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The Electric Competition Debate in...Ohio

Fortnightly Magazine - May 15 1998

says. "Our challenge is to say if you don't like the RMAs, then how do you get creative aggregation that takes care of the people who choose not to choose? It's a transition plan to get people accustomed to aggregating their purchase."

"Obviously, it would be best not to have any kind of process if we thought the barriers to entry were low enough," Rose says. "The question is: Are the barriers to entry significant enough that it warrants this kind of action?"

Rose thinks so. And he says Johnson and Mead "want to go as far as they can to ensure that all customers in the state benefit from competition.

"Maybe because they are Republicans, they don't want to be in the position like they're looking out for the big incumbent utilities," he says. "Maybe they're overcompensating. I don't know."

Next question: Will RMAs lead to savings? Toledo Edison, a northern utility with one of the higher residential rates, currently charges customers 9.53 cents per kilowatt-hour for generation and fuel, says Kerry Stroup of the PUC. According to PUC models, first-year savings would mean the same customers would pay 5.51 cents per kWh. That figure includes a 2.61-cent transition charge, which drops to less than a cent in the fifth year of the restructuring plan.

The Rest of the Story

Stranded costs and transition charges play a role in the Johnson-Mead proposal.

The plan gives utilities two options under which to recover stranded costs; securitization isn't one. Securitization is specifically left out in the Johnson-Mead plan, but securitization legislation has been introduced in both the House (em H.B. No. 635 (em and Senate (em S.B. No. 207, by Sen. Roy L. Ray, a member of the Joint Select Committee.

During the transition period, the plan offers recovery of utility production costs through two options: the "performance approach" and the "financial integrity" model.

Under the performance approach, there's an up-front calculation of revenues for the five-year transition. The revenues are based on how a company's cost performance falls relative to a 1995 ECAR regional benchmark.

It's expected that the company will be above current averages. Therefore it would receive a percentage of the difference, Rose says. The difference between the regional costs and their generating cost would decline until the sixth year, when it hits zero.

No one has calculated exact amounts, but here's an example: assume the regional price (actual cost) was just under 4 cents per kWh and a utility generates power for 6 cents. The utility will receive 2.2 cents (110 percent of the difference) times whatever its sales are to receive its total revenue in the first year. In the next year, it will receive 90 percent, or 1.8 cents times total sales. The percentage drops to 20 percent in the last transition year.

So the attraction for the company is it knows how much it will receive. If it can reduce costs below what they are, the utility can keep some of that revenue. "That's part of the incentive," Rose says.

However, utilities in the north of