Last year, Ohio state lawmakers approved a sweeping utility overhaul. That measure, Ohio House Bill 15, was notable not just for its scope and breadth, but it’s bipartisanship. Ohio House and Ohio Senate versions of the bill passed with nearly unanimous support.
Its central aim was to encourage new power generation to meet rapidly growing demand for energy.
Lawmakers did that by erecting new barriers to keep Ohio’s regulated utilities — the distribution companies that show up on your monthly bill — out of the competitive energy generation market.
That separation is crucial: Otherwise, a regulated monopoly could cover its losses in the competitive market by tacking charges onto their utility customers’ bills.
The most well-known example of that gimmick is probably the rider in the 2019 Ohio House Bill 6 law bailing out aging coal plants by adding fees to ratepayers’ monthly bills.
House Bill 15 last year eliminated that rider and others. It also explicitly prohibited utilities from owning electric generation facilities.
So, if lawmakers just went through all the trouble of reinforcing the distinction between the companies generating power and those distributing it, why is one lawmaker working on a plan to let the distributors get back into the generation market?
The draft
Ohio Capital Journal recently obtained a copy of draft legislation that would allow electric distribution utilities to build and operate nuclear power plants.
State Rep. Adam Mathews, R-Lebanon, confirmed it’s a measure he’s working on.
Importantly, this legislative text is only a draft. It has not been filed, and it may never be.
Speaking after a committee hearing last week, Mathews explained the language hasn’t been finalized, and he stressed, repeatedly, that “anything that we’re going to introduce will make sure that nothing falls on the ratepayers.”
Mathews’ proposal includes language requiring separate accounting and regular audits.
Still, the measure contemplates recovering “prudently incurred costs” for the nuclear facility from customers using its power.
Once a 20-year power purchasing agreement ends, the utility would be able to bill all of its customers.
“Any legislation that comes through will be for more nuclear generation, that is not on the back of rate payers whatsoever,” Mathews added. “And we’re working to make sure the legislation speaks to that.”
In a follow up email, his office explained a newer version with substantial changes is in the works.
Why distribution and generation are kept separate
The same day H.B. 15 was introduced, Ohio’s top utility regulator, Jennifer French, gave the House Energy Committee a brief overview of the state’s market and regulatory system.
Mathews serves as vice chair of the committee.
Utilities are the pole and wire companies handling the distribution of power. With approval from state regulators, French explained, they get to bill customers for the cost of building and maintaining that infrastructure.
“Today,” French said, “generation service is provided by the competitive market — not the electric distribution utilities.”
The reason for that separation is to ensure customers are not billed for the cost of generation.
“This means that in Ohio, customers no longer have to bear the risk of building and running the actual generation units,” French continued, “because they are owned by entities in the competitive market, not the utilities.”
Throughout testimony for H.B. 15, independent power producers made this point repeatedly.
In March, Caithness Energy Vice President Tom Copus told lawmakers that the coal plant rider in H.B. 6 had “a chilling effect” on investments in the state.
“If you create the confidence that Ohio has a level playing field,” he said, “developers will invest again in your state.”
Giving the devil a foothold
Ohio State University Professor Noah Dormady specializes in the economics of energy policy, and he offered a harsh assessment of Mathews’ draft proposal.
“It’s giving the devil a foothold, to use biblical terms,” he said. “It’s just, it would be horrific. I can’t express strongly enough how bad it would be.”
Dormady testified in the H.B. 6 corruption trial against now-imprisoned former Ohio House Speaker Larry Householder, and his work on the way utilities cross-subsidize their losses helped prompt H.B. 15.
He explained that the cost of natural gas drives the wholesale price of energy.
When the shale boom began, the price of natural gas dropped.
That meant power plants, including those owned by the affiliates of Ohio’s regulated utilities, saw their revenues dip.
While that’s not good news for shareholders, in a deregulated market like Ohio’s it should be great news for the ratepayers whose energy prices should fall, too.
But that’s not what Dormady found.
“As the wholesale prices dropped, retail prices should have dropped, but retail prices went inversely and statistically significantly in the opposite direction,” he said.
“Every dollar that those power plants lost, they passed those costs off onto households, onto consumers.”
Dormady believes that if distribution companies get back into the generation market they’ll do the same thing again. And with the proposal’s cost recovery language, they might be able to collect even more, he said.
He pointed to a provision directing “all prudently incurred costs related to the nuclear generating facility shall be reflected in the utility’s distribution rates.”
“So essentially,” Dormady said, “they’re going to be taking generation costs and putting them on the distribution part of your bill.”
“It’s not just the costs of the power plant operating,” he explained. “It’s the cost of building. They’ve even included decommissioning costs in this which is unheard of. So anytime these power plants have a loss, those losses will be socialized onto consumers if this language is adopted.”
He stressed that by including decommissioning costs, consumers would be paying for the plant even after it has stopped producing power.
Uphill climb
Mathews may have his work cut out for him as he puts together a new draft of the proposal.
House Bill 15’s sponsor, Ohio state Rep. Roy Klopfenstein, R-Haviland, expressed some concern based on a description of Mathews’ proposal, but withheld judgement.
“Off the top of my head, I’d say, I have some real concerns,” he said, “but I’m just gonna have to wait and see it and see what it exactly says.”
House Energy Committee Chairman, Ohio state Rep. Adam Holmes, R-Nashport, said he’s ready to listen, but admitted it’s “hard to reconcile” the ideas in Mathews’ proposal with H.B. 15.
“I would challenge that bill to say, why is that better than what we’re doing now, where the market is bringing nuclear power to the state on its own,” Holmes said.
And Ohio House Speaker Matt Huffman said, “I’m not in favor of going back to a time ratepayers pay the costs of any company.”
In the months since H.B. 15 took effect, he noted several new natural gas plants have started working through the regulatory process.
“There’s a reason why people are coming to Ohio,” Huffman said. “We, because of that legislation, are uniquely situated, so I think that that would likely be a step backwards.”
Originally published by the Ohio Capital Journal. Republished here with permission.