Sunday, December 31, 2000

Electricity choice off to slow start

But savings on the way, planners say

By Mike Boyer
The Cincinnati Enquirer

        Beginning Monday, for the first time, you'll have the right to pick your own electricity supplier in Ohio.

        But you won't have a choice — at least, not yet.

[photo] Bob McCall of Bethel, a control operator at the CG&E Beckjord Power Plant, checks gauges in the control room.
(Enquirer file photo)
| ZOOM |
        While more than two dozen alternative power suppliers have been approved to offer competitive service in the state, few are choosing to offer residential service that could save consumers more than the 5 percent reduction in generating rates required by the new state law.

        And so far, no company is making offers to Cincinnati Gas & Electric's 566,000 residential electricity customers in Southwest Ohio.

        The sharp spike in power costs this winter, the high cost of trying to lure residential customers individually and the newness of Ohio's competitive market are conspiring to give residential electricity customers no choice as legislation opening the state's $11 billion power market to competition takes effect.

        Still, state officials say they aren't concerned about the slow start to the electric choice program.

        “It will come, and it will come in time,” Robert Tongren of the Ohio Consumers' Counsel says. The electricity-choice law calls for a five-year transition period so consumers can learn how to shop for suppliers. Utilities can absorb the cost of opening their systems to competitors and assure that the new competitive market functions properly, Mr. Tongren said.

        Electricity choice hasn't been a total bust in Greater Cincinnati. Commercial and industrial customers — who use more power and thus are more profitable and are easier to approach through trade associations — are picking competitive suppliers.

        CG&E says that through last week, 17 industrial customers, 142 commercial accounts and 285 public authorities, such as school districts, have signed with alternative electricity suppliers.

        For example, Cincinnati Public Schools joined SchoolPool, an electricity buying group for 47 of the state's largest districts. CPS, which spends about $3.6 million a year on electricity, should save about $70,000 the first year, schools Treasurer Mike Geoghegan says.

        Power prices historically have been cheaper in the southern part of Ohio, which generates most of its electricity with lower-cost coal, than in northern Ohio, which includes high-cost nuclear power among its generation sources.

        That same price disparity has mirrored the interest in electricity competition. Most of the push for electricity competition — and power “aggregation” that allows communities to pool their electrical demand to negotiate lower rates — has come from residential and business customers in northern Ohio. Interest in electrical aggregation has been practically nonexistent in southern Ohio.

        Power marketers also say rising wholesale electricity prices this winter have made it difficult to compete. The new marketers typically rely on electricity generated at gas-fired plants — and costs have spiked this winter as natural gas prices have skyrocketed.

Competitors by spring
        Power marketers say they eventually will offer service in Cincinnati and the rest of the state.

        Of the six electricity suppliers that have been approved by the state and CG&E to offer competing service in CG&E's service area, four plan to offer service, as early as spring, to residential customers.

        “We haven't finalized our (service) offer yet, but Cincinnati is a market we want to compete in,” says Gael Doar, spokeswoman for New Power Co., one of the CG&E certified suppliers.

        She says the company expects to be offering service in Ohio by spring. “It takes time to get up and running,” she says.

        Likewise, MidAmerican Energy, a unit of a Des Moines, Iowa, utility, still plans to offer residential service here, says Todd Raba, vice president of sales and marketing. “Our goal is to be a long-term player in the market,” he says.

        Another eight suppliers have applications pending, and six of those have indicated that they will offer residential service, too.


        Alan Schriber, chairman of the Public Utilities Commission of Ohio (PUCO), says: “The important thing is there are no barriers to entry. The only obligation we have as a commission is to make sure that choice can be there if the terms of the market dictates it.”

Bills to be itemized
        Starting next month, CG&E will send customers new bills “unbundling” — or listing their electric charges by generation, transmission and distribution costs. The law, which requires a 5 percent cut in the generation portion of the bills initially, also allows customers to chose alternative electricity suppliers while their current utility, such as CG&E, continues to provide transmission and distribution services.

        The hope is that allowing customers to shop for new suppliers will mean further cuts in their electricity bills.

        To date, most of the competitive action for residential electricity customers has been in northern Ohio in the service area of the three utilities owned by FirstEnergy Corp.

        That's understandable, Mr. Tongren says.

        “It is the northern part of the state where the rates are the highest. ... That's why we assumed that (area) would be the start of activity.”

Key word: aggregation
        The focus of most of the marketing activity has been on 100 communities in northern Ohio that have banded together to aggregate their electrical demand into a regional council of governments called the Northeast Ohio Public Energy Council.

        The council, which represents about 600,000 electricity customers, is soliciting proposals from suppliers and expects to open bids Jan. 12, says Glenn S. Krassen, lawyer for the group.

        Why this approach? It's too expensive to try and solicit customers individually, experts say. The only way competitive suppliers can compete with existing utilities and achieve economies of scale is to aggregate large blocks of customers. Because of FirstEnergy's higher rates, more than 100 communities in northern Ohio approved aggregation measures in November.

        “Aggregation has not caught on in southern Ohio,” Mr. Schriber says. Once it does, “that will change a lot of things.”

        The city of Franklin in Warren County is thought to be the only community south of Columbus that approved an aggregation referendum in November. The city is now reviewing proposals from various energy consultants and expects to make a decision soon.

Ad campaign: "Get ready'
        The choice law requires that at least 20 percent of residential, commercial and industrial customers switch suppliers by midway through the market development period. The law also gives the PUCO authority to step in to make sure that 20 percent goal is reached by increasing incentives to customers.

        Part of the state's transition plan is a $33 million consumer-education campaign, including a series of print, TV and radio ads that have been running across the state since October.

        Despite a lack of consumer choice, Mr. Schriber says the money spent on the consumer education campaign isn't being wasted.

        “What the commercials are saying now is "get ready,'” he says.

        Mr. Schriber advises residential customers who want electrical choice to not get discouraged.

        “Start thinking in terms in aggregation,” he says. “There's going to be some significant players in Cincinnati, but they're not going to go door-to-door (to sign up customers). They're going to try and sign up whole communities.”

        The Associated Press contributed to this report.


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