CITIZEN POWER

Public Policy Research Education and Advocacy

FOR IMMEDIATE RELEASE Contact: David Hughes

April 18, 2000 412/421-6072

Bill Gruber

216/371-3570

CITIZEN POWER WILL FIGHT FIRSTENERGY SETTLEMENT

Pittsburgh, April 18--Citizen Power, an intervenor in the FirstEnergy restructuring case, is refusing to sign the settlement proposed today by FirstEnergy because it is clearly anticompetitive and bad for the natural environment. “Electricity deregulation is being promoted as a way to lower electricity costs. This settlement won’t let that happen”, said David Hughes, Executive Director of Citizen Power, a consumer and environmental watchdog group.

“FirstEnergy’s proposed settlement is so anti consumer, I can’t believe anyone, particularly the Office of Consumer’s Counsel, would sign it”, continued Hughes.

“The FirstEnergy case is the ‘mother of all rate cases. It is crucial that this proposed settlement of a plan that asks FirstEnergy’s ratepayers to foot the $8 billion bill for the company’s bad nuclear investments be put under the kind of scrutiny such a case deserves”, said William Ondrey Gruber, Citizen Power’s attorney.

In addition, Citizen Power is disheartened that FirstEnergy ignored Citizen Power’s request to include support for public education about renewable energy in the settlement language. “FirstEnergy’s ‘stranded costs’ are so huge because this company continues to rely on nuclear power. Now, when there is an opportunity to help build the market for renewable energy, FirstEnergy continues to stick its collective head in the sand”, said Hughes.

“Restructuring of the electric generation business provides an historic opportunity to change the way we use energy. If FirstEnergy has its way, we will not only miss this opportunity, we will eventually have unregulated monopolies that increase prices and continue to block the entry of renewable energy products into the new marketplace, concluded Hughes”

Citizen Power will continue the fight for safe, clean and affordable energy.

Detailed below are the problems Citizen Power has initially identified with the proposed settlement.

Problems with the FirstEnergy settlement

Market Power

The retail electricity market is supposed to replace price regulation with vigorous competition that will both restrain prices and provide utilities with incentives to be efficient (minimize costs).

FirstEnergy's proposed settlement, however, is designed to achieve the legislatively mandated 20% customer switching, while actually thwarting the development of lasting competition that could threaten FE's market dominance.

1. In its stipulation, FE offers 1120 MW of capacity for other suppliers to sell at retail that would create a temporary market (through 2005) designed to encourage customers to shop. But:

(a) Marketing affiliates of the other Ohio utilities are excluded from the offer unless: (1) they offer similar amounts of capacity in the same way on their system, or (2) they no have capacity close by to sell. These utilities are some of the suppliers most able to compete with FE by virtue of their resources and nearby location which minimizes transmission access and pricing problems. Their exclusion is anticompetitive.

(b) FE's marketing affiliate is allowed access to the capacity it is offering as if it were a separate company that will compete with FE's operating utilities for sales. (FE's marketing affiliate would be allowed access to 100MW of capacity for residential sales and all 500MW being made available for the commercial and industrial market–the latter being markets that are likely to see the most competition develop in the short run). FE's marketing affiliate

(FirstEnergy Services) is a wholly owned subsidiary of FE. Because the same stockholders own both (stockholders own FE and FE owns FE Services), there will be no competition between FE Services and the FE operating utilities for retail sales. In order to enhance the

development of competition, all of the earmarked capacity must instead be made available to genuinely arms-length companies, including the marketing affiliates of other Ohio utilities, and FE's affiliates must be excluded.

2. The capacity is to be offered on "a first come first served basis". This usually gives an affiliate a distinct advantage in actually getting capacity, and has typically done so elsewhere, without regard to regulatory attempts to functionally separate affiliates. A process needs to be established to limit or prevent preferential access by FE Services, but the stipulation contains nothing of the sort. [Small example: when Duquesne Light (Pittsburgh) made some capacity available, they provided that anyone who signed for it got a minimum amount, thus limiting the

capacity any one entity could receive.] The difficulty of preventing preference access to the capacity by FE Services is one more reason to exclude them from the offer.

3. In calculating switches (whether or not the earmarked capacity is used for a sale), FE must not be allowed to count a sale by its marketing affiliate as a "switch from FE". A customer switching from Ohio Edison to FE Services adds nothing on the level of competition, any more than does switching from, say, Ohio Edison to CEI. Any market study of concentration would ignore such "switches". Only switches to genuinely arms-length companies must be counted.

4. The stipulation allows FE add to its cost recovery (RTC) any revenues lost if more than 20% of a customer class, for any of the three operating utilities, switches to another supplier. By holding FE harmless to the effect of competition in this way, one of the major effects of competition–-penalizing losers--is thwarted. By rewarding winners and penalizing losers, competition serves to shift resources to more efficient suppliers and provides incentives for the losers to

reduce their costs. All of this is lost when FE is permitted to recover the revenue it loses through competition.

5. The hold harmless provision, combined with counting switches to FE Services, will result in some double collection of revenues by FE. For all switches beyond 20%, FE will collect the revenue when a customer chooses FE Services and add the revenue "lost" from the switch to its

RTC. Customers pay twice: to reimburse FE on a deferred basis for the foregone revenue from a sale it "lost" (to itself) and for the cost of the power it is buying from FE (because it really didn't lose the sale).

The offer of capacity and the market created by it is temporary. Moreover, that market is likely to be separate from the rest of the sales by virtue of the separate price and limit to the capacity being offered. That, coupled with the problems cited with the offer itself, is likely to leave FE in a dominant position, once the "market development period" ends. In fact, no competitive market with a chance to thrive will be developed by FE's proposal.

Environment

There is nothing in the proposed settlement for renewable energy development.