New federal tax law is a boon for electric utilities – another reason not to bail out Ohio’s coal and nuclear plants

BLOG UPDATE – FEBRUARY 16, 2018

Environmental Defense Fund and other environmental groups submitted comments [PDF] to the Public Utilities Commission of Ohio on the federal tax reform, and why the Commission should reconsider utilities’ requests to increase rates to help prop up their old coal and nuclear plants. The groups suggest the utilities should pass the savings back to customers and, in addition, consider using some of the funds to modernize the electric grid and benefit customers.

For the past few years, Ohio’s electric utilities have asked state lawmakers and the Public Utilities Commission of Ohio (PUCO) to bail out their old coal and nuclear plants. The storyline is, the power plants are losing money in the competitive wholesale market, so the utilities want customers to subsidize the losses and allow the plants to stay open.

To keep old plants running is throwing good money after bad. And the new federal tax law will give utilities a huge bonanza anyway, so the requested subsidies are even more unnecessary.

Tax breaks and bailouts

The new federal tax law is a jackpot for electric utilities. Congress passed the Tax Cuts and Jobs Act in late December, reducing the corporate income tax rate from 35 percent to 21 percent. For the regulated businesses, the tax cut should benefit customers via lower electricity bills. But for the utilities’ unregulated businesses, the tax cut will benefit the utilities’ shareholders.

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This bonus windfall is yet another reason to reject the bailout requests from Ohio’s electric utilities, which have relentlessly tried to make their customers pay for bad business decisions. For example, a group of utilities is trying to get subsidies for its two Ohio Valley Electric Corporation (OVCE) coal plants. These plants, one of which is not even in Ohio, were built in the 1950s and are not needed.

The utilities claim that without subsidies, they would need to close their old plants. But this would be fine. The OVEC plants amount to 2400 MW of electric capacity, while PJM has 18,000 MW under construction and slated to come on line in the next couple of years. In other words, the old, expensive plants are not needed to keep the lights on in Ohio.

Market is working

Customers shouldn’t be forced to subsidize these plants – the competitive market is working without them. Since 2003, over 32,000 MW – representing mostly old coal plant capacity – have been retired in PJM, the grid-operator region of which Ohio is a part. These plants were primarily replaced by cheaper and cleaner natural gas plants and wind turbines: Ohio has access to abundant, low-cost natural gas supplies from the Marcellus and Utica shale fields, and the state’s wind capacity is growing. (This shift away from carbon-heavy coal also helped propel Ohio to lead the country in reducing carbon emissions, despite a large industrial base.)

At the same time, electricity prices have stayed low. Last year, the wholesale price was the lowest it has ever been since PJM began keeping records in 1999. The U.S. Energy Information Administration also reports that the retail price for electricity in Ohio is below the national average.

No leg to stand on

Ohio utilities, like those in OVEC, want customers to shoulder the burden of their old, money-losing coal and nuclear plants – but the companies haven’t offered to share the huge windfall from the tax cut that benefits their profitable plants. This is a classic “heads I win, tails you lose” outcome for customers.

Ohio’s utilities had only a flimsy case for bailouts before the tax bill. The tax bill is the last nail in the coffin – now they have no case at all. We trust that Ohio’s lawmakers and regulators will take heed.