Editor’s note: On April 27, 2016, the Federal Energy Regulatory Commission blocked Ohio’s decision to make electric customers bail out inefficient fossil fuel plants. It signals to other states that they cannot subsidize power plants unable to compete in the interstate market.
Wait – Ohio utility regulators did what?
The $6-billion bailout of uneconomical coal and nuclear plants is bad enough. But the decision by the Public Utilities Commission of Ohio to let two power companies saddle ratepayers with their bad debt also sets a dangerous precedent that could have ramifications for consumers in other states.
This is more than a local rate case. It’s about traditional utilities going on the offense against new and cleaner power providers that offer cheaper rates in a competitive energy market – a drama playing out nationwide.
All eyes are now on the federal agency overseeing wholesale electricity markets to see if the Ohio deal will stand or fall.
If the Federal Energy Regulatory Commission should side with Ohio and the two utilities, it could set off a domino effect of fossil fuel plant bailouts that will hurt the environment and consumer pocket books. There are indications similar utility subsidy deals are on the horizon in Michigan, New Jersey, New York and Texas.
That’s why it’s so important to get this one right.
How utilities schemed to protect profits
In essence, the Ohio deal forces power customers in the state – including those serviced by other providers – to buy electricity from FirstEnergy’s and American Electric Power’s uneconomical plants, and regardless of cost.
Here’s how the scheme works: FirstEnergy and AEP’s plants can’t compete in the marketplace because the power they produce is too expensive. So the utilities convinced state regulators to guarantee the purchase of the electricity, and to pass on the cost to Ohio ratepayers. The bill to consumers comes to $6 billion over the life of the contracts.
The power companies have defended the deal, saying their coal and nuclear plants need to keep running to maintain a reliable supply of electricity, steady market prices, and job security for plant workers.
Of course, this is not how it’s supposed to work in a competitive marketplace.
The truth is, the Ohio utilities made some bad investments years ago and have since been slow to adapt to change. Their plants became uneconomical when natural gas prices dropped and energy efficiencies took a bite out of power sales. They’re now at risk of becoming stranded assets.
We don’t think consumers or the environment should pay for these companies’ mistakes. This is not the time to keep dirty power plants on life support – in Ohio or anywhere else.