Energy In the News

By John Funk

Columbus -- Gov. Ted Strickland today announced a sweeping reform of Ohio's utility regulations and a broad endorsement of alternative power generation.

"This is not a plan for the utilities. It's not a plan for the manufacturers," Strickland said in the atrium of Ohio's historic statehouse. "It's a plan for Ohio. It's a plan to protect existing jobs and to attract new jobs."

The governor proposed to restructure how Ohio sets retail electric rates. Read his
speech here.

"There is broad consensus that deregulation has failed to deliver an efficient, competitive market that can meet the needs of Ohio's economy in an affordable, reliable and sustainable manner," Strickland said.

But Strickland is not turning his back entirely on the market-based approach. His plan would empower the Public Utilities Commission of Ohio to determine when a utility can base its retail rates on wholesale market prices.

Retail deregulation has not worked because wholesale markets have not sufficiently developed - there aren't enough wholesale competitors to force prices down.

To base their rates on wholesale prices, utilities would have to prove that the markets are competitive, and they would have to agree to open their service territories to outside competitors. If they didn't, the PUCO would determine rates.

Strickland also proposed that:

• Utilities submit "energy security plans" that estimate what it will cost a company to generate power. The estimate would take into account how much Ohio ratepayers have already paid for those assets, he said.

• Utilities could build new power plants and include the cost in rates if they could prove they need the plant's power.

• Utilities that build the first three clean-coal and nuclear power plants would be allowed to charge customers during construction. In the past, they had to wait until the plant was functioning.

• If a company transfers its power plants to a nonregulated subsidiary, the plants would be required to continue to serve Ohio customers. Until the needs of Ohio's customers were met, the utility could not sell power outside the state. FirstEnergy is the only utility that has restructured its power plants in this way.

• By 2025, at least 25 percent of the power sold in Ohio would have to be generated by advanced energy technology. Half of that would have to come from renewable sources like wind, solar, geothermal and methane generated from waste. The rest would come from clean coal, nuclear plants and fuel cells. At least half of the power provided by advanced technology must be generated in Ohio.

Strickland's plan needs legislative approval.

Energy deregulation in Ohio: Industrial users

Chief among the players in this big-money contest are large industrial users, who pushed a previous generation of lawmakers into deregulation a decade ago.

Led by the Ohio Manufacturers' Association, they want to return to classic deregulation -- provided that they be allowed to continue to "shop" - that is, to buy from outside suppliers.

The largest industries already enjoy significantly lower rates - paying about a fourth of what consumers face -- but they warn that any increases could drive them out of business. Or at least out of state.

The industrials argue that without a return to regulation, the utilities will not be able to afford the construction of new power plants.

Under classic regulation, utilities are able to raise money to finance power plant construction because Wall Street knows that rates set by states will guarantee a revenue stream.

No large plants have been built in Ohio since deregulation began Jan. 1, 2001, manufacturers note, and continuing on the present course will lead eventually to power shortages.

Energy deregulation in Ohio: Utilities

The Ohio Electric Utility Institute, a trade and lobbying group, quietly proposed in July that utilities be allowed to increase rates to pay for new power plants.

The proposal also would give them the option of using auctions to set market-based rates, or state regulators could set prices for them.

The utilities then separately espoused their own proposals.

FirstEnergy Corp., whose three distribution companies have the highest rates in the state, got a head start in July by behaving as if current deregulation laws would not be amended.

The Akron-based utility announced it was ready to go to a free market and filed a plan with the Public Utilities Commission of Ohio to use a series of wholesale auctions to set prices in 2009. The utility asked the PUCO to rule by November, lightning speed for the agency, which suggested this may have been a tactical maneuver.

But what FirstEnergy did without fanfare over the last two years turns out to be the most significant -- and it's why the state cannot simply reverse deregulation.

FirstEnergy moved ownership of its power plants -- and associated debt --from the old distribution companies such as the Illuminating Co. to a new, unregulated subsidiary called FirstEnergy Solutions. None of the state's other utilities did this.

Columbus-based American Electric Power supports FirstEnergy's auction idea.

Energy deregulation in Ohio: The "greens"

On the edge of the poker game are the environmentalists and efficiency proponents, who have argued that the state must require the utilities to generate a portion of their total electrical production with so-called renewables, chiefly wind turbines and perhaps solar panels.

Environment Ohio cranked out yet another jobs study arguing that forcing utilities to generate 20 percent of their total production with wind turbines by 2020 would create the equivalent of 3,000 permanent jobs, increase wages paid by a cumulative net total of $3.7 billion and prepare Ohio for global warming.

A coalition of green groups has already appealed to lawmakers to set a 20 percent renewable energy standard and require utilities to allow more small-scale power generation by consumers, including homeowners.

The group also advocates broad legislation setting electrical efficiency standards and requiring utilities to help customers meet them.

The Ohio Consumers' Counsel nearly a year ago suggested the state use an auction system to set market prices in 2009 rather than re-regulate. The counsel still argues that any new law ought to include the flexibility to allow market rates.

The agency also strongly backs efficiency standards, a renewable mandate and more power generation by customers.