Dick Munson: Will Ohio turn its back on electricity competition?
Ohio electric utilities are weary of competition. They want to return to the warm comforts of regulation, where profits are virtually guaranteed and old, uneconomic power plants can continue operating. Yet studies overwhelmingly show that electricity competition is increasing efficiency, lowering costs, and enhancing customer choice.
In the 1980s, Ohio and 16 other states (including Illinois) opened up electricity generation to competition, enabling customers to choose their power supplier. Ohio utilities initially thought deregulation was a great idea that would allow them to make more money. However, they demanded a bailout in order to make that transition, obtaining more than $9 billion in customer-funded “regulatory transition” payments. They also ensured deregulation was limited, so their parent utilities could own both a monopolized distribution subsidiary — with guaranteed profits — and a “competitive” generation unit.
Even with those benefits, Ohio’s traditional utilities now do not like the results. With many of their power plants facing stiff competition in regional markets, they want to reregulate or re-monopolize. This plea is on top of their persistent entreaties to bail out their uneconomic generators.
Ohio utilities’ effort to re-monopolize is a step backward. Modern technologies — which lower the costs of batteries, natural gas, solar, and wind — are enabling far more competition in electricity markets, and innovative players are bringing more options to consumers. The utilities want to re-monopolize so they can avoid competition from these cheaper, cleaner energy sources.
Whether to embrace more competition or return to monopolization is the key question recently addressed by conservative think tank R Street Institute, which finds that even limited deregulation brings economic discipline to power markets. Competitive merchant generators operate their power plants more efficiently, build natural-gas units to take advantage of lower fuel costs, and retire unprofitable coal and nuclear plants. Traditional utilities, in contrast, double down on the old, buying up more clunky coal units.
R Street also finds competition brings benefits to customers. In the mid-1990s, Illinois and Ohio had the highest electricity rates in the Midwest — now they have the lowest. “The gap has become so prominent that Ohio and Illinois have lower commercial and industrial rates than every other Midwest state, and only Indiana has lower residential rates.”
Several studies confirm the financial benefits of electric competition. Cleveland State University and Ohio State University found competition enabled $15 billion in consumer savings in Ohio since 2011. The Illinois Chamber of Commerce and other business associations labeled the Prairie State’s restructuring a “triumph of market-based public policy,” resulting in $37 billion in consumer savings from 1998 to 2013.
The benefits of competition go beyond customer savings. Noting that Microsoft, Amazon, and other big companies are demanding clean energy, another study finds retail choice helps attract large corporations to invest and create jobs in Ohio. Preserving competition could lead Amazon to select an Ohio city for its second headquarters, bringing some 50,000 new jobs to the state.
Why is electricity competition so beneficial? According to the R Street economist Devin Hartman, when utilities must shoulder the financial risk, they are more likely to invest wisely. Think of competition as “survival of the fittest,” while utilities in a monopoly would be “revival of the fattest.”
Rather than move backward toward re-monopolization, a growing number of voices are demanding more competition in the state. The Ohio Manufacturers Association, Ohio Consumers’ Council, Ohio Farm Bureau, and Ohio AARP argue that monopoly distribution utilities should totally divest their power-generating units, so that subsidies cannot flow from the monopoly to its affiliates operating in competitive wholesale markets. To do so, say two other conservative economists, would create robust retail competition as well as spur new investment.
Ohio and the nation are at an electric crossroads. Once again the Buckeye State is on the cutting edge of national electricity policy debates. Pressured by FirstEnergy and Ohio coal companies, for example, the Trump administration is trying to distort power markets and subsidize utility monopolies. Will they return to the past and embrace monopolies, or will they move forward with real competition and enjoy lower costs and more innovation?
Dick Munson is director of Midwest Clean Energy for the Environmental Defense Fund in Chicago.
