OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
H.B. 389 Bill Analysis
134th General Assembly
Click here for H.B. 389’s Fiscal Note
Version: As Reported by House Public Utilities
Primary Sponsors: Reps. Leland and Seitz
Effective Date:
Kathleen A. Luikart, Research Analyst
SUMMARY
State competitive retail electric service policy
 Amends the state policy for competitive retail electric service to include encouraging
electric distribution utilities (EDUs) to develop voluntary portfolios of energy savings
programs to help customers save energy.
Energy savings portfolio application requirements
 Permits EDUs to apply to the Public Utilities Commission (PUCO) for approval of a
portfolio of programs for energy savings (energy efficiency savings and peak demand
reduction savings) to help retail electric customers to save energy.
 Specifies what portfolio applications must contain about proposed energy savings
programs, including for example, descriptions of program size and scope; program costs,
planned energy savings, and cost-effectiveness; a mechanism for certain program cost
recovery and utility incentives and for lost distribution revenues, including existing law
decoupling mechanisms; and other information the EDU determines appropriate for
PUCO review.
 Limits the collection of portfolio mechanisms for the recovery of lost distribution
revenues to a period that does not exceed the length of the approved portfolio’s term.
 Specifies that, if applicable, any lost distribution revenue mechanisms must be
normalized for weather.
 Specifies that recovery of any lost distribution revenues is not subject to the bill’s
provisions allowing mercantile customers to opt in to an EDU’s energy savings programs
and residential and nonresidential customers to opt out.
 Prohibits portfolio mechanisms that would result in double cost recovery.
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Application review process
 Allows PUCO to conduct hearings on a portfolio application at its discretion.
 Not later than 180 days after receiving an application, requires PUCO by order to
approve, or modify and approve, portfolio applications for a term not to exceed five
years, if PUCO finds that the application meets the requirements under the bill and to
deny the application if PUCO finds that the requirements are not met.
 Allows PUCO to modify an application only as necessary for it to comply with portfolio
requirements under the bill.
 Prohibits an order approving a portfolio application from authorizing accounting
mechanisms under which the EDU may defer and recover costs that would exceed the
$1.50 per customer per month rate cap under the bill as described below.
 Requires an EDU to accept or withdraw its modified application not later than 90 days
after the PUCO final application order, if PUCO modifies and approves the application or
if a higher than expected number of customers opt out of the portfolio.
Additional portfolio requirements
 Requires portfolios to include at least one program to benefit low-income residential
customers with an annual income at or below 200% of the federal poverty level.
 Requires the total cost for a portfolio’s proposed residential low-income customer
programs to be at least 15% of the total program costs for all of the portfolio’s proposed
residential programs.
 Requires a portfolio to be designed to:
 Achieve gross annual energy savings of at least 0.5% of the gross annual energy
savings of the prior year’s retail electric sales to participating customers except as
limited by the bill’s net cost provisions and establishes options for determining gross
energy savings either directly or with a baseline established under federal energy
standards for appliances or Ohio Building Code standards;
 Achieve not more than 30% of the planned annual gross savings through residential
programs delivering only behavioral energy savings (energy savings occurring as a
result of a change in a residential retail electric customer’s pattern of electricity use);
 Emphasize smart technology measures, including ENERGY STAR® smart thermostats
and appliance controllers;
 Only permit customer incentives on equipment that exceeds federal energy
standards for appliances or Ohio Building Standards, for gross energy savings not
determined through standard measurement, and verification protocols or, if
available, through metering that has the capability to measure demand in kilowatts;
 For demand savings when residential advanced metering is not available, determine
gross energy savings as the amount of kilowatt hours shifted to periods other than
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periods of high demand, if this method of determining gross energy savings is
approved in the portfolio; and
 Exclude gross energy savings from any physical device or equipment not delivered or
installed with the permission or at the request of a participating customer.
 If gross annual energy savings from transmission and distribution system investments
result in measurable energy efficiency savings, (1) prohibits the investments from being
considered as a portfolio program for cost recovery and incentive purposes and
(2) requires the energy savings to be counted toward determining whether the EDU
achieved its required annual gross energy savings.
Utility cost test
 Requires an EDU’s approved portfolio to be cost-effective based on a utility cost test
that compares the total cost of measurable portfolio programs to avoid electric
generation, transmission, and distribution costs; reductions in market prices for energy
and capacity; reductions in credit and collection costs; and any other quantifiable EDU
system benefits.
Customer and EDU incentives
 Specifies that (1) customer incentives must provide a “meaningful inducement” for
customers to participate in the cost-effective delivery of energy savings and (2) EDU
incentives through a portfolio must not exceed 10% of net program costs on an after-tax
basis and must not count toward the portfolio’s net cost calculation or the rate cap
under the bill.
 Permits PUCO to adopt rules to implement the customer and EDU incentive provisions
of the bill.
EDU promotion of energy savings programs
 Requires an EDU that promotes its energy savings programs to include in its
advertisements and marketing materials a description of the specific energy savings
programs that the EDU is promoting and offering to its customers.
Portfolio net cost limit
 Establishes a method for calculating the net cost of an EDU’s portfolio and prohibits the
net cost from exceeding 2.25% of the difference between the EDU’s annual total
operating revenues for the previous year as reported in its FERC financial report, FERC
Form 1, Account 400, less the purchased power expense, account 555, for the same
year.
 Requires an EDU to retain 20% of revenues received from EDU program energy savings
bid into the wholesale market and specifies that these revenues are separate from
utility incentives described in the bill.
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 Prohibits recovery of any lost distribution revenues under an EDU’s approved portfolio
from counting toward the portfolio’s net cost or the rate cap under the bill.
Rate cap
 Effectively caps charges for an EDU’s portfolio costs at $1.50 per customer per month by
prohibiting an EDU’s portfolio costs from resulting in a rate that produces a monthly
charge greater than that amount.
 If a higher than expected number of residential customers opt out of the portfolio,
automatically authorizes an EDU with an approved portfolio to reduce portfolio
spending to ensure that the EDU complies with the rate cap.
Customer opt-out
 Establishes a process under which, at the start of a new portfolio, (effectively at least
every five years due to portfolio’s maximum five-year term) residential customers and
nonresidential retail customers (customers that are not residential customers or
mercantile customers) may opt out of portfolio participation and cost recovery for the
portfolio.
 Includes in this process, an opportunity for a customer that has opted out of portfolio
participation to opt back in at the beginning of a portfolio’s term.
 Allows a customer’s election to opt out to continue after a EDU’s portfolio’s term
expires or after PUCO approves a new portfolio and specifies that a customer’s election
to opt out of participation in a previous portfolio remains in effect until the customer
elects to opt back in according the bill’s opt-in process.
Mercantile customer opt-in
 Automatically excludes mercantile customers (commercial or industrial customers that
consume more than 700,000 kilowatt hours of electricity per year or are part of a
national account involving multiple facilities in one or more states) from participating in
an EDU portfolio, but establishes a process under which such customers may
affirmatively opt in to any opportunities to participate in an EDU’s portfolio and any
portfolio cost recovery.
 Requires EDUs to provide a notice to mercantile customers describing the opt-in that
includes a mercantile customer’s cost of participating in the portfolio.
Conveyance of energy savings incentives
 Permits a customer to convey to an eligible electric services company (ESC) an energy
savings incentive associated with participation in an EDU’s energy savings program if the
ESC has:
 Obtained the customer’s written consent;
 Verified the customer’s identity by providing the customer’s EDU account number;
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 Explained how the incentive being conveyed meets the energy savings program
eligibility requirements.
 Requires the ESC to produce evidence that the customer has completed the energy
savings program, and provides that examples of such evidence could be a product
identification code, product serial number, or similar evidence that proves installation or
delivery of an eligible product under the energy savings program.
EDU report
 Requires an EDU with an approved portfolio to review the cost-effectiveness of its
portfolio annually over its term, update its portfolio based on the review, and file a
report of its annual review to PUCO by April 15 each year.
 Requires an EDU to continue to offer customers a portfolio of energy savings programs
during its cost-effectiveness and compliance review and subject to the General
Assembly’s findings regarding the EDU’s performance and compliance as described in
the PUCO report required by the bill.
PUCO report
 Requires PUCO, by July 1, 2026, and every three years thereafter, to review EDU reports
and submit a report to the General Assembly that includes an overview of EDU
compliance and energy savings and a compilation of the EDU reports received.
 Requires PUCO to recover reasonable costs for evaluation, measurement, and
verification for each EDU’s program through the affected EDU’s portfolio cost recovery
mechanism and specifies that the costs must not be considered portfolio costs or
included in net cost calculations or the rate cap under the bill.
TABLE OF CONTENTS
State competitive retail electric service policy ............................................................................... 6
Energy savings portfolios ................................................................................................................ 6
Portfolio application requirements ............................................................................................. 6
Application review process ............................................................................................................. 8
Modification restrictions and process......................................................................................... 8
Additional portfolio requirements .................................................................................................. 8
Programs for low-income customers .......................................................................................... 8
Portfolio energy savings requirements ....................................................................................... 9
Gross energy savings determination .................................................................................... 10
Energy savings from transmission and distribution system investments ................................. 10
Utility cost test .............................................................................................................................. 11
Customer and EDU incentives ...................................................................................................... 11
EDU promotion of energy savings programs ................................................................................ 11
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Portfolio net cost limit .................................................................................................................. 11
Rate cap ........................................................................................................................................ 12
Customer opt-out ......................................................................................................................... 12
Mercantile customer opt-in .......................................................................................................... 13
Conveyance of energy savings incentives..................................................................................... 13
Cost-effectiveness and compliance review .................................................................................. 14
EDU report ................................................................................................................................. 14
PUCO report .............................................................................................................................. 14
DETAILED ANALYSIS
State competitive retail electric service policy
To the state’s competitive retail electric service policy, the bill adds the new policy to
“encourage electric distribution utilities to develop voluntary portfolios of energy savings
programs to help their customers to save energy.”1
Energy savings portfolios
The bill permits an electric distribution utility (EDU) to apply to the Public Utilities
Commission (PUCO) for approval of a portfolio of energy savings programs for the purpose of
assisting retail electric customers to achieve energy savings. Under the bill “energy savings”
includes energy efficiency savings and peak demand reduction savings.2
Portfolio application requirements
As required by the bill, portfolio applications must include certain information about the
proposed energy savings programs. Specifically, applications must include:
 Descriptions of the size and scope of the programs;
 The programs’ costs, planned energy savings, and cost-effectiveness;
 The EDU’s projection of the expected number of customers op