The following op-ed was co-authored by Dick Munson, director of Midwest clean energy for the Environmental Defense Fund.
Ohio’s utility regulators may have been appointed by a conservative governor, who embraces free markets and competition, but that hasn’t stopped them from considering giant subsidies to electricity companies.
Regulators are supposed to be independent. They shouldn’t rubber-stamp sweetheart deals for the businesses they oversee. Why, then, is the Public Utilities Commission of Ohio even debating a $12 billion gift to FirstEnergy? That’s what is currently on the table in the Buckeye State, where FirstEnergy has various multibillion dollar requests in front of the PUCO that could leave everyday Ohioans paying more than $300 more each year for their electricity.
There certainly is no rationale for a bailout. The company made bad business decisions, such as investing in coal-fired power plants when the price of natural gas was falling. Rather than rely on subsidies that reward its bad management, FirstEnergy should focus on market developments and properly managing its assets.
In July 1999, the state approved legislation calling for competition among electricity generators, which has led to lower rates and increased reliability. FirstEnergy originally supported that deregulation policy because its executives believed it could compete successfully against other suppliers and profit. Yet several FirstEnergy power plants are now uneconomic – largely because competitors are burning low-cost natural gas – so the utility giant wants to abandon deregulation, obtain subsidies, and return to the guaranteed profits from being a monopoly.
Other than FirstEnergy and a select few entities with similar interests, there’s no support for the subsidy: Local manufacturers fear it will lead to higher costs, causing investment and jobs to leave the state; Ohio Consumers’ Counsel calculates residential customers will face significantly higher bills; free-market conservatives oppose government bailouts; and environmentalists feel subsidies will allow dirty and uneconomic power plants to continue spewing pollution.
Market experts have also weighed-in, noting the deal is bad for Ohioans and would harm the electricity market. Economists, in particular, appreciate the power of markets and the dangers of subsidies. A new report from PJM Interconnection, the regional grid operator, explains that bailouts for older plants, like those FirstEnergy is seeking, destroy competition and prevent customers from getting the lowest prices and the cleanest energy.
PUCO staffers suggest the bailout would provide benefits to Ohio. They argue, for instance, the subsidies would be used to modernize the grid, yet the company has not submitted, nor has the PUCO approved, a grid-modernization plan.
FirstEnergy’s subsidy request has a long and sordid history. The utility originally wanted $4 billion to keep several of its outdated, uncompetitive power plants operating. Despite opposition from the state’s manufacturers and consumers, the PUCO approved that largess, only to have the Federal Energy Regulatory Commission overturn the subsidy because it illegally disrupted competitive electricity markets. The utility then asked for the same $4 billion, but without the promise to keep those power plants operating. It then decided to ask for another $4 billion just to pay down its debts. Amazingly enough, FirstEnergy then requested another $4 billion to keep its headquarters in Ohio, even though it had previously signed a long-term lease to do just that.
The Ohio outcome will have national implications. One federal regulator suggested the Buckeye State is ground zero for electricity market debates. He declared the “out of market constructs” being advanced by FirstEnergy would distort price signals and lead to “a really, really unsustainable future.”
Moreover, during this election season, pundits say Americans are frustrated with a political system they see as controlled by those who abuse their positions of power. Forcing people to pay billions of dollars to prop up a massive company fits neatly into that unfortunate picture.
The PUCO has the chance to show its independence and protect average consumers, rather than subsidize a politically powerful electricity company. Ohio commissioners can demonstrate their conservative principles by advancing competition over bailouts, and markets over cronyism. Frustrated Ohioans will be watching.
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