Unexpected Factors that Increase Retail Electricity Prices in Ohio

Published Date May 01, 2025
News Type College News

A power plant on the Ohio River (Story image used under license from Greg Mrotek, stock.adobe.com.)

Many Ohioans are expected to see a steep jump in electricity prices beginning June 1. That’s when new rates will begin for many customers across the state. 

A new peer-reviewed study by researchers at The Ohio State University can help explain the factors that drive consumer energy prices in Ohio. 

Published in the journal Energy Economics, the new study took a deep dive into the auctions that Ohio’s electric distribution utilities (like AEP and FirstEnergy) use to set the price of electricity generation for consumers. 

Noah Dormady
Associate Professor

Noah Dormady, an Ohio State University associate professor and principal investigator of the Ohio State Energy Markets and Policy Group, and the study team found competition in these auctions to be a key factor that influences consumer prices. 

In the new study analyzing 14 years of data, Dormady and his colleagues found that the number of participating bidders ranged widely, from as few as five to as many as 15 different suppliers. When fewer bidders showed up to compete in these important auctions, and when the auctions were less competitive, retail prices considerably increased. 

Through the use of statistical techniques, the researchers found that each additional bidder provided between about $3-$4/MWh (or 0.3-0.4 cents/kWh) in reduced cost to retail consumers. 

“Put another way, just three additional bidders would reduce retail prices for consumers by about $10-$12/MWh (or 1 to 1.2 cents/kWh), an 18-23% savings historically,” Dormady said. “If the auctions had as few as nine additional bidders, that would provide the same price relief to Ohio consumers as the entire U.S. shale boom’s effect on Ohio.”

That’s how inefficient and marked up the price is when there’s not a lot of competition in these auctions.

Noah Dormady
Associate Professor

“Utilities will argue that price stability matters and that prices are high because of instability and volatility,” Dormady added. “We show all the effects of a massive jump in volatility would be wiped away with just three additional bidders showing up. The issue is competition, not volatility.”

Dormady and his colleagues have released a policy brief, “A Look Under the Hood: Unexpected Factors that Increase Retail Electricity Prices in Ohio,” that summarizes key takeaways from the larger peer-reviewed study and provides actionable next steps that Ohio’s policymakers can take to address electricity pricing in Ohio. 

Electricity Choice: A Consumer Bargain?

Read more research and a policy brief by Associate Professor Noah Dormady and colleagues that explains why 72% of electricity offers made to consumers in the past decade were above the default price consumers would pay if they didn’t shop around.

“In our previously published research, we have shown that many retail choice suppliers have been setting their rates based on the utility’s default service auctions,” said Dormady. “This is important because if the auctions are not functioning efficiently, this means higher electricity prices for everyone, not just those customers who are on the default service.” 

In the policy brief, Dormady and his colleagues recommend a thorough independent review of competition in the utilities auctions and a deeper study that would consider possible changes to the auction rules and format. This, the Ohio State team suggests, could help to improve consumer and supplier outcomes. 

Changes could include alternative auction formats, varying rules to ensure a variety of suppliers, separating default service prices for different customer classes, modifying the contracted delivery periods, and reducing barriers to entry for suppliers in the market.

“Right now, we don’t know if some bidders are sitting out of these auctions to make their retail businesses more profitable. And, we would not be able to observe that using the piecemeal approach that is currently being used in the state,” said Dormady. 

If Ohio had an independent market monitor for the retail markets, they could evaluate these markets holistically and keep watch for consumers.

Noah Dormady
Associate Professor

Other Ohio State co-authors of this study, funded by the Alfred P. Sloan Foundation, were former Glenn College students Alfredo Roa-Henriquez, a PhD graduate now an assistant professor at North Dakota State University College of Business; Matthew Hoyt, Master of Public Administration, and Grace Koenig, BS in Public Policy Analysis, of Exeter Associates; PhD graduate Matthew Pesavento, a research economist with Flatiron Health; William Welch, Master of Public Administration, principal software engineer at the City and County of San Francisco; and Zejun Li, BS in Public Policy Analysis, who is pursuing an MA in the economics and education program at Teachers College, Columbia University.