Ohio electric choice report: ‘We still have a lot of work to do’


COLUMBUS, Ohio, April 11, 2002 — The state agency charged with representing the interests of Ohio’s residential utility customers released today a status report on Ohio’s competitive electric marketplace.

The report issued by the Ohio Consumers’ Counsel (OCC) concludes that three months into the second year of Ohio’s “electric choice” program, progress remains steady but slow.

“While we are making progress in Ohio, it continues to be slow,” said Consumers’ Counsel Rob Tongren. “It’s time for state policy makers and regulators to start feeling an increasing sense of urgency about the future and to accelerate their efforts to identify and implement actions to ensure that the state’s retail electric marketplace continues to develop in 2002.”

Since January 2001, more than 626,000 residential electric customers, or approximately 16 percent of all residential customers eligible to participate in Ohio’s electric choice program, have switched to a different supplier. The majority of customers who have switched have done so as part of a community aggregation, or collective buying group. Viewed from this perspective, Ohio continues to be a leader among states that have restructured their electric power industries.

The flip side of the coin is that just two of Ohio’s state-certified suppliers are actively marketing to residential customers at the current time. Consequently, residential customers in some parts of the state have limited supplier choices. Residential customers served by Dayton Power and Light, Monongahela Power and Ohio Power still have not had any opportunities to switch suppliers.

“Clearly, we still have a lot of important work to do,” Tongren said. “If certain critical issues are not addressed in a timely manner, the price consumers pay for electricity is likely to rise when electric choice price controls begin to disappear for Dayton Power and Light customers at the end of 2003.”

OCC recently canvassed suppliers certified by the state to provide electric service to residential consumers to gather information about why a competitive electric marketplace has been slow to develop in Ohio. Input from suppliers indicates that the combination of relatively higher wholesale electric prices and the comparatively low retail prices established by law for customers of Ohio’s electric utilities leaves little room for new suppliers to compete. Additional factors suppliers cited as obstacles to effective competition included difficulties interacting with the local electric utilities, billing problems, unresolved transmission grid problems and regulatory uncertainty.

Looking forward, Tongren identified two external factors — one at the state level, one at the federal level — that are likely to have a strong impact on the future of Ohio’s retail electric marketplace:

* At the state level, the Ohio House of Representatives recently announced plans to begin work this spring and summer to develop recommendations for a statewide energy policy.

* At the federal level, action taken yesterday in the U.S. Senate will repeal important consumer protection standards contained in the Public Utility Holding Company Act (PUHCA) and also scale back the authority of the Federal Energy Regulatory Commission (FERC) to oversee the development of a competitive wholesale electric market.

“We commend House Speaker Larry Householder for the leadership he has shown in taking action to accelerate efforts to develop a formal energy policy for Ohio,” Tongren said. “OCC believes that such a policy is needed to ensure that Ohio’s residential electric customers continue to have access to ready supplies of affordable power now and in the future. We look forward to working with Speaker Householder and his colleagues in the Ohio House on this important project.

“The news at the federal level is far less encouraging,” Tongren added. “A competitive wholesale electric market is essential if the competitive retail electric market envisioned in Ohio’s electric choice legislation is ever to materialize. Unfortunately, unless reversed, yesterday’s action by the U.S. Senate on federal energy legislation will undermine the development of a healthy wholesale market and in the process put Ohio’s electric choice program — and future energy reliability, accessibility and affordability for Ohio consumers — at risk.”

OCC, along with many other Ohio stakeholders, strongly opposed yesterday’s action to defeat an amendment offered by Senator Larry Craig (R-Idaho) to S. 517, the federal energy bill. The Craig amendment sought to strike from S. 517 the problematic PUHCA and FERC provisions. Ohio Senators Mike DeWine and George Voinovich supported the amendment, which was defeated by a 67-32 vote.

“We commend Senators DeWine and Voinovich for doing the right thing and voting in favor of the Craig Amendment, and we encourage them to remain strong in their opposition to the electricity provisions of S. 517 as the full energy bill comes to the Senate floor for a vote,” Tongren added. “All Ohioans should be concerned about the consequences for Ohio if the Senate approves S. 517 in its current form.”

The complete text of OCC’s report, including additional recommendations for actions to ensure that Ohio’s retail electric marketplace continues to make progress toward meaningful competition and abundant, widely accessible consumer benefits, is attached. It also is available online at www.pickocc.org or by calling toll-free 1-877-PICK OCC.

The Ohio Consumers’ Counsel Spring 2002 electric market update

Prepared by Robert S. Tongren, Ohio Consumers’ Counsel

Three months into the second year of Ohio’s “electric choice” program, progress toward the development of a robust electric marketplace with active competition among suppliers and increased opportunities for consumer savings remains steady but slow.

Input from electric suppliers indicates that a combination of relatively higher wholesale electric prices and the comparatively low retail prices established by law for customers of Ohio’s electric utilities leaves little room for new suppliers to compete. The Ohio Consumers’ Counsel (OCC) obtained this feedback and other information about roadblocks to effective competition in Ohio’s electric marketplace by canvassing electric suppliers certified to provide electricity to residential customers in Ohio. Based on this input, as well as its own ongoing monitoring of electric choice, OCC has identified a number of critical actions needed to ensure that Ohio continues to make progress toward a competitive electric marketplace.

Looking forward, two significant external factors — one at the state level, and one at the federal level — are likely to have a strong impact on the vitality of Ohio’s retail electric marketplace:

* At the state level, throughout the coming spring and summer the Ohio House of Representatives intends to begin work to develop recommendations for a statewide energy policy. OCC believes that such a policy is needed to ensure that Ohio’s residential electric customers continue to have access to ready supplies of affordable power now and in the future. We commend House Speaker Larry Householder for the leadership he has shown in taking action to accelerate efforts to develop a formal energy policy for Ohio, and we look forward to working with him and his colleagues in the Ohio House on this important project.

* At the federal level, however, the news is far less encouraging. Action yesterday in the U.S. Senate will repeal important consumer protection standards contained in the Public Utility Holding Company Act and also scale back the authority of the Federal Energy Regulatory Commission to oversee the development of a competitive wholesale electric market. Unless reversed, yesterday’s Senate action will undermine Ohio’s electric choice program and put future energy reliability, accessibility and affordability for Ohio consumers at risk.

The number of residential consumers switching suppliers continues to climb.

Since January 2001, more than 626,000 residential electric customers, or approximately 16 percent of all residential customers eligible to participate in Ohio’s electric choice program, have switched to a different supplier. The majority of customers who have switched have done so as part of a community aggregation, or collective buying group. Viewed from this perspective, Ohio continues to be a leader among states that have restructured their electric power industries.

The many residential electric consumers in Ohio who have not switched suppliers — either from lack of opportunity to do so or from a considered decision to remain with their local electric utility — also continue to benefit from electric choice. Residential consumers who continue to purchase their electricity from their local electric utility are paying five percent less than they paid for the generation portion of their electric bill — i.e., the cost of producing the electricity — prior to electric choice. Total aggregate savings for residential customers from the mandated five percent reduction have been approximately $158 million (through March 31, 2002).

Consumers also are protected from volatile price swings during “market development periods” that will extend through 2003 for residential customers served by Dayton Power and Light and through 2005 for customers served by American Electric Power, Cinergy, FirstEnergy or Monongahela Power companies. However, if certain critical issues outlined below are not addressed in a timely manner, the price consumers pay for electricity is likely to increase when the market development periods end. This means there is plenty of work to be done between now and then.

The flip side of the coin is that just two of Ohio’s state-certified suppliers are actively marketing to residential customers at the current time. Consequently, residential customers in some parts of the state have limited supplier choices unless they live in communities that have formed aggregated buying groups. Residential customers served by Dayton Power and Light, Monongahela Power and Ohio Power still have not had any opportunities to switch suppliers.

In sum, while there is progress in Ohio, it continues to be slow. For that reason, OCC urges policy makers and regulators to adopt a heightened sense of urgency and to accelerate their efforts to identify and implement specific actions to ensure that Ohio’s electric market continues to develop in 2002.

OCC obtains suppliers’ perspective on obstacles to competition in Ohio’s evolving marketplace.

OCC recently canvassed state-certified suppliers to gather information about why a competitive electric marketplace has been slow to develop in Ohio. Suppliers believe competition has not been as robust as many had hoped it might be for the following reasons:

* Combination of the relatively higher wholesale price of electricity for suppliers and the comparatively low “price to compare” for local electric utilities. The “price to compare” on residential customers’ electric bills represents the price they pay their local electric utility for the electricity they use. More importantly, it is the price that alternative suppliers must beat in order for customers to save money. Nearly all suppliers claimed that to date, the “price to compare” has been too low for them to beat given the relatively high prices they have had to pay for electricity on the wholesale market. This is especially true in central and southern Ohio.

* One of the reasons wholesale prices have been higher than expected is the continued absence of a single, fully functional Regional Transmission Organization (RTO) for the Midwest. Resolving the RTO question (see below) would improve the prospects for lower wholesale electric prices, which in turn would encourage more suppliers to actively participate in Ohio’s marketplace and market to Ohio’s residential consumers.

* Difficulties interacting with local electric utility companies. Many suppliers indicated that their interactions with the local electric utilities have been complicated by a number of obstacles and inconsistencies.

The most common problems cited by suppliers include (1) lack of uniform, statewide rules and procedures for working with the utilities, including standardized registration requirements (suppliers are required to register with the utilities) with credit and bonding requirements some suppliers view as excessive; (2) difficulty obtaining lists of potential customers; (3) delays in enrolling customers who have indicated they want to switch suppliers; and (4) lack of customer load profiles and data.

Also, suppliers indicated that they sometimes incur external “acquisition costs” associated with serving residential customers. Two common examples are “switching fees” for customers who switch suppliers and charges for obtaining lists of potential customers from the local utilities.

* Billing problems. Suppliers identified several billing issues that they claim are obstacles to their active participation in Ohio’s electric marketplace. One major issue is the question of who should carry the risk of customer nonpayment. Currently, suppliers must wait for the local electric utility to collect debts from nonpaying customers before suppliers are paid for providing electricity to those customers. Many suppliers want to be able to sell their accounts receivable to the local electric utility for a discounted price. The Public Utilities Commission of Ohio (PUCO) has endorsed a model agreement for such arrangements, but no agreements have yet been implemented between residential customer suppliers and utilities.

Other billing problems cited by suppliers include (1) billing requirements that vary among the different utilities and that change over time, (2) variations in the “price to compare” that make it difficult for suppliers to design and explain their offers, and (3) what some suppliers consider to be confusing charges on the local utilities’ bills.

* Unresolved transmission grid problems. OCC has long maintained that a single, fully functional Midwest Regional Transmission Organization (RTO) is essential to ensure open, fair and cost-effective access to regional transmission systems and the efficient and reliable flow of power across utilities’ service territories. This point of view was reinforced by the number of suppliers who cited the uncertain status of ongoing efforts to create a single Midwest RTO as being difficult to plan for and a deterrent to entering Ohio’s market. In fact, among suppliers certified to do business in Ohio, there is a general impression that the transmission system is not truly open and equally available to all suppliers.

The unresolved transmission grid issue has contributed to the relatively higher wholesale electricity prices, which together with a comparatively low “price to compare,” have served to inhibit competition in Ohio. This is due in part to high transmission rates that are the result of the accumulation of charges from every utility whose transmission lines are used to transport electricity across regions. With a single RTO, it is expected that these charges will be reduced, which should help to lower wholesale electric prices and give suppliers more room to beat the prices being offered by local electric utilities.

* Regulatory uncertainty. Some suppliers reported that regulatory uncertainty makes Ohio’s electric market less attractive. In particular, suppliers are concerned that the PUCO plans to revisit the current electric rules so soon after Ohio’s electric choice program took effect. The suppliers believe this will likely lead to rule changes, which in turn will lead to additional costs and further discourage entry into Ohio’s market.

While sensitive to suppliers’ concerns in this area, OCC views the proposed PUCO rules review as an opportunity to address existing obstacles to suppliers interested in entering Ohio’s electric marketplace and to improve the overall retail competitive environment in Ohio.

With these insights into why so few alternative suppliers are actively competing to serve Ohio’s residential consumers, one obvious question surfaces: What actions are needed to make Ohio’s electric marketplace more attractive to potential suppliers? OCC has identified a number of priorities:

* Resolve the Midwest transmission organization problem as soon as possible. The Midwest still awaits resolution of the ongoing dispute between two prospective regional transmission entities: the not-for- profit entity known as MISO (Midwest Independent System Operator) and the for-profit entity known as Alliance GridCo. At issue is whether it is possible for Alliance GridCo to operate its business model under the umbrella of MISO without compromising the central objective of a single, independent regional transmission authority. Both entities have asked the Federal Energy Regulatory Commission (FERC) to resolve their long- running dispute. OCC urges FERC to take action as quickly as possible to expedite the creation of a single Midwest transmission organization so this structural barrier to competition can be eliminated.

* Monitor the status of competition and adjust the “price to compare” over time as needed. While the totals are steadily increasing, the number of residential consumers who have switched electric suppliers is far below the state’s established target of 20 percent in all service territories except those served by FirstEnergy companies. Suppliers have clearly indicated that the comparatively low “price to compare” (in conjunction with relatively higher wholesale prices) is a primary reason for this. OCC urges the PUCO to monitor the competitive landscape in Ohio closely and to evaluate and explore fully all options for adjusting the “price to compare” when possible within the terms of the investor-owned utilities’ approved transition plans.

* Continue to promote community aggregation. Aggregation — the pooling of large groups of customers into collective buying groups — continues to offer the most promising opportunity for choices and savings for residential electric customers in Ohio. Aggregation substantially lowers prospective suppliers’ marketing and acquisition costs. OCC urges local governments and affinity groups (such as trade organizations or groups of churches or schools) across Ohio to consider aggregation as an option for their residents and memberships, respectively. While increasing the number of customers switching suppliers through aggregation in Ohio does not directly promote increased retail competition, it will help to extend the potential benefits of electric choice to a greater number of Ohio’s residential electric customers while inducing more suppliers to enter the state’s retail market.

* Finalize rules governing the competitive bidding process. Ohio’s electric choice law allows suppliers to bid on a portion of the residential customers still purchasing their electricity from the state’s electric utilities at the end of their designated “market development periods” (December 31, 2003, for Dayton Power and Light, and December 31, 2005, for the state’s other electric utilities). To date, no formal guidelines have been developed to govern this competitive bidding process. OCC urges the PUCO to develop the guidelines as quickly as possible so suppliers have adequate time to prepare competitive bids for providing power to the designated blocks of customers.

* Accelerate efforts to develop a comprehensive state energy policy. To ensure that Ohio’s residential electric customers continue to have access to ready supplies of affordable power, Ohio must develop a formal energy policy that outlines clear energy priorities and strategies. The outcome of the current national energy debate in Washington, D.C., which ultimately will address such issues as the promotion of renewable energy sources, demand-side management, energy efficiency and clean coal technologies, will have an important impact in Ohio where 88 percent of the electricity consumed currently comes from coal. OCC continues to believe that a comprehensive state energy policy is needed so state leaders can work effectively with federal policy makers to ensure that national energy policy adequately aligns with Ohio’s specific energy needs. We are encouraged by House Speaker Larry Householder’s recent decision to direct the House Public Utilities and Energy and Environment committees to begin meeting to study energy issues in Ohio and to develop recommendations for a statewide energy policy.

* Continue to urge opposition to federal energy legislation that undermines the creation of a competitive wholesale electric market. Yesterday, in an action strongly opposed by OCC and others, the U.S. Senate preserved provisions in federal energy legislation (S. 517) that could substantially set back the progress of Ohio’s retail competitive electric marketplace and delay many of the benefits of electric choice for years. By a 67-32 vote, the Senate defeated an amendment offered by Senator Larry Craig (R-Idaho) that sought to strike from S. 517 certain electricity provisions that would repeal important consumer protection standards contained in the Public Utility Holding Company Act and scale back the authority of the Federal Energy Regulatory Commission (FERC) to oversee the development of a competitive wholesale electric market. FERC’s recent decisions have been cause for new hope on wholesale market issues that are critical to Ohio and the Midwest. Unfortunately, unless reversed, yesterday’s Senate action threatens to halt that progress.

Without a truly competitive wholesale market, the competitive retail electric market envisioned in Ohio’s electric choice legislation will never materialize. OCC commends Ohio Senators Mike DeWine and George Voinovich for supporting the Craig amendment and encourages them to remain strong in their opposition to the electricity provisions of S. 517 as the full bill comes to the Senate floor for a vote.


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