Midwest States Respond to Change in Electric Deregulation Environment

By Bill Malcolm*, Guest Author

Are we beginning to see states backtrack on competitive electric markets, or are we simply in a period of transition? Developments in the complex 15-year history of electric deregulation in states like Ohio continue to unfold. future and past

The most recent changes have been sparked by:

  • falling or flat power demands
  • low-cost wind and natural gas power plants becoming a more viable option than traditional coal and nuclear plants
  • low wholesale power prices
  • a recognition of more stable (and lucrative) returns in the regulated sector of the electric industry

Let’s look at Ohio’s approach to the changing industry landscape:

FirstEnergy filed a plan requiring ratepayers — even those buying from another supplier — to pay for power from some of its deregulated generation plants. In Ohio in early August, FirstEnergy filed an Electric Security Plan (ESP) (Case 14-1297-EL-SSO) that would establish electric rates for customers from June 1, 2016 through May 31, 2019.  

As part of the filing, the company proposed its 15-year economic stability plan called “Powering Ohio’s Progress.” The company said in a press release that the proposed plan will freeze distribution rates while helping keep “critical base load power plants available to serve Ohio customers.”

The program entails a purchased power agreement among the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio; W.H. Sammis Plant in Stratton, Ohio; and Ohio Valley Electric Corporation (OVEC) units in Gallipolis, Ohio, and Madison, Ind. 

FirstEnergy’s Ohio utilities would purchase the output of these (deregulated) facilities and sell it into the wholesale energy and capacity markets. As power prices increase as projected over time, proceeds from the market sales that exceed costs from the purchased power agreement will be applied as credits on retail customers’ electric bills to mitigate volatility and address rising retail prices.  

First Energy told media sources that the plan ensures reliability by keeping large coal and nuclear plants in Ohio running and will provide $1 billion in statewide economic benefits with 3,000 direct and indirect jobs. Critics charge the company has already been compensated for the stranded cost of its generation.

 Stated Scott Gerfen, Ohio Consumers Counsel spokesperson:

 “1.9 million consumers paid billions of dollars to FirstEnergy for its transition to deregulated power plants, under a 1999 Ohio law. Fifteen years later, FirstEnergy is again asking consumers to pay charges related to the power plants. FirstEnergy’s requests include asking the government (the PUCO) to guarantee profits for what are deregulated power plants whose profits should instead be determined by the electricity market. Needless to say, we are concerned for consumers…”

 The Sierra Club’s Dan Sawmiller agreed and criticized similar requests from Duke and AEP: 

“These proposals from Ohio’s utilities are nothing more than a request to have Ohio’s electricity customers spend their money to bail out dirty old, obsolete power plants. These power plants are expensive and are being replaced in the market by cheaper, cleaner sources of generation, and we should not bail these corporations out now that they are unable to compete.”  

It is hoped that these new developments will help states like Ohio avoid scenarios similar to that in Wisconsin when Dominion closed the Kewaunee nuclear plant (which had just been re-licensed) due to economic pressures. 

Needless to say, the deregulation story continues to evolve, and recent developments in Midwest states like Ohio are an interesting and ongoing chapter worth following.

*About the author: Bill Malcolm is an Indianapolis-based energy and transit analyst who has worked in the energy industry since 1977. He worked at Seattle City Light (as an intern), Pacific Power, PG&E, and ANR Pipeline. He was one of the first employees of MISO, the nation’s first FERC-approved RTO, where he helped create the state regulatory relations program. For the last two years he has written the Commission Corner column for The Cruthirds Report, a Houston-based energy newsletter. He is also the editor of All Aboard Indiana. He can be reached at billmalcolm@gmail.com.

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