buckeye rec: newsroom: rate hikes

Investor-owned power companies to hike rates as electric industry shifts gears

Recent news reports revealed that several investor-owned power companies have received Public Utilities Commission of Ohio (PUCO) approval for rate increases over the next three years.

American Electric Power owns the companies that petitioned for generation rate hikes. Since the State of Ohio enacted electric industry restructuring laws in the late 1990s, the power companies have been under a rate moratorium. Whether this was wise or not is open to debate.

Costs for plant and system maintenance continued to rise over the period of the moratorium. Luckily, interest rates stayed low and this helped offset the revenue pinch caused by on-going expenses. However, it was a foregone conclusion that the power companies would need and seek rate relief, especially with very expensive investments looming for equipment to reduce power plant emissions in order to meet federal clean air standards and the cost of repair and power restoration after the pre-Christmas ice storm.

The bottom line is that AEP had to adjust its rates, which in Southeastern Ohio are some of the lowest in the region.

No one likes to pay more for anything. The Ohio Consumers’ Counsel (OCC) weighed in on the rate proposal, arguing before PUCO that residential consumers would be harmed by the series of automatic rate increases.

“This PUCO decision means that consumers will pay higher rates and be denied the full benefits of Ohio’s electric choice law,” said the OCC’s Janine Migden-Ostrander.

“In spite of the law’s requirement that a competitive bid be conducted in each electric company’s area, the approval of the plan means that no bid will occur. Without a bid, there will not be a way to measure whether AEP’s rate increase plan is the least-cost option for consumers.”

PUCO will allow rate increases of 21 percent on Ohio Power customers and nine percent on Columbus Southern Power customers over three years, beginning in 2006. OCC claims that additional increases could be approved by PUCO based on AEP’s costs for potentially big-ticket items like environmental and security expenses.

Ohio’s electric cooperatives chose not to participate in state electric industry restructuring. Opting out meant, of course, that co-op members could not be part of “retail wheeling” programs, whereby blocks of kilowatt hours would be purchased like long-distance service in the telecommunications industry.

In reality, little retail wheeling has occurred anywhere in Ohio or the United States. Development of a retail power market where choice would be available bogged down with the complexities of how to address stranded investment, how “wheeling” fees should be assessed by native utilities, reliability problems with inter-connects and the transmission grid (flash back to the Great Power Outage of 2003), the California Energy Crisis and Enron scandal, the cost of permitting and building new generation plants, and expensive environmental upgrades.

The pendulum of restructuring is swinging back along its former path. In post-Sept. 11, 2001, perspective, the nation’s electric energy generating, transmission, and distribution systems have been classified as homeland security assets. Without a reliable source of power, this nation becomes vulnerable.

More than ever, we – collectively rural electric co-ops, municipals, and power companies – have a responsibility to operate and maintain our systems at the highest level possible. This means capital spending, and such investment can only be recovered through rates.

Buckeye REC is fortunate that our last distribution rate adjustment occurred in 2003. We will, however, experience fluctuations on the wholesale generation and transmission sides. These costs, due to the need for additional capacity and the installation of air pollution controls, are beyond our power to control at the local level.

For rural electrics, capital spending is an investment in improved reliability to make our systems safer and more dependable. This is the No. 1 priority now driving the electric industry.