The Case for Re-regulation in Ohio

Overview of PJM and Deregulation in Ohio

PJM Interconnection is a Regional Transmission Organization (RTO) that coordinates the wholesale electricity market across 13 states, including Ohio, parts of Tennessee, and none of Oklahoma. It manages a competitive market for electricity generation, transmission, and capacity, aiming to ensure reliability and lower costs through competition. Ohio fully deregulated its electricity market in 1999 with Senate Bill 3, allowing consumers to choose their electricity suppliers (which are not necessarily those that generate and distribute your electricity), while transmission and distribution remain regulated by the Public Utilities Commission of Ohio (PUCO). In contrast, Tennessee and Oklahoma operate under regulated electricity markets, where vertically integrated utilities control generation, transmission, and distribution, with rates set by state regulators to cover costs and provide a reasonable return on investment.

What we are told are the Benefits of PJM and Deregulation for Ohioans.

1. Supposedly Lower Electricity Costs:

   • Studies, they claim, indicate that deregulation in Ohio has led to significant savings. An often cited 2024 study by Cleveland State University’s Levin College of Public Affairs and Education found that Ohio’s deregulated market saved consumers nearly $3 billion annually, totaling $37 billion over 15 years and $16 billion over the last five years, compared to regulated Midwestern states like Michigan, Indiana, and Wisconsin.

   • The competitive wholesale market under PJM uses locational marginal pricing (LMP), which incentivizes efficient generation and can lower costs by allowing the cheapest power sources to be dispatched first. Ohio’s average electricity rate in 2025 is approximately 16.44 cents per kWh, which is competitive compared to regulated states, though rates vary by provider and plan.

   • Commercial and industrial users in Ohio have saved an average of $1.6 billion annually due to deregulation, benefiting businesses with high energy demands.

2. Consumer Choice:

   • Deregulation allows Ohioans to choose from 168 Competitive Retail Electricity Service (CRES) providers (middle men), offering diverse plans such as fixed-rate, variable-rate, or renewable energy options. This contrasts with Tennessee and Oklahoma, where consumers are tied to a single utility provider.

   • Ohio’s governmental aggregators, enabled by Senate Bill 3, allow communities to negotiate bulk rates, further enhancing consumer options and potential savings.

3. Innovation and Renewable Energy:

   • Deregulated markets incentivize investment in new, efficient generation, including renewables. Ohio’s participation in PJM facilitates access to a multi-state market, encouraging independent power producers (IPPs) to invest in modern facilities.

   • Experts note that renewable energy penetration is easier in deregulated markets because utilities do not own generation assets and thus do not resist transitioning from uneconomic fossil fuel plants.

   • Ohio has seen growth in renewable energy options, with consumers able to select 100% renewable plans, unlike in regulated states, where utilities may prioritize existing coal or nuclear assets.

4. Grid Reliability:

   • PJM’s capacity market (RPM) ensures long-term reliability by incentivizing investment in generation capacity—Ohio benefits from PJM’s robust reserve margin, which mitigates the risk of power shortages.

   • PJM’s 85,103 miles of transmission lines and coordination across 13 states enhance grid stability, allowing Ohio to access diverse power sources, unlike Tennessee’s reliance on the Tennessee Valley Authority (TVA) or Oklahoma’s dependence on the Southwest Power Pool (SPP).

This all sounds great for Ohioans until you start looking more closely.

Ohio’s deregulated market under PJM has failed to deliver the promised benefits of lower costs and robust infrastructure compared to regulated Southern states:

• Higher Costs: PJM’s capacity price spike (833% for 2025/26) and Ohio’s higher residential rates (16.44 cents per kWh) contrast with Tennessee’s (11-13 cents) and Oklahoma’s (12-14 cents) stable, lower rates.

• Infrastructure Lag: PJM’s slow interconnection queue and reduced transmission spending (67% drop from 2014-2022) hinder generation and grid upgrades, while Southern states’ regulated utilities invest proactively in generation, transmission, and distribution.

• Reliability Risks: PJM’s market design, has clearly favored renewables, has led to baseload retirements without adequate replacements, threatening reliability. Southern states’ balanced generation mix ensures stability.

• CRES Providers as Middlemen: The 168 CRES providers in Ohio add unnecessary complexity and siphon funds that could be invested in infrastructure, increasing costs to consumers without delivering value.

• Complex Markets and More Regulation: Deregulation has created a convoluted market requiring extensive oversight by the Public Utilities Commission of Ohio (PUCO), negating the intended reduction in regulation under deregulation.

• Paradox of More Regulation: Despite deregulation’s aim to reduce government involvement, PUCO’s role has expanded to oversee CRES providers, prevent fraud, and regulate distribution utilities. Scandals like House Bill 6, which subsidized coal/nuclear plants, highlight the need for oversight to counter market manipulations, contradicting the goal of a “free” market.

• Renewables’ Environmental Ineffectiveness: Renewable energy (wind, solar) provides no effective environmental benefit due to its integration on the grid - reliance on simple cycle gas turbines (SCGTs) for fast-ramping complementary backup, for when the wind is not blowing or the sun is not shining, which are less efficient (33-45% thermal efficiency) than combined cycle gas turbines (CCGTs, 55-60% efficiency). CCGTs are considered environmentally preferable to SCGTs.

• Transmission: PJM’s Regional Transmission Expansion Plan (RTEP) allocated $6.7 billion in 2025, but spending dropped 67% from 2014 to 2022, focusing on lower-voltage lines rather than high-voltage corridors. Southern states like Tennessee (TVA) and Oklahoma (SPP) benefit from centralized planning, with TVA’s federal funds and SPP’s $2.2 billion in 2023 transmission projects ensuring robust grids.

• Distribution: Ohio’s regulated utilities (e.g., AEP Ohio, FirstEnergy) rely on limited distribution fees, leading to aging infrastructure and higher outage rates. Southern utilities, with integrated revenue streams, invest proactively in distribution, reducing outages and supporting industrial growth.

• Industrial Disadvantage: Ohio’s flexibility in supplier choice is offset by higher costs and reliability concerns, making it less attractive than Tennessee or Oklahoma for industrial investment.

PJM’s market rules, including the revised MOPR and low-bid renewable allowances, have created distortions that prioritize intermittent sources without sufficient baseload support, leading to price spikes and reliability risks. Southern states’ regulated models, while less flexible, provide cost stability, reliable infrastructure, and a balanced generation mix, making them more competitive for industrial growth.

Regulated states like Tennessee and Oklahoma have simpler systems:

• Single Utility Model: Consumers deal with one provider (e.g., TVA, OG&E), eliminating choice but reducing complexity and oversight needs.

• Streamlined Regulation: State regulators set rates based on cost recovery, minimizing market-driven volatility and administrative burdens.

Case for Re-regulation in Ohio

It needs to be said, "Ohio's energy markets are not free markets." Ohio's markets are artificially contrived mechanisms by politically motivated bureaucrats at PJM that have been grossly biased towards renewable energy. Given the concerns raised, re-regulation—reintegrating generation, transmission, and distribution under vertically integrated utilities—could address many of Ohio’s challenges:

1. Lower Costs:

   • Re-regulation could stabilize prices by eliminating CRES providers’ administrative costs and PJM’s auction volatility. Tennessee’s TVA and Oklahoma’s regulated utilities demonstrate lower, predictable rates (11-14 cents vs. Ohio’s 16.44 cents).

   • A cost-of-service model would allow utilities to recover infrastructure costs through regulated rates, avoiding PJM’s capacity price spikes (e.g., $14.7 billion for 2025/26).

2. Increased Infrastructure Investment:

   • Vertically integrated utilities, like TVA or OG&E, reinvest profits into generation, transmission, and distribution, unlike Ohio’s fragmented model, where CRES providers do not fund infrastructure.

   • Re-regulation could mirror Southern states’ centralized planning, enabling Ohio to modernize its aging grid and reduce outages, supporting industrial growth.

3. Simplified Markets:

   • Eliminating CRES providers would reduce consumer confusion and PUCO’s oversight burden, streamlining the market as seen in Tennessee and Oklahoma.

   • A single utility model would minimize regulatory complexity, as rate-setting would replace PJM’s intricate auctions and rules.

4. Improved Reliability:

   • Re-regulation would prioritize baseload generation (CCGTs, nuclear) over renewables, ensuring reliability. Southern states’ diverse generation mix (e.g., TVA’s nuclear-hydro-gas, SPP’s wind-gas-coal) avoids PJM’s capacity shortages.

   • Centralized planning would address PJM’s interconnection delays and baseload retirements, enhancing grid stability.

5. Environmental Alignment:

   • Focusing on CCGTs in the short term would reduce emissions more effectively than renewables paired with SCGTs. Re-regulation could incentivize efficient gas plants, aligning with Tennessee’s and Oklahoma’s balanced approach. In the short term, we should keep our coal-fired power plants as long as possible until more baseload nuclear energy becomes available.

We have a real problem in Ohio in that what makes economic and environmental sense is more CCGT plants, but this puts us in a dangerous position if Ohio were ever to have another polar vortex. This is because Ohio has not required wellhead freeze-off protection in our natural gas fields. Focusing on the expansion of CCGT plants while concentrating on preventing wellhead freeze-offs and ensuring natural gas pipeline infrastructure is adequate for severe weather events is very logical, as Ohio builds out nuclear and plasma gasification, so Ohioans can benefit from Ohio coal without polluting the environment. This lowers costs and provides better energy security!