Policy Studies Energy and Environment

Don’t short circuit the Ohio electricity market

The attached policy study is co-authored by Joe Nichols, strategic partnerships officer at The Buckeye Institute.

The Ohio economy depends on an affordable and reliable supply of electricity. Electricity literally powers modern life for Ohioans as we boot up our computers at the office, charge our phones and crank up the air conditioning on hot summer days. It’s also a key input for manufacturers, which still make up nearly one-fifth of Ohio’s economy and provide hundreds of thousands of Ohioans with good jobs. Manufacturers typically face tough global competition, and rising electricity prices can contribute to a plant cutting its operations—or even closing.

That’s why it’s critically important to have good electricity policies that promote competition and customer choice. By sticking to these principles, Ohioans will enjoy a reliable supply of electricity at low cost.

Policymakers made key reforms in 1999 that opened up the electricity market for more competition and customer choice. Traditionally, Ohioans were stuck with their local electric utility and charged a price negotiated by the utility and government regulators. After the 1999 law, Ohio joined other states in a regional organization called PJM Interconnection, which operates a wholesale market for electricity. Power plants compete to sell electricity on this wholesale market and electricity providers buy wholesale electricity through PJM and sell it at retail. Now, Ohioans can choose among these different electricity providers who offer market-based pricing.

Unfortunately, the 1999 reforms didn’t go far enough. The playing field is still tilted in the favor of big utilities and against their competitors, and the utilities can still stick consumers with too many charges that they can’t opt out of by switching to another electricity provider.

In fact, the Ohio Consumer’s Counsel has tallied up $14.3 billion of subsidies to the big four electric utilities—American Electric Power, FirstEnergy, Dayton Power & Light, and Duke—from 2000 to 2016. Approximately $235.11 million more per year are currently approved or pending going forward from 2017.

In the following Q&A, Dr. Joe Bowring—who is the independent auditor for PJM Interconnection—explains why Ohio benefits from participating in the PJM market. Bowring makes three key points that are especially relevant for Ohio:

  1. Regulated utilities should only be in the business of distributing electricity through power lines. They should not also own the power plants that generate electricity.
  2. Government policies that favor one type of power plant over another make the market function less efficiently and raise costs for customers. Ohio is guilty of favoritism in various ways, such as a current law that forces customers to buy renewable energy and proposed laws that force consumers to subsidize certain coal and nuclear plants.
  3. Even though Ohio and the greater region served by PJM are experiencing many changes—including power plant closures—there is plenty of extra power capacity, and many new plants coming on-line. There is no legitimate concern that Ohio will have power shortages or blackouts.

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