Ohio Takes the Right Stance On Clean Power Plan

The Obama administration is offering states a bait-and-switch with its “Clean Power Plan” for power plant carbon dioxide emissions. Fortunately, the Kasich administration appears to be refusing the bait and fighting back against this federal power grab.

The Buckeye Institute was a leading voice on this issue, submitting comments to EPA soon after the proposed rule was released, and has continued to update followers with commentary on the regulation’s impact on power markets, low-income families, and the state economy.

This unprecedented regulation allows states to either submit a state compliance plan of their own design or accept a federal plan. The bait is that a state-crafted compliance plan will ostensibly be less costly and more flexible to implement than the federal plan. However, once a state submits a plan it becomes a binding and enforceable agreement with the federal government. Worse, state plans would actually give EPA far more authority than federal law delegates to the agency.

To their credit, the Kasich administration is questioning the legality of this regulation. In fact, Attorney General Mike DeWine joined 15 other states in a direct challenge to the Clean Power Plan. Further, Director Craig Butler of Ohio’s state environmental agency stated that it would be “irresponsible” to begin complying with the regulation before the courts decide whether it is legal. Governor Kasich likewise declared, “I am just not convinced that all this regulatory imposition that would wreck a state like Ohio…is going to be held up in courts.”

Refusing to take the bait is clearly the right strategy. If Ohio submits a state plan, EPA has broad discretion to change it anyways. And Ohio can submit a state plan even after receiving a federal plan. The smart play is to wait until the courts decide on the rule’s legality before undertaking costly and irreversible compliance measures.

Ohio should learn from the EPA’s recent Mercury and Air Toxics (MATS) regulation:  The Supreme Court ultimately vacated the rule, but this good news came too late—AEP alone had already spent $3.3 billion and shuttered 9 power plants (including 2 in Ohio) by that time. It would be foolish to repeat the same mistake with the Clean Power Plan.

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Nearly 11,000 New Local Government Jobs Undermine Doomy Predictions

You wouldn’t know it by reading headlines like “Starving Cities,” but local government employment is actually on an upswing in Ohio.   In fact, according to the latest job numbers released by the Ohio Department of Job and Family Services, Ohio saw a 10,900 worker increase in local government workers in June.  That compares to 8,400 private sector jobs lost over the same time.  Since June of 2014, the net gain to local government employment has been 7,200.  That is actually 10% of the nearly 72,000 total non-farm jobs added over the last year.  This reality, rather than political rhetoric, validates the decision that Governor Kasich and the General Assembly previously made to dramatically reduce revenue sharing between Columbus and local governments.

Reductions to the Local Government Fund, known as the LGF, back in the Fiscal Year 2012-2013 budget was significant.  At the time the Administration argued that local governments needed to stop looking to Columbus for more revenue, especially as the Administration was looking to balance a systemically unbalanced budget that had been left by former Governor Strickland.

This author subsequently wrote a report, Revenue Sharing Reform: On the Road to Ohio’s Recovery, last September that showed that most municipalities and counties were not suffering fiscal apocalypses as a result of the LGF reductions.  In fact, the report showed that many municipalities and counties were seeing increased revenues from local tax sources such as the municipal income and local option county sales taxes.

Despite the numbers, the steady drumbeat of doom and gloom from many local officials continued unabated with many newspaper editorials joining in the dirge-like chorus.

Unfortunately, for those doomsayers, these latest job numbers really hammer home just how over the top those criticisms have been.  While it is certainly true that local levies and local tax increases have taken place in different jurisdictions, it has not been such a massive wave as commonly presumed.  Additionally, as The Buckeye Institute has long maintained, local spending decisions should be left to local taxpayers.  Local taxpayers are best positioned to spend their own local resources for the level of services demanded.  There is no need for Columbus to redistribute Cincinnati tax dollars to Cleveland projects.

These latest numbers should raise questions about the fact that Ohio still spends nearly $400 million each year on LGF redistributions to local governments.  Imagine how much more tax reform could be achieved if that was entirely eliminated or more narrowly focused on governmental entities that do not have the local tax capacity that municipalities and counties have, such as townships.

The Buckeye Institute continues to maintain that the LGF should be eliminated and those dollars shifted into across the board state income tax cuts.  This will give local taxpayers more money in their pockets rather than sending them to Columbus.  They can then decide what they really want—locally. As for the fear of laid off workers and terrible services; 10,900 new June local government jobs put those to rest.

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The Buckeye Institute Defends Your Electric Bill from Price Surges

The Buckeye Institute for Public Policy Solutions announced on Monday, July 20, the release of its latest report, “Power to the People: Repeal Ohio’s Counterproductive Energy Policies.” Buckeye’s Statehouse Liaison Greg R. Lawson also testified to a special legislative committee tasked with recommending whether Ohio should continue or repeal the mandates.

Ohio’s energy mandates force Ohio families and businesses to purchase electricity from renewable sources, such as wind and solar farms, and use taxpayer dollars to subsidize energy efficiency programs such as energy-efficient light bulb swaps. The results? Electricity prices increase and job opportunities decrease. Green energy entrepreneurs are stifled by these handouts to existing companies. And the reliability of the power grid is put at risk.

Buckeye’s Greg R. Lawson stated,

“These mandates are textbook crony capitalism–the government is handing Ohioans’ money to renewable energy companies. The legislature should pull the plug on these costly mandates and leave those dollars in the pockets of hardworking Ohio families and businesses.”

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Unfunded Liabilities Undermine Budget Progress

Ohio’s new budget is a step in the right direction, but without pension reform this progress will be for nothing. A recent index of state budget solvency from the Mercatus Center provides a stark illustration of the need for reform. Ohio ranks well, relative to other states, but this is solely due to a stable short-term outlook. In the long term, unfunded liabilities present a threat to fiscal health that will overwhelm any short-term progress.

Each state is ranked based on total cash on hand, short-term budget solvency, and long-term unfunded liabilities. Ohio’s high ranking is due almost entirely to its cash solvency; the state has five to seven times the amount of cash on hand needed to cover short term spending, several times above the national average. In all other categories Ohio’s performance is middling to poor, with long-term solvency being especially dismal. Unfunded pension and healthcare liabilities total over $247 billion; more than half of Ohio’s total personal income, and a total eclipse of the budget surplus. While every state’s pensions perform poorly, Ohio ranks behind every state except New Mexico and Alaska.

Unfunded pension liabilities are a persistent, looming problem for Ohio. This report illustrates how Ohio’s short-term progress towards a responsible budget can be utterly overwhelmed by ballooning pension liabilities. Genuine, lasting fiscal health depends on more than bountiful cash reserves. More than anything else, it depends on meaningful pension reform.

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The Buckeye Institute’s Statement on King v. Burwell

Statement from Robert Alt, President and CEO of The Buckeye Institute:

“The Supreme Court decision today is disappointing because the Court rewrote the law to say what it does not.  The problems of the Affordable Care Act remain, which include increased costs for Ohioans due to excessive regulation as well as the expansion of Medicaid. These burdens will continue to strain Ohio’s finances and those of its families and businesses.

The Buckeye Institute is proud to have worked with Senator Larry Obhof to create an innovation waiver in the budget, which allows for states to seek relief from the regulatory constraints of Obamacare.  This innovation waiver has the potential to lower health care costs for all Ohioans, not just for those who receive subsidies.  With Governor Kasich’s signature, Ohio will become the national leader in seeking a better way forward on health care for the states.”

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Federal overregulation and Ohio’s electricity market, Part II: Harming consumers and the economy

Just like Ohio’s state renewable energy mandate, federal power plant emission regulations drive up electricity costs and risk reliability by directly interfering with the state energy market. The coal plants that are being closed generally cost somewhat more to operate than newer, more efficient plants. However, the older coal plants have recovered or nearly recovered their “capital costs,” or the costs to build the plant. Since power plants are expensive to build, it is actually more economically efficient to continue running the older plant that is already paid for than it is to build a whole new plant that is more energy efficient.

This situation is as if a new law forced you to sell your house, which you had recently paid off, in order to build a new house that had better insulation. Although the new house with better insulation would save money on your energy bills every year, the new mortgage cost would vastly outweigh this relatively small benefit. Similarly, these power plant regulations force power companies to forego the most economically efficient option in favor of more energy efficient options, in turn forcing power companies to raise prices for consumers and businesses.

So instead of producing power with the most reliable and lowest-cost sources, AEP and other generators are forced to consider less reliable and more expensive alternatives. To compensate for the loss in coal-fired generation, AEP has stated that it will begin looking into utility-owned solar to meet power needs. This statement demonstrates that government regulations pick winners and losers by creating an uneven playing field in what should be a competitive market. If solar power is an economically efficient endeavor for AEP and its customers, the company will provide solar without the forceful hand of the EPA guiding its decisions.

EPA is not relenting after the MATS rule, but adding the “Clean Power Plan” that regulates power plants’ carbon dioxide emissions. The carbon rule is projected to force an additional 90,000 MW of coal power to go offline, in addition to the nearly 61,000 MW forced to retire due to MATS. An economic analysis found that the Clean Power Plan could cost up to $348 billion from 2017-2031 (present value, inflation-adjusted 2013 dollars). Ohioans could see double-digit electricity price increases, which would hurt low and fixed income citizens the most.

The Washington bureaucracy is able to force coal plants to close prematurely by picking winners and losers in Ohio’s energy market. These regulations put jobs and grid reliability at risk and drive up electricity prices. Fortunately, some members of Congress are trying to help states push back against federal overreach. One example is Senator Rob Portman’s proposal to allow governors to opt-out of compliance if doing so would “increase retail electricity prices, threaten electricity reliability, or have a negative impact on the state’s economy.” Ohio is the 6th-largest consumer of energy in the United States, so such a measure is necessary to keep our state’s economy from running out of steam.

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Federal overregulation and Ohio’s electricity market, Part I: High cost, low benefit

Government overregulation recently caused American Electric Power (AEP) to shut down several coal plants—including one of Ohio’s largest generators—in May. Even more power plant retirements are looming due to the Environmental Protection Agency’s (EPA) imminent “Clean Power Plan” for carbon dioxide emissions. Power outages, price increases, and other economic damage will likely occur as these onerous regulations force more coal plants to close prematurely.

The latest closures are tied to the EPA’s Mercury and Air Toxics Standards (MATS) for coal power plants, which is the major cause of over 61,000 megawatts (MW) of coal plant early retirements nationally. National Economic Research Associates estimated the total compliance costs of the regulation to be $94.8 billion (present value in inflation-adjusted 2010 dollars).

Among the recent closures was AEP’s Muskingum River plant in Washington County, Ohio. This plant produced 1,440 MW of capacity. To put this in perspective, 1 MW has the ability to power approximately 1,000 homes. Closing this one plant eliminated enough energy to power 1.44 million households. The Muskingum River plant was the largest facility, in terms of energy generated, of the 9 plants that AEP shuttered on May 31st.

The Picway plant near Columbus, Ohio also closed due to the MATS rule. While this 100 MW plant generated a fraction of the power of the Muskingum River facility, it was important for meeting Ohio’s needs at times of high demand.

Since the power grid is a regional system, Ohioans also rely upon power generated in other states to meet our demand for energy. Unfortunately, AEP also closed three plants in West Virginia, two plants in Virginia, one in Kentucky, and one in Indiana. It is a slight consolation that one of the Virginia plants and the Kentucky plant will be converted to natural gas generators.

In total, AEP shuttered over 5.5 million homes’ worth of electricity in one day. The company expects to spend $3.3 billion to comply with MATS, which will harm shareholders as well as workers. AEP has issued layoff notices for upwards of 250 employees across six plants.

Of course, mercury air pollution is undesirable. But these regulations add far more cost than benefit overall, because coal plant emissions were already tanking before the rule was issued at the end of 2011. According to AEP’s 2014 Corporate Accountability Report, the company had already decreased mercury emissions by 60% since 2001. The Energy Information Administration provides further evidence that energy companies were making great environmental improvements before EPA’s costly mandates.

These regulations also create widespread economic damage by driving energy bills higher, which Part II of this series will examine in further detail.

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