New Ohio Energy Law Emphasizes Subsidies, Mandates

Published August 29, 2019

Ohio Gov. Mike DeWine signed into law a bill legislators say will save Ohioans money on their power bills and ensure electric power reliability in the state.

The law provides subsidies to encourage companies not to close coal and nuclear power plants that supply much of the minimum baseload power necessary for reliable, proper operation of the electric power grid. The law also subsidizes six solar power facilities in rural areas, reduces the amount of electricity renewable energy sources in the state must provide, and puts a cap on expensive energy efficiency programs the state had forced utilities to implement.

Coal, Nuclear, and Solar, Oh My!

Before the new energy law was passed on July 23, Ohio legislators had enacted a mandate requiring 12.5 percent of the electricity utilities provide come from renewable sources by 2027. Legislators also imposed a $4.39 monthly surcharge on residents’ electric bills to fund renewable facilities.

The new law caps Ohio’s renewable mandate at 8.5 percent in 2026, ending it thereafter. It also replaces the renewable surcharge with residential fees to subsidize the continued operation of four power plants in the state: up to $1.50 per month to subsidize two coal power plants and 85 cents per month to subsidize two nuclear power plants. The surcharges are slated to end in 2027.

Analysts estimate the 85-cent monthly surcharge will generate approximately $170 million per year. Most of the revenue ($150 million) will fund FirstEnergy Solutions’ Perry and Davis-Besse nuclear power plants, which provide 15 percent of Ohio’s electricity. The remaining $20 million will subsidize the operating costs of six existing solar power facilities located in rural areas.

Money or Closure

FirstEnergy had announced it would be forced to close its two nuclear power plants in 2020 and 2021 if they did not receive help from the government, because they were running annual losses of millions of dollars.

The coal surcharge is dedicated to funding continued operations at two 1950s-era coal power plants—one in Ohio and one in Indiana—that Ohio Valley Electric Corp. had slated for closure.

In addition to lower consumer costs and continued reliability, proponents of the law said it would prevent the loss of more than 4,300 jobs at the nuclear and coal power plants.

Days after the law was enacted, FirstEnergy announced its decision not to close its W. H. Sammis coal power plant, previously scheduled to shut down in 2022.

Although the Sammis plant does not benefit directly from the new energy law, FirstEnergy said the support given to its nuclear operations improved the company’s financial situation enough to keep Sammis operating.

Taxpayer Protections

To ensure ratepayers are not gouged, the law requires authorities to review the money provided to power plants annually to ensure the subsidies are still necessary. If auditors find the subsidies unnecessary, the payments can be reduced or eliminated.

The law also requires auditors to ensure subsidies only cover shortfalls and do not generate profits for the company.

Political Compromise

The energy bill was a mixed bag, says Robert Alt, president of The Buckeye Institute.

“Lawmakers wisely adopted two of the Buckeye Institute’s recommendations: reducing the surcharges utility customers will have to pay and requiring FirstEnergy to be audited,” Alt said. “On the other hand, lawmakers failed to implement two other wise recommendations we made: requiring an audit be completed prior torather than after—any subsidies are given to FirstEnergy, and completely eliminating the job-killing renewable energy standards.”

The law replaces one energy subsidy with another, says Peter Van Doren, a senior fellow at the Cato Institute.

“The legislation reduces the surcharge on existing customers by eliminating energy efficiency programs—a good outcome supported by sound economic research by economists at the University of Chicago,” Van Doren said. “However, the legislation didn’t zero out the surcharge. Instead, a new, lower surcharge is used to subsidize nukes and some solar.

“In return, renewable portfolio standards are eliminated after 2026,” Van Doren said. “This mixed compromise is probably what was possible given existing political realities.”

Corporate Welfare

Subsidies for politically connected companies are bad for the public, says Micah Derry, state director for the Ohio chapter of Americans for Prosperity (AFP).

“AFP objects to all corporate welfare that takes from the poor and middle class and gives to the well-connected,” Derry said. “Such programs erode public trust.”

The public’s trust in government is very low, and it gets even lower as lawmakers give additional favors to special interests, Derry says.

“Today, just 17 percent of Americans trust their government, meaning 83 percent believe the government is rigged to benefit the wealthy and well-connected,” Derry said. “Moreover, subsidies give the public the very correct impression government favors are for sale to the highest bidder or to partisan allies.”

Praises Renewables Phase-Out

The reduced support for renewables is a bright spot in an otherwise bad bill, says Bonner Cohen, a senior fellow with the National Center for Public Policy Research.

“Lowering and eventually phasing out the renewable energy mandate is a far cry from the much-heralded boom wind and solar power backers were promising just a few years ago,” Cohen said. “Scaling back this false promise shows reality is beginning to dawn in the Buckeye State.

“On the other hand, those unfortunate enough to be living near the subsidized solar arrays will join the growing number of people around the country who’ve seen their properties devalued and the surrounding countryside defaced by these monstrosities,” Cohen said.

Duggan Flanakin ([email protected]) writes from Austin, Texas.