Ohio's Amended Senate Bill 3 opened the electric
supply market on Jan. 1, 2001 with the expectation that a competitive
market would have formed by the end the Market Development
Period on December. 31, 2005. Lawmakers envisioned outside
"merchant" power companies - unregulated companies - competing with the
regulated utilities in 2006 and all rates driven by market forces.
After an initial flurry of activity, driven by subsidies designed to
jumpstart competition, customer switching quickly stalled and it was
obvious that we weren't ready to fully deregulate the market.
In 2005 each of Ohio's utilities negotiated with the Public Utilities
Commission of Ohio a Rate Stabilization Plan that
would give more time for a competitive market to develop. The plans
extended capped rates through 2008 for FirstEnergy, American Electric
Power and Duke Energy and through 2010 for Dayton Power & Light.
During this time utilities have been collecting hefty Transition
Charges and now Rate Stabilization Charges from their customers. These
charges were designed to accelerate the utilities' return on generation
investments, primarily power plants, which under a regulated
environment would have been paid for over decades. Now that the
deregulation experiment appears to have failed, many argue for a return
to regulation. Whether or not that is a wise move for Ohioans is being
debated. If the outcome is to return to price regulation, it won't be a
simple matter. Utilities have already collected transition charges and
FirstEnergy sold off generating assets with the expectation that Ohio
S.B. 3 would be complied with and we would have an open market starting
in 2006.
As we rapidly approach the end of the Rate
Stabilization Period, Ohio's Electric Market remains non-competitive
and major announcements should be coming soon. New Governor,
Ted Strickland, has proposed an Electric Security Plan known as
"Energy, Jobs and Progress." His plan looks very similar to the old
days of a regulated monopoly whereby the utilities would negotiate with
the PUCO instead of trying to base its rates on wholesale market
prices. The PUCO would set Ohio rates by determining what it actually
cost utilities to generate the power, including the value of power
plants and a rate of return. The plan has met fierce opposition from
lobbyist hired by FirstEnergy and has already been modified in many
areas.
It is also interesting to note that the large industrial companies who
were the driving force behind electric deregulation a decade ago, are
no longer supporting the experiment. Many manufactures that were able
to negotiate discounts with their utility company, now insist that
those discounts should be kept indefinitely or Ohio's manufacturers
won't be able to compete.
What will happen in 2009 remains to be seen, but
expect higher prices for generation service. The rate caps
that are in place now are set to expire. In our opinion, it is unlikely
that rates will be set by the wholesale electric markets - as they are
in a true deregulated market. Governor Strickland thinks that would
lead to sticker shock and create a political nightmare as experienced
in Illinois and Maryland where rates jumped as much as 70% when the
caps were lifted.
Independent Energy Consultants continues to
believe we will see a compromise solution and an extension of the
status quo. Wholesale markets will be tested via an auction
and it will result in prices higher than our politicians are willing to
allow. The utility rates will then be allowed to rise, but not as high
as the auction results. Since the auction results represent the true
cost of competition, deregulated marketers will not be able to compete
and customer switching will remain non-existent in most if not all of
the state. The door will remain open for competition, but don't expect
a rush through it.
In Ohio, consumers served by American Electric Power have the lowest
rates now and could see the biggest jump. FirstEnergy customers are
already paying rates 20 to 50 percent higher than in other parts of
Ohio and should experience smaller increases.
If wholesale prices are permitted to be charged by
the local utilities, we would quickly see a re-
emergence of deregulated marketers and supply offers. Independent
Energy Consultants would immediately contact its Governmental
Aggregation clients and commercial and Industrial clients with advice
and assistance.
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