Sunday, September 10, 2000

Ohio electric consumers have the power

Electric generation rates could drop

By Mike Boyer
The Cincinnati Enquirer

        The 1960s cry “Power to the People” will take on new meaning with the restructuring of Ohio's $11 billion electric industry starting Jan. 1.

        One provision of the new law, which cuts electric generation rates for residential customers by 5 percent and opens the state's power industry to new competitors, is one of the nation's most liberal provisions allowing electric consumers to join forces to negotiate cheaper rates.

        It's called “aggregation.” The idea is that consumers form buying pools that hire an agent, or aggregator, to review competing power offers and contract for the best rates.

        That idea is catching on in northern Ohio, but in southern Ohio, it's still pretty much an unknown.

        Under Ohio's electric restructuring law, customers will be able to choose from different power generation suppliers while existing utilities such as Cincinnati Gas & Electric continue to provide transmission and distribution and billing services.

        Ohio's law permits two basic types of aggregation, both of which must be certified by the Public Utilities Commission of Ohio:

        • Affinity groups, such as trade and professional organizations, businesses, school districts and even churches. For example, the Ohio Grocers' Association has contracted with Cleveland's First Energy Corp. to provide power to its members.

        • Municipalities such as cities, towns and counties.

        “Municipal aggregation is the only practical way residential customers and small businesses can save any money,” said Glenn S. Krassen, a Cleveland lawyer involved in a massive aggregation effort by more than 100 municipalities in northern Ohio.

        The Ohio law offers two avenues for municipal aggregation. The government entity can ask residents to sign up for its buying pool, an approach known as “opt-in” — a time-consuming and expensive proposition.

        Or it can take a second approach known as “opt-out,” which requires the municipality to hold a local referendum asking voter permission to serve as their aggregator. The plan is called opt-out because individual customers can still “opt out” of the municipal pool and choose another supplier.

        “Only Ohio and Massachusetts have the concept of local government opt-out aggregation,” said Robert Tongren, the Ohio Consumers' counsel.

        “It takes customer inertia and turns it on its head. You don't have to do anything to be in the pool, but you have to do something to get out of the pool,” he said.

        In parts of northern Ohio, served by subsidiaries of First Energy Corp., which has power rates as much as 40 percent higher than Cincinnati Gas & Electric, the opt-out approach has spread like wildfire.

        Mr. Krassen, a partner in the Cleveland firm of Arter & Hadden, represents the Northeast Ohio Mayors' Legislative Action Group. He estimates no fewer than 110 municipalities — counties, cities and townships in northern Ohio — will have local referendums on the Nov. 7 ballot to permit them to form aggregation pools. The list includes the cities of Cleveland, Toledo, Lakewood, Euclid and counties such as Lucas, Medina and Ashtabula.

        Mr. Tongren says 18 of 88 Ohio counties, including Franklin and Madison in central Ohio, will have municipal aggregation initiatives on the November ballot.

        The Northeast Mayors' group, which consists of communities in seven Greater Cleveland counties, is potentially the largest aggregation pool in the United States — comprising about half a million customers, Mr. Krassen said.

        While there's been a lot of activity in northern Ohio about aggregation, the same isn't true in the southern part of the state.

        Franklin, a city of 12,000 in northwest Warren County, is believed to be the only municipality in CG&E's six-county service area with an aggregation referendum on the November ballot.

        Franklin City Manager Jim Lukas said City Council unanimously approved the ordinance on Aug. 21, three days before the deadline to get the question on the November ballot.

        “For the potential to get lower (electric) rates, we felt we had to take this step. We needed to pass the ordinance to get started,” said Mr. Lukas, who noted the referendum doesn't require the city to form a aggregation pool.

        Although Cincinnati's electric rates are among the lowest in the state, Mr. Krassen said municipal aggregation could still provide savings for electric customers here.

        “It's something that should be looked at in Cincinnati. It doesn't hurt,” he said.

        Mr. Tongren, Ohio Consumers' Counsel, said he thinks interest in aggregation will grow as Ohio's $33 million consumer education program on electric deregulation kicks off next month — and as others see what happens in northern Ohio.

        The electric deregulation law requires that 20 percent of CG&E's 640,000 customers in Ohio switch to alternative suppliers by the end of 2003, the midpoint in a five-year transition period.

        “Frankly, I don't see how you're going to get there without doing municipal aggregation,” Mr. Krassen said.

        “Most people given the opportunity to take action or not take action, do nothing, which is understandable.

        “You need somebody to kind of take the lead, to get the ball rolling. They've got to hire the experts to put it together, because it's technically complex.”

        While some organizations such as the Ohio Manufacturers Association and school groups will offer aggregation to their members, he said municipal aggregation is the only economical approach for most residential and small business customers.

        “It's not cost-effective to go door to door, and municipalities that have done opt-in aggregation — for example, Santa Monica, California — experienced only about a 7 percent enrollment rate,” he said.

        Municipal aggregation actually is nothing new. It shares similarities with municipal electric systems that provide power in about 80 Ohio communities, including the Tristate cities of Hamilton and Lebanon.

        Like municipal aggregation, municipal power systems have historically negotiated to buy power for their customers, said John Bentine, general counsel for American Municipal Power — Ohio, the nonprofit wholesale supplier for Ohio's municipal power systems.

        Unlike aggregators, municipal systems also own their own transmission and distribution systems and some generation facilities. “That's very much different than what's envisioned by municipal aggregation,” he said.

        The city of Parma, outside Cleveland, was the first municipality to pass an aggregation referendum.

        “About 72 percent voted in favor” during the March 7 primary, said Tim Dobeck, law director for the city of 85,000. “Surprisingly, there was very little debate, and there was no organized opposition.”

        Mr. Dobeck said Parma is in the midst of picking a consultant to develop its aggregation plan, choosing among half a dozen competing power suppliers and filing the necessary certification information with the PUCO.

        Parma's motivation to be first was to get access to about 1,100 megawatts of electricity that First Energy plans to provide on a first-come, first-served basis at about 3.1 cents a kilowatt hour.

        “We'd like to be the first ones to get that low-cost power, which most experts are saying nobody will be able to beat,” he said.

        He said the Parma City Council will probably decide in a couple of weeks whether to proceed on its own or join the Northeast Mayors' group.

        Still, some government officials in southwest Ohio remain skeptical about the potential savings from aggregation.

        Dave Rager, Cincinnati Water Works director, who has monitored electric deregulation for the City of Cincinnati, said, “We're taking a wait-and-see attitude toward (aggregation). I don't know of anybody in this area who is moving forward with it.”

        But, he said, the Water Works, one of CG&E's largest customers with an annual electric bill of $6 million, is looking into shopping for a new supplier when deregulation takes effect in January.

        “We might explore teaming up with other water suppliers in the area, other large users or somebody like a school district whose (electric) load complements our own.”

        “We have no plans to aggregate with others or on our own,” said Jim Pfeffer, treasurer for the City of Blue Ash who has studied the aggregation issue.

        “I think Cinergy has done a good job (keeping rates low),” he said. “I haven't seen the need.”

        “Until someone can guarantee 10 or 15 percent savings for everyone in the city, then we're not going to step up to the bar,” said Mr. Pfeffer. “We'll wait and see what happens.”

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