Delay in rate adjustment for all-electric homes

Last Wednesday, the Public Utilities Commission of Ohio (PUCO) gave FirstEnergy until May 7 to adjust its billing for all-electric customers.  The lower rates will only apply in the “winter” months of September through May.  For more information, see John Funk’s article from the Plain Dealer of April 29: Wait for adjusted electric rates

Last Thursday, the Public Utilities Commission of Ohio (PUCO) ruled that FirstEnergy must extend lower rates at least through next winter to customers who live in all-electric homes and apartments.  This order includes additional people who did not have the lower rates previously.  By extending the relief through next winter, the PUCO staff will take the time to evaluate the situation and find the best solution.  The question remains who will pay for the discounts.  In any event, we recommend that all customers look for ways to become more energy efficient in order to reduce their electric costs.

For more information on the PUCO ruling, see the following articles from the Cleveland Plain Dealer and the Akron Beacon Journal:

FirstEnergy ordered to expand low all-electric rates

PUCO expands all-electric discount

The current FirstEnergy rates in Ohio expire on May 31, 2011.  FirstEnergy has filed a proposal with the Public Utilities Commission of Ohio (PUCO) for rates for the period from June 1, 2011 to May 31, 2014.  The proposal includes a plan for auctions to be held to set the generation rates.  With natural gas prices at new lows, this is an opportune time to go to the market to set new generation rates.  The proposal also provides for quarterly updates to the distribution rates to pay for upgrades to the distribution system.

The PUCO will hold public hearings on the rate proposal.  For more information, see John Funk’s article in the April 13th Plain Dealer: Hearings set on FirstEnergy rate plan

All-electric homes in the United States use electricity for heating as well as air conditioning, lighting and to power all the home appliances.  Until recently, electric utilities offered declining rate blocks to large residential users to encourage more electric consumption.  Thus, declining rate blocks discouraged energy conservation.

Politicians in many states, caught up with all the clamor and hysteria of global warming fears, have enacted laws requiring the utilities to both reduce energy consumption and implement expensive renewable technologies such as wind and solar. To meet these recent mandates, the utilities had to flip a switch and redesign the residential rate blocks.  Now, utilities have adopted either flat rate structures or inclining rate blocks in order to encourage energy conservation.  For example, in order to encourage a switch to solar power, in California’s Pacific Gas & Electric territory, residential customers pay 44¢/kWh for each kWh in excess of 850 kWh (see PG&E’s Proposed New Rates ).  In Massachusetts, politicians with a “green” agenda have just acknowledged that their recent renewable energy mandates will result in residential customers paying 50¢/kWh to 60¢/kWh in the next few years (see Fuming Over Solar Rules ).

California and Massachusetts are several years ahead of Ohio with regard to energy legislation and implementation.  We can only hope that Ohio’s decision makers can learn what not to do from these other states and navigate our Ohio economy away from financial ruin.  We are beginning to see the consequences of recent Ohio energy legislation.  I fear we will solely blame FirstEnergy for actions mandated by state legislature, the PUCO and the Ohio Consumers’ Counsel.

Let’s look at two Illuminating Company examples in order to examine the results of energy conservation mandates in Ohio.

We can see that the all-electric home used to pay 5 cents less per kWh, but now the cost per kWh is about 13 cents for both homeowners.  Ohio officials wanted to encourage higher users of electricity to pursue energy conservation actions within their homes.  So, their costs were brought in line with those of other users.

Now, Ohio officials have heard complaints about cost increases for over 100,000 voters with all-electric homes.  What are they going to do?  The Ohio governor wants to return all-electric rates permanently to what they were before state laws were signed and implemented.  See John Funk’s article in the April 10th Plain Dealer for more information: Strickland wants electric discounts restored permanently

What happens when the politicians hear from the remaining one million voters in FirstEnergy territory that they do not want to subsidize the all-electric homes? Will they reverse themselves again?

Conclusion:  It is critical to reduce the impact of the actions taken by state officials.  You can only accomplish this by striving to become more energy efficient.  Watch for future blogs with energy efficiency ideas.

As we have said before, the best natural gas deal right now is a variable rate plan.  John Funk had an excellent article on this topic in the April 4th Plain Dealer: Low natural gas prices mean fixed-rate plan not best deal

Several years ago, the break even point for natural gas production was $6 per million BTUs.  Due to new drilling technologies involving large deposits of shale gas, the break even point has fallen under $4 per million BTUs.  With more drilling, natural gas prices can be expected to drop.  Therefore, you might want to wait a while before locking into a fixed rate plan.

As Ohio is just starting down the road of alternative energy mandates, we can look to the experiences in other states who have already implemented such laws.  A case in point is Massachusetts.

Several years ago, Massachusetts set in motion a “Don Quixote” strategy to battle global warming.  There were a number of stakeholders in Massachusetts who protested these alternative energy mandates.  High electric costs had already driven larger manufacturing companies out of Massachusetts.  At the same time, many of their citizens have moved north into New Hampshire and Maine.  Part of the argument was that many of the solar cell strategies were ill advised and would prove financially disastrous.  Some even warned that these politically driven energy projects might double or triple Massachusetts future electric rates that are already hovering over 20 cents per kilowatt hour.

Now, Massachusetts businesses are complaining about the increased costs of electricity associated with solar-power mandates at a time when the economy is weak.  Electricity prices are already higher in Massachusetts than in other parts of the country.  Energy suppliers are also not happy about the requirement to produce power at such a high cost.  For more information, see this March 30th article from the Boston Herald: Businesses fuming over solar rules

The lesson for Ohio is that our electric costs will increase as the requirement for alternative energy grows.  It is critical for businesses to prepare by pursuing ways to reduce their electric consumption while taking a more active role in shaping Ohio’s energy policy through organizations like IEU-Ohio.  Contact us if you want to know more about what you can do.

In the spring of 2008, Dominion East Ohio (DEO) got out of the natural gas supply business.  The utility only provides gas delivery services.  The charge for residential delivery is presently $1.8204 per Mcf.  It will climb to $2.96 in April in order to cover the cost of a program that allows low-income customers to pay only a portion of their bills.

You may buy your natural gas from another supplier and have it delivered by Dominion East Ohio.  If you have not selected an alternative supplier, your gas supply was assigned to another company under the variable Standard Choice Offer (SCO).  In this case, regardless of which supplier you are assigned, you are charged DEO’s SCO rate, which varies each month based on New York Mercantile Exchange (NYMEX) month-end settlement price, plus a “Retail Price Adjustment” (RPA) of $1.40 (dropping to $1.20 in April). Based on recent NYMEX natural gas prices, for the period from May 20 to June 19, we expect the SCO rate might fall under $5.00 per Mcf.

Based on the information on the PUCO website, marketers are not offering one-year fixed rate contracts for less than $7.30 per Mcf.  We recommend staying with DEO’s variable SCO rate if you have not locked in with another supplier.  If you have an alternative supplier contract at a rate significantly higher than $6 per Mcf, and there is no early termination fee, you might want to consider returning to DEO.  You would do this by contacting your supplier and telling them that you want to default back to DEO.

There is a 5-year fixed price offering shown on the PUCO website at a pricey $10.30970 per Mcf.  We like the fact that marketers are offering multi-year contracts again.  However, we want to see the price come down.  In the meantime, we’ll keep an eye out for multi-year fixed rate contracts (hopefully 3 years or longer) at prices under $7 per Mcf.

Natural gas prices have been falling.  However, Dominion East Ohio Gas customers will see an increase in one component of the gas delivery charges in order to cover the cost of a special program that allows low-income customers to pay only a portion of their gas bills.  John Funk described this in more detail in the Plain Dealer on March 25th:

Dominion bills to increase to cover low-income rates

The current FirstEnergy rates in Ohio expire on May 31, 2011.  FirstEnergy has filed a proposed rate plan that would begin on June 1, 2011, with the Public Utilities Commission of Ohio (PUCO).  The proposal includes the right to quarterly increases to pay for the cost of equipment upgrades.  As electric costs increase, it will become more critical for companies to understand the rates and what they can do to control costs.  For more information, see John Funk’s March 24th article from the Plain Dealer: FirstEnergy crafts rate plan allowing quarterly increases

When FirstEnergy restructured their electric rates in early 2009, some customers who accept power at lower voltage levels saw increased electric costs.  John Funk gives some examples of this and quotes Mike Brakey in the following Plain Dealer article:

Small manufactures pay a steep price in FirstEnergy rate restructuring

The new rates encourage reducing consumption.  We work with our clients to identify ways to reduce electric consumption not only to reduce electric bills but also to seek exemption from the Demand Side Energy Efficiency (DSE) rider.