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Joining Forces Under Electric Deregulation

Friday, April 21, 2000 at 10:21 AM

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Next January, a new state law could give Ohio residents a chance to choose their electric company. Backers of the plan believe deregulation will bring new competition and drive down prices, particularly for residential customers. Some communities are interested in pooling their buying power, with the hope of purchasing cheaper electricity. But details this week on FirstEnergy's deregulation plan has some consumer activists worried that residential customers may not reap the savings they've been promised. 90.3's Karen Schaefer has this report.

Karen Scaefer- For decades, residential customers of the Cleveland Electric Illuminating Company owned by FirstEnergy have been a paying high price for electricity. At eleven and a half cents per kilowatt hour, that price was significantly higher than the 1998 state average of 8.7 cents. Department of Energy analysts say what residents have been paying for is FirstEnergy’s failed investments in expensive nuclear power plants. But next year, changes are in store. That’s when Ohio will restructure its electric industries, throwing the market open to new competition. Brook Park Mayor Tom Coyne is one of several community leaders who wants to pool his city’s buying power to shop for cheap electricity in the deregulated market.

Tom Coyne- If we can put together through the local governments a consortium and aggregate those residential and small business customers, I think we’re going to have a great impact on their electric bill.

KS- Coyne and some other Northeast Ohio mayors are hoping to reduce electric bills by taking advantage of a provision in the new law that allows them to join forces - or aggregate - and buy power in bigger blocks. But Coyne says he’s concerned that recent decisions made by the Ohio Public Utilities Commission could undermine the effort.

TC- Now having won the aggregation proponent - not perfectly, but we won it nonetheless - is the rules they make...They could set rules on shopping credits and some of the stranded investments will have an effect on what the costs of electricity’s going to be.

KS- Under deregulation, customers will choose the company that supplies them with power. Payment for distribution of electricity will still go to the monopoly utility. Experts say regulators need to resolve two big factors that will govern the new price of electricity. One is the recovery of so-called stranded costs, investments companies like FirstEnergy made in building inefficient nuclear facilities. A charge for stranded costs will be added to consumer bills, regardless of the choice of supplier. Another factor - the price set for generating electricity - will drive competition in the new market. Customers who choose a new supplier will receive a shopping credit from FirstEnergy of four-and-a-half cents per kilowatt hour, the cost of FirstEnergy’s electricity generation. With this credit, customers can shop for a cheaper deal. Consumer advocate Carol Sahley says the shopping credit is the price new suppliers will have to beat if they want to compete for Ohio’s customers.

Carol Sahley- The amount that the PUCO will set for the shopping credit is really going to determine if other utilities can come into the state of Ohio and offer a competitive price. If the shopping credit is large enough, then we might see a lot of companies coming in trying to compete for that. If the shopping credit is quite low, it would be very difficult for other companies to come in.

KS- This week state regulators signed a deal with FirstEnergy that creates a one-and-a-half cent profit margin for new suppliers trying to compete for FirstEnergy’s old customers. It also mandates that the utility sells twenty percent of its electricity to independent marketers like the city of Brook Park. FirstEnergy official Ellen Raines argues that the deal gives consumers what they’re looking for.

Ellen Raines- We have sort of covered both angles. We’ve come out into the market and guaranteed a certain amount of megawatt hours for a certain price and, at the same time, we have given our customers a shopping credit that nearly assures that they will find savings.

KS- But while some consumer groups like the deal, others are crying foul. Their complaint is over FirstEnergy’s ability to continue charging customers for nearly nine billion dollars of stranded costs. Shari Weir of Ohio Citizen Action says, with so many potential customers and suppliers objecting to the plan, it’s doubtful that enough new companies will enter the market.

Shari Weir- The cities of Cleveland, Toledo, as well as the Lucas County Commissioners haven’t signed on, the Greater Cleveland Growth Association, all of the marketers with the exception of Shell Energy are declining to sign. And that’s extremely important because if there’s going to be competition, there have to be marketers willing to sell us electricity.

KS- But FirstEnergy’s Ellen Raines maintains that the deal provides plenty of profit for new competitors.

ER- If we can sell it for three cents a kilowatt hour, other marketers should be able to come in at that price...and still pass on a savings to customers.

KS- The proposed FirstEnergy settlement is just the first of Ohio’s electric company transition plans to be reviewed by state regulators. It must still be voted on by the five - member Public Utilities Commission. Opponents will be able to present their concerns at a May second hearing in Columbus. In Cleveland, Karen Schaefer, 90.3 WCPN, 90.3 FM.

Additional Information

* Energy Information Administration, U.S. Department of Energy
* FirstEnergy Corporation

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