2016 Ohio Electricity Outlook

With 2015 in our rear view mirror, I thought we should look forward to what 2016 may bring the world of electricity in Ohio. New energy policy, coupled with the ever changing supply and demand dynamics, is bound to impact your costs. Below are the top four energy developments to watch in 2016.

 

PUCO PPA Rulings

The final decision that the PUCO will issue regarding AEP Ohio’s and FirstEnergy’s Power Purchase Agreement (PPA) cases will be enormous for the future of electricity cost control for Ohio consumers. This well covered issue provides AEP Ohio and FirstEnergy with guaranteed profits for specific coal-fired and nuclear power plants that are currently uneconomical to operate. At issue: These plants are deregulated and the profitability risk should be borne by the utilities’ shareholders, and not ratepayers.

With Wall Street pressure beginning to mount, the PUCO is considering a settlement that would essentially provide the profit guarantee at the expense of the rate payer. Although the utilities purport that the PPA will save consumers money, there is much debate if this will hold true. If the PUCO rules in favor of these two utilities, you can count on DP&L requesting the same subsidy and for Dynegy, the new owner of formerly Duke-owned power plants, to initiate a lawsuit. Although the actual costs for this subsidy are not known at this time, it is known that the mechanism for recovery will come in the form of a non-by passable charge on your utility distribution invoice. An order is expected on this case during the second quarter of 2016.

 

Ohio Renewable Standards

In 2008, Ohio lawmakers established targets for renewable electricity generation at 25% by 2025. In 2014, Governor Kasich approved a two-year freeze on these standards and a legislative study committee was formed to determine if the standards should be rolled back or remain in place as written. Last year the committee recommended the freeze continue indefinitely. Governor Kasich deemed this to be unacceptable and has agreed to work with Ohio legislators to “craft a bill that supports a diverse mix of reliable, low-cost energy sources while preserving the gains we have made in the state’s economy.” This bill will likely be introduced this year and will no doubt generate a charged debate.

 

U.S. EPA Clean Power Plan

The U.S. EPA has called for a sweeping reduction in carbon dioxide emission nationwide. This plan requires Ohio to cut carbon dioxide emissions by 27.7% from 2005 levels by 2030. These mandates will place even more pressure on existing coal-fired plants and will likely increase the trend of switching fuel sources from coal to natural gas. The U.S. EPA mandates are being legally challenged by individual states, including Ohio, and scrutinized by many consumer groups, citing that the EPA lacks authority to issue regulations under the Clean Air Act of 1970. There is little doubt that the Clean Power Plan will make it way to the U.S. Supreme Court but in the meantime, Ohio must submit its preliminary compliance plans by September 2016.

 

Future of Shale Production

With the tremendous decline in natural gas prices, the Utica Shale region has seen a drop of drilling rig counts from a high of 50 in mid-2014 to 19 in mid-2015. Even though rig counts are down, a recent study by Cleveland State University indicates that the existing wells are increasing their lateral drilling length, increasing production per well. As the natural gas is extracted from these wells a host of other hydrocarbons are also obtained. These “wet” gases such as ethane and methane have their own markets and are making way for significant capital investments such as the proposed $5.7 billion cracker plant in Belmont County. Cracker plants, as well as, other midstream pipeline investments to move the gas out of the region should keep shale gas producers happy and production at stable levels.