Electricity rates expected to rise for many Ohioans in 2006

Ohio lawmakers passed an electric deregulation law in 1999 aimed at allowing competition between suppliers and lowering customers' bills. The law required a five-year period with frozen distribution rates and a 5 percent discount on generation to allow the market to develop.

That period expires at the end of the year, and the Public Utilities Commission of Ohio has approved rate stabilization plans beginning in 2006 for Ohio's utilities.

PUCO Chairman Alan Schriber acknowledged that the new rate plans were designed to buy more time for the utilities to transition into a competitive market.

"Clearly, we're not where we thought we would be," he said.

Under those plans, the Office of the Ohio Consumers' Counsel estimates generation rates could increase by about $36 and $72 a year for customers of two American Electric Power subsidiaries, based on an average monthly use of 850 kilowatt hours. The cost of electricity generation accounts for about 66 percent of the average residential bill.

The office estimates costs for customers of Cincinnati Gas & Electric Co. could increase by $105 in 2006.

Since the deregulation law was adopted, few customers have switched to alternate electricity suppliers. Some customers in northern Ohio joined a buying cooperative with Green Mountain Energy, but that supplier has pulled out of the agreement and will stop providing electricity at the end of the year.

Lt. Gov. Bruce Johnson, who sponsored the bill as a state senator, said he believes deregulation is on the right path, although he's disappointed in the slow progress in developing competition.

Johnson said investors lost confidence in the concept after the Ohio law was passed because of the bankruptcy and scandal surrounding Enron, one of the world's largest energy companies, and the energy crisis in California.

"The world changed a lot in five years. In between the California debacle and the Enron debacle, the environment for competition was dealt a pretty severe blow," Johnson said.

Ohio's public advocate for residential customers in utility cases says she thinks deregulation can be salvaged, but other problems need to be addressed.

"I think what we need to do is take a look at the wholesale market," Ohio Consumers' Counsel Janine Migden-Ostrander said.

The rates charged by regional transmission organizations, the gatekeepers of the nation's electric grid, are one problem in the wholesale market that can provide a barrier to competition, Migden-Ostrander said.

Migden-Ostrander said the rate stabilization plans violate the deregulation law, which requires the utilities to offer market-based prices and competitive bidding at the end of the development period.

But Craig Baker, AEP senior regulatory vice president, said its rate stabilization plan will actually save customers money, compared with what they would have spent if the utilities went directly to charging market prices. He estimated the savings at up to $3.8 billion over three years.

Schriber said the increases likely won't be noticeable to customers.

"I'll be surprised if people can detect it in their bills," he said.