Senate-passed legislation will lead to natural gas boom in Ohio, sponsors say

COLUMBUS, Ohio – The Ohio Senate on Wednesday unanimously passed legislation that will eliminate add-on charges for gas and electric bills, apply more scrutiny to prices set by utility companies, and, according to supporters, spur development of new natural gas-fired power plants.

Since last year, top Republicans have been negotiating a major overhaul of state energy policy they say will stimulate more generation in the state. That additional power capacity is needed as the state stares down a looming energy shortfall brought on by massive electricity users, including data centers.

The passage of Senate Bill 2 marks a significant step forward as the House considers similar legislation. Both chambers would need to agree on a final version that wins approval from Gov. Mike DeWine for the bill to become law.

The bill passed with support from Republicans and Democrats alike. It’s a far cry, and a partial repeal, of the state’s last attempt at overhauling its energy policy: 2019’s House Bill 6. That legislation ended in a sweep of high-profile criminal prosecutions, bitter partisan divide, and the deaths by suicide of a Republican lobbyist and top state utility regulator as they awaited trial in connection with a bribery scandal tied to the bill.

While sponsors of SB2 say the legislation amounts to an “all of the above” energy policy, it offers tax cuts and other perks to some and new limits to others.

For the natural gas industry, the legislation eliminates the tangible property tax costs on new generation and speeds the permitting process for different kinds of projects. It also essentially restates that Ohio will not revert to a system allowing distribution utilities to own, operate, and charge customers for generation assets like coal or gas plants. This assurance that power generation will remain a free market provides the certainty independent gas plant investors want before making long term commitments, said state Sen. Bill Reineke, a Seneca County Republican who sponsored the bill.

One of the bill’s major provisions is easing the path for large-scale industrial customers such as manufacturers or data centers to build on-site, “behind the meter” generation for their own private use, GOP Senate President Rob McColley told reporters.

“I would anticipate that you’ll start seeing more activity regarding behind the meter gas plant generation for very large energy users probably within the next two to three years,” he said.

The utilities found themselves with tougher treatment. For one, the legislation ends the practice of “electric security plans” (ESPs) – one-off requests to charge customers for capital expenditure projects. Critics say those allow the utilities to collect hundreds of millions in new charges to customers without the comprehensive scrutiny of a full regulatory rate review.

Utilities would be subject to rate cases before state regulators every three years, adding state oversight to their pricing. Some utilities, like FirstEnergy, have gone nearly two decades without a rate review, which critics say is a sign they’re charging customers too much.

All four of Ohio’s investor-owned utility companies (FirstEnergy, American Electric Power, Duke Energy, and AES Ohio) were among the few parties that opposed the bill, alongside a handful of environmental activists.

SB2 also ends bailout of two Cold War-era coal plants, including one in Indiana, that steered about $174 million last year alone to three utilities with ownership stakes in the plants: American Electric Power, Duke Energy, and AES Ohio. That bailout, codified in state law via 2019’s HB6, is scheduled to continue until 2030. Over the past decade, the three companies have received more than $679 million.

State Sen. Kent Smith, a Euclid Democrat, has spent years pushing for a repeal of the coal plant subsidies, alongside most Democrats and some Republicans. When asked what changed, Smith suggested term limits – and the churn of new legislators they stimulate – brought in enough new lawmakers who recognized the imprudence of the bailouts.

“Like, do you want to bail out a coal plant built in the 1950s that’s in Indiana, with Ohio taxpayer dollars? No. Nobody in their right mind would do that,” he said. “So again, I think they were unpopular pieces of legislation and then got stitched together to get over the 50 vote threshold back in [2019].”

Additionally, the bill ends a $20 million annual solar subsidy charged to Ohioans electric bills via HB6. The money is only available to a set of 6 operations. Sluggish implementation and red tape have bottlenecked the fund, with only $8.5 million having gone out the door and about $54 million gathering dust in a state account.

The Senate’s legislation would take that $54 million and allow the state to issue it as a low-interest (2% over no more than 10 years) loan to school districts to install solar panels on their roofs.

The Senate adopted a floor amendment Wednesday that brings back a limited swath of energy efficiency programs that were gutted under House Bill 6 in 2019. As described by sponsoring Republican state Sen. Shane Wilkin, the amendment would allow utilities to connect to customers’ smart thermostats and, in moments of grid stress, back off their air conditioning by up to three degrees Fahrenheit. In exchange for their participation, customers could get an annual $40 bill credit.

This and the school solar program amount to the only element of the bill aimed at reducing energy consumption, as opposed to increasing the energy supply.

McColley acknowledged the bill’s effects, if they become law, wouldn’t materialize overnight. Gas plants that feed into the grid take four to five years to navigate the regional grid queue process and build out. The regulatory changes for utilities will also take years. But the overarching policy will pay dividends for decades, he said.

State Sen. Lou Blessing, a Cincinnati Republican, voted for the bill but offered more cautious remarks. Leaving the energy supply to the free market as opposed to the heavily regulated utilities who get guaranteed rates of return risks creating a “perverse incentive” for power suppliers to halt development. That’s because low supply could drive their prices and profits up. He voted yes, but said Ohio has relied on free market policies for the last 25 years, and is still wrestling with an energy shortfall.

“I wouldn’t expect this to be the panacea we think it is,” he said.

Ohio Manufacturers Association President Ryan called the bill a critical step toward transparency and competition in energy markets.

“By repealing costly ESPs, customer-paid subsidies for old and inefficient coal power plants, and mandating increased transparency, Ohio consumers are that much closer to a more reliable grid and lower utility bills,” he said.

Nolan Rutschilling of the Ohio Environmental Council Action Fund praised the legislation as well. He said it ends years of Ohioans propping up outdated and dirty coal plants, lowering energy costs, and with Wednesday’s amendment, even lowering electricity use.

But going forward, he said lawmakers should consider extended timelines for state power siting regulators “to better allow Ohioans to voice their perspectives regarding major generating facilities being put in their communities.”

Jake Zuckerman covers state politics and policy for Cleveland.com and The Plain Dealer.