Control seen as key issue in setting cost of electricity

11/17/2002

COLUMBUS - David Hughes delivered a chilling message last week to state legislators: If you don't fix Ohio's electric deregulation scheme, consumers likely will face steep rate increases by the end of this decade.

“When the market development period is over, there's nothing that anyone in Ohio can do to prevent utilities from gouging customers,” warned Mr. Hughes, executive director of Citizen Power, a Pittsburgh-based consumer group.

“You may have more supply, but it may not translate into lower prices. It's an issue of who controls that supply,” he added.

As Ohio moves closer to the start of a deregulated electric power market, the debate is heating up over whether Ohio is ready or it should further delay the start of true competition.

When Ohio's “customer choice” program began Jan. 1, 2001, the state reduced power generation rates by 5 percent. Distribution rates were frozen through through mid-2007 for Toledo Edison customers.

State regulators approved FirstEnergy's request to charge customers nearly $9 billion for “stranded costs” until Dec. 31, 2008. Stranded costs are the investments, such as nuclear power plants and other debts that utility company officials say they cannot recover in a competitive marketplace.

Toledo Edison, a subsidiary of Akron-based FirstEnergy Corp., has a market development period that extends to June 30, 2007. That's the period in which Edison can charge for “stranded costs.”

Mr. Hughes predicted that Ohio will “re-regulate” the electric utility industry, saying it was a better system than allowing a few “unregulated monopolies” to use their control of the market to kill the start of a competitive market.

But state Rep. Lynn Olman (R., Maumee), chairman of the House Public Utilities Committee, said that won't happen.

“There's no way we're going to put that genie back in the bottle,” said Mr. Olman. He refers to electric “restructuring” instead of “deregulation” to describe Ohio's decision to end regulation of power generation - but not distribution and transmission.

“It's really difficult after we have asked [Ohio investor-owned utilities] and paid them these stranded costs to then all of a sudden say, `Let's go back to regulation,'” he said.

Mr. Hughes told a special committee co-chaired by Mr. Olman that legislators must make several changes to Ohio's “customer choice” law if there's any hope of creating a competitive market.

They include ordering the Public Utilities Commission of Ohio to review all utility merger transactions, and to rescind a rule allowing unregulated subsidiaries of utilities to meet the requirement that 20 percent of its customer load switch. FirstEnergy already has met that requirement.

For example, Mr. Hughes said, FirstEnergy is counting customers who have switched to FirstEnergy Solutions, an unregulated subsidiary, as customer switches and easily will meet the requirement.

“Citizen Power is not convinced that even these reforms will insure the development of a competitive market,” Mr. Hughes told lawmakers last Thursday. “However, they are the least that should be done, and if enacted, they will help to prevent the situation from getting worse.”

But Mr. Olman said that, if Ohio doesn't have a competitive market for electric power within a few years, the state can extend the “market development period” - prolonging rate freezes.

Dayton Public & Light has asked state regulators to extend its “market development period,” which is set to expire at the end of this year.

In southern Ohio, where electric rates are low, it's unlikely that a competitive market will develop in the short term, Mr. Olman said.

But Mr. Olman is optimistic about what will happen in the north once FirstEnergy has collected its nearly $9 billion in “stranded costs.”

“Once that is paid back, there will be a huge opportunity for competition,” Mr. Olman said. “But we have to be very vigilant to make sure that we aren't creating a pseudo-marketplace.”

PUCO Chairman Alan Schriber said he doesn't see any need for the legislature to fine-tune the “customer choice” law.