The stage is set for battles at the Ohio Statehouse to roll back electricity deregulation. In one corner are two major Ohio utilities and in the other corner are the consumers and independent power plant producers. In an environment of historically low energy prices and generation technology advancements the traditional utility generators simply cannot compete. So rather than trying to compete they would like their good old fashioned monopoly back. Who can blame them? But what would such a move mean to consumers of energy in Ohio?
In the first known study of its kind, Cleveland State University in partnership with The Ohio State University attempted to quantify the impact electric deregulation has had on Ohio consumers. This would seem like an easy task but trying to isolate all the variables to derive quantifiable conclusions is complicated. The 60-plus page study concludes that over the course of the past five years, electric deregulation has saved Ohio consumers $15 billion and is expected to continue at this same pace for the next five years. The executive summary is available publically while the full study will be released next month.
Seventy eight percent of the $15 billion comes from a drop in utility generation default rates. This is the rate for generation service that consumers pay if they do not shop for competitive supply. Why the huge drop in default rates? Deregulation requires utilities to develop default rates based on the wholesale electricity market instead of their traditional costs of goods sold model. This transition to market rate setting occurred just as the shale natural gas boom drove market prices to historic lows. Utilities with high costs of goods sold due to aging power plants are feeling the pain as they cannot recover enough revenue from market driven rates to cover their costs. Re-regulation would conceivably move us back to the higher costs of goods sold rate-setting model in an effort to keep old generation technology financially viable.
The remaining $3 billion of savings attributed to deregulation comes from customers who found even lower prices by shopping away from the utility default rates to a competitive generation supplier. These competitive suppliers offered rates below the utility default rates. At this point, more than 70% of the electricity consumed in Ohio is supplied by competitive suppliers.
So if we have saved $15 billion why doesn’t it feel like our overall electricity costs are going down? Unfortunately for most customers, the regulated utility charges have been going up at a fast clip. This includes distribution costs, transmission costs and dozens of other billed charges called riders. Consumers have no control over these regulated costs with the exception of simply using less electricity. These rising regulated costs are dampening the impact of the lower deregulated costs. BOTTOM LINE: This is not an argument for re-regulation but the exact opposite. Those costs that are deregulated have been going down while those that are regulated have been going up.
This comprehensive study supports the substantial consumer benefits of a deregulated Ohio electricity market. If the legislature turns back the clock to fully re-regulate the electricity market, consumers can without questions expect these declining generation costs to reverse course.