Utility's pricing plan generates criticism

7/11/2007

A FirstEnergy Corp. proposal to set electric rates in 18 months through a series of bids by power providers is being criticized by an industry analyst who says it likely would result in substantial price increases.

The plan, submitted for consideration yesterday to the Public Utilities Commission of Ohio, is an alternative to residents and businesses having no control over electric prices when FirstEnergy's rate freeze expires at the end of 2008.

In contrast, another major utility in the state has proposed a 10-year rate freeze.

The proposed bids would draw interest from power providers, but most likely would lead to higher rates, said power consultant and economist Kenneth Rose of Columbus. He has studied electric-generation prices in 37 states.

"They've all pretty much led to the same result - higher rates for all customers," he said. "It doesn't matter how they are designed and this plan sounds similar to ones in Illinois and New Jersey," Mr. Rose said.

In Illinois, auctions led to a 22 percent rate increase in northern areas and 40 to 50 percent increase in the rest of the state, he said. In New Jersey, rates went up 24 percent since 2002, he added.

Alan Schriber, PUCO chairman, said he doesn't know whether the proposal would be approved by his panel.

"Nationally, there hasn't been a lot to recommend an auction in terms of the outcomes," he added.

Two earlier auctions by FirstEnergy, which owns Toledo Edison, didn't work. One had no bidders with rates lower than the utility, and the second drew no bidders.

On Jan. 1, 2009, electric customers of FirstEnergy will have the right to buy generated power from any supplier willing to provide it. Customers who can't find other suppliers would have electric rates calculated by the utility's plan.

The proposal is to have three auctions next year, blend together the bids submitted by those participating, and then charge that averaged rate to customers in 2009. The rates would be capped each year at no more than a 15 percent increase, but if the blended average comes in higher, the difference would be paid in later years, FirstEnergy said.

Customers would have the option of having different rates depending on time of day, getting cheaper prices during off-peak usage times. Special metering might be required for that.

"It's a very complicated plan and hard to make overreaching statements about it, but the theory is we will take all these bids, submit them, then design prices for customers reflective of what the bids were," said Ralph DiNicola, a FirstEnergy spokesman.

The company, which has 300,000 Toledo Edison and 2.1 million northern Ohio customers, has asked state regulators to approve a plan by Nov. 1.

The company could benefit if its bid is lower than the blended average, so it could collect higher customer fees. Residents, though, could pay less with a blended average than taking a chance on finding rates from whatever electric provider offers service.

State officials are weighing how to handle the move toward deregulation. Gov. Ted Strickland and some state lawmakers hope to offer solutions.

Mr. Schriber of the PUCO said Duke Energy has proposed a 10-year rate freeze. "There you have two polar opposites, and we don't even know where [American Electric Power] or Dayton Power & Light are at."

Janine Migden-Ostrander, the Ohio consumers' counsel, called the FirstEnergy plan "a good first step."

"As an initial application, [it] has some positive attributes and it's a step in the right direction that could provide some consumer benefits," she said.

She favors auctions and said the latest plan has changes that seem to fix the failures of 2004 and 2006 auctions involving FirstEnergy.

Under its proposal, the utility would allow providers to bid on residential, industrial, or commercial customers or bid on an overall price for 100-megawatts units out of the firm's total of 11,400 megawatts. Bids would eventually be for one, two, and three-year contracts.

No bidder would be allowed to supply more than 75 percent of FirstEnergy's customers, but FirstEnergy subsidiaries would be among the bidders.

The plan requires a portion of the energy supplied by renewable sources, such as wind, water, or solar power.

American Electric Power, another major utility which supplies power to much of central Ohio and Indiana, might be interested in bidding, spokesman Melissa McHenry said.

"We have participated in some auctions but we don't supply extensive power through auctions because most of our power is already committed," she said.

What rates would result is uncertain. FirstEnergy customers could be paying a higher fee regardless. The firm in May requested an increase in fees to distribute power, which along with transmission fees, remain regulated. Its distribution rates haven't gone up since 1995.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128.