Plan to fix deregulation due Wednesday

The price of power

Wednesday, August 29, 2007

A high-stakes poker game over whether to re-regulate the state’s electric utilities gets under way today. Gov. Ted Strickland will deal the opening hand, unveiling legislation to fix dereg ulation, which everyone agrees has failed to create competition and lower consumers’ bills. Electric rates in Ohio, statewide, are average for the nation, but they are certain to go up. The question is: How much? All of the players in this game hope the cards fall their way. However they fall, the game ends Dec. 31, 2008, when the state loses control over retail rates unless the current law is amended.

The industrial users

Chief among the players in this big-money contest are large industrial users, who pushed a previous generation of lawmakers into deregulation a decade ago.

Led by the Ohio Manufacturers’ Association, they want to return to classic regulation — provided that they be allowed to continue to “shop” — that is, to buy from outside suppliers. The largest industries already enjoy significantly lower rates — paying about a fourth of what consumers face — but they warn that any increases could drive them out of business.

Or at least out of state. The industrials argue that without a return to regulation, the utilities will not be able to afford the construction of new power plants. Under classic regulation, utilities are able to raise money to finance power-plant construction because Wall Street knows that rates set by states will guarantee a revenue stream. No large plants have been built in Ohio since deregulation began Jan. 1, 2001, manufacturers note, and continuing on the present course will lead eventually to power shortages.

The utilities

The Ohio Electric Utility Institute, a trade and lobbying group, quietly proposed in July that utilities be allowed to increase rates to pay for new power plants. The proposal also would give them the option of using auctions to set market-based rates, or state regulators could set prices for them. The utilities then separately espoused their own proposals. FirstEnergy Corp., whose three distribution companies have the highest rates in the state, got a head start in July by behaving as if current deregulation laws would not be amended.

The Akron-based utility announced it was ready to go to a free market and filed a plan with the Public Utilities Commission of Ohio to use a series of wholesale auctions to set prices in 2009. The utility asked the PUCO to rule by November, which would be lightning speed for the agency, indicating this might have been a tactical maneuver.

But what FirstEnergy did without fanfare over the last two years turns out to be the most significant – and it’s why the state cannot simply reverse deregulation.

FirstEnergy moved ownership of its power plants – and associated debt -from the old distribution companies such as Cleveland Electric Illuminating Co. to a new, unregulated subsidiary called FirstEnergy Solutions. None of the state’s other utilities did this. Columbus-based American Electric Power supports FirstEnergy’s auction idea.

The greens

On the edge of the poker game are the environmentalists and efficiency proponents who have argued that the state must require the utilities to generate a portion of their total electrical production with so-called renewables, chiefly wind turbines and perhaps solar panels.

Environment Ohio cranked out yet another jobs study arguing that forcing utilities to generate 20 percent of their total production with wind turbines by 2020 would create the equivalent of 3,000 permanent jobs, increase wages paid by a cumulative net total of $3.7 billion and prepare Ohio for global warming.

A coalition of green groups has already appealed to lawmakers to set a 20 percent renewable energy standard and require utilities to allow more small-scale power generation by consumers, including homeowners.

The group also advocates broad legislation setting electrical efficiency standards and requiring utilities to help customers meet them. The Ohio Consumers’ Counsel nearly a year ago suggested the state use an auction system to set market prices in 2009 rather than reregulate.

The counsel still argues that any new law ought to include the flexibility to allow market rates. The agency also strongly backs efficiency standards, a renewable mandate and more power generation by customers.

The governor’s plan

Wednesday, August 29, 2007

Strickland today is expected to propose:

An array of options so utilities can set rates based on what it actually costs to produce power. The state’s experiments with deregulation include rate freezes that have irked the utilities.

An “advanced energy” standard that will require the state’s utilities to generate up to 25 percent of their power by 2025 with wind and solar power – but also allow them to meet the standard by using high-tech coal-fired power plants and by building nuclear power plants, if needed later.

Matt Brakey spoke at COSE’s electricity Advocacy Summit. The event was podcast. You can find it here.