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Published: Sunday, 8/26/2007

Debate about to begin on electric deregulation

BY JIM PROVANCE
BLADE COLUMBUS BUREAU

COLUMBUS - Nine years after cheering the loudest for Ohio to end utility monopolies and enter an electricity market they promised would bring lower prices, the state's biggest manufacturers like Daimler-Chrysler and General Electric want to shove as much of that genie as possible back into the bottle.

And, while it's unclear how much Ohio can or will turn back the clock on electric deregulation, Gov. Ted Strickland wants to use the debate to also address renewable power like wind and solar, energy conservation, and advanced technologies for cleaner-burning coal and nuclear power.

Mr. Strickland is expected to begin the debate any day now as Ohio faces a deadline of Jan. 1, 2009, the date that, absent any legislative action, would send Ohio consumers into an electricity market where competition hasn't developed. Rather than the promised bargains, consumers in other states like Maryland and Illinois who got to the market early found sticker shock.

"If we do nothing, I think we'll have a chaotic, intolerable set of circumstances that will lead to a lack of predictability, most likely an exploding cost to consumers and industrial users of electricity," Mr. Strickland said. "It will be a very volatile situation that introduces unaccept-able uncertainty into our state's economy."

Eric Burkland, president of the Ohio Manufacturers Association, defended big industry's 180-degree turnaround in its position, warning that Ohio can't afford to stay the course heavy industry helped lay out in 1999.

Power lines run near Oak Tree Court. Without any legislative action, consumers in Ohio would be sent into an electricity market in which competition hasn t developed. Power lines run near Oak Tree Court. Without any legislative action, consumers in Ohio would be sent into an electricity market in which competition hasn t developed.
LONG / BLADE Enlarge

"Anybody who looks at other states and doesn't get a sense of urgency is probably not paying enough attention to what is happening," he said. "If we go to market in January, 2009, we'll have an economic mess on our hands."

The Republican-controlled General Assembly has made it clear it wants the Democratic governor to take the lead, although it's unclear whether it will want to follow where he wants to take it.

Mr. Strickland plans to unveil a neatly wrapped job-creation package that could contain some strengthening of regulatory control over utilities and their rates, "benchmarks" for the utilities to add "green" and advanced energy sources to their supply portfolios, and new energy conservation efforts.

"I think Ohio was held back because of a lack of leadership," he said. "There's nothing about that [current utility] rate stabilization plan that should have kept us from thinking proactively about future needs."

Rate-stabilization plans

Mr. Strickland's energy adviser, Mark Shanahan, whom the governor calls his "energy czar," noted that rate-stabilization plans on which utilities like Akron-based FirstEnergy Corp. are operating were supposed to buy Ohio time.

Crafted by the Public Utilities Commission of Ohio after it became clear the competitive electricity marketplace envisioned had not materialized by 2005, these utility-specific plans largely maintained the status quo for three more years. The plans allowed utilities to continue to surcharge their customers for past investments in plants and technology while largely keeping electricity prices on a low simmer.

Mark Shanahan, the governor s  energy czar,  noted that
rate-stabilization plans were supposed to buy Ohio time. Mark Shanahan, the governor s energy czar, noted that rate-stabilization plans were supposed to buy Ohio time.
Enlarge

Among its neighbors, Ohio's electricity rates on average are largely in the middle of the pack.

"What happened was everybody decided to just wait," Mr. Shanahan said. "They said there's a new administration coming, so we'll just wait. We've lost a year and a half of the rate stabilization plan to get ready for Jan. 1, 2009."

The major players are now coming to the table, in some cases literally at the same table as the governor.

Ohio's automakers, steel mills, and other heavy industrial consumers want to return to the old days when the PUCO looked at utility costs and decided how much they should be allowed to recoup from customers for investments and expenses, plus a reasonable profit.

FirstEnergy, the parent of Toledo Edison with some of the highest rates in the nation, wants to march ahead into the marketplace. Cincinnati-based Duke Energy, meanwhile, wants to negotiate another rate stabilization plan for the next 10 years, raising the possibility that utilities could end up doing different things.

"We feel that the marketplace is the truest way to find out if there's a market for renewable resources, or energy-efficient products," FirstEnergy spokesman Ralph DiNicola said. "The marketplace will demand renewables if customers decide that through their purchases."

Environmental groups have proposed a mandate that utilities add renewable or so-called "green" power like solar, wind, and, to a lesser extent, hydroelectric until it makes up at least 20 percent of its portfolio by 2020.

And independent marketers of electricity insist the open market is still the way to go and that competition could develop if Ohio would just remove some of the obstacles in its way, including getting rid of those surcharges utilities add to customers' bills for plant construction and other past investments.

Ohio Consumers' Counsel Janine Midgen-Ostrander, representing residential consumers in utility issues, said the state can't afford to wait on the broader issue of energy supply, cost, and conservation.

"We can't keep our head in the sand," she said. "We have to be proactive. We have to protect consumers not only in terms of what they're going to pay today. We have to create a structure that is sustainable in the future so that in 20 years, our kids aren't looking at us and saying, 'What the heck did you guys do?' Were you asleep at the switch?'•"

Debate on the partial deregulation of electric utilities began under Republican Gov. George Voinovich and wrapped up in 1999 under Gov. Bob Taft. The resulting law maintained government regulation of electric companies' delivery of power to industrial, commercial, and residential customers.

But it loosened controls over where that power came from under the belief that outside marketers could come into utilities' territories and sell power at lower rates. Nowhere was the difference supposed to be more obvious than in FirstEnergy's territory, where customers pay some of the highest rates in the nation.

"At that time, a lot of states were looking at it, but shortly after we enacted our legislation, they had the collapse in California," said Lynn Olman, the former state representative from Maumee who served on a joint legislative task force that examined the issue.

"If that collapse had occurred before our plan was signed into law, I doubt very much we would have gone through with it," he said. "When California collapsed, all of a sudden it was, 'Oh, crap. What have we gotten ourselves into?' All of the other states that were looking at deregulation just froze."

The law took effect in 2001, starting the clock on a five-year period for the utilities to recoup some of their prior costs in preparation for entering a competitive electricity marketplace on Jan. 1, 2006. But test auctions in FirstEnergy's territory did not result in marketers' underbidding FirstEnergy's prices.

The PUCO responded with the rate-stabilization plans to put off the day of reckoning until Jan. 1, 2009. PUCO Chairman Alan Schriber was a firm believer in the market concept when it was passed in 1999. Now he's in the position of helping the governor sell a plan that could at least partially go the opposite direction.

"We thought it would be easier to break through [the utility monopolies]," he said. "I thought it was the way to go. It worked in telephone. It worked in natural gas. Obviously, electricity is a lot different, but we had and continue to have enough protections in place. Nobody's gotten hurt."

He pointed to the across-the-board rate cut of 5 percent that was enacted for customers in 2001 under the terms of the law. There have been increases since then for such things as higher fuel costs, taxes, and air-quality improvements, but they were built on a lower base than would have occurred if the 1999 law hadn't passed, he said.

"These industrial companies - this is their main mantra," Mr. Schriber said. "They need to know how they're going to budget for four, five years down the road. We all know prices will go up to some extent, but as long as they know what the variables are, then they know as much as anybody, and that's fair."

The Northwest Ohio Aggregation Coalition was created to pool the buying power of residential and commercial consumers in Lucas County and parts of northern Wood County. But today it has no agreements for residential users.

"Our people just got through paying billions getting FirstEnergy ready to go to open market, and now we're being told we might not go to market," said Lance Keiffer, the Lucas County assistant prosecutor assisting NOAC. "What did we spend that money for, and what would it cost us to put the genie back in the bottle?"

Mr. DiNicola said FirstEnergy predicted from day one that a competitive market was unlikely to develop, but the utility now opposes a return to full regulation.

"From our perspective, [the manufacturers are] only interested in holding on to prices that reflect 1996 prices in Ohio, and that's just not the case anymore. ," he said. "They're paying a fraction of what other people are paying, and they want to keep that going forward indefinitely, and that's not realistic."

Ms. Migden-Ostrander said FirstEnergy may be one territory where going to market may not make much of a difference.

"There is not a great likelihood of rate shock in going to market, because their rates are so high already," she said.

Mr. Strickland said he hopes lawmakers will have a final bill on his desk by the end of the year, which is a potentially tall order.

Rep. John Hagan (R., Alliance), chairman of the House Public Utilities and Energy Committee, and Sen. Robert Schuler (R., Cincinnati), chairman of the Senate Energy and Public Utilities Committee, are skeptical of tackling an all-encompassing package that would also deal with green power, advanced technology, and such unproven ideas as "smart metering" to help consumers and utilities conserve power.

"I think to tie them together could be a mistake," Mr. Schuler said. "These are separate issues. I think we would be better off if we looked at them as parallel issues. Initially, one confuses the other. On one side, we're looking at the cost of electricity, keeping it from rising as much as we can.

"On the other side with renewables, you're raising the cost of electricity," he said. "They're not totally incompatible, but we need to look at each of them clearly."

Mr. Keiffer, representing the NOAC aggregator, offered a little advice as lawmakers enter the debate:

"Whatever comes out, it better not include a rate increase for us."

Blade business writer Jon Chavez contributed to this report.

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.



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