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Misleading Ohio into a clean energy “freeze”


May 13, 2014 - 8:35am
By Daniel Trombley, Senior Industrial Analyst

The Ohio Senate reconvened so late last Wednesday night that when a motion was made to adjourn until Thursday, the Senate president had to remind the senators that it was already Thursday. What emergency situation kept Ohio’s upper house busy into the small hours? A bill, hastily substituted and amended at the last minute, that would cut back Ohio’s energy efficiency and renewable energy standards. As passed by the Senate, SB 310 would “freeze” the standards (i.e., suspend any requirement for additional savings) for two years while a “study committee” (composed of state legislators, not scientists or energy analysts) decides their ultimate fate. The specifics of the legislation can be seen here.

The standards have been providing Ohioans with lower energy bills and cleaner air for several years (the latter surely appreciated by states downwind from Ohio, especially in light of the Supreme Court ruling regarding the “good neighbor rule”). The standards were passed by a large bipartisan majority in 2008, but some of those same representatives now want to gut them.

Curious, I watched a livestream of the midnight debate (broadcast by the indispensable Ohio Channel) to see what reasons were given for the about-face. Unfortunately, I found that the senators who spoke in favor of SB 310 used a series of mistaken, misleading, or irrelevant “facts” while urging its passage. I’d like to take a moment to briefly address some of those “facts”:

Standards (A.K.A. “mandates”) can’t be more efficient than “free markets”

This is an old and easily debunked claim. The “free market” could certainly allocate costs and provide energy at the lowest cost--if there were such a thing as a free market in the U.S. electric system. The fact is that electric utilities are regulated monopolies. Regulation and oversight is the price utilities pay in return for a guaranteed rate base. And even in so-called “deregulated” states like Ohio (where customers can shop around for electricity generation), the distribution utilities are still regulated and have incentives to sell more energy. Energy standards help correct this market imbalance. Another issue is the uncounted costs—externalities—of fossil fuel generation, including air pollution and greenhouse gas emissions.

The cost of standards are passed on to consumers

This is one of several statements made that are technically true, but don’t tell the whole story. Yes, electric consumers (both individuals and manufacturers) ultimately foot the bill for the standards on their electric bills, just as they foot the bill for power plants. But no mention was made in this argument of the huge benefits of energy efficiency. An assessment of the current programs shows that for every dollar spent, two dollars are saved. Furthermore, the alternative to efficiency is to buy more electric supply, which costs ratepayers two to four times as much per kWh as energy efficiency.

Ohio’s energy efficiency standards are higher than other states

One senator began listing other states with efficiency mandates, supposedly to show that most targets are lower than those in Ohio. However, the states listed set shorter-term goals than Ohio—many lasting just a few years. For example, New York’s goal is 15% by 2015 while Ohio requires only 5% by that year. The more important measure is how much new savings are required each year. Ohio’s standards start slow and ramp up to 2% per year. The current law gives Ohio time to build the necessary capacity, and evidence shows that they are ahead of schedule. The same source shows that even states meeting a 2% per year target (and there are several) are doing so cost-effectively. Ohio is in line with standards set by other leading states.

Some states don’t have renewable energy standards

Following the list of states that have efficiency standards was a list of states that don’t have renewable energy standards. I thought maybe the point was that those states are doing better economically, but there doesn’t seem to be any correlation between having no renewable standard and higher economic growth. The only point I see here is that states are free to make their own targets, as Ohio did after much debate and in bipartisan fashion in 2008.

Companies who oppose SB 310 make money off mandates

Yes, certain companies set business models in accordance with current state and federal regulations, and make a profit doing so. This is part of capitalism. Instead of supporting companies that are trying to make money while encouraging consumers to save energy and money, proponents of SB 310 would support companies that benefit from consumers paying more for energy.

The Total Resource Cost Test (TRC) is not legitimate, comparing current costs to future benefits

This is a very technical topic, and there are a lot of arguments for and against the use of the TRC, but when evaluating something that has an upfront cost and benefits that stretch years into the future (whether it’s energy efficiency or a new natural gas power plant), it is intuitively obvious that you would measure the costs against estimated future benefits. This is a common practice in all businesses, not just in the energy field.

The situation has changed since 2008

Some tried to explain why it wasn’t hypocritical to support the repeal of standards they voted for six years ago. They claim that in 2008 they were worried about rate shocks and high natural gas prices but that the shale gas finds change all that. On its surface this seems like a fair point (natural gas prices are certainly lower now), but it implies the wrong question. Regardless of the reasons the law was passed in 2008, the relevant question is “what is the least cost energy resource?” Spoiler alert: it’s energy efficiency. And speaking of price volatility, surely they are aware of Ohio utilities passing huge costs on to consumers due to price spikes caused by this winter’s polar vortex? The best way to hedge against price spikes is smart, long-term policy encouraging utilities to acquire low cost, low-risk energy efficiency.

SB 310 just pauses the standards

Perhaps the most insidious argument is that SB 310 is just a temporary pause, and that in two years we’ll pick up where we left off. Under SB 310, the standards would return if no action is taken. Rest assured, though, that those pushing SB 310 will be working hard for the next two years to dismantle or completely water down the standards (and SB 310 does a lot to water down the standards as it is). More importantly, over the last few years Ohio has been building the program-and-trade-ally infrastructure and delivery network necessary to meet the standards, both at utilities and in the private sector. A two-year shut-down would dismantle that infrastructure, pushing energy efficiency jobs out of the state and reducing Ohio’s future ability to meet the standards and move to a clean energy economy.

Regardless of the arguments made in the Ohio State Senate chambers in the middle of night, the bill passed, virtually along party lines. The Ohio House will take up (and likely pass) the measure by the end of the month, and then it will go to Governor Kasich. While he has already indicated support for this “compromise” bill, he will have to consider the facts before he makes the final call: energy efficiency is recognized by experts the world over as the lowest cost resource to meet our energy needs, and energy standards have a proven track record of providing that resource cost effectively. Furthermore, he should decide if he wants to be associated with a bill that was rushed through the Senate with no public input. Finally, he should recognize that the energy efficiency and clean energy industry in Ohio has exploded over the last few years under the current law, and that SB 310 would jeopardize the economic growth that has resulted from these forward-looking policies. Governor Kasich has a reputation for being sensible on energy policy. I hope he considers the legacy he will leave on Ohio’s energy future.