(November 2004) Fixing an appropriate rate of return on equity (ROE) for electric utility investors marks a fundamental component of the typical cost-of-service rate case conducted across...
The Electric Competition Debate in...Ohio
WHAT IF YOUR STATE LEGISLATURE THREW A PARTY and you had to go? Best of all, this power party cost less than the one you went to (em and paid more to attend (em last year.
In simple terms, that's how some observe Ohio's latest proposal to convince the state's 11 million wary consumers to choose their electricity provider.
Two Republican state legislators have proposed the consumer-bent transitional system, called retail marketing areas or RMAs, as part of a broad electric restructuring program. The pair, Sen. Bruce E. Johnson and Rep. Priscilla D. Mead, put their program into legislative form March 26.
"I would liken, as a woman, the birthing of this bill to be a breach birth (em it's a tough one," Mead says. S.B. 237 and H.B. 732 call for a competitive electric market in 2000.
Mead co-chairs the Joint Select Committee on Electric Utility Deregulation. The report the legislation is based on, called Competition: Ohio's Choice, is available at www.state.oh.us/cons/pain.htm.
The "baby," to go along with Mead's analogy, hasn't been received well by all. Unions feel there aren't enough worker protections in the legislation. Some legislators have described RMAs as reverse slamming (see sidebar, "Smooth Slamming").
"I'm¼ reluctant to support RMAs, in part because I don't understand them, and because no other state has chosen to go down this road," wrote Rep. Frank Sawyer (D) in response to the report. "It would seem to me that we are taking the artificial service territories that exist today and simply redrawing the lines." Sawyer is former chairman of Ohio's House Public Utilities committee.
How RMAs Would Work
Under the RMA system, fashioned to mitigate market power during a five-year transition to electric competition, the Ohio Public Utilities Commission would oversee subdividing of the state's eight investor-owned utility service territories into about 100 blocs of no less than 100,000 customers each. Each RMA must encompass a "desirable mix" of customers, based on socioeconomic, geographic and load characteristics. Also, RMA boundaries must not produce any transmission or distribution bottleneck that might benefit a particular generation supplier.
Electric customers would choose a generation supplier. However, those in any single RMA who don't choose would fall into an aggregated pool to be served by the supplier who wins the auction for that particular RMA. Each RMA pool supplier would remain responsible for serving low-income customers, with reimbursement from funding sources, and with the right to charge a switching fee in certain situations for customers moving in or out of the pool.
In each RMA auction, the PUC would qualify bidders (incumbents included) and select winners based on price and reliability. Initial bids would run for 30 months; final bids would run another 30 months. After five years, the RMAs would dissolve.
Kenneth Rose, senior economist at the National Regulatory Research Institute in Columbus, says the RMA solution came out of observing barriers to market entry in "free" telecommunications and electric markets. Rose helped legislators develop the report leading to the legislation.
"It's not happening with telephony, it's not happening in many other areas," Mead