Ohio’s Journey to Electricity Competition

Competitive electricity markets offer potential benefits to customers. In effective competitive markets, power suppliers compete against each other to provide electric services at the lowest price – giving customers choices, helping to keep electricity affordable, helping to ensure adequate supplies of reliable power and driving innovation that results in new products and services. A healthy electricity market is essential to sustaining manufacturing competitiveness, attracting business investment and spurring economic growth and job creation.

Ohio’s Landmark Electric Restructuring Legislation

During the last few decades, the electric power industry has transitioned from highly regulated, local monopolies that provide customers with a complete package of electric services to a mix of competitive companies providing the generation component of electric service (the power itself), with local utilities continuing to deliver the power to homes and businesses (the distribution).

Ohio adopted its version of “competitive electric restructuring” with the passage of Senate Bill 3 in 1999. This legislation initially froze electricity rates through 2005 and, for the first time, allowed retail customers of Ohio’s investor-owned electric utilities to shop for alternative suppliers of the generation portion of their electricity service.

Retail competition was slow to emerge in Ohio. Instead of allowing the competitive retail market to develop through the initial five-year “market development period” as had been contemplated by the Ohio General Assembly, the Public Utilities Commission of Ohio (PUCO) and Ohio’s electric utilities developed “rate stabilization plans” (RSPs) that extended then-current rates for another two to three years (with adjustments for fuel and other non-bypassable generation-related costs). The RSPs essentially brought Ohio’s slowly developing competitive retail market to a halt except for very limited competitive opportunities.

Ohio’s “Hybrid Approach” to Setting Electric Rates

As the utilities’ rate stabilization plans neared expiration, concerns about protecting consumers in a competitive market lingered and a nearly year-long debate ensued about the appropriate model to meet the needs of Ohio consumers after 2008.

In August 2007, then-Governor Ted Strickland announced his Energy, Jobs and Progress Plan, which advanced four major energy policy goals: (1) keep electricity rates stable and predictable; (2) support development of advanced and renewable energy technologies, (3) increase electricity conservation efforts and (4) modernize Ohio’s electric infrastructure.

Parts of the Governor’s proposal were incorporated into Senate Bill 221, which was enacted May 1, 2008. Instead of relying on the competitive market to establish retail generation rates, SB 221 introduced a so-called “hybrid approach” that gave the PUCO broad authority to (a) negotiate “electric security plans” (ESPs) with utilities, in which the price of electricity generation would be based on a cost-of-service proposal from the utility, or (b) allow the utilities to implement a market-rate offer (MRO), in which retail rates would be set in part through a competitive bidding process. To approve a utility’s ESP, the PUCO must find the ESP proposal to be more favorable “in the aggregate” than the pricing, terms and conditions under an MRO. During 2008 and early 2009, the utilities had ESPs approved by the PUCO. The hybrid approach also led to the use of a competitive bidding process to set retail rates within an ESP.

SB 221 also created alternative energy portfolio standards (for advanced and renewable energy sources) and energy efficiency requirements.

Current Status of Electricity Competition in Ohio

Today in Ohio, with limited exceptions, both residential and business customers can shop the marketplace and choose a competitive retail electricity supplier to provide the generation component of their electric service. The local electric utility still delivers power to all customers, even those who have switched to an alternative generation supplier. In addition, the local utility remains obligated to provide a Standard Service Offer (SSO) for customers who choose not to switch suppliers.

Robust retail competition exists across much of Ohio – and is growing. Nearly 1.8 million customers in Ohio already have switched from their local electric utility company to another supplier and collectively are saving millions of dollars on their electric bills. Competitive retail suppliers are providing about half of all the electricity used in Ohio. As of December 31, 2011, about 78 percent of the electricity purchased in FirstEnergy’s service territory at the retail level was being provided by competitive suppliers; in Duke Energy Ohio’s service territory, competitive suppliers were providing almost 68 percent of power purchased by retail customers.

Recent developments in several utility rate cases are moving Ohio even further along the path to a competitive retail market for electricity. Under PUCO-approved electric security plans, SSO generation rates for FirstEnergy and Duke Energy Ohio are being bid competitively. Rate plans for AEP Ohio and Dayton Power & Light have been submitted to the PUCO and are under review.

Ohio’s journey to a competitive electricity marketplace has been halting at times, but electricity customers in Ohio already are benefitting from competition, and recent PUCO decisions are accelerating the state’s transition to a competitive electricity model.

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