March 14, 2017 Read More →

How Ohio Utilities Perpetuate Their Failing Business Models

Midwest Energy News:

With Ohio’s energy and energy efficiency standards again under attack, a new policy paper from Ohio State University attributes the lion’s share of electricity cost increases since 2008 to utilities and provisions that insulate them from full competition.

None of Ohio’s transmission and distribution utilities have moved to the Market Rate Offers envisioned when lawmakers enacted Senate Bill 3 in 1999, noted lead author Noah Dormady. Instead, the utilities continue to get rates based on Electric Security Plans, or ESPs.

“ESPs are the goose that laid the golden egg,” said Dormady. As he sees it, ESPs basically guarantee utility costs, and that lowers incentives for efficiency. That’s even more true when a utility has not been fully and functionally separated from its generation affiliate, he says.

When Ohio law established customer choice in the electricity market in 1999, lawmakers envisioned that there would be a competitive market for generation, separate from the transmission and distribution services provided by regulated utilities, Dormady explained.

The 1999 law allowed a transition period for that market to develop. When that hadn’t happened by 2008, SB 221 allowed more time. That law also established Ohio’s renewable energy and energy efficiency standards. SB 221 passed with broad bipartisan support.

Opponents of Ohio’s clean energy standards have said that the state’s electric rates rose in the wake of SB 221. Dormady and his co-authors say the real culprit for price increases is the current rate system, which basically guarantees profits for the utilities.

That system also allows “gold-plating,” Dormady noted. Essentially, he explained, utilities can earn a return on investments they make in their systems. As a result, there’s an incentive to choose more expensive investments, even if they are not the most efficient. The more spent, the greater the total return on investment that goes into the coffers for utilities.

“They’re getting profits through the roof under the ESP system,” Dormady said.

Moreover, Dormady continued, a lack of full, functional corporate separation means that funds from various nonbypassable riders can be sent to parent corporations. From there money can flow to generation affiliates or into shareholder pockets. He noted examples such as riders for lost distribution revenues and distribution modernization riders.

In Dormady’s view, utilities are “taking the bottom half of the bill from the distribution and using it to subsidize the generation that they haven’t divested.”

Study: Lack of competition to blame for Ohio electricity cost increases

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