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Using Auctions to Jump-Start Competition and Short-Circuit Incumbent Market Power

Fortnightly Magazine - February 1 1999

called for amendments on other matters. Their proposals would establish larger, broader tax cuts, freeze rates at current levels for the five-year transition period, allow the utilities to recover stranded costs during the rate freeze and allow securitization. They also recommend a transition to customer choice on Jan. 1, 2001, one year later than proposed by the bills, and a rewrite of state law regulating electric utilities.

The very notion of RMAs is a problem for the utilities, according to Tom Holliday, spokesman for AEP's Ohio operations, who says they "represent unnecessary government intervention in the competitive process."

Some are critical of the utilities' recommendations, however.

Ohio Consumers' Counsel Robert S. Tongren notes that a major difference in the utilities' proposal concerns the period of transition to a competitive market. "As I understand it," he says, "it looks more like it is designed to help the utilities prepare for competition, rather than to get consumers to a competitive market."

Not so, says Holliday. "The transition [proposed by utilities] does provide customers with the opportunity to become familiar with competitive markets and ¼ provides the utilities an opportunity to recover stranded costs."

Tongren insists, however, "rather than suggestions to the lawmakers, what the utilities are proposing is the exact opposite" of the Johnson-Mead plan. He adds, "It's not too great a sign from the industry that [it would] like to find some meaningful consensus."

Outlook. Johnson and Mead continue to work with representatives from industry and consumer groups to reach accord. However, a major sticking point is the matter of reclaiming stranded costs. While the Johnson-Mead five-year plan proposes a process that would allow utilities to recoup some stranded costs through customer surcharges, utilities want be able to recover a greater portion of costs.

"Johnson-Mead would almost preclude stranded cost recovery for AEP and would limit recovery for other Ohio utilities," says Holliday. "We think there needs to be a greater opportunity for utilities to recover those stranded costs."

He notes that the proposals presented to date may take on an entirely different form when reintroduced to the state legislature. "We're looking at a blank slate in 1999," he says.

Rep. Mead says it's difficult to say how much the bills might be revised, but agrees, "I can tell you that 732 and 237 will not be reintroduced as is. There will be substantial changes to reflect the changes in our world [since the bills were drafted a year-and-a-half ago]."

In late December, The Columbus Dispatch reported that state lawmakers had decided to keep the informal discussions among stakeholders private. House Speaker Jo Ann Davidson said the meetings must be kept under wraps if investor-owned utilities were to participate, to avoid any impact from the negotiations on the value of their stock. Davidson is aiming for a Feb. 1 introduction of the legislation, according to the report.

"I'm not concerned [about the meetings being held in private], because residential consumers are represented through our participation," said Tongren.

Noting that incoming Ohio Gov. Bob Taft has named electric deregulation among the state's highest priorities