Coal plants’ owners fight to protect ‘worst of the bad subsidies’

Subsidy? What subsidy?

Three Ohio utilities and a representative of the coal-fired power plants they jointly own appeared before a Senate committee Tuesday to defend an estimated $700 million subsidy they’re set to receive from ratepayers through 2030.

The committee met to consider a bipartisan effort to repeal the subsidy, which was codified in 2019 via legislation that’s now at the center of a criminal prosecution against the former Speaker of the House and his allies.

Sen. Mark Romanchuk, the lead Republican from Ontario seeking to repeal the bailout, said Ohio’s 1999 energy deregulation law requires a utility to operate “fully on its own” in the market. So why, he asked Duke Energy executive Amy Spiller, is Duke receiving a subsidy for its losses incurred through its equity in the Ohio Valley Electric Corp.?

“This is not a subsidy,” she said. “The OVEC plants, as has been confirmed this morning, are in fact economic, they are participating in the wholesale market in addition to serving other purposes. This is not a subsidy that ensures the ongoing operation of uneconomic generating resources.”

Whatever the label used, the utilities recoup their OVEC losses through all Ohio ratepayers. Ownership of OVEC, formed in the 1950s to power a now-shuttered nuclear facility for the federal government in Piketon, is split between American Electric Power (43% equity), Buckeye Power (18%), Duke Energy (9%), AES Ohio (4.9%), and others.

The companies charged $114 million in 2020 alone from ratepayers via the “legacy generation resource” rider, according to a spokesman for the Public Utilities Commission of Ohio.

A hedge

OVEC owns two plants, one in Indiana and one in Ohio, that are laden in debt from large capital investments. An analysis by the Ohio Manufacturer’s Association, which opposed the bailout, also found OVEC has sold power at a loss since 2012.

OMA estimated the bailouts will amount to $700 million by 2030, though it’s ultimately dependent on energy markets.

U.S. coal production has plummeted since 2012, according to data from the U.S. Energy Information Agency. Ohio produced about 26,000 million tons of coal that year and less than 8,000 million in 2019. Meanwhile, domestic natural gas production has boomed.

PUCO originally approved the utilities requests to apply the “riders” to customers’ bills to help cover OVEC’s losses through 2024. The regulators said the rider would act as a “hedge” against market volatility — it’s a subsidy in bad times, but in theory, a credit in good times.

However, PUCO said the rider hasn’t ever acted as a credit. Marc Reitter, vice president of regulatory and finance for AEP, conceded as much in responding to a question from Sen. Teresa Fedor, D-Toledo.

“Since the Legacy Generation Rider has been enacted, there has not been a credit,” he said.

Reitter said Senate Bill 117 threatens OVEC’s “stability” as it would remove a “financial hedge against extreme weather events.”

OVEC executive Justin Cooper, under questioning from Romanchuk, conceded repealing the subsidy wouldn’t cause the plant to close.

House Bill 6 — now at the center of the U.S. Department of Justice’s case against Ohio Rep. Larry Householder — codified the bailouts into law and extended them through 2030. Residential ratepayers currently pay up to $1.50 per month and industrial ones pay up to $1,500 per month.

Federal prosecutors built their racketeering case around Householder focusing on a separate bailout the legislation provided for two nuclear plants. Lawmakers rescinded the nuclear subsidies last year, but the coal bailouts remain.

‘The worst of the bad subsidies’

Ohio Consumer Counsel Director Bruce Weston, the state’s ranking watchdog for ratepayers, issued a statement criticizing the legislation that drew out the bailouts.

“In their June 15 testimony against Senate Bill 117, Ohio utilities lined up to preserve their $700 million bailout for coal plants at public expense,” he said.

“Making Ohioans subsidize AEP, Duke and AES for the OVEC coal plants may be the worst of the bad subsidies from tainted House Bill 6. That’s because the subsidy charges for utility coal plants are a double whammy for consumers, with higher electric bills and more air pollution.”

Fedor, in an interview after the hearing, criticized OVEC’s staff for at one point claiming to not know how much debt OVEC had outstanding. She said it’s clear the sponsor companies are receiving subsidies, but questioned why it was ever allowed in the first place.

“Consumers never get the benefit that they say they’re getting at such a good deal,” she said. “To me, it’s snake oil salesmanship on behalf of the PUCO allowing this type of regulatory scheme to be in place in Ohio.”

Neil Waggoner, a campaign manager with the Sierra Club, said comments from the utilities that OVEC is in any way economical stopped him in his tracks.

“It seems like they were trying to avoid that it’s a subsidy, but if it’s not a subsidy, I don’t know what it is,” he said.

A Duke spokesman, in response to inquiries, highlighted Spiller’s remarks that Duke customers are not providing a subsidy to OVEC. He also provided specifics on the rider.

“As of today, Duke Energy Ohio residential customers each pay about $1.16 toward Rider LGR on their monthly electric bill,” he said. “However, depending the various forces in energy markets, it’s possible that Rider LGR could transform to a credit on customers’ bills in the future.”

Romanchuk did not respond to an interview request.