Ohio’s major manufacturers (and the largest power consumers in the state) are pushing back against deregulation of the electricity market.
Members of the Ohio Coalition for Affordable Power said Wednesday they will back legislation that would halt the move to market-based electric rates before deregulation kicks in fully in January 2009.
Otherwise, coalition members fear their rates could double in an unregulated market, said Alan McCoy, a vice president with Middletown-based AK Steel Corp. (NYSE:AKS)
“This is a huge problem with a known deadline that is nearing,” he said.
AK Steel is one of more than 25 manufacturers that are part of the coalition. Others include General Electric (NYSE:GE), Worthington Industries Inc. (NYSE:WOR), Procter & Gamble Co.(NYSE:PG), Honda of America Manufacturing Inc. (NYSE:HMC), Ford Motor Co.(NYSE:F), Whirlpool Corp. (NYSE:WHR) and General Motors (NYSE:GM).
I used to work in manufacturing, and the amount of electric power it takes to run one of these facilities is staggering, so it’s no surprise that they would want the lowest rates possible. But isn’t this the oft-touted benefit of unfettered markets? The “best product” at the “best price”?
The group is drafting legislation that would basically would restore a state regulatory system that had been in place for more than 60 years until lawmakers voted to deregulate electricity rates in 1999, said David Boehm, a Cincinnati attorney who is general counsel to the coalition.
That would include the Public Utilities Commission of Ohio setting rates that would allow power companies to recover their costs and receive a reasonable rate of return, he said.
A fully deregulated market was to have started in Ohio in January 2006. But the PUCO feared rates would soar because of a lack of competition in the electricity market, so it stepped in to negotiate rates with utilities for a three-year period that ends Dec. 31, 2008.
“We feel the (deregulation) experiment has failed,” Boehm said, “and we need to get back to rates that are fair, just and reasonable.”
Barriers to entry mean that electric companies have defacto monopolies. And if we all remember our macroecon courses from college, monopolies will set prices higher than the natural market rate to generate extra profit – because generating profit is the primary driver of capitalism.
Truly free markets are great, but a mantra of “free markets” is not a panacea. Markets fail. And when they do, it’s appropriate for governments to step in and provide regulation for the overall benefit of society.
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