Ohio Takes a Giant Step Backward

 | Jun 16, 2014 | 4:00 PM EDT
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Apparently, Midwestern states are at war with renewable energy and energy efficiency. Legislatures are drawing up bills to protect the status quo. Some of these crazy bills made it into law.

Ohio is the latest example. Last Friday, Gov. John Kasich signed SB 310. This novel piece of legislation rolled back requirements for utilities to increase their use energy efficiency, wind power and solar power. The bill also empowered state bureaucrats to alter market rules should they perceive any imbalances in the state's energy supplies or demand.

According to the Washington Post, The Ohio Chamber of Commerce, FirstEnergy (FE) and the American Legislative Exchange Council (ALEC) pushed to roll back state standards. Americans for Prosperity (AFP) announced their pleasure when Kasich signed SB 310. They claimed the governor was "protecting Ohio's consumers and business owners from higher energy prices."

It is pure baloney. AFP provides no evidence renewable energy and energy efficiency causes energy costs to go up. Exelon (EXC) and other energy companies have been arguing the opposite. Exelon has been waging a lobbying campaign to convince federal, state and city policymakers that wind power is causing energy prices to go down.

When it comes to Ohio, facts do matter. Opposing Governor Kasich's bill were 51 manufacturers, including Owens Corning (OC), Whirlpool (WHR), Honeywell (HON) and Honda (HMC). They all signed a letter urging Kasich to let the state's energy efficiency and renewable energy requirements stand.

According to Columbus Business First, "Big manufacturers that use energy efficiency to save on power costs told Kasich the law could hurt them. Critics voiced concern that the rules will make it harder for the state to meet new clean-air regulations from the EPA. Scientists from across the country wondered aloud why Ohio chose to be the first state to renege on its renewable standards."

It is a little confusing because there are two issues in play. The first is air pollution. The second is economics.

The Air Pollution Issue

Like many states, Ohio has been struggling to meet air-quality standards. Renewable energy and energy efficiency are effective tools to reduce air pollution, but they are not the only tools. Adding new nuclear power plants and shuttering old coal and natural gas plants will also work.

No matter what tools are used, Ohio needs to do something. Several Ohio counties are failing health standards for airborne lead, ozone and sulfur dioxide. In addition, Ohio has been a major source of cross-border pollution, which has been settling in neighboring states.

Ohio's current challenges do not consider the Environmental Protection Agency's proposed rule on carbon dioxide. According to The Cincinnati Enquirer, Ohio's power plants produce more carbon dioxide than power plants in all but four other states.

Kasich's signature did provide some certainty. Because of his new law, EnerNOC (ENOC), Opower (OPWR), SolarCity (SCTY), SunPower (SPWR) and Ohio's First Solar (FSLR) will not be doing much business in Ohio -- at least not for the next several years.

These same companies may also bypass Indiana. They are on a similar path. A few weeks ago, Indiana's SB 340 terminated the state's Energizing Indiana program. Gov. Mike Pence said he had mixed feelings as he allowed the bill to become law without his signature.

The Economic Issue

When it comes to energy economics, different stakeholders expect different outcomes. Special interests tend to conflate points of view and attempt to reduce an important issue into a simple question. They asked lawmakers if energy efficiency and renewable energy are good or bad. The answer is both.

Energy efficiency is an effective tool to reduce demand. In free markets, lower demand usually means lower prices and costs. In energy, lower demand and lower production also means less air pollution.

Two Midwestern states want to do away with energy efficiency just as they begin to see some success. According to the Energy Information Administration's report for March 2014, Ohio's average retail prices dropped 5% to $0.0895 per kilowatt-hour. Indiana's price fell 3% to $0.0854. When lower prices are combined with lower consumption, consumers' savings compounded.

To the extent energy efficiency and renewable energy lowers costs, it is good for consumers, taxpayers and business. Independent of costs, energy efficiency is good for the environment and health care costs.

However, it is not good for some energy companies. Because energy efficiency lowers market-clearing prices, it lowers independent power producers' margins. Clearly, these stakeholders want higher consumption rates and higher prices. Some also want to use the environment available as a free economic good.

Kasich, who is running for re-election this year, quietly signed the legislation behind closed doors. He offered few public statements on the matter. It appears he hopes few will notice that he was a key player behind this change in policy.

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