Republican-sponsored House Bill 260 would require utilities to file ratemaking cases with the Public Utilities Commission of Ohio at least every five years.

State Rep. Bill Seitz, R-Cincinnati, one of the bill’s co-sponsors, told the House Public Utilities Committee earlier this year that the bill is “really all about…returning to the days when there were more complete and full rate cases.”

Consumer, business, and some environmental advocates have long wanted to see that kind of change, but they oppose other provisions in the bill that could make it harder for some groups to participate as parties and dig into the facts. The legislation also wouldn’t stop the practice of adding charges to customers’ bills.

“It’s another step in the wrong direction in the same vein as House Bill 6,” said state Rep. Casey Weinstein, D-Hudson, ranking minority member on the House Public Utilities Committee. HB 6 is the nuclear and coal bailout law at the heart of Ohio’s ongoing corruption scandal.

Basically, full rate cases require electric utilities to document how much revenue they need to provide reliable service, maintain and repair equipment, and provide a reasonable rate of return on capital investments. The cases also consider how much electricity different classes of customers are expected to use, along with any differential costs in delivering that energy, the need to accommodate low-income programs and so forth. The Public Utilities Commission of Ohio then determines what the price per kilowatt/hour should be.

Charges set in rate cases reflect a moment in time, said Rob Kelter, a lawyer with the Environmental Law & Policy Center. Utilities have an incentive to maximize profits through technology, improved management and other mechanisms. So often, “the reason a utility doesn’t come in for a rate case is because they’re overearning.”

At the same time, Ohio utilities have added charges for costs not covered by their earlier rate cases. A 2008 law allowed utilities to file “electric security plans” instead, which let them add piecemeal charges. Unlike a full rate case, the plans focus on specific program costs. The PUCO considers if they’re warranted, “but what it doesn’t do is look at any of the utility’s other revenues and expenses, like you do in a rate case,” Kelter said.

For example, FirstEnergy’s last rate case was in 2007. Since then, the company has charged for dozens of riders, including some whose spending is at issue in regulatory cases linked to HB 6. The company plans to apply for new rates at the end of this month due to revision of a 2019 order in the aftermath of the HB 6 scandal. But various riders under the company’s latest plan, approved with changes on May 15, would continue.

Less transparency and participation

Seitz said the proposed legislation would “improve the process… to make it less expensive and simpler for everybody.”

Among other things, HB 260 would limit prehearing fact-finding and change the rules for how stakeholders can participate. Local hearings would require only one notice and wouldn’t need to say how much more revenue utilities want. Companies would be able to make their case completely based on projected costs rather than including some historical cost data. And companies would still be able to impose additional charges on customers in between full ratemaking cases.

Comments by attorney Kim Bojko for the Ohio Manufacturers’ Association noted the bill “eliminates due process rights for parties,” including limits on the number of intervenors. Those are groups or individuals who can take part in a case as full parties, with the right to conduct fact-finding and present evidence in the case.

Currently, intervenors in any PUCO case must show they could be adversely affected by the outcome of a case. HB 260 would require they be “adversely and directly affected.” Additional language calls for the PUCO to consider whether an intervenor’s interest is “as a consumer, customer, or competitor,” notably omitting environmental groups.

“Utilities have an outsized advantage in PUCO proceedings, often to the detriment of customers in terms of cost, air quality, control over our bills and more…,” said Tom Bullock, executive director for the Citizens Utility Board of Ohio. “Closing the courtroom door to consumers and other stakeholders while limiting discovery for those in the room, perpetuates the problem.” 

Those limits would allow no more than three rounds of written questions before and after filing of the staff report. And the PUCO staff would not be subject to any discovery. Seitz noted that various courts limit parties’ written discovery.

That comparison misses the mark, said Ashley Brown, a former PUCO commissioner who has advised governments on energy markets and regulation. “Anything involving rates is legislative, not judicial.” So the standard should be very broad, he said.

Ohio Consumers’ Counsel Maureen Willis told lawmakers the limits also are unfair “because the utilities have most of the information that needs to be discovered. Instead, there ought to be a focus on protecting non-utility parties from utility delaying tactics and nonresponsive answers.”

HB 260 also would shift to fully forecasted rates, without even a few months of actual cost data. 

“That will tilt the scales very heavily in favor of the utilities,” David Proaño, a lawyer for the Ohio Energy Leadership Council told lawmakers. “It’s much more difficult to seek discovery and challenge a forecast.” Utilities could just say the forecasts are based on their business judgment, without providing details about their models, reasons for different judgment calls and so on.

Riders by another name

Under HB 260, “lawmakers now propose to stack the deck in the utilities’ favor even more by limiting customers’ rights and further increasing customers’ costs,” said Bojko. “HB 260 proposes to add more above-market charges to customers’ bills through new distribution riders while thwarting challenges to rate increases.”

HB 260 calls the four new charges “trackers” instead of “riders,” although Ohio House Budget Analyst Michael Kerr found each term “generally holds the same meaning.” The bill’s current terms don’t get rid of other existing charges on top of regular rates, although Seitz claimed “previously approved riders would continue only if their need is demonstrated in the five-year rate case.” 

Willis said the Office of the Ohio Consumers’ Counsel awaits an amendment clarifying that.

Letting utilities seek new charges in between cases shifts risks and costs to consumers as utilities get to reap more benefits, Brown said.

Other bill language states if the Ohio Supreme Court finds that any rider or other “rate mechanism” beyond base rates is unlawful, refunds will be made only for the period from the Ohio Supreme Court’s order until the PUCO’s order rescinding the charge. The refund provision wouldn’t apply to funds already collected while an appeal was pending.

That provision would still let utilities keep funds collected while an appeal was pending. FirstEnergy kept roughly $450 million collected for a “distribution modernization rider,” which was later ruled unlawful and now is at the heart of one of four PUCO cases linked to HB 6.

Other provisions in the bill could let utilities earn interest on some operational expenses as if they were capital improvements. Still other terms might relax the reliability requirements for utilities.

The House Public Utilities Committee likely will hold more hearings before the bill is reported out. “Inasmuch as the bill is in its early stages, there will no doubt be additional issues that arise and will be dealt with in the normal process,” Seitz said. Senate Bill 102, introduced last year, also would require regular rate cases, but still with extra charges and also with less fact-finding.

For now, Weinstein said the provisions about hearings and other changes mean some stakeholders “will no longer have a seat at the table” if HB 260 passes. 

“It’s just another example of the legislature doing the bidding of their Big Energy overlords,” he said.

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