Ohio’s attempt at power-plant bailouts should alarm conservatives
In a recent victory for consumers, federal regulators blocked bailout plans by two of the nation’s largest power companies, who hoped to subsidize their unprofitable power plants on the backs of Ohio ratepayers.
The deals, brought forth by American Electric Power (AEP) and FirstEnergy Corp., would have resulted in higher bills, environmental damage, stifled innovation, diminished value for customer choice and less competitive markets for Ohio. Unfortunately, the rationale behind the Ohio decision still threatens to turn this kind of irresponsible, anti-competitive plan into a broader movement. This should outrage conservatives.
Over the past decade, cheap natural gas drove some of AEP and FirstEnergy’s coal and nuclear power plants into the red. The companies sensed an opportunity to seek subsidies for these plants through mandatory ratepayer charges, chanting the motto of “rate stability” and appealing to keep in-state power plants online. The companies received their bailouts in an alarmingly unanimous vote by the Public Utilities Commission of Ohio.
Safeguarding in-state jobs is undoubtedly a worthwhile concern, but mandating subsidies to do so is not the solution. It inhibits companies from creating the kinds of modern jobs that have a place in the efficient energy future. Allowing unprofitable enterprises to shut down creates room for new, profitable ones to innovate and thrive in competitive markets. Cheap natural gas is currently the primary catalyst of this transition in the electricity industry. But clean, renewable energy is also becoming highly competitive. Markets, if left to their own devices, will harness these forces to maximize economic growth.
Market signals, not political favoritism, should drive investment decisions.
Competitive retail electricity markets empower people to choose energy providers that suit them best and deliver savings. These electricity providers offer rates at different levels of price and rate stability. People can also choose suppliers that offer more electricity from cleaner sources like wind and solar. Competitive retail markets prove that customers want to and should be in control of their power supply choices. AEP and FirstEnergy’s proposals would have replaced individual choice with a government mandate.
While the Ohio plans would have unfairly required ratepayers to pay more for electricity from older facilities, they would have also increased risk for the companies’ competitors and stifled innovation. Keeping unprofitable plants online distorts the regional power market, and guaranteeing profits to existing technologies reduces the financial motive to innovate in new technologies.
Bailouts reward poor investments and create perverse incentives in market and political behavior. Moreover, every in-kind political intervention increases the likelihood of subsequent interventions. Other losers of the new energy era have already sought political interventions to save their unprofitable assets, as evidenced by actions in Illinois, the Northeast and whispers in Texas.
This should give us all pause that the efforts in Ohio may be duplicated in other competitive electricity markets. Cheap gas has saved customers billions and will continue to do so. As Ohio’s misguided political interventions threaten to be attempted elsewhere, regulators and policymakers must remain disciplined in allowing market signals to adjust to this transition.
If they don’t, this kind of market disruption will damage investor confidence. Investors have already signaled subsidies undermine the decisions that drive new power-plant development. A contagion of eroded investor confidence would drive up the cost of capital by making private investments artificially risky, severely undermining the health of competitive markets.
The federal decision is a temporary win for electricity competition. AEP and FirstEnergy are seeking and will continue to seek alternative subsidy paths, the worst of which would be to “re-regulate” their assets. This would return Ohio to the flawed model of monopoly utility regulation and obliterate competition and customer choice.
Healthy, competitive electricity markets are imperative to our economic and environmental future. They force electricity providers to reduce costs and pollution quickly, deploy innovative technology and attract customers. Simply put, competitive markets make society wealthier.
Conservatives must uphold their core principles and stand in opposition to “re-regulation” and subsidies for unprofitable power plants. Open, competitive markets are the most prosperous and fair path forward, especially during times of industry transition.