Deregulation is failing in Ohio
Friday, July 27, 2007
The experiment in deregulation of electricity service, now in its sixth
year in Ohio, is clearly not working. Residential customers have no
choices, and the small "savings" that some customers experienced are gone.
On the other hand, utilities are racking up record profits.
During the continually extended transition to full competition,
generation prices are still approved by the Public Utilities Commission of
Ohio. However, at the end of next year, those controls are due to end and
prices will be determined by the marketplace, meaning marketeers with
market power. Thus, prices could jump to record levels, just as they have
in other states where rate caps have been removed. The utilities certainly
think so: They are forecasting more record profits from their generation
At the same time, investment in new infrastructure is lagging, and the
current group of power-plant owners likes it that way. Shortage, and the
threat of shortage, drives up the price of electricity. Sound familiar?
Deregulation proponents have run out of excuses as to why competition -
price moderation and new investment - has not developed, and why the
existing fleet of power plants should cost so much more to provide service
than they did just a few years ago. These same people are suggesting ways
that will supposedly cushion what they claim are unavoidable future rate
We must look long-term
All sorts of remedies are being put
forward. FirstEnergy just submitted a plan for another "competitive
bidding process" to farm out customers to other suppliers. This auctioning
of customers failed before and will likely fail again. The fallback will
be the status quo, with the PUCO approving more rate stabilization plans
that simply phase in rate hikes.
Gov. Ted Strickland has offered a set of principles that includes very
good environmental initiatives, but none will have the desired effect on
It is time to stop ignoring the elephant in the room: The problem is
deregulation. Attempts at mitigating the hardships and dislocations it has
created without addressing deregulation itself will fail to fully protect
Ohio must return to long-term planning and cost-based pricing for our
essential energy infrastructure. It is the only way to really address the
fundamental, structural problems of reliability and affordability caused
by electricity deregulation.
The central flaw of deregulation is reliance on short-term market
concepts to manage essential infrastructure, which requires a long-term
perspective and long-term financial and institutional commitments.
Deregulation and its attendant phenomena - including dismantling the
unified organizational structure of the grid, shopping for short-term
power deals, substituting profit maximization for regulation in the public
interest - are essentially shortterm. And problems follow: profiteering,
lagging investment, market manipulation and high and rising prices.
'Public use, public regulation'
argue that it is too late to try to control our energy destiny by
subjecting utilities to regulation. Echoing arguments from the 1890s that
were refuted decades ago, they claim that doing so would be "taking"
utility property, a violation of the 14th Amendment to the U.S.
Constitution. We should not be frightened by this legal bogeyman. As the
Supreme Court said 130 years ago, "[W]hen private property is devoted to a
public use, it is subject to public regulation." What could be more public
than basic energy service providers?
Citizen Power has opposed electricity deregulation from the beginning.
We want to see approaches that truly address the problems associated with
rising energy costs and declining reliability of service. We suggest
reinvigorating the utilities' obligation to serve, including instituting
long-range planning and requiring direct investments at regulated rates in
supply and conservation.
Ohio should move away from short-term energy arrangements and
transactions, including retail choice. It should eliminate market power
and transactions such as mergers that are not in the public interest. And,
during the transition to regulation, the state must protect its most
vulnerable consumers - low-income and senior citizens on fixed incomes.
Ohio's leaders can begin the process now to return to a system of public
regulation of this essential utility service. With all its flaws, that
system promoted stability, equity and growth in Ohio's economy. It will
Hughes is executive director of Citizen Power, a regional energy