Sunday, September 10, 2000

California-type crisis not expected in Ohio

        The crisis that sent prices surging this summer in California's deregulated electricity market aren't likely to be duplicated in Ohio when its deregulation law takes in effect in January, state utility experts think.

        “There are both safeguards and significant differences between Ohio's and California's electric deregulation plans,” said Alan Schriber, chairman of the Public Utility Commission of Ohio.

        California utility regulators last month approved a proposal to cap electricity prices for homes and small businesses in San Diego after wholesale prices surged by as much as 10 times average during hot weather this summer, touching off a revolt by some ratepayers.

        Unlike California, which had neither caps on retail rates nor incentives to encourage supply, Ohio's deregulation plan has both, Mr. Schriber said.

        “In Ohio, residential rates are frozen for the next five years, which means they won't be any higher and they could be significantly less depending upon what happens.”

        Sam Randazzo, a Columbus lawyer and one of the prime movers in Ohio's deregulation effort, said there are some fundamental flaws in California's deregulation scheme.

        “Theirs is really not a market design that permits the market to function either by allowing more generation capacity or by giving customers the ability to manage problems more readily,” he said. Those flaws were exposed by extremely hot weather this summer.

        “In Ohio's and also in Pennsylvania's market design, one thing done was to make it easier for a new generator to come into the market.”

        Ohio regulators have sought to encourage power plant construction — such as new peaking plants, units operating during periods of high electric demand — to ease potential shortages, Mr. Schriber said.

        “Since 1998 we've added 3,750 megawatts of peaking power, and we have on the boards plans and applications for an additional 5,000 megawatts. .... That's (a) lot of electricity in Ohio.”

        Mr. Randazzo said California's deregulation plan created a power exchange, a kind of marketplace that everybody has to sell into and everybody has to buy out of.

        “When you do that you create one big monopoly out of a bunch of smaller monopolies,” he said. “It is similar to what existed in the United Kingdom and has demonstrated itself as not as good a market design as some others.”

        Mr. Randazzo said the Ohio law also gives the PUCO the ability to act in the event of a crisis.

        “Basically it says if the market is demonstrating itself to not be ... reigning in prices and creating new options for customers, the commission has the ability to step in and set reasonable prices.”

        Mr. Randazzo said many of the problems that California faced this summer were experienced the last two summers in Ohio in the face of extremely hot weather.

        “Our old regulated world didn't respond very well back then,” he said. “(Regulation) is a reactive strategy to deal with problems. Normally, regulation only intervenes in a crisis mode, as has happened in California. What the Ohio legislation does is permit the market to be responsive to demand before it matures into a crisis.”

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