Utility challenges net metering plan in Ohio Supreme Court

By Ellen M. Gilmer

One of the nation’s largest electric utilities is facing off against Ohio regulators over the state’s net metering policy.

The Public Utilities Commission of Ohio (PUCO) last week asked the state Supreme Court to dismiss a lawsuit from American Electric Power Company Inc.’s Ohio division alleging that recent changes to agency code would force the utility to subsidize its competition.

The lawsuit attempts to lessen the costs shouldered by public utilities in a deregulated electricity market. In Ohio, electricity generation became competitive under state law in 2001, allowing customers to choose to receive power generated by their traditional utility or by a competitive supplier. Distribution services and billing, however, remain the utility’s responsibility.

AEP Ohio’s contention centers on PUCO’s recent rules for net metering — a common practice in a deregulated market in which electricity users who generate power through solar panels, wind turbines or other technologies receive credit or payment from a local utility when they feed surplus power to the grid.

In a brief submitted earlier this month, AEP Ohio argued that it does not oppose net metering generally but takes issue with PUCO’s provision that requires the utility to pay for surplus power fed to the grid by customers who have opted to receive power generated by competitive retail suppliers instead of power generated by the utility.

AEP Ohio and fellow utility FirstEnergy Corp. have opposed the provision from the start, arguing that competitive suppliers, not traditional utilities, should be on the hook for net metering payments for their customers. AEP Ohio also argues that the rate it must pay for net metering reflects more than the electricity itself, improperly encompassing non-energy costs like capacity.

“The reality is that the energy delivered back to the grid by a customer-generator may not necessarily offset the peak demand that the utility has to meet or reduce the costs associated with serving the customer-generator,” the brief said. “Thus, the Commission erred in applying an overbroad credit that goes beyond compensating a net excess customer-generator for the energy delivered back to the grid and provides an unreasonable and unlawful windfall to customer-generators.”

A win for AEP Ohio could significantly lower net metering costs for the utility. According to recent data from the U.S. Energy Information Administration, almost 40 percent of industrial and commercial customers in Ohio get electricity from competitive suppliers, and 19 percent of residential customers use competitive power — the third highest in the nation after Connecticut and Texas.

Local data for AEP Ohio put the numbers even higher: For the quarter ending June 30, PUCO estimated that 31 percent of residential electricity sales were from customers who had switched to competitive providers, while more than 80 percent of industrial and commercial sales were from customers who had switched.

Commission’s response

But AEP’s litigation could be derailed if the court agrees with PUCO that the issue is not ripe for review.

In a motion filed late last week, PUCO urged the court to dismiss the case because though the commission has adopted the contested rule, the rule has not actually gone into effect yet. Ohio law requires PUCO to send its rules to a committee within the General Assembly that has 65 days to review the rules before the utility commission can finalize them. The review period is not over, and the net metering rule has not been finalized.

“Any argument that this appeal will soon ripen into a justiciable controversy once the net-metering rule takes effect must be rejected,” PUCO said in its motion. “First, the rule’s effectiveness is not a foregone conclusion. It is possible that [the review committee] could recommend a concurrent resolution leading to the invalidation of the rule. It is also possible that [the committee] could authorize the Commission to revise the rule.”

Further, the utility commission argues in the brief that AEP Ohio’s lawsuit amounts to an “abstract policy disagreement” beyond the jurisdiction of the court and that any decision would be based on hypothetical scenarios rather than actual controversy.