An Ohio Energy Revolution
Public policy only rarely has direct, and positive, effects on the price of a major commodity. This is one of those policies. Ohio has outperformed its neighbors Indiana and Kentucky, where the electric power industry remains fully monopolized. Those states have seen electricity prices increase about 30 percent from 2008 to 2016. Ohioans’ bills have risen, but only by half that. Ohio’s energy policy has allowed the state to capitalize on the massive Marcellus Shale gas fields that sit under Ohioans’ feet. When customers are not on the hook to monopolies for multi-decadal investments in power plants, capital more easily recirculates into newer, more efficient investments.
Now it’s just a matter of convincing state legislators to accept the fruits of their policy. Rather than amplifying the benefits of low-cost energy, the state has diminished them by furnishing handouts to the state’s erstwhile monopolies. Four of them — FirstEnergy, AEP, Duke, and Dayton Power & Light — have through legislation and regulation extracted more than $15 billion in subsidies since the state’s ostensible “deregulation,” according to the Ohio Consumer Counsel.
Many of those fees show up on customers’ bills cloaked in happy-sounding euphemisms such as “rate stabilization surcharge.” Just last month, Ohio’s supreme court tossed out the latest of these subsidies, a $168-million-per-year “grid modernization surcharge.” Ohio’s utility regulator had labeled the fee an “incentive,” but, as the court noted, the program had no requirement that the proceeds be spent on anything having to do with modernizing the grid. It was, plain and simple, a gambit to shuffle money to an actor that found itself on the losing end of Ohio’s competitive electricity sector.
This year’s grift, Ohio’s House Bill 6, would direct north of $1.2 billion in subsidies over the next six years to two nuclear plants as well as a pair of 64-year-old coal power plants owned by a consortium of utilities. Akron-based FirstEnergy and the leader of Ohio’s house of representatives, Larry Householder, call this gambit the “Ohio Clean Air Program,” a name in rather plain defiance of what the bill actually does. Speaker Householder has pieced together a political coalition that depends on labor unions, who joined with Republican legislators to secure his position as speaker earlier this year. One of the main backers of the Householder faction is FirstEnergy.
In the legislative cram-down that has attended H.B. 6, the bill’s utility and labor-union proponents have mouthed a number of weak arguments, hoping to give the bailout some plausible reasoning. None of them have stuck.
First, H.B. 6’s sponsors said that if nuclear power plants went out of business, power prices would rise. This is a bizarre argument: Subsidize power plants or else consumers will have to pay more. It is true that the market today is oversupplied with power resources, and if some close, prices will tighten. But the wholesale market operator, PJM, has studied the issue and anticipates total consumer savings of $1.6 billion if the nuclear plants in danger of closing are replaced by natural gas generators.
Furthermore, it is not even clear that Ohio’s nuclear plants are unprofitable and would close without subsidies. The plants’ going-forward costs appear to be below the anticipated market price of electricity. One analysis, by Paul Sotkiewicz, among the nation’s leading energy economists, projects that the nuclear plants will earn $700 million over the next decade. H.B. 6 would more than double those profits. FirstEnergy disputes Sotkwiewicz’s report but refuses to accept an amendment that would pay out subsidies only if the plant owners open up their books and prove they are unprofitable. That pretty much says it all.
Flailing, H.B. 6 boosters have also claimed that the bill merely rebalances the playing field after years of renewable subsidies. They’ve got a right to complain about those. Yet according to the Ohio Public Utilities Commission, the renewable surcharge is less than the H.B. 6 surcharge would be for all but one of the electric utilities in the state. In any case, if the legislature wants to repeal renewable subsidies, then it should do so. But don’t use the savings to fund other subsidies. Give them back to customers.
The fix was in for H.B. 6 in Ohio’s House, where it sailed to passage early last month despite overwhelming public opposition in committee hearings. The state’s governor, Mike DeWine, has suggested he will sign it. But as each bad argument for H.B. 6 has fallen flat, Ohio’s senators show signs of skepticism. A more principled bunch of conservatives, they have the task of holding the line on Ohio’s successful, if always besieged, experiment in electricity competition.
Image credit: Lumppini