Lawmakers Face a Full Pipeline of Energy Policies

Joe Nichols Aug 23, 2017

On Monday, Governor Kasich was speaking at the opening of a new natural gas-fired power plant in Oregon, Ohio when he said:

“…I think it’s important that Ohio stay in a deregulated environment which brings in investors. If all of a sudden you don’t have a level playing field, then you don’t have significant investment. It will go in another place.”

He’s right, and legislators would do well to heed his words when they return from summer recess.

Ohio is at a crossroads in energy policy and the next few months may determine much of the state’s future with regard to this critical sector of the economy.

The key question is:  Should private companies compete to earn your business or simply be given the right to your wallet?

The best policy, which is under consideration in the House, would require electric utilities to unwind their ownership of power plants and focus only on delivering electricity to our homes and businesses. The task of generating electricity would then fall on independent firms that compete to sell it through power grid.

Traditionally, Ohio utilities were “vertically integrated”—they owned power plants plus the infrastructure to deliver electricity. The government assigned you to one of the utilities and set the prices you had to pay based on the utilities’ cost to produce and deliver power. If utilities didn’t make enough money due to bad decisions or ordinary business risks, the regulators would most likely make you pay more.

That’s not the way it should be—investors in private companies should bear those risks, not customers. Fortunately, in 1999 Ohio passed a law to let independent power companies—whose investors would take on the risk of the business instead of customers—compete to sell us electricity. Unfortunately, that 1999 law didn’t fully break-up the integrated utilities, which created an uneven playing field that still favors the big utilities.

This favoritism is apparent in numerous other policy proposals that have popped up in recent years and all seem to be coming to a head. American Electric Power (AEP) and FirstEnergy asked for guaranteed returns on their power plants. The state utility commission approved the “bailout,” but federal regulators overruled.

However, that didn’t stop the utilities from asking for handouts. FirstEnergy then asked the Public Utilities Commission of Ohio to let it collect an extra $600 million per year—over eight years—from its customers. PUCO approved a less-egregious $204 million per year for up to five years. The extra money was touted as being earmarked to upgrade the grid, but there is no real mechanism of accountability or enforcement to use the funds properly. Opponents appealed, but the PUCO unfortunately rejected that appeal on August 16.

FirstEnergy also asked legislators to force its customers to pay an extra $300 million per year—for at least 16 years—to prop-up its two failing nuclear power plants in Ohio.

Meanwhile, AEP talked of walking back the 1999 law’s half-step toward competition and going back to the days of vertically integrated utilities. Ultimately, the company lobbied for a much less ambitious plan to subsidize the Ohio Valley Electric Corporation (OVEC), which operates two aging coal plants.

On top of all that, the Renewables Portfolio Standards, that force Ohioans to subsidize wind and solar farms, is back in effect for 2017 after a two-year hiatus, even as the House passed another bill to reform the standards so that customers can opt-out of paying the extra charges. If left without reform, the standards could cause Ohioans to lose out on tens of thousands of job opportunities and billions of dollars in wealth due to higher electricity prices.

These numerous attempts to subsidize power plants would create a jerry-rigged electricity policy that lacks coherence and drives up costs for Ohioans. What we need is to finish the job that the 1999 law started—break up the vertically integrated utilities so that they distribute power but don’t generate it, even through a subsidiary. That way, the big utilities have no skin-in-the-game to lobby lawmakers and regulators to increase charges, and investors—not customers—are on the hook for the risks of operating power plants.

Governor Kasich was right that kowtowing to utilities and creating an uneven playing field will make our state less attractive for billions of dollars of new energy investments in natural gas and green energy. As 2017 closes out, policymakers should open up the market to more competition rather than shut out new investments and opportunities.

Nichols is the strategic partnerships officer at The Buckeye Institute and an expert in energy policy.