HB6 Is a Terrible Deal for Ohio

Anti-Competitive, Expensive, Job-Eroding, and Environmentally Irresponsible

In the summer of 2019, Ohio lawmakers passed House Bill 6, a multifaceted piece of legislation that could shape the regional energy landscape for a generation. It was quickly lambasted as “the worst energy bill of the 21st century.” Key provisions included:

 A bailout for two nuclear plants, which will cost ratepayers $900 million over six years ($150 million per year);

• A bailout for two coal plants—one of which is in Indiana—which will cost ratepayers up to $450 million over 10 years ($45 million per year);
• An elimination of a highly successful energy efficiency program, which could cost ratepayers over $200 million per year in foregone savings; and
• Paring back the renewable portfolio standard (RPS) to pointlessness—while much of the country is moving in the opposite direction (25 states and the District of Columbia have higher standards).

Since its initial passage, HB6 has also been tainted by a $61 million bribery scandal which has engulfed former House Speaker Larry Householder, along with four of his political associates, and potentially the former head of the Public Utilities Commission of Ohio.

Faced with this toxic mix of corruption piled on top of ineptitude, the cities of Cincinnati and Columbus, along with the State Attorney General, have filed lawsuits to strike down key elements of the bill. While scrapping HB6 in its entirety would be the best thing to do, eliminating any single element of it would also be in the state’s interest.

It is clearly a step backwards for the state in terms of free market principles, energy affordability, jobs, economic development, and climate.

HB6 Is Deeply Anticompetitive and Anti-market

By propping up failing nuclear and coal power plants, HB6 is not just picking winners; it’s picking the wrong winners.

In its latest outlook, the International Energy Agency concluded that solar power now provides the “cheapest electricity in history.” Investors know that it is often cheaper to build new renewables than it is to run existing coal or nuclear. RMI analysis has shown that clean energy portfolios (combinations of wind, solar, energy efficiency, demand response, and energy storage) can provide the same services as new gas power plants at consistently lower cost.

Utilities—and by extension utility customers—save money when they take advantage of market competition. The best way to do that is through “all-source procurement,” a unified, technology-neutral resource acquisition process (as opposed to deciding to acquire or subsidize a specific asset).

Ohio’s neighbors are taking advantage of these trends and practices. Last year, the Northern Indiana Public Service Company studied various methods to provide low-cost electricity to its customers. It found that new renewable wind and solar facilities could provide energy at roughly half the cost of continuing to operate its old coal-fired power plants. Further west, Xcel Colorado’s all-source procurement yielded market-leading prices on renewables and storage and will save customers over $200 million when compared with the “preferred portfolio” it came up with in its initial planning.

Not only does HB6 ignore these market realities and best practices, it was signed into law without even requiring FirstEnergy Solutions (FES) to provide evidence that its plants are losing money. Nor is this the first time Ohioans would be footing the bill for FES’s business failings; this $1.4 billion dollar bonanza would be the second bailout in five years. According to Americans for Prosperity, the bailout would represent a 3,000 percent return on the money that First Energy and FES spent on lobbying and campaign contributions.

The end result looks like it was drawn straight out of a totalitarian communist playbook: the government propping up obsolete, uncompetitive enterprises for the benefit of a small number of distant, wealthy institutions. And doing it at massive cost to a population already beleaguered by increased unemployment, severely compromised public services, and a public health catastrophe.

HB6 Will Cost Ohio Customers at Least $400 Million per Year

It’s hard to know how much HB6 will cost Ohioans, but $400 million per year seems like a conservative starting point.

Its $215 million in annual subsidies and bailout funding could almost certainly be used to procure lower cost electricity on the open market, and propping up uncompetitive power plants will crowd out new, cheaper alternatives for years.

On top of this, HB6 eliminates energy efficiency programs expected to save ratepayers $200 million per year, even after removing the fee to fund the state’s RPS program. In the four years following their launch in 2009, these programs delivered $4.15 billion in net savings (i.e., savings minus costs) for Ohio residents, businesses, and local governments—an 800 percent return on investment.

These savings figures do not include the potential reductions in electricity prices that could result from reduced consumer demand, previously estimated at 1.4 percent. Moreover, since energy efficiency delivers expanding returns (unlike a physical commodity, the more you buy, the cheaper it often gets), Ohio is closing the door to even greater savings in the future.

HB6 Is Going to Cost Ohio Jobs and Economic Opportunity

One of the stated goals of HB6 was to preserve employment in the state. The goal may be commendable, but the strategies are absurd. The coal and nuclear plants subsidized by HB6 employ roughly 2,000 people in Ohio and Indiana. This means that, for every employee, ratepayers are being forced to spend more than $2 million over the next several years. And the effort may not even be successful, given that new FERC rulings have effectively disallowed these nuclear plants from participating in the PJM capacity market, a historically important additional source of revenue.

In contrast, supporting energy efficiency and renewable energy programs would provide a critical boost to local employment in addition to saving Ohioans money. Energy efficiency is the largest source of energy-related jobs in the state, employing more than twice as many people as the traditional utility industry. It has also been hit hard by the pandemic, with 11,000 jobs lost in 2020 after years of steady growth.

Small businesses and blue-collar workers will lose the most. Energy efficiency projects are implemented by local, skilled contractors; electricians, maintenance technicians, and construction workers (HVAC installations and building envelope work are the two largest segments of energy efficiency jobs). Companies with five employees or fewer make up 46 percent of the industry.

The policies that support renewable energy development—like the RPS being gutted by HB6—could also support local businesses. Creekwood Energy, which is managing the construction of Cincinnati’s 100 MW solar farm, is a good example.

Both renewables and energy efficiency are growth industries, essential to American competitiveness. Before the pandemic, energy efficiency had been creating more new jobs than any other industry in the energy sector, with 2019 employment standing at over 3.1 million. Globally, new renewables accounted for 72 percent of all power expansion last year. These are the industries in which Ohio should be investing.

HB6 Is a Poor Solution to Reducing Emissions

 One of the nominal goals of HB6 was to reduce emissions in Ohio, hence the name “Clean Air Rider” for the nuclear bailout fee. Most elements of HB6, however, will only serve to increase emissions.

The coal subsidies are the most obvious example. Between 2005 and 2015, Ohio’s energy sector saved 50 million metric tons of carbon dioxide-equivalent (CO₂e) emissions by retiring coal assets and replacing them primarily with lower-emissions gas power plants. Climate impact aside, the public health benefits were profound; Ohio valley coal plant closures between 2005 and 2016 prevented an estimated 5,300 deaths in Ohio, West Virginia, and Kentucky.

The energy efficiency programs gutted by HB6 reduce emissions by decreasing the need for both electricity and heating fuels such as natural gas or propane. Lowering the RPS also hurts; Ohio generated less than 2 percent of its electricity from wind and solar in 2019, compared with 18 percent in Texas, 34 percent in Oklahoma, and 42 percent in in Iowa. While HB6 advocates point to the bill’s support for 650 MW of solar, keeping the old 12.5 percent RPS instead could have driven 6,900 MW of new solar development in the state, a figure more than 10 times higher.

Finally, the nuclear fee, while not directly driving additional emissions, represents a fundamentally flawed approach to decarbonization. The $150 million-per-year bailout, spread over the roughly 17 terawatt-hours (TWh) of electricity the two nuclear reactors generated last year, would equate to a subsidy of roughly $8.80 per megawatt-hour (MWh). While an imperfect contrast, it is instructive to compare this with the value of Ohio renewable energy credits (RECs). These RECs represent the value of the “green” attributes of renewable energy generated in Ohio, and their prices averaged $6/MWh or below in recent years—more than 30 percent less than the nuclear subsidy.

The bigger point, however, is that subsidizing a particular technology–rather than establishing needs and letting the market serve them–handicaps the state’s ability to leverage competition, falling renewable energy prices, and innovation to provide decarbonization solutions at the lowest cost. At a minimum, Ohio would be better served by following examples set by states like New York, which has chosen to continue to subsidize its nuclear plants while also promoting new renewable generation.

Time to Hit the Reset Button

HB6 is a fundamentally flawed piece of legislation that will do lasting damage to the state and country. Its departure from market principles, elimination of effective energy saving programs, and accompanying stench of corruption will leave Ohioans spending more, earning less, and with a deep distrust of their state government. It also ignores the aspirations Ohio citizens have for their energy system; they are overwhelmingly in favor of more renewable energy over coal and nuclear, and are even willing to pay a premium for it.

Recognizing these fundamental flaws in the legislation, a Franklin County Common Pleas Court has issued a preliminary injunction against the nuclear fees, arguing that “[to not impose an injunction] would give the OK that bribery is allowed in the state of Ohio and that any ill-gotten gains can be received.” Ohio lawmakers should use this court action as an opportunity to acknowledge this failure, hit the reset button, and work to deliver policy that puts the state on a path toward a clean, just, low-cost, and secure energy future.