Gas industry, manufacturers push back on efforts to re-regulate Ohio electricity markets

Ohio electric customers could lose billions in savings each year if the state’s electric generation market moved back to monopoly power, researchers and others stressed earlier this week at a conference in Columbus.

“Going forward, there’s about $3 billion in savings that will be realized in Ohio each and every year” if customer choice continues, said Ned Hill, a professor of economic policy atOhio State. The January 31 program was presented by Vorys Advisors and the law firm of Vorys, Sater, Seymour and Pease.

The question is especially timely because FirstEnergy and American Electric Power announced last year that they want to move back to full or partial regulation for their businesses. As Ohio’s new legislative session begins, the two companies have already begun work on proposals to accomplish that goal.

“The larger discussion related to the potential restructuring or partial restructuring of the industry” is indeed part of the legislature’s energy agenda for this year, confirmed Ohio Senate President Larry Obhof (R-Medina) in his opening remarks at the conference.

Support for competition instead of monopoly power was echoed by competing electricity suppliers, the natural gas industry and manufacturers who also spoke at the event, along with Ohio Consumers’ Counsel Bruce Weston.

“Generation shouldn’t be a monopoly,” Weston said, adding that “competition can produce lower prices for Ohioans in need.”

Counting up savings

The $3 billion per year figure cited by Hill comes from a report that he and other researchers prepared for the Northeast Ohio Public Energy Council (NOPEC).

The report compared data on utilities’ standard service offers with average contract prices paid by shopping customers for the period from 2009 onward. That’s when competitors began moving into the state and significant shares of customer shopping began, noted Andrew Thomas of Cleveland State University, who also worked on the November 2016 report.

The difference between the two values reflects savings realized by so-called shopping customers, and the researchers forecast that those savings will be about $645 million per year through 2020. Shopping customers now make up between 70 and 80 percent of the customer base, depending on the rate class they fall into, according to the study.

Another $2.3 billion in annual savings come from the use of competitive auctions to buy electric generation in the PJM market, according to the report. That requirement benefits both shopping and non-shopping customers, said Susanne Buckley of Scioto Energy, which provided data for the research.

The analysis also looks at non-bypassable charges, which are charges that all customers must pay, regardless of whom they choose for an electricity supplier.

Those non-bypassable charges “tend to bias the data” if one looks only at the total amount due on electricity bills, said Thomas.

That’s because as prices for the electricity portion of the bill have come down, there have been notable increases in some utilities’ non-bypassable charges, Thomas explained. If those increases offset a significant amount of customer savings, someone looking only at the bottom line of a bill might not realize it is lower than what the bill might otherwise have been.

Tracking reasons for all the increases was beyond the scope of the report, Thomas said. However, the report noted, at the time that AEP shifted certain transmission charges from PJM into the non-bypassable charge section of the bill, the utility’s charge was nearly twice what had been paid before the shift.

AEP may have used a different formula to calculate the charge than PJM did, the report suggested.

It’s also possible that another charge may have been added to that part of customers’ bills at about the same time.

Utility arguments for re-regulation are similar to those advanced in recent “bailout” cases, in which AEP and FirstEnergy sought subsidies for non-competitive generation plants.

‘A pivotal time’

A competitive electricity market with a range of generation options is an important selling point for attracting businesses to the state, noted Dana Saucier of JobsOhio. In addition to discussing natural gas generation, Saucier cited Amazon Web Services’ interest in having wind energy for its data centers.

Competitive electricity suppliers have also made large investments in the state, noted other speakers.

“This [is] a pivotal time in the markets when we are working to advance competition, both at the retail and wholesale level,” said Kathleen Barron of Constellation, which is part of Exelon Corporation’s businesses.

Ohio is Constellation’s largest commercial and industrial market and one of the company’s top four residential markets. “We plan to stick around and invest in Ohio as long as the policy environment supports that,” Barron said.

Competition promotes innovation and lower costs, stressed Deborah Merril of Just Energy, a retail-only energy provider. “Everything we are about today, tomorrow and in the future is about driving value for customers and innovation in products,” she said.

In contrast, a utility with a guaranteed market for its electricity generation “transfers all its risk to the rate base,” said Trey Griggs of Calpine Corp. In his view, that transfer decreases incentives for efficiency and innovation.

“How come we don’t see any of the utilities…competing and doing the same things we do?” challenged Bill Siderewicz of Clean Energy Future, which is developing two new natural gas-fired power plants in Ohio. As he sees it, the utilities know the cost of competing in the system but can’t make it work.

“Well, if you can’t compete, what do you do next? Change the rules,” said Siderewicz. “That’s where we are today.”

“The economics are simple,” said Ryan Augsberger of the Ohio Manufacturing Association. “It’s harder for old coal plants to compete against today’s technology.”

“This is not a reliability problem,” contrary to arguments that utilities have voiced before, Augsberger added, noting that a move away from competition “would be unfair to those companies that are risking their investments” by building and offering more competitive generation.

Nor can utilities claim they have been unfairly disadvantaged when they have already collected billions of dollars in above-market charges, Weston said. Those charges come to about $14.57 billion since 1999, data from his office show.

If anything, Ohio should move away from allowing multiple riders for non-bypassable charges, Weston suggested. “Our riders are sort of equivalent to allowing utilities to cherry-pick their rate increases,” he said.

In any case, he and others would urge lawmakers to resist utility attempts to move back to guaranteed profits and away from competition in the electricity generation market.

“The question really is why should customers be required to foot the bill if a utility’s financial integrity is not where that company’s leaders want it to be?” Augsberger said.

“You cannot fight the math on this,” said Hill.

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