by Mark Shanahan
Governor Kasich signed his energy policy into law this week and sang its praises in a Dispatch op-ed on Sunday. Let’s set aside his obligatory election year swipe at the Obama administration and the not-invented-here claim that Ohio did not have a comprehensive energy strategy in place. Instead, let’s examine what the new law – SB 315 – actually does or does not accomplish.
To start, give credit where credit is due: Ted Strickland’s Jobs, Energy and Progress proposal, enacted as SB 221, set Ohio on the path to take advantage of its potential as a center for the development, the use and the manufacture of advanced energy technologies. It established electric utility portfolio requirements for the use of renewable energy, advanced energy and energy efficiency.
Those requirements were among the most aggressive in the nation when passed by a Republican controlled General Assembly. But we all know that energy is a rapidly changing field. So Governor Kasich should be applauded for convening his energy summit meeting last year; it is imperative to regularly update the state’s energy strategy.
So, what’s the result?
FRACKING CHEMICAL DISCLOSURE
SB 315 was necessary to establish a regulatory structure for Ohio’s new oil and gas boom using horizontal fracturing (fracking) to recover previously non-economic reservoirs of oil, natural gas and natural gas liquids. Given the make up of today’s General Assembly, there was never any likelihood that this new round of resource exploitation would be halted or slowed. The real question became whether the structure would achieve the stated Kasich goal “to protect the public, the environment and the industry’s workers and to facilitate the industry’s growth.”
There’s no question the industry’s growth has been protected. But testimony presented by the Natural Resources Defense Council and the Ohio Environmental Council made clear that full protection was not extended to the public or the environment. The greatest potential risk from fracking comes from the toxic chemicals used in the fluids that break apart geologic formations. The logical time to have those chemicals fully disclosed is during the permit application process. This would allow a reasonable assessment of risk.
SB 315 requires disclosure 60 days after the fluid has been used–in other words, disclosure after the potential damage is done. But it gets worse: drillers can claim that parts of the fluid recipe are proprietary and refuse to disclose them even to ODNR. The legislation allows them to withhold “the identity, amount, concentration, or purpose of a product, fluid, or substance or of a chemical component” in them. In the case of a spill or accident, ODNR can ask for the information but cannot disclose it to anyone.
After complaints from the Ohio State Medical Association, the language allowing a doctor to request the proprietary information in order to treat a patient but restricting use of the information to that individual’s treatment was improved but still puts medical professionals in a gray area when it comes to sharing the information with public health agencies.
The bill also fails to provide for public notice and involvement in the permit application process (involvement that is required for coal mines). It makes a technical change to the nature of the permit process that makes issuance of permits non-appealable. The General Assembly refused NRDC’s request to adopt as drilling standards the published best practices of the American Petroleum Institute after the industry argued those practices just couldn’t be applied across the board. And, interestingly for a conservative Republican legislature, the House tabled an amendment from Rep. Mark Okey (D-Carrollton) that would have established and expanded property owner rights in the process.
What about jobs? Through amendment, ODJFS will report on the number of jobs created and how many Ohioans are employed but only if the data is publicly available and does not require asking the companies for the information. A requirement to report on the race and gender of job holders was defeated. In the final debate, the House refused (53-38) to reinstate Senate language supported by the Ohio steel industry to identify the country of origin of steel tubing used in drilling and report it (no mandates about what steel to use, just disclosure).
RED FLAGS FOR RENEWABLE PORTFOLIO STANDARDS
The bulk of SB 315, and surrounding controversy, focused on fracking. However, some of the longest lasting impact may well be on Ohio’s electricity portfolio standards for renewable and advanced energy as well as electric efficiency.
Since a turn-around late in his campaign, Governor Kasich has voiced support for encouraging alternative energy use in Ohio. Changes made to the portfolio standards through SB 315 should raise red flags.
The biggest issue is the treatment of waste energy recovery, sometimes called combined heat and power. Think of it this way: a large steel mill operates a blast furnace that emits enormous amounts of heat. Under normal operations, that heat is vented to the atmosphere. If instead it were captured, it could produce a significant amount of electricity. In fact, several years ago, GE estimated that the 10 largest Ohio steel operations created enough waste heat to generate 1,000 megawatts of electricity. Kasich rightly identified this as a great opportunity for Ohio. So what’s the problem?
First, SB 315 makes electricity generated from waste heat eligible for Renewable Energy Credits (RECs). (Previous legislation this year (SB 289) accomplished this change for a project proposed by AK Steel in Middletown.) Of course, the factual quibble with this is the waste heat is created by fossil fuels and so is not renewable at all.
Second, these waste heat projects can be enormous and, accordingly, use up a significant portion of each year’s required RECs. Let’s use the AK Steel project as an example. If completed, it is projected to generate 1 million megawatt hours of electricity annually starting in 2015. Based on PUCO projections of non-solar renewable requirements in 2015, this single project could supply 21% of the total and 42% of the in-state requirement that year. The requirements go up every year so the waste heat recovery portion might decline over time unless other large projects come on line. In the meantime, this new source of RECs wreaks havoc on the wind industry’s economic models for investing in Ohio. In testimony, wind companies were clear that passage would require them to reassess Ohio opportunities and puts at risk over a billion dollars of investment. The bottom line is that inclusion of fossil fuel produced waste energy devalues the REC market. And the long term impact is unknown while many companies consider the viability of waste energy recovery in their operations.
Third, waste energy recovery projects were also made eligible to count toward the utility energy efficiency standard. A late, hard fought compromise limited the impact to a proportion of the requirement that is equal to the proportion of a utility’s industrial load. This protects commercial and residential sector customer efficiency programs from being made irrelevant to the utility portfolio requirement. But, again because of the size, waste heat projects could narrow utility industrial programs to the exclusion of manufacturers that do not have waste heat recovery potential.
Fourth, the legislation ignored the fact that waste heat recovery was already included through SB 221 as an advanced energy technology. The problem is that SB 221 was not able to include annual benchmarks for utility deployment of advanced energy technologies. Part of the reason was political; the renewable and efficiency benchmarks exhausted the General Assembly’s appetite for mandates. Part of the reason was uncertainty about utility plans for new construction, an uncertainty deepened by the recession. Part of the reason (in retrospect, foolish) was an assumption of rationality. The mandate is to deploy the technologies no later than 2025; surely neither the industry nor PUCO would argue that nothing had to be done until 2023. Power plants take longer than that to plan, approve and build. But, in fact, the industry and PUCO have argued just that. Kasich and the General Assembly had a choice: develop rational benchmarks for the advanced energy mandate or make up a new form of renewable energy. They chose the latter.
Fifth, not content to undercut both the renewable and efficiency standards, Kasich and the General Assembly made the advanced energy standard completely meaningless even while refusing to enforce it. They added a new category to advanced technology: “any new, retrofitted, refueled, or repowered generating facility located in Ohio, including a simple or combined-cycle natural gas generating facility or a generating facility that uses biomass, coal, modular nuclear, or any other fuel as its input.” Yes, that’s right: anything a utility does beyond today’s unchanged operations now qualifies.
SB 315 makes other changes as well: it calls for the Ohio Power Siting Board to accelerate its review process despite the fact that the Board’s current process is recognized nationally and internationally for its timeliness and thoroughness; it provides for a 90 day automatic approval under certain circumstances; and, it “grandfathers” into the waste energy changes two university projects (Kent State and Cincinnati) that have been operational for years and never included RECs in their financial analysis.
The final question must be whether this is part of a strategy to completely dismantle the Strickland Energy, Jobs and Progress portfolio requirements. Senator Kris Jordan (R-Powell) introduced legislation to do just that. Grover Norquist and the American Legislative Exchange Council, according to Bloomberg in April, have launched a national campaign to repeal state clean energy standards. One of ALEC’s Ohio champions, Sen. Bill Seitz (R-Cincinnati), has suggested to people that the solar energy carve out is on next year’s target list.
SB 315 successfully pitted renewable energy advocates against industrial energy efficiency advocates against general energy efficiency advocates. It was a classic divide and conquer maneuver.
Perhaps John Kasich and the Republican General Assembly learned a lesson from the repeal of Senate Bill 5: do not overreach, do it one step at a time. All supporters of advanced energy growth in Ohio must remain on guard against these salami tactics.
Mark R. Shanahan is a principal at New Morning Energy. He served as Governor Strickland’s Energy Advisor and was Executive Director of the Ohio Air Quality Development Authority.