Bright Predictions for Savings

Bright Predictions for Savings, Choices of Power Suppliers Fall Short in Ohio

By Jon Chavez, The Blade, Toledo, Ohio -- March 14

The five-year period during which Ohio was to attract plenty of power suppliers that would reduce every resident's electric bills expires in 21 months.

Consumers will have saved about $630 million during the transition to deregulation of the electric industry, but that number falls far shy of predictions.

In short, residents haven't saved nearly as much as forecast, and generally they have few, if any, choices of electricity suppliers. Metro Toledo residents still generally pay the highest electricity rates in the state.

The reasons, say vocal proponents of deregulation, range from the collapse of Enron Corp. and the subsequent zapping of momentum toward free-market power, to an unfulfilled federal plan to better coordinate electricity transmission across regions, to soaring natural gas prices, which can boost electricity prices.

Those events either were unanticipated or were not taken into account by Ohio lawmakers, regulators, and the governor when deregulation was signed into law in July, 1999.

"I would say the expectations that we had at the time that Ohio passed its restructuring legislation were much different than the way things turned out," said Sam Randazzo, a Columbus attorney representing a group of 32 large power customers called Industrial Energy Users-Ohio Inc.

"I can understand the frustration people have, and it is frustrating for those of us who had been working for this since 1992."

The benefits to customers were highly touted about the time deregulation was enacted.

For example, then-new Public Utilities of Ohio Commissioner Alan Schriber was optimistic. "I think the landscape will change significantly," he said. "There will be a lot of marketers; they may not own anything in Ohio in terms of generating plants. But I think there will be a lot of people producing electricity for sale."

That same year, then-State Sen. Bruce Johnson, the chief sponsor of the electric deregulation law, wrote that, starting in 2001, "every business and residential customer in Ohio will be able to select the electric supplier of their choice, much like we already do today with long distance telephone service and natural gas."

But today, more than three years into deregulation, residents in Toledo Edison territory in metro Toledo essentially have two choices: Toledo Edison or a bulk-buying group that saves a penny or two a kilowatt-hour of electricity, saving an average customer about $20 to $30 on a $1,000 annual bill.

The same is true in the Cleveland area, with Toledo Edison's sister companies, but in southern Ohio, residents generally have no choice except the traditional electric provider.

Ohio's Consumers Counsel office, an autonomous state utility watchdog, acknowledged two months ago that a "robust competitive market has yet to materialize for residential consumers." The office endorsed deregulation at the time of its passage, saying it would help residents save money.

About 816,000 Ohioans had switched electric suppliers by the end of last year, virtually the same as in the year before, and all but a handful of them are in the northern part of the state. Ohio has about 4.1 million residential electricity customers.

Under the planned deregulation, at least 20 percent of each electric utility's customers were to switch to an alternative provider, and there were incentives to help that to happen. Only three of the state's eight major electricity providers have met the goal.

As for costs, Ohioans have saved about $380 million total on their bills as a result of a rate freeze and an immediate 5 percent bill reduction mandated by law. Other customers also have saved by joining large bulk-buying groups called aggregations.

Residents in central and southern Ohio have been unable to save anything other than the 5 percent reduction, even with bulk-buying groups.

That saving is less than the 10 to 30 percent predicted in 1999 by Mr. Johnson, the deregulation law's chief sponsor, who is now head of Ohio's Department of Development.

Proponents of deregulation insist that the intervening years brought events and changes that could not have been foreseen, or at least were not anticipated, but which had a dampening effect on electric choice.

Ohio was the 24th state to adopt a deregulation law, which was regarded as the best one at the time.

But for alternative marketers to come into Ohio to sell power, such as what occurred in natural gas choice, there needed to be wholesale electricity available at low enough prices for suppliers to buy it and resell it at a profit.

Such a market was expected to develop quickly under a federal plan to restructure the industry by creating regional transmission operators that would allow more power to flow across the grid and address anti-competitive aspects of the industry.

Mr. Randazzo, the Columbus attorney representing industrial users, said proponents expected that to happen by December, 2001. "That work is still not done yet," he said.

As a result, alternative power suppliers didn't move in quickly.

Two other key factors that short-circuited competition were the power crisis in California and the problems at Enron Corp., the nation's largest reseller of power when it went bankrupt in December, 2001.

Mr. Schriber, the PUCO chairman, said those events prompted other states to delay enacting deregulation, which in turn made alternative power suppliers reluctant to go after new customers in states like Ohio.

Enron had planned to sell power in Ohio, which helped get deregulation passed, he said.

Columbus attorney Janine Migden, who last week was named Ohio Consumers' Counsel, was a lobbyist for Enron and head of its Ohio legislative affairs office in 1999. She conceded that alternative suppliers lost interest in Ohio after Enron collapsed.

Another hindering factor, she said, has been rising natural gas rates, which help elevate wholesale electricity prices because natural gas has become a major fuel source, next to coal, for power plants. And a higher wholesale rate tends to discourage alternative suppliers from entering a market.

One of the few predicting in 1999 that deregulation could end up disappointing was FirstEnergy Corp. spokesman Ralph DiNicola.

"We believe competition over the long term will drive prices down and improve service, that is the American way. But what will be the market price five years from now? No one knows," Mr. DiNicola warned in June, 1999.

He said in an interview last week that utility officials knew five years ago that enormous costs are associated with generating power, that natural gas is not a cheap alternative fuel, and that long term, companies wanting to compete probably would have to build their own generating plants to ensure a steady, cheap supply of energy -- which did not happen.

"You take all these factors together and it makes a very difficult scenario for savings," Mr. DiNicola said.

Despite the failings of Ohio's electric deregulation, there's not a big call to end it and go back to regulated rates. Toledo Edison's parent, FirstEnergy Corp., has a pending rate proposal before the PUCO that would extend its rate freeze three more years but would cost consumers additional fees to help retire the company's debts.

Although not referring to FirstEnergy's pending rate proposal, Ms. Migden said, "Marketers basically go where the market will work for them. If you build it, they will come, but the fact that they haven't come is indicative that we haven't built a good competitive framework yet."

The current law may need some tweaking, she added.

Mr. Johnson, the law's chief sponsor, said he is disappointed with deregulation, but noted that customers have saved millions of dollars, and "that's not chicken feed."

Parts of deregulation have gone unrealized, he said, "but it has, I think, been more good than bad. It will just take more time."

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