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Energy Auction Fails To Produce Lower Bidder

Friday, December 10, 2004 at 1:03 PM

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An auction to test whether independent suppliers could beat FirstEnergy's price for generating electricity has failed to produce a lower bidder. Consumer advocates say that means FirstEnergy's 2.1 million customers will continue paying the highest rates in the state and could be subject to substantial increases. The state may hold another auction next year, but any prices set wouldn't go into effect until 2007. Advocates fear that even people who chose to shop for cheaper power may see their savings dwindle. ideastream's Karen Schaefer reports.

The auction began and ended on Wednesday, with no outside supplier able to beat the 5.5-cents per kilowatt hour price with which auction managers opened the bidding. Ohio Consumer’s Counsel spokesperson Maureen Miller says the results are disappointing, but not unexpected. She believes the auction was flawed from the start.

Maureen Miller: The Consumer’s Counsel was a really strong supporter of conducting separate auctions for each operating company, because we believe that because each company’s rates are different that separate auctions could produce lower rates for most if not all residential customers.

Instead of separate bids for Toledo Edison, Ohio Edison and the Cleveland Electric Illuminating Company, a single corporate average was used to determine the bottom line. Miller says the Counsel remains opposed to FirstEnergy’s rate stabilization plan, which will now go into effect in 2006. Alan Schriber, who heads the state public utilities commission says he asked for such plans from each of the state’s electricity suppliers because the period for developing competition in Ohio is nearing its end.

Alan Schriber: Without the markets developing as we had hoped, we decided we didn’t want to get to the end of ‘05, go to market prices when the markets really weren’t that good. We didn’t want to see price spikes.

But the Counsel and other consumer advocates objected to the FirstEnergy plan accepted by regulators to keep rates from skyrocketing. Maureen Miller says that’s because instead of freezing rates at current levels, the plan will actually allow the utility to continue a cost that should have been dropped.

Maureen Miller: What the rate stabilization plan does is implement a charge called the rate stabilization charge which equals the amount of the generation/transmission charges that customers are currently paying. And that charge was really supposed to end at the end of 2005. But this rate stabilization charge continues on through 2008.

Transition charges were initially approved by the PUCO so that FirstEnergy could recoup up to 100% of the cost of past investments, including nuclear power plants. These so-called stranded costs are what will continue as rate stabilization charges. PUCO chairman Alan Schriber says to recover those costs following deregulation, the company agreed to a trade-off.

Alan Schriber: The rates were frozen during the market development period. It was very difficult to say what was stranded and what wasn’t. The fact is that the legislature said rates will be frozen at whatever rate they were for five years.

Under FirstEnergy’s rate stabilization plan, the new rate for generation will be locked in for three years, beginning in 2006. Glen Krassen says the new price is artificially low and could lead to lower savings for residential customers who chose to shop for cheaper power. Krassen is an attorney for NOPEC, the community buying group that says it’s saved its 450,000 Northeast Ohio customers more than $30 million over the last four years.

Glen Krassen: We’ll still look for cheaper electricity, but with a lower shopping credit it will be tough.

Krassen believes the failure of this week’s auction could cost residents more than just a few extra dollars a month.

Glen Krassen: Stranded costs are costing Northeast Ohio several billion dollars a year in revenues being taken out of our economy at a time when our economy is very precarious.

In addition to stranded costs, FirstEnergy spokesperson Ellen Raines says under the new plan, the company could be allowed to raise its rates for the first time in seven years.

Ellen Raines: The rate stabilization plan does allow us to go to the commission and ask for consideration of an increase to cover increasing costs related to taxes and fuel. Those are the two areas where we could ask for an increase. At this point we haven’t made any decisions about whether or when we would ask for any kind of increase.

The Ohio Consumer’s Counsel says those increases could be as much as $20 a month for some customers. In October they filed a lawsuit with the Ohio Supreme Court opposing PUCO approval of FirstEnergy’s plan on the grounds that the electric choice law contains no provision to impose rate plans on consumers. So far, the court has not set a date to hear the case.

In the meantime, the state could order another auction next year. Consumer groups say they’ll press for changes in the auction process and for any new rates to go into effect as quickly as possible. In Cleveland, Karen Schaefer, 90.3.

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