With increased attention being paid globally to environmental issues, federal and state governments have implemented or are considering implementing several regulatory and statutory changes focused on energy. For instance, 27 states in the U.S., including Ohio, and several countries, including Canada, Great Britain, Belgium and Italy, have adopted renewable portfolio standards.
“These standards require utility providers to produce or obtain a certain percentage of their production from renewable energy sources by a certain date or face penalties,” says Michael L. Snyder, co-chair of the energy practice group at McDonald Hopkins LLC.
In addition, legislation was recently passed by the House and is awaiting consideration by the Senate (American Clean Energy and Security Act), which contains a cap and trade for carbon emissions.
“This will be a critical issue to watch over the course of the year. If the Senate passes similar legislation and some type of carbon trading system is implemented, there will be a significant impact on businesses,” says Michael W. Wise, co-chair of the energy practice group at McDonald Hopkins LLC.
Smart Business spoke with Snyder and Wise about the differences between a renewable energy portfolio and efficiency standards, how these standards affect electricity prices, how these standards affect businesses, the benefits of energy efficient projects, and the possibility of future regulations.
Is the renewable portfolio standard different from the efficiency standard?
It is, and utility companies are preparing for this new standard in a variety of ways. Utilities in every state are faced with deciding what renewable energy source or sources they wish to utilize to meet the new requirements. They must also assess their own renewable generating capabilities and determine their sufficiency. Many sources are already commercially available but others will require further development. In many cases, utilities are actively purchasing renewable energy credits in order to meet the new portfolio standards.
How will these standards affect electricity prices?
Renewable portfolio standards and efficiency standards will ultimately result in increased prices paid by consumers. In Ohio, increases are capped for electricity consumers and renewable electricity producers. There are obviously two views on these standards. If you are in the business of producing renewable electricity, you have already been able to command a great price for renewable energy generation. That fact has led to a dramatic increase in that activity, both in Ohio and nationally. However, consumers are beginning to see a corresponding increase in electricity prices, which could eventually have a negative impact on the ability to sustain existing jobs or increase new job opportunities.
How do these standards affect businesses?
Depending on which side you are on — renewable energy or older manufacturing — this will either be the greatest subsidy or greatest tax on energy in the U.S. There is an opportunity for the renewable energy industry to blossom, but heavy industry and manufacturing have a wary eye on these standards because of the increase in electricity prices.
Can businesses shop for lower electricity prices?
There has never been a greater opportunity for electricity consumers to look for better prices than what their utility is offering. The downside is there will no longer be a safe, regulated rate, and the wholesale price of electricity will unquestionably increase. Consumers will need to be smart about energy decisions and try to mitigate the price increases. Businesses can work with their utility, engage electricity marketers, or sell their electricity load at auction. All of these strategies can result in materially lower electricity prices.
Tell us about the new efficiency rider and the benefits of energy efficient projects.
Most businesses also want to avoid the new efficiency rider that will show up on electricity bills later this year. This rider can be avoided by submitting efficiency projects that have been completed since Jan. 1, 2006. The efficiency projects are not just for savings this year or last year, they can go back to 2006, and you can get credit for any energy efficiency projects since that date.
The size of the rider and when it will become effective is being negotiated right now in the Public Utilities Commission of Ohio in Columbus. The size could be anywhere from a half to a full cent per kilowatt-hour, which could easily be a 10 percent or more surcharge on a business’s electricity bill. The utility will collect those funds, which will then be made available as a subsidy to businesses implementing energy-efficiency projects. The current issue businesses will be faced with is whether they will pay into this fund to support other businesses’ projects or whether they will take the steps necessary to be a recipient of these dollars.
Financial assistance for projects can be obtained through this rider or traditional state and federal energy programs. This is an excellent time to pursue efficiency projects, both because of the availability of assistance and because you will lower your electricity bill, avoid the new efficiency rider and potentially upgrade your equipment. You will also be fiscally and environmentally responsible, which makes your business more attractive to customers. There is a growing ‘green’ culture and pursuing these types of projects will go a long way toward establishing you as a leader in the sustainability arena.
Will there be new regulations in the future?
Yes, there is no question that regulation in this area will expand. You will also see an increased focus on energy costs and diversifying into renewable energy sources. Be prepared for a long ride; for better or for worse, this space will be volatile for the foreseeable future.
Michael L. Snyder and Michael W. Wise are co-chairs of the energy practice group at McDonald Hopkins LLC. Reach Snyder at (216) 348-5754 or [email protected]. Reach Wise at (216) 430-2034 or [email protected].