Over the past few months, many news articles have warned of rising electricity costs in Ohio and across the country. Behind the rising costs is a complicated web of geopolitical, macroeconomic and governmental forces. Let’s break it down:
What’s on my bill?
The first thing to know is that the electric industry consists of three main phases: generation, transmission and distribution. Your bill is determined by the price of electricity, aka the generation, along with the price for the transmission and distribution of that electricity. In Ohio, you can choose which company supplies the generation portion of your bill, while your electric utility continues to handle the transmission and distribution. If you decide not to choose a different supplier, you are automatically enrolled on the standard service offer (SSO) with your electric utility.
The SSO is the default rate for generation supply that your utility charges. In order to secure electricity for customers on the SSO rate, companies participate in competitive wholesale auctions. The average price of the electricity secured through the auction is the main component of the SSO. Other components of the SSO rate are PUCO-approved riders and administration fees.
Why are prices rising?
The price of electricity in our region is determined by two major factors: capacity and energy prices. Capacity is a commitment to provide energy when needed for a specific period; capacity auctions are held by PJM, the regional grid operator. These capacity auctions, separate from Ohio’s competitive wholesale auctions mentioned earlier, have been subject to a series of delays ordered by the Federal Energy Regulatory Commission (FERC). This has caused a chain reaction that has also delayed Ohio’s competitive wholesale auctions.
Following the Ohio competitive wholesale auctions, the results of each auction are blended with previous auctions. Blending the prices helps mitigate any price volatility that may occur during a certain time period. In the graphic below, you can see how AEP Ohio’s auctions prior to this year blended two or three results in varying amounts to help create an average price.
Due to multiple delays in the auction schedule, Ohio’s regulated utilities have not been able to procure the SSO supplies the way the Commission originally intended. In the graphic, you can see how the utility is now limited to one-year products only, instead of the usual blend.
The PUCO has repeatedly warned FERC about the harm these delays will have on electricity markets. Unfortunately, these auction delays have come precisely as energy prices are rising.
When will prices start to rise?
New SSO rates will start to go into effect across all electric utilities on June 1.
When will SSO rates be back to normal?
Auction prices have already been set from June 2022 through May 2023. Without any further delays, August 2024 would be the first set of PJM capacity auctions to be held on schedule. It’s difficult to predict whether high prices will be temporary, as electricity prices are elevated globally, not just in Ohio.
How can I minimize the impact of these prices on my bill?
As mentioned previously, Ohioans can shop around for generated service from a variety of suppliers. Using the Price to Compare listed on your bill, visit EnergyChoice.ohio.gov and use the Apples-to-Apples tools to compare offers.
You may also live in a community that has decided to participate in what’s known as “government aggregation”. In Ohio, local communities are allowed, by law, to join their citizens together to buy electricity as a group. Search the government aggregation map to see if an electric or natural gas government aggregation is available in your community.
If you’re struggling with your bills, assistance options may also be available depending on your income level. Find a complete list of energy assistance programs here.
Finally, using less energy will always result in lower costs. Find ways to be more energy efficient in your home here.