1. House Public Utilities Committee Briefing March 4, 2015 Presented by Angela Hawkins, Chief of Staff Patrick Donlon, Director of Rates and Analysis John Williams, Director of Service Monitoring and Enforcement

2. Public Utilities Commission of Ohio Overview

3. 3 PUCO Mission To assure all residential and business consumers access to adequate, safe and reliable utility services at fair prices, while facilitating an environment that provides competitive choices.

4. 4 Commissioners are appointed by the governor and serve staggered five-year terms –Thomas W. Johnson, Chairman –Steven D. Lesser –Asim Z. Haque –Lynn Slaby –M. Beth Trombold

5. PUCO staff The PUCO employs a staff of about 330 professionals 5 Accountants Attorneys Auditors Economists Engineers Complaint investigators Safety inspectors

6. 6 Areas the PUCO regulates Investor-owned utilities –Natural gas (intrastate transmission and distribution) –Electric –Telephone (intrastate local and long-distance) –Water and wastewater (does not include city water) Commercial motor carriers and moving companies Railroad crossing safety

7. 7 Areas the PUCO does not regulate Cellular telephone service and towers Internet service Cable service Propane and fuel oil Municipal utilities Cooperative utilities

8. 1.The PUCO is the sole agency responsible for regulating public utility service and rates in Ohio, and making sure that all consumers have access to adequate, safe and reliable utility services at fair prices. 2.The PUCO has the exclusive authority to resolve formal complaints between utilities and residential or business customers. 8 Key points about the PUCO

9. 3.The PUCO is responsible for ensuring service quality and safety when it comes to utility services. 4.The PUCO works to facilitate an environment that provides competitive choices. 5.The PUCO protects the rights of all consumers, and works to resolve informal disputes. 9 Key points about the PUCO

10. Access to the PUCO is 24/7 Daytime-live assistance via PUCO Call Center PUCO website and social media presence Energy Choice Ohio website 10

11. PUCO website: www.PUCO.ohio.gov Get help with a utility complaint or question Find information on hundreds of utility topics View a PUCO Commission meeting Find out which local utility company services your address And much more! 11

12. Public Utilities Commission of Ohio 180 E. Broad Street Columbus, OH 43215 (800) 686-PUCO www.PUCO.ohio.gov/PUCOhio

13. Patrick Donlon Director Rates and Alalysis

15. FERC oversight Wholesale electricity - sales for resale Bulk power system Transmission tariffs Wholesale market monitoring Reliability assurance (North American Electric Reliability Council and Standards) Retail electric sales Distribution system reliability/safety Intrastate infrastructure maintenance/siting Renewable portfolio standards/energy efficiency standards (if applicable) State oversight

19. Ohio Energy Forecast

20. Ohio’s Electric Generation Resource Mix

21. Ohio Coal Fired Electric Generation Facilities

22. Ohio Natural- Gas Fired Electric Generation Facilities

23. Ohio Coal Retirement s and Potential New Natural Gas Generation

24. Initiating a Rate Case Why? By a company to obtain more revenue; by a customer through a complaint case; or by the PUCO through a Commission Ordered Investigation (COI) How? Company makes a Pre-Filing Notice (PFN) and informs mayors and legislative bodies 30 days before filing the full application at the Commission Application filed no earlier than 30 days after the PFN – Company has the burden of proof in the request for an increase in rates Company files work papers, testimony and a set of proposed rates Company publishes notice once a week for 2 weeks in newspapers 24

25. Rate Case Steps Staff investigates the company’s expenses, revenues and investment –Revenue Requirement – the amount of money that allows the company to cover expenses and earn a fair return on investment –Rate Design – how the revenue be collected from the various classes (residential, commercial, industrial) and based upon cost- of-service (i.e. the charge levied against a customer is proportional to the expense of service to the customer) 25

26. Rate Case Procedure Staff Report is filed - usually within 5 months of the application. (not a statutory timeline) Objections to the Staff report must be filed within 30 days. (supported by testimony) Objections & Testimony frame the issues – if not objected to, then Staff report carries the burden 26

27. The Parties to a Rate Case The Attorney General’s office represents the PUCO Staff in the hearing and /or negotiations Office of Consumer’s Counsel (state agency representing residential consumers) Commercial customers Industrial customers Cities 27

28. Rate Case Hearings Publish notice of upcoming hearings Two types of hearings: 1.Public Hearing: the public gets to hear about the proposed rate change an make comments. Public hearings are held in the communities affected by the application. 2.Evidentiary Hearing: an attorney examiner presides and witnesses testify to support their positions and are subject to cross-examination from other parties. PUCO staff testify at the evidentiary hearing in support of the staff report. 28

29. After the Hearings Parties file briefs with the Commission within a time established by the PUCO attorney examiner. Usually file initial briefs and reply briefs. PUCO attorney examiner writes an order and circulates it to the Commissioners. The Commissioners provide input and vote on the order at a commission meeting. PUCO Order is issued within 275 days of the application filing otherwise the company can put requested rates into effect subject to refund. Applications for Rehearing must be filed within 30 days. Any issue appealed to the Ohio Supreme Court must be raised in the application for rehearing 29

30. Appeal of Commission Order Appealing party must file a notice of appeal with the Ohio Supreme Court within 60 days of the date of denial of the application for rehearing by the Commission. No deadline in which the Court must act; however, the Court must hear PUCO appeals. Most appeals to the Ohio Supreme Court are discretionary – the court chooses what it will hear. Court can affirm/agree with the Commission order. Court can reverse the PUCO decision. Court can reverse and remand to the Commission 30

31. Why Regulation? Electricity has historically been considered a “natural monopoly.” Entry into this market required huge investments in infrastructure. Electricity was considered a “public good.” Very few people could make the investment to get into the electric business and those who did could take advantage of the monopoly.

32. FERC Order 888 (1996) and Order 2000 (1999) Determined the public interest would be best served by a competitive wholesale market Provided for non-discriminatory and open-access on the transmission system Required transmission owners to join an Independent System Operator

33. Ohio’s Market Prior to Electricity Restructuring Ohio’s investor-owned utilities accounted for 91% of electric sales Six electric distribution utilities (EDU’s): American Electric Power Ohio Power Dayton Power & Light Duke Energy FirstEnergy Cleveland Illuminating Ohio Edison Toledo Power Utilities sold “bundled” services—owned and operated generation, transmission and distribution Utilities received cost recovery for generation investment Risk in generation investment borne by ratepayers, including cost overruns, expensive generating assets, etc.

34. History of Electric Restructuring in Ohio Senate Bill 3 A 1999 law effective January 2001 restructured Ohio’s electric industry allowed customers to shop for electricity provided a five-year market development period Turn of the Century System Unbundling of vertically integrated system Customers served by generator of choice Transmission and distribution remain regulated For generation, the rate of return system of regulation replaced by competition

35. Issues Under Restructuring Unbundling Market Power Transitional Issues Independent System Operation Social Issues Environmental Issues Taxes Data Access

36. Generation (“or supply”) Shop for this Transmission Remains regulated by FERC Distribution Remains regulated by PUCO and provided by your local utility Unbundling

37. “Bundled” Rates Rates were previously a “bundle” of costs for different services. –Generation –Transmission –Distribution –Ancillary Services –Specific Surcharges Total Rates Specific Surcharges Generation Transmission Distribution Ancillary Services

38. “Unbundled” Rates Electric Restructuring would “unbundle” the rates so the generation component could be shopped for, and priced at “market.” The bill anticipated that market rates would be lower than regulated rates. Ancillary Services Generation Transmission Distribution Specific Surcharges Total Rates

39. Suppliers must be certified for consumer protection PUCO certifies all electric suppliers Suppliers are reviewed for: –technical capabilities –financial capabilities –managerial capabilities Ensures these companies are qualified to do business in Ohio

40. Electric Security Plans Senate Bill 221 in 2008 authorized the restructuring of the electric industry in Ohio and included an energy efficiency requirement and a renewable portfolio standard. The law required electric utilities to file either an Electric Security Plan (ESP) or a Market Rate Option (MRO) to supply energy to customers. Did not close the door on market pricing, but required a demonstration that competition is effective. The ESP is similar to a traditional rate plan for the supply and pricing of electric generation service. An MRO is a rate plan that utilizes a competitive bidding process to set generation prices and gradually transition customers to full market-based pricing.

41. Cost Recovery Methodologies Base Rates Base rates or rate base costs are set in a rate case. These cost essentially stay constant until the next base rate case. Riders Riders allow a utility to recover a cost outside a rate case. Customers benefit from a reduction in price volatility. Utilities benefit from a reduction is recovery lag time. Riders are true-up up quarterly, semi-annually or annually, depending on the specific rider. Rider charges would be recovered through base rates if not through riders.

42. S.B. 221 Policy Principles Availability of adequate, reliable, safe, efficient, nondiscriminatory and reasonably priced retail electric service Diversity of electricity supplies and suppliers Encourage innovation and market access for cost-effective supply- and demand-side retail electric service Transmission and distribution availability Recognize continuing emergence of competitive electricity market through development and implementation of flexible regulatory treatment Provide coherent, transparent means of giving appropriate incentives to technologies that can adapt successfully to potential environmental mandates

43. Today’s competitive marketplace Typical types of offers in the Ohio market today: Fixed price % off utility’s Standard Service Offer Variable price Purchase from renewable sources Contract term length –Month-to-month –6, 12, 24 months –One supplier even offered a 7 year contract

46. Things that haven’t changed: Same safe, reliable service. Local utility still delivers the electricity. Local utility still maintains the poles and wires. Still call your local utility in case of a power outage. Still get service even if choose not to change. Low income programs like PIPP continue.

47. To support sound energy policies that provide for the installation of energy capacity and transmission infrastructure for the benefit of the Ohio citizens, promoting the state’s economic interests, and protecting the environment and land use. Ohio Power Siting Board Mission Statement

48. Ohio Power Siting Board Member Agencies

49. OPSB Jurisdiction Definition of “Major Utility Facility:” A generating plant of 50 megawatts or more Wind facilities greater than 5 MW An electric transmission line of 125 kilovolts or greater Intrastate gas or natural gas transmission line capable of transporting gas at or greater than 125 pounds per square inch of pressure (does not include production, gathering or liquids lines)

51. OPSB Benefits One-Stop Siting Process Timely action: Approximately 6 to 12 months for applications, with statutory time mandates; accelerated schedules an option under certain circumstances Regulatory certainty: process is known and practiced Sole jurisdiction: local and public participation welcome in the process, but sole decision rests with the state (OPSB) Our siting process is fair and efficient and has been put forth as an example for others to follow Having seen our success, several states and countries have adopted new siting legislation modeled after Ohio’s statute

52. OPSB Decision The need for the (transmission) facility The probable environmental impact Whether the facility represents the minimum adverse environmental impact considering the technology that is available and the nature and economics of the various alternatives Compliance with all air and water pollution control and solid waste disposal laws and regulations Consistent with regional plans for expansion of the electric power grid, and the interests of electric system economy and reliability Public interest, convenience and necessity Impact on agricultural lands Water conservation practices

53. OPSB Electric Generation Applications (1998-2013)

54. Citizen Communication

55. Case Types Filed

56. John Williams Director Service Monitoring and Enforcement

57. PUCO’s Call Center Acts as a “window to the world” and is the primary conduit for calls to the PUCO Educates consumers on their rights and responsibilities for safe and reliable service Mediates complaints between consumer and various utility companies Performs annual audits to ensure regulated companies comply with rules related to consumer safeguards

58. Call Center Facts 33 employees (Staff and Supervision) 76,402 Contacts received last year (phone, e- mail, walk-ins) 13,421 Customer cases worked Total of $686,306 saved for customers

59. Call Center Functions Calls received by the PUCO are classified in two categories: Educational Reference Investigation

60. Educational Reference Educate the consumers on their rights and responsibilities and any applicable Commission rules Answer general questions Resolve simple concerns Direct the consumer to the company if the consumer has not already contacted the utility Case is closed at the conclusion of the call

61. Investigation More involved compliant / issue Agent will ask probing questions to gather as much information as possible on the call After the call, Staff will contact the company for response to the complaint Staff will research the issue to gather applicable rules and policies Staff will attempt to mediate the dispute

62. Tracking Consumer Contact Data Monthly Review of all “Contacts” to PUCO to quickly identify problems or negative trends

63. Monthly Review of Contacts Includes phone calls, e-mails, and letters from consumers. Data is entered into a central database Each contact is coded with company name and customer’s concern Reports are generated from database

64. Comparison of Gas Companies (all contacts) 0 10 20 30 40 50 60 70 80 10/2004 11/2004 12/2004 1/2005 2/2005 3/2005 4/2005 5/2005 6/2005 7/2005 8/2005 9/2005 Gas Co. A Gas Co. B Gas Co. C Gas Co. D Gas Co. E Customer Contacts By Company Across All Codes (Contacts Per 100,000 Customers)

65. Enforcement Options Work with the company informally Send company an enforcement letter Direct the company to issue customer credits or refunds Direct the company to pay forfeitures (fines) Request a “Commissioned Ordered Investigation”

66. Field Inspections Gas Pipeline Safety (Partnership with USDOT) Electric Safety and Reliability Telephone service quality Water and Wastewater Facilities

67. Field Inspections Duties Routine Inspections Incident Investigations Complaint/Inquiries Enforcement of Corrective Action Plans

68. Gas Pipeline Safety Staff Program Manager Office Support Staff 11 Inspectors

69. Facilities Inspected Local Distribution Companies (LDC) Transmission Pipelines Master Meter Operators Municipal Gas Systems Co-op Gas Systems Propane Systems Gathering Pipelines

70. The Federal Pipeline Safety Program The Federal Pipeline Safety Statute is 49 USC (“United States Code”) 60101-60301. Congress created the Pipeline and Hazardous Materials Safety Administration (PHMSA) in the U.S. Department of Transportation to regulate the construction, operation and maintenance of gas and liquid pipelines. Federal “Pipeline Safety Regulations” are contained in 49 CFR (“Code of Federal Regulations”) 191- 199.

71. The Federal-State Partnership The Ohio Revised Code section 4905.90 to 4905.96 grants the Public Utilities Commission the authority to enforce the Pipeline Safety Regulations for in-state gas pipelines. The Commission is also an interstate agent – we inspect interstate pipeline systems although PHMSA retains enforcement authority. The Commission maintains a cooperative agreement with PHMSA where Staff performs audits and inspections, and provides reporting data to PHMSA and in exchange the Commission receives a grant to fund operating expenses.

73. Regulations Enforced by PUCO 49 CFR –Part 192 – Transportation of Natural and Other Gas by Pipeline: Minimum Federal Safety Standards –Part 191 – Transportation of Natural and Other Gas by Pipeline: Annual Reports, Incident Reports, and Safety Related Condition Reports –Part 199 – Drug and Alcohol Testing –Part 40 – Drug and Alcohol Testing Procedures

74. Liquid Pipelines 49 CFR 195 – Transportation of Hazardous Liquids by Pipeline The Commission does not have authority to enforce 49 CFR 195. Liquid lines are regulated through the PHMSA Central Region office in Kansas City.

76. What is in the Pipeline Safety Regulations (49 CFR 192)? Design of Piping and Pipeline Components Welding Standards Joining of Plastic Piping General Construction Requirements Standards for Meters and Service Lines Corrosion Control Pressure Testing and establishment of Max. Operating Pressure Pipeline Operations Maintenance Training Requirements Integrity Management (risk based threat assessment)

77. Ohio Oil and Gas Production Major natural gas and natural gas liquids deposits can be commercially exploited in Ohio due to advances in technology. These deposits are in what is known as the Utica and Marcellus shale formations. PUCO regulates the design, construction and operation of gathering lines collecting gas from these fields. ODNR regulates drilling and production. Recent changes to the Ohio Revised Code (Ohio law) allow us to regulate some lines that would otherwise be exempt from regulation.

78. Definition of Gathering Lines As defined in CFR Part 192: Gathering Line means “a pipeline that transports gas from a current production facility to a transmission line or main”

79. Regulated Gathering Lines

80. Gas System Overview

81. New Developments – Senate Bill 315 Intent is to extend safety regulations to high stress Gathering pipelines collecting gas produced from horizontal drilling / fracking that are currently exempt from regulation. Modifies Ohio Revised Code, Section 4905.90 and creates a new section 4905.911. New law became effective on September 11, 2012.

82. Pre-Senate Bill 315

83. Post-Senate Bill 315

84. O.R.C. 4905.911 (A)(1) The public utilities commission shall require an operator of either of the following types of pipelines that was completely constructed on or after the effective date of this section and that transports gas produced by a horizontal well to comply with the applicable pipe design requirements of 49 C.F.R. 192 subpart C: (a) A gas gathering pipeline; (b) A processing plant gas stub pipeline.

85. O.R.C. 4905.911 (continued) (A)(2) The commission shall also require the operator to do all of the following regarding that pipeline: (a) Design, install, construct, initially inspect, and initially test the pipeline in accordance with the requirements of 49 C.F.R. 192 if the pipeline is new, replaced, relocated, or otherwise changed;

86. O.R.C. 4905.911 (continued) (b) Control corrosion according to requirements of 49 C.F.R. 192 subpart I if the pipeline is metallic; (c) Establish and carry out a damage prevention program under 49 C.F.R. 192.614; (d) Establish and carry out a public education program under 49 C.F.R. 192.616; (e) Establish the MAOP of the pipeline under 49 C.F.R. 192.619;

87. O.R.C. 4905.911 (continued) (f) Install and maintain pipeline markers according to the requirements for transmission lines under 49 C.F.R. 192.707; (g) Perform leakage surveys according to requirements in 49 C.F.R. 192.706; (h) Retain a record of each required leakage survey conducted under division (A)(2)(g) of this section and 49 C.F.R. 192.706 for five years or until the next leakage survey is completed, whichever time period is longer.

88. O.R.C. 4905.911 (continued) (B)(1) Any person who plans to construct a pipeline subject to division (A) of this section after the effective date of this section shall file with the public utilities commission division of pipeline safety a form approved by the division that includes all of the following information: (a) The route of the proposed pipeline; (b) The MAOP of the pipeline; (c) The outside diameter of the pipeline; (d) The wall thickness of the pipeline; (e) The material that the pipeline will be made of; (f) The yield strength of the pipeline. The form shall be filed with the division not later than twenty-one days prior to the commencement of construction of the pipeline.

89. O.R.C. 4905.911 (continued) (B)(2) Not later than sixty days after the completion of construction of a pipeline subject to division (B)(1) of this section, the operator of the pipeline shall file with the public utilities commission division of pipeline safety an explanation of the constructed pipeline's route and operating information.

90. Questions?