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Regulators Forum: Shifting Winds, Shifting Strategies

State regulators grapple with investments, supply planning, and structural issues.

Fortnightly Magazine - November 2005

bearing the risk as they bid into the auction process, and so far it seems to be bearable.

In addition to the RPS, we have rebates for installation of renewable energy, covering approximately 65 to 70 percent of the cost of installation. And now we are looking into energy-efficiency portfolio standards, which Pennsylvania is considering as well. We're not there yet, but it makes sense and we are working on it, talking with Pennsylvania and working in various forums to set up a renewable and energy efficiency certificate.

Our goal is to transform the marketplace so rebates for renewables won't be necessary; in 10 years the costs of manufacturing will fall enough to eliminate the need for rebates.

Q: How do you view consolidation trends now that PUHCA has been repealed?

A: The BPU probably will implement some regulations to replace parts of PUHCA that were eliminated federally. Specifically we may require structural separation between the utility and its affiliates, and limitations on diversification.

We are doing discovery now on the Exelon/PSEG merger. We are concerned that FERC didn't address the market-power issue adequately. FERC came up with a virtual divestment plan, with long-term contracts for some plants. Where I come from, long-term contracts aren't market-power mitigation. We will appeal if FERC doesn't really look at it. PSEG is one of the oldest companies in the state, serving a large share of our energy users. Both PSEG and Exelon are big, so it's important to get it right.

Ohio

Crossroads and Crucible

Ohio represents a great American crossroads. It's the state where the East meets the Midwest, where Appalachia meets the Great Lakes, where coal fields meet cornfields. Likewise in the utility business, Ohio looks to the East, with American Electric Power participating in the PJM market, and to the West, with Cinergy in the Midwest Independent Transmission System Operator (MISO). And with the August 2003 Northeast blackout having begun in FirstEnergy's network, Ohio also found itself at the nexus of the reliability controversy.

From his vantage point as chairman of the state's Public Utilities Commission (PUCO), Alan Schriber talked to recently about the challenges and issues utility regulators face at the Ohio crossroads.

Q: Ohio utilities are involved in some major mergers and acquisitions. What are your thoughts and concerns about the consolidation trend, now that the Public Utility Holding Company Act of 1935 (PUHCA) has been repealed?

A: If companies can demonstrate there are net benefits to ratepayers, I am an advocate of consolidation. In addition to potential cost benefits, consolidation helps to ameliorate some concerns, with respect to transmission issues, for example.

We have a very good laboratory in which to check out whether RTOs and ISOs are working. RTOs have benefits in terms of market monitoring, security, and the exercise of state estimators. But the more RTOs become involved with generating capacity, the more confused I become with distinguishing between capacity and energy. The MISO has charted out a very interesting course with its energy-only market, whereas PJM has embarked on a capacity project. It is quite an