An Ohio Senate panel recently began hearings to evaluate Senate Bill 221’s energy and peak demand reduction mandates. After FirstEnergy came out in support of this review, many high-profile trade associations voiced their opinion that the mandates should remain unchanged. While FirstEnergy is fighting for its customers, I contend these trade associations are disregarding their members’ interests.
Passed in 2008, SB 221 requires Ohio electric distribution utilities, such as FirstEnergy, to implement programs that will cause customers to use less electricity. The utilities must meet annual increasing benchmarks for energy efficiency, or face penalties. Compliance costs incurred by the utilities are passed on to customers through a surcharge on their electric bills. In FirstEnergy-Ohio service area, this surcharge is called the DSE2 rider.
The DSE2 rider varies by rate schedule and is updated every six months. Shortly after SB 221 went into effect, DSE2 charges were negligible; many users paid no more than 0.1¢ per kWh. However, as compliance benchmarks have increased, so too have the costs. Some customers are currently paying over 0.6¢ per kWh. The rider is now costing my clients, as well as members of these trade associations, tens of millions of dollars. It is not uncommon for me to encounter a prospective client paying $20,000 per month in DSE2 charges. Over the next three years, it will cost FirstEnergy’s retail customers over $200 million and, absent reform, costs will continue to increase exponentially.
Fortunately, there is some relief from these costs for most commercial and industrial customers. If a customer completes energy efficiency projects, it can apply for a cash rebate or, if the customer is large enough, an exemption from future charges. The rebates are funded by the DSE2 charges paid by them and other customers. Eligible energy efficiency projects include lighting upgrades, energy efficient motors, high efficiency HVAC equipment, and many others.
Brakey Energy provides comprehensive energy management services to large users of energy in Ohio. A key component of our services is helping our clients deal with the SB 221 energy efficiency mandates. Indeed, these mandates are very good for my business. While Brakey Energy provides a wide range of services, helping our clients avoid the electric bill increases caused by the DSE2 rider usually more than covers our fees. These mandates are similarly lucrative for many of the trade associations that have come out in support of them.
Energy efficiency projects undoubtedly offer many benefits to commercial and industrial energy users. However, there are already price signals available for energy users to respond to: the electric rates as they reasonably relate to the cost of delivering power. Energy and peak demand reduction projects were completed prior to the passage of the mandates, and will continue to be completed if the mandates are repealed or modified. This is because it makes economic sense to do so independent of government fiat.
I have seen first-hand the negative impact of these mandates on my clients’ electric bills. The skeptic in me believes that many of the trade associations that oppose repealing or modifying the mandates are more interested in rent-seeking than the interests of their members. Indeed, the implications go beyond my clients and the members of these trade associations. It is not hyperbole to say that Ohio’s viability as a home to energy-intensive industry is threatened under the current legislative and regulatory framework.
I applaud FirstEnergy’s efforts to shed some light on this important subject, and I call upon representatives of the business community to consider the far-reaching implications of their advocacy positions.
Matt Brakey, President of Brakey Energy