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Regulators Forum: Shifting Winds, Shifting Strategies

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

Fortnightly Magazine - November 2005

interesting contrast, and it reinforces what I've always thought-it's not easy to define what capacity is.

There also is a lack of logic to some RTO footprints. In Ohio we've got four companies interconnecting to each other, but operating in separate ISOs. Something doesn't quite compute.

It could lead to a misallocation of resources, and higher costs than might otherwise be the case, and allocations that are inconsistent with the cause of the costs. Whether it's transmission or spreading the cost of capacity, I think some states will bear a disproportionate part of the burden that would be thrust upon them by certain projects underway to develop capacity markets.

A more logical geographic footprint, from an economics and technical point of view, would make more sense than what we are seeing now.

Q: How might a more sensible footprint be developed?

A: There are logical consortiums that can come together without it being mandatory. If it doesn't make sense for someone to participate in an RTO, they shouldn't.

Frankly, I think a lot of this can be transcended by [a] for-profit transmission organization. As long as they don't abuse their market power, to the extent they have it, I don't see any problem. It just requires oversight.

Q: What are your ratemaking and regulatory priorities on the distribution end of the business?

A: We've gotten to the end of what was intended to be our market-development period, prior to going to markets with electricity. In the absence of a fluid secondary market, we extended everything with what we called the rate-stability plan, where utilities were to continue with stable rates adjusted only for fuel cases coming in. Now that will [be] pretty significant, given the increases in fuel costs.

Everyone is always interested in rates and prices, but I think we need to re-emphasize the obligation to provide high-quality service. We need to renew that covenant, which is actually not a covenant in Ohio but a law. It needs revisiting.

Expenditures on O&M [operations and maintenance] have shrunk, and I'm not saying you can't get along with less; the technology has changed. But whatever it takes, service quality needs to get back to what it was, which historically was pre-eminent, irrespective of rates. People understand they will have to pay more occasionally because things wear out.

Q: What supply options are most promising for Ohio? I know AEP has a proposal to build an IGCC (integrated gasification combined-cycle) facility.

A: It's easy to talk about the virtues of an IGCC plant, but you can't just do it at any cost. We figure there may be an opportunity for the company to go forward, but the burden will fall upon them to demonstrate the cost-benefit analysis will pay off, and that includes clean-air standards and whatever employment revenue the state will generate.

We are going to move toward clean-coal technology, but also we have to revisit nuclear power. People say the problem is storing the spent fuel. But the only way to get something done is to move into a crisis mode. If