Ohio News and Analysis

September 2003

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Choice status
As of August 2003, slightly more than 20 percent of Ohio’s approximately four million eligible residential customers had switched to competitive suppliers.  Almost all of these customers are part of aggregated communities (see below) and almost all live in northern Ohio and were previously served by the three FirstEnergy companies -- Ohio Edison, Toledo Edison and Cleveland Electric Illuminating. All three have met the 20-percent goal. Sixty percent of Cleveland Electric Illuminating's residential customers have switched to competitive suppliers, compared with 41 percent of Toledo Edison's and 26 percent of Ohio Edison’s.

The FirstEnergy utilities could have lost a considerable amount of money if their customers hadn’t switched to other energy suppliers. The utilities agreed to give up $500 million in stranded costs if 20 percent of their residential customers hadn’t switched to alternative suppliers halfway through the companies' market development periods. The market development periods for Electric Illuminating, Toledo Edison and Ohio Edison all end on December 31, 2005.

The five remaining utilities, located in central and southern Ohio where utility rates are lower, have lost about two percent or less of their residential customers. Because rates are lower in these areas, alternative suppliers have few incentives to compete.

In its June 2003 update on electric restructuring, the Ohio Consumers Counsel (OCC), the residential utility advocate, observed that only two suppliers are actively marketing to the state’s residential consumers, and customers in central and southern Ohio have no retail electric choice.

Rates, fees and credits
The midpoint of the market development period was July 2003, and PUCO is in the process of deciding how to protect consumers and still promote competition in the territories of the utilities who haven’t achieved the 20 percent goal – Cincinnati Gas and Electric, Columbus Southern Power, Dayton Power and Light, Monongahela Power and Ohio Power. Dayton Power and Light’s market development period, and its rate freeze, expired in December 2002. The company voluntarily continued the rate freeze on its generation charges, which account for approximately 60 percent of a customer’s bill, and asked PUCO to extend its market development period until the end of 2005.

On September 2, 2003, the PUCO announced that it had approved a plan filed by DP&L, Ohio Consumers’ Counsel, PUCO Staff, Industrial Energy Users-Ohio, Ohio Partners for Affordable Energy, and Community Action Partnership of the Greater Dayton area to extend the company’s electric rate caps.

The plan extends the current five percent discount that residential consumers are receiving through 2008. An additional 2.5 percent discount will be applied through 2008 if choices of electric suppliers still do not exist for residential customers by 2006. The extension combined with the additional discount would produce $91 million in customer savings, according to the OCC.

The plan also extends the distribution rate freeze through 2008. Distribution charges pay for bringing power into customers’ homes and account for about 30 percent of a monthly bill.

According to the OCC, "this plan is designed to give the competitive market more time to develop. If consumers would achieve lower rates in the market prior to 2008, state regulators can terminate the agreement."

The PUCO is also considering a rate freeze extension for the FirstEnergy companies.

Consumer advocates still worry that if rates expire in a market with few or no competitive suppliers, consumers will be exposed to the volatile electric market. The OCC is urging PUCO to adopt a bidding process, as required by the restructuring law, to find a default supplier that would serve large blocks of residential consumers who have not been aggregated or chosen an alternative supplier, offering them a fixed price for electricity set by the winning bidder.

The Consumer Counsel’s Office has also accused PUCO of permitting what amounts to a violation of the current rate freezes by allowing the state’s largest electric utilities – FirstEnergy, American Electric Power and Allegheny Power – to charge residential consumers, builders and developers a one-time fee of $300 to $375 to provide power lines to new homes.  The OCC maintains that current electric rates already include the costs of bringing power to new homes. PUCO rejected the OCC’s request to reconsider its decision in December 2002, and the Consumer Counsel has asked the state Supreme Court to review that decision. Oral arguments on the case are due to begin in December 2003.

PUCO did rule against electric utilities – in this case the FirstEnergy companies – when they asked for a reduction in the shopping credits mandated by the restructuring law. Designed to encourage consumers to switch from their utility to a competitive supplier, the shopping credits reduce the generation charge on an electric bill for customers who have switched. For example, Toledo Edison customers are paying their utility 12 cents per kilowatt-hour in a "bundled" bill, which includes generation, transmission and distribution charges. If they switch to a competitive supplier, they are charged 7.4 cents by Toledo Edison, plus a generation charge that is at least 4.6 cents less than Toledo Edison’s generation charge. (Suppliers bill through the incumbent utility, so customers receive one bill, reflecting both generation and transmission charges.) The 4.6 cents represents the shopping credit.

FirstEnergy wanted to lower the credit to 4.2 cents. Because of PUCO's ruling, consumers still have access to the original shopping credit, if they can find a competitive supplier. (For additional information on shopping credits, check PUCO's press release on its decision, which includes a link to the extensive docket on the issue.)

Here is a look at Ohio's residential electric rates since 1995:

The role of aggregation
Most of the residential customers who left the northern Ohio utilities switched when their communities decided to act as aggregators and seek cheaper power elsewhere. Ohio's restructuring law allows local government to serve as aggregators for electricity customers. To do so, communities must ask voters to give them the right to buy electricity in bulk and sign a contract with a supplier that automatically includes all community residents. If voters approve aggregation, their community notifies its residents, who then have 21 days to "opt out" and continue with their current supplier or find an alternative supplier.

The Public Utility Commission of Ohio issued a number of rules to encourage aggregation, including a requirement that utilities provide local government with lists of customers in the communities' jurisdiction.  Within a year of the January 1, 2001 start of competition, more than 150 communities had chosen to aggregate. As of September 2003, 239 communities have approved aggregation, and 180 of those communities have found an alternative supplier. (The OOC maintains a current map of aggregated communities.)

Many of these communities are part of yet another bulk-buying group -- the Northeast Ohio Public Energy Council (NOPEC), the largest public aggregator in the nation. NOPEC signed on with Green Mountain Energy, which supplies electricity largely from natural gas-fired plants along with some solar and wind power.  In June 2002, NOPEC gave its customers a three percent rate cut, which was increased to six percent in December 2002.

By law, all customers in aggregated communities must be given the opportunity to leave or join the aggregation, without charge, every two years. Those who wish to leave a supplier in any other time period must pay a $25 exit fee. Whether residents participate in an aggregated group or not, their incumbent utility continues to deliver their electricity, repair poles and wires, and send customers their monthly bill.

The August blackout and other electric issues 
The OCC's report also notes that Ohio’s electric choice legislation was written assuming that the federal government would take steps to help wholesale power markets develop. Unlike many states in the South and West, Ohio supports Regional Transmission Organizations because of problems with reliability and the high cost of moving power into, through and out of the state. However, OCC is concerned because the state’s electric utilities have joined two different RTOs, creating what it calls a "seam" where the RTO boundaries meet.

Some power industry analysts believe that this seam contributed to the August 14 blackout, which shut down power to much of the Northeast and part of the Midwest. According to a synopsis of events in the International Herald Tribune, the blackout started with a tree falling on a transmission line in Cleveland:

The failure of that transmission line was crucial, because it put enormous strain on other lines in Ohio. Soon, the utility that serves southern Ohio, with its overloaded lines close to burning up, sealed itself off, creating, in very real terms, an electrical barrier between southern and northern Ohio. What happened next, by this account, was almost inevitable: To the north, Cleveland, starving for electricity, began to drain huge, unsustainable amounts of power from Michigan and then across the Canadian border in Ontario, knocking out more lines and power plants and pushing the crisis to the borders of northwestern New York. First the New York system, acting to protect itself, sealed the state's border with Canada . . . But that only created a devastating problem: New York power plants, without anywhere to quickly send electricity not needed within the state, overloaded their own system. That in turn quickly led to a general shutdown.

OCC is asking the Federal Energy Regulatory Commission (FERC) to ensure that this seam doesn’t inhibit access to the transmission grid or result in unnecessarily high transmission rates.

Both OCC and PUCO also support federal energy legislation that would protect FERC’s authority to promote development of competitive power markets and retain current federal consumer protection standards, especially those meant to prevent abuse of market power.

Natural gas
After several years of pilot programs and a flurry of PUCO actions, natural gas competition is getting serious in Ohio. Unbundled natural gas service for residential and small commercial customers began with a pilot program for Columbia Gas of Ohio customers in April 1997. Pilot programs for Cincinnati Gas and Electric and East Ohio Gas began in late 1997. In June 1998, the Commission allowed the Columbia Gas and Cincinnati Gas and Electric program to expand to include all customers in their service territories. The East Ohio Gas program expanded systemwide in the fall of 2000. Vectren, the fourth largest gas distribution company, launched a customer choice program in the Dayton area in January 2003.

In November 2001, PUCO adopted new rules for supplier certification and consumer protections, along with a process for utility cost recovery under natural gas competition. Before that date, approval of natural gas suppliers was done by the natural gas utilities.

As of June 2003, 42 percent of Columbia Gas' 1,239,467 residential customers were enrolled in customer choice, compared with 7.4 percent of 379,431 for Cincinnati Gas & Electric, 52 percent of 1,078,716 for Dominion East Ohio Gas, and six percent of 213,164 for Vectren.

The Ohio Consumers' Counsel (OCC), the residential utility advocate, now offers online, interactive calculators that help consumers compare rates of natural gas suppliers to their current natural gas company. Click here for the calculators.

Aggregators have begun to express interest in supplying natural gas to their customers. In March 2001, the state legislature passed a bill permitting communities to jointly purchase natural gas for their citizens. NOPEC has signed a contract with Interstate Gas Supply to provide discounted natural gas to its 350,000 gas customers. As of September 2003, 200 communities had approved natural gas aggregation, and 147 had found a supplier.

Other resources
National Center for Appropriate Technology. The Transition to Retail Competition in Energy Markets: How Have Residential Consumers Fared?, September 2002. A study of the impacts of electric and natural gas markets restructuring on low- and moderate-income consumers in five states including Ohio. The Ohio model for electricity restructuring has several positive aspects, according to the NCAT study.  It is one of two state experiments in opt-out aggregation that have in yielded significant electric bill savings for consumers and given them access to competitively-determined electricity prices and green power. It is also a model for well-designed consumer education and protection programs.

Ohio Consumers Counsel. 2002 End-of-Year Update on Ohio’s Electric Market, December 2002. This report calls for the Public Utilities Commission of Ohio (PUCO) to take prompt and decisive action to address the problems of retail competition in Ohio, which the Consumers Counsel details in this report. It claims that the Ohio General Assembly placed responsibility for the success of electric choice largely in the hands of the PUCO, and if electric choice is to yield its intended promises, now is the time for action. However, that action alone will not be enough. It must be coupled with continued progress at the federal level on key transmission issues. Federal support and direction are needed to ensure that residential electric customers receive the benefits that Ohio's electric choice legislation intended.

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