A major test case is underway in Ohio, where a utility company is trying to undo deregulation in an attempt to keep expensive and aging coal and nuclear plants online.
FirstEnergy pushed hard for deregulation back in 2008 and got a $6 billion payout from consumers to cover its stranded assets. Now, the company says it wants to be guaranteed revenues from expensive coal and nuclear power generation.
Critics say the plan, now under review by the Ohio Public Service Commission, could cost ratepayers billions. The commission is expected to rule on the matter by the end of the year.
Paul Barrett, a senior writer at Bloomberg Businessweek, says it is an ironic turn of events for FirstEnergy.
In the early 2000s, Barrett says, the company had substantial holdings in coal-fired generating plants, which at the time were by far the cheapest way to generate electricity.
“In a deregulated environment, you can use that electricity not only to supply your own customers, you can sell it on the regional grid and make a fine profit. That's why FirstEnergy was enthusiastic, at least at first, about deregulation,” Barrett explains.
But now the marketplace has changed. Plentiful and low-price natural gas has begun to undercut all other energy sources. Coal-fired plants that had been generating healthy profit margins are no longer economical to run.
“In other words,” Barrett says, “these plants do not compete on the deregulated energy supply grid. For that reason, they are threatened with being shut down.”
FirstEnergy argues that coal-fired plants should be preserved, and to some degree updated, because “they can provide a steady reliable base-load source of energy,” Barrett explains. “You can run coal-fired plants continually, unlike a solar or wind operation.”
FirstEnergy also warns that natural gas prices will not remain low forever. Years from now, they say, their coal plants and nuclear operations will be more economical and consumers will be thanking them for keeping them open.
So the company has proposed a plan that would oblige the utilities it owns to accept all of the output from certain coal-fired plants and from one large nuclear plant, no matter what the cost, Paul Barrett says.
“It is, in effect, a return to a more traditional regulatory scheme in which the public commission asks ratepayers to bear the risk of the fluctuation in the cost, not the company,” he says.
Critics of the plan say this amounts to a public subsidy for FirstEnergy. In fact, Barrett says, “calculations have been done that say over a 15-year [period], consumers of electricity might end up subsidizing FirstEnergy to the tune of some $3 billion. So it's not an insubstantial amount of money.”
In essence, Barrett says, FirstEnergy now believes the deregulation it once fought for should be scrapped.
“They wouldn't, I don't think, appreciate saying deregulation didn't work, because that would suggest that they made bad predictions and were not able to operate in a competitive environment that they once advocated themselves,” Barrett says.
But maybe deregulation did work, Barrett suggests, and revealed that coal is not, under current circumstances — and possibly future circumstances — the best economical choice.
“We know it's not the best environmental choice — in fact, it almost certainly is the worst environmental choice. And solar and wind are becoming more cost-efficient pretty steadily over time,” he says.
In addition, FirstEnergy, and indeed the entire state of Ohio, will have to come to terms with President Barack Obama’s Clean Power Plant initiative. The president’s plan is meant to create the same market-based economic forces that FirstEnergy is fighting.
“There is a conflict right now in Ohio,” Barrett says, “over whether the state will use government power to move toward cleaner, lower carbon energy sources or whether it will seek to postpone for as long as possible a transition to a greater efficiency, the use of cleaner energy and ultimately, the shutting down of coal plants.”