Revenue Decoupling in Ohio: One Consumer Advocate’s View

1. Revenue Decoupling in Ohio: One Consumer Advocate’s View Wilson Gonzalez PUCO Technical Workshop February 4, 2009 Disclaimer: The opinions expressed in this presentation are mine and do not necessarily reflect the views of the OCC.

2. Agenda • OCC Recent History with Revenue Decoupling • OCC’s Revenue Decoupling Position • General Consumer Advocate Positions • Decoupling in Amended SB 221 • Decoupling in Electric Utility ESP Cases • Straight Fixed Variable Rate Design in Natural Gas Cases • Final Remarks

3. OCC Recent History with Revenue Decoupling • OCC’s Ohio Gas DSM Initiative (2005) • 2005 CLE Sessions • Ralph Cavanagh, NRDC • Breakfast with Ralph and Roger Cooper (AGA) with Ohio Utility Senior Management • At Height of Natural Gas Crisis Policy Discussion Unfolds Around Country (NRRI Costello Presentation) • Janine Decoupling Article in Public Utility Fortnightly • Commissioner Mason Article in EnergyBiz • Vectren Files First Decoupling Case (In Rate Case 2004, then as part of alternative rate plan) • Staff Report calls it “Radical Rate Design” but sign on later

4. OCC’s Revenue Decoupling Position • In Order to Promote Energy Efficiency, OCC Supports Revenue Decoupling with Consumer Protections* • Originally decoupling should be filed as a Rate Case • Rider Caps on annual increases to control volatility • ROR Adjustment as quid pro quo for revenue stability • Aggressive energy efficiency commitment *Such as but not limited to.

5. General Consumer Advocate Position (No Way, No How!) • Skeptical of Revenue Decoupling • Utilities are not guaranteed earnings, just an opportunity to attain PUCO authorized earnings • Single Issue Rate-Making • “If earnings are declining, file a rate case” • NASUCA 2007 Anti-Decoupling Resolution • Current Federal Stimulus tying state funding to decoupling, “…without in the process shifting prudent costs from variable to fixed charges.” NASUCA

6. Decoupling in Amended SB 221 • ORC Sec. 4928.66 (D) for Electric Distribution Utility • “The commission may establish rules…for commission approval of a revenue decoupling mechanism…” • ORC Sec. 4929.051 for Natural Gas Company • Decoupling mechanism as part of an alternative rate plan

7. Decoupling in Electric Utility ESP Cases • Expectation was electric utilities would embrace decoupling legislation • In Reality, Nada, Zero, Zilch

8. Decoupling in Electric Utility ESP Cases (cont.)

9. Straight Fixed Variable (SFV) Rate Design in Ohio Natural Gas Cases • In their most recent rate cases Duke, Vectren, and Dominion East Ohio all filed a per customer decoupling mechanism. • PUCO Staff jettisoned decoupling mechanism in favor of a SFV rate design • Commission Order supports SFV rate design • Columbia Gas of Ohio files an SFV rate design • OCC appeals case in Ohio Supreme Court

10. OCC Concerns with SFV Rate Design • Reduces customer incentive to reduce consumption by lowering variable charge (“efficiency price signal penalty”) • Creates issues of income inequality • Hurts Low usage fixed income consumers • May not align with cost causation principles in the long run

11. Final Remarks • Current/Future Issue: Incentive Ratemaking for Utilities Undertaking Energy Efficiency in a Mandatory Regime • The “efficiency price signal penalty” of an SFV rate design for electric may counteract the considerable worldwide effort needed for Greenhouse Gas Mitigation