Bill to end ESPs, force utilities to sell power plants could upend utility industry in Ohio

June 20, 2017

Almost a decade after the state began transitioning to a deregulated power market, a bill now pending in the legislature “could turn the electric utility industry in Ohio on its head.”

The measure, HB 247, introduced by Rep. Mark Romanchuk, would in effect implement full deregulation by replacing the system enacted in 2008 with one whose centerpiece is the elimination of controversial “electric security plans.” These so-called ESPs allowed companies to propose multi-year rate plans that critics say favored utilities by having customers pay more than market value for power. 

Romanchuk’s plan would get rid of the ESPs and require traditional utilities to base consumer prices almost entirely on wholesale power prices. It would also roll back the use of non-bypassable riders, which are the mechanism utilities use to add charges to their base delivery rates, pushing the price to consumers higher than the price of electricity. 

Other provisions include:

• Requiring the state’s utilities to sell their power plants, a response to companies’ efforts to seek financial assistance from Public Utilities Commission to subsidize uneconomic generating assets; and

• Allowing refunds – money, not credit – for unlawful charges. Current law does not provide a way for customers to recover charges if a court rules that a rate increase is illegal. 

While the bill prompted the Cleveland Plain Dealer’s “turn the industry on its head” claim, Romanchuk’s proposal earned support from both industry and consumer groups, including AARP Ohio, the Northeast Ohio Public Energy Council, the Office of the Ohio Consumers’ Counsel (OCC), the Ohio Manufacturers' Association, and the Ohio Farm Bureau Federation.

They have argued that even though Ohio’s move toward deregulation has saved customers billions, state laws and regulations have prevented ratepayers from enjoying all of the market’s potential benefits 

Eric Burkland, president of the manufacturers’ association, said in a prepared statement, “Manufacturers, like other energy-intensive businesses, rely on affordable, reliable electricity. Enactment of HB 247 will help protect manufacturers from unwarranted, anti-competitive, above-market charges imposed by electric utilities.

“The major provisions of (the bill) will help protect the billions of dollars of savings that customers have realized thanks to Ohio’s competitive market for electricity.”

The OCC’s Bruce Weston – a longtime critic of ESPs – called Romanchuk’s proposal “a major step toward consumer protection.”

Noting that Ohio consumers pay higher electric rates than their counterparts in 33 states, he added: “Lower electric prices in the competitive market should translate to lower electric bills for Ohio families and businesses.”

Not surprisingly, utilities – who have argued that higher rates are often caused by government mandates – have a different take on the legislation.

A spokesman for American Electric Power told the Columbus Dispatch that it “would be a mistake” for lawmakers to approve the bill, as passage would undermine the stability of the current power system and result in unpredictable costs for ratepayers.

The legislation has been referred to the House Public Utilities Committee, where its fate is unclear. According to the Dispatch, it is “likely to draw opposition from utility companies and face skepticism from legislative leaders, who often are wary of major changes to utility policy.”

The paper added that the major utility-related legislation in Columbus this year would actually give companies more guarantees of income rather than less, pointing to FirstEnergy’s effort to secure a subsidy for two nuclear plants.

Additionally, state regulators have introduced another bill that would permanently subsidize two coal-fired plants owned by Ohio Valley Electric, a consortium of Ohio utilities that includes FirstEnergy and AEP. That measure would guarantee an income when the market price of electricity falls below the cost of operating the plants. Customers would pay the difference.