Ohio’s Coal Plant Bailouts: As Bad a Deal as It Sounds

If given a choice between buying a new car with high fuel efficiency and state of the art technology (assembled with parts made by workers right in your own state of Ohio), or a 1950s era Studebaker that runs only 50% of the time and costs billions of dollars to keep up over its lifetime, what would you do? And by the way, you have to share the car with someone who lives in Indiana, but you’ll be picking up all the costs.

Unbelievably, it looks like Ohio’s legislature is about to buy the Studebaker, and saddle consumers with the billions in costs to keep it running for the next 20+ years.

Studebaker Silver Hawk, circa 1957

New York Public Library Digital Collections

The OVEC bailouts—how did we get here?

In the waning days of Ohio’s spring legislative, session lawmakers are poised to pass a pair of bills in the House and Senate (HB 239/SB 155) that will force consumers to fork over billions of dollars to prop up a pair of Cold War-era coal plants—Clifty Creek and Kyger Creek—that can no longer compete in today’s landscape of rock-bottom natural gas prices, flattening electricity demand, and abundant (and increasingly cheap) wind, solar and energy efficiency.

The unregulated affiliates of Ohio’s four investor-owned electric utilities (and one electric cooperative) are amongst a collective of utilities that co-own the plants under the Ohio Valley Electric Corporation (OVEC) umbrella. They have been losing money in recent years, having opted to double down on significant investments in the plants in the mid-2000 pre-fracking era when the getting was still good in energy markets for coal-fired power. But today the picture has changed. Power prices have dropped precipitously due to a glut of natural gas generation—which industry experts are coining the “gas apocalypse.” Just last month this resulted in cheaper-than expected clearing prices in the grid operator PJM Interconnection’s capacity auction, spelling trouble for more expensive sources like coal and nuclear.

It turns out that all those investments in the OVEC coal plants were not such a wise bet after all.

But, unfortunately, rather than taking responsibility for their imprudent decisions and committing their own resources to a more permanent solution for these failing plants, Ohio’s utilities are shifting the risk onto consumers. The proposed legislation will put Ohioans on the hook for bailing out OVEC’s costs for the next 23 years. Adding insult to injury, this deal will only get worse as time goes on. At over 60 years old (older than most of the plants that have already been shuttered), the two plants are already well into old age and unable to compete. They will continue to hemorrhage more and more money for the foreseeable future. With no cost cap currently in the legislation on the annual dollars that utilities can collect from Ohioans, this bailout is the gift that keeps on giving for generators.

And this gift comes with a bow on top, a little something for the state of Indiana. Clifty Creek, which accounts for 55% of OVEC’s power output, is located in Madison, Indiana. Yet only Ohio consumers are being asked to foot the bill.

A choice for Ohio lawmakers: the past or the future?

So how could such a colossally bad idea be on the verge of becoming law in Ohio?

Chalk it up to two main factors: financial trouble for coal-fired power, colliding with an apparent infatuation at the General Assembly with derailing increasingly cheap renewable energy and energy efficiency. 

With respect to the first factor, these are tough times for coal plant owners. The competitive dynamics in the PJM region outlined above have hastened the retirement or repowering of hundreds of coal plants over the last decade. Sierra Club points out in a report released just this week on the OVEC bailout (and aptly titled “The Worst of Both Worlds”), that this transition is “how the market is supposed to work.” As they note, “Ohio and its neighbors do not need the OVEC plants for reliability, nor do they need the pollution these plants produce or the higher costs they would impose on Ohioans.” Indeed, the transition from the expensive, inefficient coal units of yesterday to the cleaner, more efficient natural gas, wind and solar of today, is already underway. And, despite rhetoric to the contrary, the grid operator PJM—whose very job it is to keep the lights on in Ohio and across 12 other states—is well-prepared for it.

With respect to the second, Ohio’s legislature has devoted the better part of four years to various attempts to water down, freeze, or make voluntary the state’s energy efficiency and renewable energy standards. In fact, the Senate is holding hearings this week on yet another bill (HB 114) to upend Ohio’s recently-reinstated clean energy standards, while at the same time fast-tracking the OVEC bailout. Similar subsidies for FirstEnergy’s failing nuclear plants were also pursued by lawmakers in recent months, though those efforts appear to have stalled for the time being.

But the pattern is stark—a dogged preference amongst lawmakers for the dirty, expensive, fossil-based power of yesterday, coupled with a distinct aversion to the cleaner, cheaper power sources that are already dominating the energy landscape.

So the question now remains, what will lawmakers do?

... Will they step off this hamster wheel of propping up aging power plants and stop rewarding bad decisions by allowing utilities to dig deep into the pockets of Ohio consumers?

... Will they choose instead to invest in renewable energy and energy efficiency which have already saved Ohioans over $1.5 billion in energy costs to date and contributed over 100,000 jobs to the state economy?

... Or will they waste billions of consumer dollars on power plants that have no future and that no serious investor would ever take a gamble on?

The time is right for Ohio to reject the OVEC bailout (and its ilk) and catch the wave of clean energy opportunities that is sweeping across the region and the country.

This would send the clear message that Ohio is not satisfied with living in the past and is finally ready to retire the Studebaker to its proper place in American history.

About the Authors

Samantha Williams

Staff Attorney, Midwest program

Join Us

When you sign up you'll become a member of NRDC's Activist Network. We will keep you informed with the latest alerts and progress reports.