Deregulation Article -- More Complete

Last Updated: 5:30 am Sunday, August 26, 2007
Future of electric rates hazy
Deregulation being rethought before it starts
BY MIKE BOYER MBOYER@ENQUIRER.COME-mail Print digg us! del.icio.us!
FAIRFIELD - Retirees Pierson and Charlotte Dejager have lived in the same two-bedroom, all-electric condominium off Mack Road for 20 years. Although they're on a fixed income, Charlotte Dejager says their $150-a-month electric bills are manageable.
"We're pretty conservative," said Charlotte Dejager. "We regularly turn our thermostat down."
But what the Dejagers and other Ohioans pay for electricity in the future will be affected by an emerging debate in Columbus over the state's 8-year-old electric deregulation law.
Ohio was one of 17 states and the District of Columbia that enacted electricity deregulation laws in the late 1990s. The theory was that deregulating the electricity-generation portion of customer bills - while regulators continued to monitor the cost of transmission and distribution - would spark market competition and lead to lower rates.
For reasons ranging from the Enron debacle to the nature of electricity (it can't be stored), those lower rates haven't materialized. And in states such as Illinois and Maryland, when freezes expired, prices skyrocketed 50 percent or more.
That has raised fears among utilities, large industrial customers and others about what will happen when plans to ease the transition to market-based rates in Ohio begin expiring at the end of 2008.
"We've watched what's happened in other states, and it's not good. In Maryland, prices spiked 70 percent. We don't want to see that happen here," said Eric Burkland, president of the Ohio Manufacturers Association.
State Sen. Robert Schuler, R-Sycamore Township, chairman of the Ohio Senate Energy and Public Utilities Committee, said deregulation "is one of the most complicated issues we face ...
"But we've got to do something. If we do nothing and the state goes to a market-based system, we could see electric rates spike dramatically."
Not everyone wants to abandon Ohio's deregulation law.
Ohio Consumers' Counsel Janine Migden-Ostrander, who represents residential customers before the Public Utilities Commission of Ohio, said she's not ready to give up on the idea of a deregulated market "because we haven't given market-based pricing a chance to work."
Although the law took effect in 2000, a series of price caps and transition plans have prevented a true competitive market from developing, Migden-Ostrander and others say.
Terry Harvill, vice president of energy policy for Constellation Energy Inc., one of a handful of independent energy marketers who've established a foothold in Ohio, says: "There's a perception that the market's broken, and that's not the case."
He argues that transition plans, which have capped rates, and special rates granted to some large industrial customers in northern Ohio have distorted the competitive landscape and prevented suppliers such as Constellation from being competitive.
MANUFACTURERS NERVOUS
The Columbus-based manufacturers association has teamed with a new coalition of some of the state's largest employers, including Procter & Gamble Co., Ford Motor Co. and AK Steel, to push for new legislation to re-regulate Ohio's four large investor-owned utilities - including Duke Energy, which provides power to 680,000 customers in Southwest Ohio.
Because next year is an election year and it will take time to get any new rate plans through the utilities commission, the Ohio Coalition for Affordable Power wants legislative action before the end of 2007.
Electric rates help maintain the state's economic competitiveness, says the coalition.
"It's a huge problem." said Alan McCoy, vice president of AK Steel and co-chairman of the coalition with Robert Lapp, vice president of the Timken Co. in Canton.
AK's steel plants in Ohio use 3.5 billion kilowatt-hours of electricity each year. "Every tenth of one cent increase in electricity costs us $1 million," said McCoy.
The coalition's plan - which would encourage the utilities, through a series of incentives, to go back before the utilities commission to win approval for cost-based electric rates in exchange for granting them exclusive service areas - isn't the only plan circulating in Columbus.
The Ohio Electric Utility Institute, which represents Duke Energy and the other investor-owned utilities, has its own proposal that would allow utilities to recover the cost of new generating plants while extending the current rate stabilization plans.
But Beverly Martin, the institute's managing director, said, "We're not interested in going back to a regulated (utility) model" like that proposed by the manufacturers coalition.
"We want to make sure rates are affordable, predictable and assure that there's an adequate supply of electricity," she said.
WHO PAYS FOR PLANTS?
David Boehm, a Cincinnati utilities lawyer who helped develop the manufacturing coalition's proposal, said one problem with deregulation is "who pays for new generating plants?"
The state's utilities will undoubtedly have to build new plants to meet growing demand and replace older, less environmentally friendly facilities, he said. The advantage of requiring utilities to come before the commission, he said, is that it would force them to justify their prices based on costs they incur.
Environmental advocates such as Environment Ohio say the state needs to adopt standards requiring a certain percentage of electric generation to be from renewable sources, such as wind and solar, as well as requiring energy-efficiency standards to slow the need for new generation. Amy Gomberg of Environment Ohio said both ideas would generate new jobs in Ohio and lessen the state's dependence on fossil fuels.
Consumers' Counsel Migden-Ostrander said she's also concerned that the manufacturers' plan gives larger users an option to pursue market-based rates while not giving that same opportunity to residential consumers.
She wants a plan that would require utilities to return to making long-term forecasts of demand to justify new plant construction, put limits on construction costs and require competitive bidding on new plants while requiring renewable energy sources and energy-efficiency standards to hold down future rate increases.
One of the incentives proposed by the manufacturers would allow utilities to recover the cost of constructing new generating plants while work is in progress rather than allowing them to recover the costs only after a plant is 75 percent complete. But Migden-Ostrander fears this could saddle consumers with unnecessary construction costs.
Yet to weigh in on the debate is Gov. Ted Strickland. He's promised to unveil his own proposal - which would require utilities to generate a certain portion of their electricity from renewable and advanced energy sources - early next month.
Charlotte Dejager, 80, says she doesn't know what to make of the competing electric proposals, but she's sure of one thing.
"I don't care what they say. I don't think my electric rates will go down," she said.