YOUNGSTOWN, Ohio – The staff of the Public Utilities Commission of Ohio has recommended the commission approve emergency rates for SOBE Thermal Energy Systems LLC, action that would result in “significant bill increases for customers” – some as much as 145% — according to a filing Monday.

The PUCO is likely to consider the measure at its next meeting on June 24.

SOBE reported last month it could likely cease operations by late September or early October if it cannot secure emergency rates or other alternative funding to pay its operational expenses. That would leave approximately 23 customers in downtown Youngstown – including City Hall – without steam heat service as the winter approaches. 

“The staff recognizes that its proposed emergency rates will result in significant bill increases for customers,” the filing said. “However, the magnitude of the increase is due in part to the fact that some customers have likely been paying less than their actual cost to serve.”

The new rates would see payments for some customers during peak heating season increase by 145%, according to data. One customer would experience a 146% rate increase, data show. During the off-heating season, most customers would witness and increase of between 50% and 75%, with one customer paying a rate 24% higher.

According to Monday’s filing, the PUCO staff recommended that the commission approve emergency rates based on the proportion each customer pays for the service, since many of the meters are no longer working to ascertain actual usage. For example, if a customer has historically paid 12.5% of the total costs charged to all steam customers, then its proportional share allocator would be 12.5%.

Based on this methodology, the staff in its filing recommended that the PUCO approve an operational charge and a natural gas charge for SOBE’s customers.

The revenue requirement from the operational charge would total $96,686 across the system each month, the filing stated. Therefore, a customer that has historically paid 12.5% of total customer costs would pay a monthly operational charge of $12,086, the filing said. 

The same model would be used to calculate customer natural gas charges, the filing said, which involves two components.  The first is a fixed rate paid each month over 18 months that would go to satisfy SOBE’s delinquency with Enbridge Gas. The second would be SOBE’s actual natural gas charges, which fluctuates each month. 

According to the staff filing, the operational and natural gas fees would replace any existing tariff or contract charges to steam heat customers, and not an addition to existing rates. They also do not apply to chilled-water services, which will remain the same.

The PUCO staff added that “it has endeavored to set emergency rates that are minimally necessary for SOBE to continue operations while it works toward a more permanent operational, billing, and rate structure.”

SOBE’s Woes

In May, John C. Collins, the receiver managing the affairs of SOBE, notified a Mahoning County Common Pleas Court that unless additional funding is secured, the district steam-heating company could cease operations by September or October.

Collins said in his report that funds totaling $750,000 awarded to SOBE under a gift agreement with Enbridge Gas Co. would be exhausted by September or October. “After that time, the company will not be able to pay the lease payments for the boilers that are necessary to provide steam heat to the customers of downtown Youngstown out of operating income.” 

According to the receiver’s report, the balance of the Enbridge gift fund stood at $312,172 as of May 6.

The district heating company was placed into receivership in late September after the PUCO determined that it could no longer deliver mandated services to its customers. 

An 800-horsepower mobile boiler was disconnected and repossessed by its owners Sept. 30 after SOBE management failed to make payments on its lease obligations, leaving customers without heat or hot water.

The court appointed Reg Martin as SOBE’s receiver Sept. 26. A 650-horsepower boiler was secured to serve customers on the district heating line during the first week of October. Martin, however, acknowledged that the boiler’s capacity was inadequate to serve customers during the winter months. In December, a second 200-horsepower boiler was added, as the team worked to acquire another 800-horsepower boiler for the system.

Martin resigned as receiver in February, and the court appointed Collins, an Akron attorney, to replace him.

Martin’s removal came after customers – including City Hall – lost steam heat service to their buildings during one of the most severe winter cold blasts in recent memory. Temperatures plunged to 17 degrees below zero at points, as SOBE struggled to maintain adequate heating for downtown buildings and their tenants. A ruptured water line led to the complete shutdown of the company’s two mobile boilers. A third, an 800-horsepower boiler, was secured during the first week of February.

However, that boiler experienced a system failure Feb. 8, while the 650-horsepower unit at the site also shut down. That left a single boiler with just 200-horsepower capacity in operation, which was inadequate to supply steam heat to customers.

The city has discussed hiring a consultant to review the SOBE situation and present any available options or recommendations. City Council has yet to vote on the measure. The city has also asked for financial help from the state, to no avail.

Next Steps

According to the filing, the new rates are enough to sustain SOBE’s operational expenses without using any of the Enbridge gift funds. 

The staff recommended that SOBE use any remaining gift funds to replace all meters that are either defective or missing, and has asked the PUCO to direct the receiver to complete installation of these meters by no later than Oct. 1. Once meters are installed, SOBE can begin to gather more reliable data regarding customer usage. 

“Emergency rates are not a permanent solution to a utility’s financial distress; they are intended to be temporary, approved only as necessary to avert a crisis,” the PUCO staff filing said. “The goal is for SOBE to be operational and financially secure without emergency rates in place.”