Auction fizzles; Toledo Edison rates prevail

12/10/2004

No customer savings on electricity were generated out of a power auction this week, so customers of Toledo Edison will pay their current rates through 2008, state regulators decided yesterday.

The Public Utilities Commission of Ohio had ordered the auction by FirstEnergy Corp., parent of Toledo Edison, to determine whether lower rates could be found.

But the bidding produced a price of 5.45 cents per kilowatt, down slightly from the opening price of 5.5 cents but well below FirstEnergy's pre-bid price of 4.6 cents. The auction lasted just two hours.

As a result, the commission rejected the bids and agreed to let FirstEnergy implement its rate plan for 2006 through 2008. The utility already had rates frozen through next year, but they are among the highest in the state.

"Beating FirstEnergy's price was going to be difficult," said James Halloran, who manages $33 billion at National City Private Client Group in Cleveland, including 41,000 FirstEnergy shares.

Under the plan, FirstEnergy will continue to collect a fee to help pay off its debts, a figure previously estimated by some experts to be about $2 billion for the three years. The company has been collecting the fee for the past few years from its more than 300,000 customers in northwest Ohio and 1.8 million customers elsewhere in northern Ohio.

The decision drew a rebuke from the state's utility watchdog.

The office of the Ohio Consumers' Counsel opposes the FirstEnergy rate plan. It has filed an appeal to overturn it with the state Supreme Court.

"We believe this plan violates Ohio's electric choice law, fails to protect residential customers, and will result in the continuation of high rates." said Janine Migden-Ostrander, Consumers' Counsel, in a statement.

How many companies bid, their names, and what they bid was not available yesterday. PUCO officials said it will give companies who participated and others one week to explain why information on them and the process should not be made public.

Some utilities who expressed interest in bidding, such as Reliant Energy Inc. of Houston and American Electric Power of Columbus declined to comment yesterday. The companies all had to sign agreements with the consultant which conducted the auction to not discuss the process and other details.

Ohio regulators, who admit being disappointed there were not more willing electric competitors in the state, said another auction would be conducted in a year, in the hopes of a better result. That would apply to power for 2007 and 2008, however.

Alan Schriber, PUCO chairman, said yesterday that the FirstEnergy rate plan is an "OK deal." He said he is convinced there will be more competition in the marketplace next year and bidders will be able to better gauge prices, so the chance of a successful auction will be greater.

That could very well happen, said Robert Chilton, an energy consultant in New Jersey, where three successful auctions have been held.

"Energy costs now are still relatively high in historical terms .●.●. but if the markets do move next year, perhaps companies will be able to be more competitive in the utility market," he said.

FirstEnergy, the largest electric utility in metro Toledo, did not participate in the auction. Its charges for generating electricity and transmitting that to homeowners is 11 cents a kilowatt. An average Toledo Edison customer has a monthly bill of $84 for 750 kilowatts of power.

The outcome of the auction, a FirstEnergy spokesman said, was a clear indication that its rate plan is the best available. One company spokesman suggested regulators begin now planning how to improve competition for when its rate plan expires after 2008.

Customers are able to save some money from the FirstEnergy plan if they live in an area served by a bulk-buying group, known as an aggregator.

Ohio was among several U.S. states that capped retail electricity rates in the 1990s to protect consumers as wholesale power markets were opened to competition.

Rates for some customers in New Jersey rose 15 percent in 2003, when regulators lifted their cap, but an auction last year resulted in dozens of winning bids that saved customers $24 million.

Paul Patterson, a utility analyst at Glenrock and Associates in New York, said the FirstEnergy results "may call into question in the minds of public policy makers the benefit of a deregulated market."

Bloomberg News Service contributed to this story.

Contact Mary-Beth McLaughlin at

mmclaughlin@theblade.com

or 419-724-6199.