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Energy Choice: The New Deregulated Markets for Electricity and Natural Gas

Friday, January 5, 2001 at 9:39 AM

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Ohio's new law deregulating the electric industry took effect on Monday. For the first time, residential customers are able to choose their electricity supplier. Proponents hope the new law will spark competition and reduce rates, particularly in Northern Ohio where residents pay the highest electricity prices in the state. But many residents are confused about the new law, even in communities like Cleveland that chose to aggregate - or pool their buying power. Some are worried that the soaring prices and threatened blackouts that followed deregulation in California could be repeated in Ohio. And some officials are concerned that the high cost of natural gas could wipe out short-term savings on electricity. 90.3's Karen Schaefer has this report.

Karen Schaefer- Even before the new law took effect, Mayor Tom Coyne’s office in Brook Park City Hall was inundated with residents’ phone calls about electric choice. Many are confused about aggregation, the option that allows communities to band together for group buying power. In Northeast Ohio, where rates are the highest in the state, over a hundred communities - including Cleveland - voted to join the buying block. Coyne was a leader in forming that coalition, a group that represents nearly a million potential customers. But he says he doesn’t know yet what the new price of electricity will be.

Tom Coyne- We had probably about sixteen people, sixteen suppliers who showed interest in our FP’s. That deadline is 5 o’clock on January the 12th. When we open those and those are analyzed, we’ll know whether or not the rules set forth by the Public Utilities Commission in Ohio will provide the opportunity for an open market.

KS- In fact, Coyne says he can’t be sure at this point that there will be any significant savings on resident’s electric bills. California’s experience with deregulation has sparked alarm in states that still haven’t enacted their own laws. But Lee Ruh - who heads the PUCO’s $33 million education program called Ohio Electric Choice - says Ohio’s residential customers shouldn’t worry.

Lee Ruh- Ohio is not California. The way the market was set up in California was greatly different from the way our Senate Bill 3 set it up in Ohio. Things like the way that the local utility companies can continue to do business, as well as how much energy there was in that state being produced to deliver to customers. In Ohio we don’t have those same problems.

KS- In addition, Ruh says Ohio’s aggregation clause offers electric suppliers a big block of residential customers. Along with a 5-year freeze on other rates, she believes that should guarantee the competitive market that will lower rates for Ohio residents. But Shari Weir of Ohio Citizen Action isn’t so sure. Weir’s organization has been one of the biggest critics of the PUCO’s deal with former Northeast Ohio monopoly, FirstEnergy. That deal allows the utility to recoup one hundred percent of its nearly $8 billion in so-called stranded costs, FirstEnergy’s failed investments in expensive nuclear energy. Weir also warns that a new national trend links the generation of electricity to another increasingly costly source of energy - natural gas.

Shari Weir- Virtually all of the new electric generating plants that are being built and have been built for a number of years in this country are now powered with natural gas rather than coal or nuclear. And yet, no accommodation was made to say, okay, we’re going to have to supply these plants, but we’re also going to have to supply an economy that’s in an upswing and also heat peoples’ homes.

KS- This winter, the growing demand for natural gas has finally outstripped production, causing shortages and skyrocketing prices across the U.S. Weir agrees with PUCO officials that while the new gas-fired plants are expensive to operate, they probably won’t push up the price of electricity. That’s because they’re designed to operate only during peak seasons, mainly in the summer when natural gas prices are lower. But Kevin Snape of the Cleveland Clean Air Conservancy says, while that might be true in the short term, in the long term, the changeover to making electricity with natural gas could raise rates.

Kevin Snape- Well, I think that over the short run, they’re probably right, that any change is going to be pretty marginal, but we’ve got to look at the long run. I mean, right now the state is under orders to reduce some big pollutants by up to 85%. The utilities are either going to have to invest in very expensive technology or they’re going to start building base-load plants - the really big ones - based on natural gas. That’s going to put more pressure on the natural gas supply, it’s going to raise the price of natural gas, which is in turn going to raise the price of electricity.

KS- Mayor Tom Coyne admits he’s also concerned. Coyne says he’s thinking of adding the same provision to the already-deregulated natural gas industry that was built into Ohio’s electric deregulation law.

TC- The issue is, is how much money are people going to save? And in reality, with some of the things that are going on, they may save some pennies on the dollar here, but they might be costing dollars on the dollars in gas. And the next thrust of the mayors is going to be, hopefully, the aggregation of natural gas.

KS- But until the effects of aggregation on Ohio’s deregulated electric industry are known, it’s won’t be clear if that same tactic might benefit natural gas customers. The Clean Air Conservancy’s Kevin Snape believes both markets will become important topics in the coming years, as President-elect George W. Bush develops his proposed new national policy on energy.

KSn- It’s going to be interesting. But what it’s going to look like is going to depend entirely on that discussion in Washington over the next three years.

KS- But for many residents in Northeast Ohio, it’s the next few weeks that count, as communities and individuals negotiate new rates with the 38 suppliers so far certified by the PUCO. Mayor Tom Coyne says a contract for the aggregate communities will probably be awarded by the end of January. Residents who switch providers then will begin to see the new rates reflected in their bills by March. In Cleveland, Karen Schaefer, 90.3 WCPN, 90.3 FM.

Additional Information

* Public Utilities Commission of Ohio
* Ohio Citizen Action
* Clean Air Conservancy

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