In 2009, and after more than a year of debate, the Public Utilities Commission of Ohio (the “Commission”) finalized rules implementing the Alternative Energy Portfolio Standard (AEPS) set forth in Senate Bill 221 (SB 221). In its rules, the Commission required Ohio electric distribution utilities to adopt a minimum 10-year planning horizon for future compliance with the law. As part of this process, Dayton Power & Light (“DP&L”);1 Ohio Edison, Toledo Edison, and the Cleveland Electric Illuminating Company (collectively “FirstEnergy”);2 and Columbus Southern Power and Ohio Power (collectively “AEP”) filed their respective 10-year compliance plans with the Commission on April 15, 2010.3 Duke Energy-Ohio has not yet filed its 10-year plan.

The Alternative Energy Portfolio Standard Compliance Plans

The rules require each utility to annually “file a plan for compliance with future annual advanced- and renewable-energy benchmarks, including solar, utilizing at least a ten-year planning horizon.” More specifically, each plan must:

  • Calculate the utility’s baseline for the current and future years;
  • Provide a “supply portfolio projection;”
  • Describe the “methodology used by the company to evaluate its compliance options;” and
  • Discuss “any perceived impediments to achieving compliance with required benchmarks, as well as suggestions for addressing any such impediments.”

Below is a discussion of the various components of the compliance plans.

1. The Baseline

The Commission must derive a baseline against which a utility’s alternative energy portfolio standard benchmarks will be measured. The baseline is measured using the average sales of electricity to standard service offer retail customers over the three previous years (a three-year “rolling average”). For example, in 2010, the baseline would be calculated as the average of the kilowatt hours sold from 2007-2009; while in 2015, the baseline would be the average of the kilowatt hours sold from 2012-2014.

In order to accurately forecast standard service offer sales levels over a 10-year planning horizon, DP&L accounted for the loss of customers who “shop”—defined as the purchase of electric service from a competitive retail electric service (CRES) provider rather than the utility. Both DP&L and AEP operated under the assumption that its standard service offer sales would decrease in future years based on compliance with the energy efficiency/reduction requirements in SB 221. FirstEnergy did not appear to account for significant levels of shopping in its service territories, or reference its compliance with statutory energy efficiency requirements. Instead, FirstEnergy established its 10-year forecast based on the sales levels reported in its Long Term Forecast Report filed in PUCO Case No. 10-504-EL-POR.

2. Methodology Used to Evaluate Compliance Options

All three of the utilities engaged in a comprehensive analysis of a variety of alternative energy resources. The portfolio of alternative energy resources available to the utilities focused primarily on wind, solar, and biomass. AEP entered into a long-term purchase agreement with the 10.1 MW Wyandot Solar facility that will begin generating electricity in 2010. Likewise, DP&L “began building a 1.1 MW Solar Generating Facility near the Company’s Yankee Generating station” that was completed in March 2010, and is currently evaluating a second phase to this project.

Although in different stages of development, all three utilities anticipate converting existing coal-fired units into co-firing units using biomass and/or bio-diesel resources. For example, FirstEnergy is currently seeking Commission-certification of its biomass co-firing plans at its R.E. Berger Facility in Shadyside, Ohio (PUCO Case No. 09-1940-EL-REN). DP&L recently received certification for biomass and biodiesel co-firing at its Killen Station generating facility located near Manchester, Ohio (PUCO Case Nos. 09-891-EL-REN and 09-892-EL-REN). AEP is continuing to “evaluate co-firing of biomass at its coal powered plants.”

3. Implementation of AEPS Compliance Plans

The purchase of renewable energy credits (RECs) proved to be the focal point of each utility’s implementation plans in the near term. FirstEnergy explained that it will “continue to purchase RECs through a competitive request for proposal solicitation structure for the duration of this ten year plan” and “explore the feasibility of entering into long term RECs contracts.” Echoing these sentiments, AEP indicated that its short term plan “includes such items as purchasing Renewable Energy Credits/Certificates (RECs) and securing Power Purchase Agreements (PPAs),” while DP&L stated that it anticipates meeting non-solar benchmarks “through the purchase of RECs.” In the longer term, AEP expressed a desire to explore the “development of its own projects, the purchase of development assets from other developers, or the purchase of turn-key projects,” while DP&L focused on a combination of “REC purchases and biomass and/or biodiesel co-firing at its own generating facilities.”

4. Impediments to Achieving Compliance with AEPS benchmarks

The most detailed portions of the alternative energy portfolio standard compliance plans proved to be the discussion of impediments to compliance with the various benchmarks. Generally, all of the utilities were in agreement that the greatest impediment proved to be the limited availability of renewable energy resources in Ohio. The utilities identified a number of causes of the limited availability of renewable energy resources, including:

  • The length of time it takes to bring new facilities online (e.g., due to permitting requirements, site acquisition, site preparation);
  • Uncertainties in the OPSB siting process;
  • The time lag associated with the completion of the interconnection process;
  • Delays in the Commission’s certification of qualifying renewable energy facilities
  • Limited availability of capital;
  • High property tax rates;
  • The lack of a cost recovery mechanism for utility-owned projects; and
  • Strains on the developing REC market in Ohio.

In particular, the utilities highlighted the difficulties in complying with the solar carve out. In fact, FirstEnergy’s compliance plan went so far as to imply that FirstEnergy might seek another waiver of its solar benchmarks in 2010, stating: “The Companies may also face an additional challenge in purchasing sufficient solar RECs in 2010 to not only cover the 2010 statutory benchmarks in a tight market, but to also cover the 2009 solar RECs shortfall in 2010.”

Although the utilities are required to file a 10-year plan on an annual basis, it will be very important for the renewable energy industry to monitor related Commission proceedings to ensure compliance with the statutory benchmarks and continue the growth of the renewable energy market in Ohio.