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Rewards for Residential Electric Customers?

By Pete Shuler · February 11th, 1999 · Statehouse
Sen. Bruce Johnson, R-Columbus, has projected that electric deregulation will save Ohioans 10 to 30 percent on their electric bills. Citizens for a Sound Economy, a government spending and policy watchdog group, is even more hopeful, estimating consumer savings of 43 percent.

But Adrienne Mitchem, legislative counsel at Consumers Union -- the consumer advocacy organization that publishes Consumer Reports -- disagrees.

"These early claims were optimistic scenarios that have little chance of coming to pass," Mitchem said. "It is quite clear that residential rate payers will only benefit from restructuring if vigorous policies that protect their pocketbooks are implemented."

Consumers Union thinks that, while competitive pressure might lower the price charged for generating and delivering electricity, it will not affect regulatory fees and taxes embedded in electric rates.

One such fee reimburses utilities for "stranded costs," investments in unproductive assets such as moth-balled nuclear reactors. Residential customers of FirstEnergy, an electric utility in northern Ohio, pay 36 percent more for electricity than consumers in central and southern Ohio because FirstEnergy charges them for its $8 billion investment in three now-dormant nuclear reactors.

In a truly competitive environment, consumers could avoid such additional charges by selecting suppliers who have little or no stranded costs to recover. Utilities such as FirstEnergy would be forced to lower its rates in order to compete.

But Ohio's incumbent utilities, even those with few unproductive investments, stand united in demanding reimbursement for stranded costs before competition is introduced to the industry.

"We would like to freeze rates for five years to mitigate stranded costs, and then would like to have an additional five years to recover regulatory costs," said Steve Brash, a spokesman for Cinergy Corp.

Regulatory costs mainly are associated with the dismantling of nuclear power plants.

Consumer-friendly deregulation bills sponsored by Johnson and Rep. Priscilla Mead, R-Upper Arlington, would have allowed utilities to charge customers for about 50 percent of stranded costs over five years. This legislation failed to garner support and expired at the end of the term.

Mead said that a bill now being drafted in Columbus would allow utilities to recover more stranded costs from their customers.

"The new legislation will be a compromise between the positions of all stakeholders," Mead said. "It will be more friendly to the electric companies."

The Public Utility Commission of Ohio estimates that Ohioans could end up paying as much as $11.7 billion for stranded costs.

In addition to these charges, electric rates also contain taxes. Because Ohio's electric utilities are subject to additional excise and property taxes, they pay four times as much in state and local taxes as nonregulated corporations. These taxes are passed directly to consumers.

When the industry is deregulated, electric utilities will be taxed like any other corporation. State and local governments will lose almost $740 million of revenue.

To compensate for this loss, legislators have proposed a tax on the consumption of electricity.

"The new legislation will probably contain a tax based on kilowatt hours used by the consumer, to be paid by the consumer," Mead said.

According to a report issued by Consumers Union, such replacement taxes, along with the lingering repayment of stranded costs, have chipped away at projected savings in other states. In New York, residential bills have decreased only 2 to 3 percent on average and, in many areas of the state, have actually increased. California's results, Mead acknowledges, have been equally disappointing.

"Their projected 10 percent cut has ended up being about 3 percent after all the costs are added in," Mead said.

Many think that large industrial corporations -- vocal proponents of electric deregulation -- will benefit the most from a competitive electric market. Because these companies are lucrative customers, they can often negotiate reduced rates.

New York's residential users might be disappointed with single-digit savings, but big businesses there are saving up to 25 percent on their electric bills.

Furthermore, even a small decrease often results in huge savings. According to the Ohio Manufacturers Association, a 1 percent decrease in the electric rate will save Timken Co., a bearing producer with plants in Columbus, Bucyrus and Canton, $1 million a year.

Ohio's residential customers can only hope that they, too, will eventually reap such rewards.



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