By Greg R. Lawson

Thank you Chairman Stautberg, Vice Chair Roegner, and Ranking Member Williams for the opportunity to testify today. My name is Greg R. Lawson and, as I am sure this committee well knows, The Buckeye Institute is a non-partisan, non-profit, and tax-exempt organization as defined by section 501(c)(3) of the Internal Revenue Code. We are a think tank that formulates and promotes free-market public policy solutions for Ohio. To that end, we believe that the key to Ohio’s prosperity is to maintain a low tax, limited regulation environment that is inviting to those wanting to start new and grow existing businesses.

I am here to offer some general, interested party thoughts on Senate Bill 310.

As a free-market organization that has long explained the critical importance of the market in determining the appropriate allocation of scarce resources, The Buckeye Institute has invariably argued that most government mandates distort the market and skew the allocation of those resources. To this end, Senate Bill 310, as it emerged from the Senate, represents wiser policy than the status quo, but it is far from the correct policy for Ohio.

Most of the following is from testimony I offered to the Senate Public Utilities Committee during hearings on Senate Bill 34, Senator Jordan’s legislation that would have repealed Ohio’s Alternative Energy Portfolio Standard (AEPS) outright. Before commencing, let me reiterate, provisions in Senate Bill 310 including: the temporary freeze, repeal of the probably unconstitutional in-state renewable energy purchasing mandate, the modifications as to what may count toward advanced energy benchmarks, and the creation of a new committee to examine the long-term economic impact of the AEPS are all reasonable policies. However, the full repeal of the AEPS is the right move for Ohio.

As this committee’s membership knows, the AEPS was created by Senate Bill 221 in the 127th General Assembly and signed into law by then-Governor Ted Strickland. In short, the AEPS is clearly a distortive government mandate. It explicitly forces electric distribution utilities and electric services companies to obtain a significant portion of their electricity from a combination of renewable and advanced energy sources. Specifically, it imposes a 25 percent mandate, of which 12.5 percent must be from renewable sources with .5 percent set aside for solar energy.

These requirements constitute gross government intervention into the marketplace and, contrary to the assertions of renewable energy advocates, are likely to cost consumers much more money over the long run.

Various studies have raised this exact point. I note here an April 2011 report from the American Tradition Institute that found,

“The AEPS will impose costs of $1.427 billion in 2025, within a range of $262 million and $2.373 billion. For the period of 2016—2025, the AEPS mandate will cost $8.629 billion, with a low estimate of $5.22 billion and a high estimate of $10.929 billion. As a result, the AEPS mandate will increase electricity prices by 0.97 cents per kilowatt-hour (kWh), or by 9.3 percent, within a range of 0.18 cents per kWh, or by 1.7 percent, and 1.61 cents per kWh, or by 15.4 percent.”[1]

This study, in turn, raises another valid concern, namely that if energy costs rise, there is likely to be a negative impact on Ohio’s economy. Again, referencing the American Tradition Institute study, 

Upon full implementation, the AEPS law will reduce economic output in Ohio. Ratepayers will face higher electricity prices, which will increase the cost of living and the cost of doing business in the state. By 2025 Ohio will employ 9,753 fewer workers than without the AEPS policy, within an estimated range of 2,480 and 15,523 workers.

While we can have additional debate about the methodologies and assumptions of this particular study as well as other studies that have been conducted on this topic, the same criticism can be applied to the “Total Resource Cost” model used to validate the purported savings so many renewable energy advocates have been promoting. Basically, it is a complex model that says higher costs today are really long-term savings in present-value terms given expected future costs avoided. The question that should be asked is far less theoretical. What are increasing costs doing today? Ask businesses that are closing down because of higher costs. Think of Ormet in Hannibal that is shutting down. That is around 700 jobs.[2] Think of Anchor Hocking in Lancaster that is temporarily shutting down. That is over 1100 jobs.[3] Both cited higher utility costs and they are real today. They are not as debatable as many of the “green jobs” which have fluctuated greatly according to what specific jobs the Bureau of Labor Statistics chooses to include or not.

The bottom line is that the promise of a renewable energy paradise coming to fruition in Ohio thanks to AEPS is, at best, unlikely and, at worst, economically devastating. Given its almost certain negative impact on Ohio’s economy, timing could hardly be worse.

Ohio has only recently begun climbing out of the deep economic chasm it fell into during the previous decade when it lost nearly 620,000 private sector jobs—a number eclipsed nationwide by only Michigan.[4] Furthermore, despite recent job growth, increases in employment rates are not growing at a level fast enough for Ohio to keep pace with many states in the nation, especially those in the South and West. Since 2010, Ohio’s percentage of growth in private sector jobs landed us with a middling ranking of only 25th nationally. Why would we risk doing something to proactively increase the difficulty of recovery?

For those who argue that the renewable mandate will create “green jobs,” why not let the market decide? If Ohio is conducive to the development of these types of industries and jobs, commercial and private investment will inevitably flow without government mandates.

Unfortunately, a myriad of sources raise doubts that Ohio will be able to have a competitive advantage in these industries. While I won’t go into technical, geological, or geographical details here, it should be sufficient to say that it makes no sense to employ government coercion to aid industries that would otherwise be unable to swim on their own absent that intervention.

Further, by making a fundamentally non-competitive technology artificially appear to be competitive through government intervention, other promising, and potentially more effective, technologies may be “crowded out” and fail to emerge.

Let us consider wind energy for an example of why the AEPS is likely to be a net cost for consumers and, ultimately, represent a drag on the economy.

Wind energy is still not as cost effective as other energy resources, nor is it as usable, at least not in Ohio. First, wind turbine outputs are, unsurprisingly, variable in nature. Simply put, wind does not always blow, nor does it always blow at a time when the energy harnessed from it can be used most effectively. This inconsistency will be a particular problem for Ohio, given that our geographic location is not as propitious in the first place for the kind of winds necessary to generate energy. The chance for wind energy to be competitive in the marketplace has, thus far, required a great deal of subsidization. Indeed, the industry has received a prodigious amount of just such subsidies in the form of the Federal Wind Production Tax Credit.

While we are pleased that the credit has not been renewed and allowed to further distort the market, absent the $23/MWH credit, the wind industry will be seeking to replace that lost revenue. As long as these mandates remain, Ohio ratepayers will become a target for recouping that lost revenue.

We should also be mindful that the energy landscape in Ohio today is vastly different from the landscape into which the AEPS came into existence. This change is primarily due to the shale gas boom here in Ohio. The production of natural gas wells in the Utica shale formation is ramping up according to the latest numbers from the Ohio Department of Natural Resources.

Although the current shale play seems to be a gas as opposed to an oil play, this energy extraction will lead to more options for energy producers and consumers. Natural gas is relatively cheap, and it has the added benefit of producing less carbon and particulate emissions—making it a competitive resource no matter what position one takes relative to the debate over global warming. Yet, the adoption of natural gas need not be mandated. It will happen on its own as both utilities and consumers make their own decisions without the heavy hand of government forcing them to do so.

To summarize, the entire premise of government mandates on energy is misguided. Given the current realities of the energy market, these mandates become even more absurd. In time, the market will adapt—it always does. If our natural gas were to disappear tomorrow, other supplies would emerge to fill the void. In the future, some of the supplies will probably come from sources that seem like science fiction today. Yet, the competition amongst these various resources will ultimately be what drives costs down and assures the reliability of our energy infrastructure. Mandates merely prop up non-competitive energy sources and supplies, and do not serve the recovering economy or Ohio energy consumers well.

1. Tuerck, Paul Bachman, and Michael Head, “The Cost and Economic Impact of Ohio’s Alternative Energy Portfolio Standard,” The      American Tradition Institute, April 2011, available at http://heartland.org/sites/default/files/ati_oh_rps_study.pdf (accessed February 10, 2014). 

2. Dan Gearino, “Ormet Will  Close, Put 700 Out of  Work,” The Columbus Dispatch. October 13, 2013 at http://www.dispatch.com/content/stories/business/2013/10/04/ormet-­‐shutting-­‐down.html

3. Dan Gearino, “Struggling Glass-­‐Maker Anchor Hocking Temporarily Shuts Dow Lancaster Plant,” The Columbus Dispatch, May 16, 2014, at http://www.dispatch.com/content/stories/business/2014/05/16/Anchor-­‐Hocking-­‐is-­‐temporarily-­‐shutting-­‐ down.html   

4. The Buckeye Institute for Public Policy Solutions, “Ohio  by the Numbers-­March 2014,” at http://www.buckeyeinstitute.org/uploads/files/ObN-­‐2014-­‐03%20.pdf (accessed May 19, 2014).