Area utilities throw switch on method of setting rates

4/17/2010

QUICKLY and without great fanfare, the methods by which electricity and natural-gas rates are set for most northwest Ohio residents changed dramatically in the last year.

However, it isn't likely to mean lower rates.

But it should mean the Toledo area will give up its standing of having the highest-priced utility bills in the state — only because rates elsewhere in the state are likely to rise to the level being paid here, experts said.

“That is happening because the utilities have been very quick to raise their rates in [southern Ohio],” said Janine Migden-Ostrander, the Ohio Consumers' Counsel.

Previously set through a combination of company rate requests and Public Utilities Commission of Ohio approval, the method of setting electricity and natural gas rates in the state changed open auctions and commodity-trading prices.

The new systems, a product of deregulation in Ohio that began with natural gas in 1997 and was followed by electricity in 2001, remove much of the secrecy in how rates are calculated. Customers can be certain that the region's primary gas and electricity utilities, Columbia Gas of Ohio and FirstEnergy Corp., respectively, are not slipping unrelated expenses into the rates for gas supplies or power generation.

Ms. Migden-Ostrander said that, in Ohio, competitive auctions for securing both electricity and natural gas are proving beneficial to consumers: “The truth of the matter is, as a result of competitive auctions we have seen reductions in rates.”

But where the state is going wrong, she said, is that bills are rising for costs that are still regulated, such as distribution of power and gas.

“We haven't yet had an auction that has resulted in higher rates,” she said. “The fact that we're seeing increases in distribution tells me the regulators are being too generous.”

For example, in its recently proposed electricity rate plan, FirstEnergy has asked to be allowed to tack on $390 million in distribution fees. Columbia Gas has been able to make changes to its distribution charges that have sent them from $6.50 a month in 2008 to $17.81 coming in October. The fees are charged no matter how much gas a customer uses.

Although rate decreases may occur sporadically with market-based auctions, increases are a more likely result, because of the nation's volatile energy markets — as other states using market-based auctions have found.

For customers of Columbia Gas, an auction plan began in February. The trading price of gas at the end of each month on the New York Mercantile Exchange and an auction-established price from suppliers of gas to the local utility are how the price billed to customers is set.

For April, the first month using the new process, the rate is 68 cents per 100 cubic feet, up from 44 cents in March, which was the lowest rate in 11 years.

The process does not affect the two-thirds of homeowners in Columbia Gas service territory who buy their gas from another company.

Dominion East Ohio Co., a primary provider in northeast Ohio, has had an auction/Nymex plan since October, 2006. Its price was higher than the Columbia Gas rate in April, 2007, by 5 cents per 100 cubic feet and was lower by 6 cents in 2008 and by 2 cents in 2009. But this month, its rate is higher by 13 cents.

Robert Burns, a researcher and energy specialist at Ohio State University, said natural gas market prices have been down because of a surplus of gas stemming from a sluggish economy.

“As we start to recover, particularly as industrial markets recover, you'll see the natural gas prices start to go up,” he said.

But higher prices are more likely to hit electricity first, experts said.