The Public Utilities Commission of Ohio will attempt this week, or by the end of the month, to correct a colossal error on its part. In December, it approved a new rate plan for American Electric Power. The new prices for electricity took effect last month, and immediately a range of customers, mostly small businesses, churches and school districts, reacted in fury and disbelief.
They opened their monthly bills to discover increases in the range of 18 percent, 25 percent, 35 percent, even topping 40 percent, adding thousands of dollars in expense to their operations. Todd Snitchler, the new PUCO chairman, has pledged to reduce the rate increases. Already the commission has suffered a deep blow to its credibility and its reputation for competence.
What happened? How in this economy, when Gov. John Kasich and his allies sneer at the thought of applying the slightest tax increase out of fear of harming the business climate, did the commission approve such massive rate increases? Snitchler has retreated into utilityspeak to explain the commission’s thinking. He points to the necessity of recovering long deferred costs and taking painful steps to conduct a transition to the market.
At one point, the chairman blamed AEP for providing the commission with flawed information, arguing that now, “with a full understanding of the impacts,” the commission would chart a better course. Let’s address this claim first. Dan Gearino of the Columbus Dispatch reported in December about a PUCO staff member who was critical of the rate structure predicting in email messages the events that eventually unfolded, business owners shocked at their bills, the outrage snowballing, the commission facing increased scrutiny.
The reporting of the Dispatch, and the record of the rate case, reveal decision-making hardly driven by the matter of deferred costs. AEP got its way. Small businesses did not have a place at the table during private negotiations. They were gored, as rates were reduced for many large manufacturers, interested, influential and in the room.
A deal was struck, and it wasn’t about a transition to the market. The rate package prevents many AEP customers from shopping for a lower price. They are held hostage to higher prices.
This points to the larger problem with the commission’s handling of the rate case. The panel failed to comply with the intent of the electricity restructuring law enacted four years ago.
The law set up a hybrid, or two tracks for utilities to follow. They could opt for an electric security plan, along the lines of traditional regulation. Or they could choose a path in which prices would be determined by the market. The bottom line is, customers would benefit because the option that yielded the lower price would take effect.
AEP chose an electric security plan, and commissioners may be convinced that the utility’s proposal was tested against a market price. Actually, the market price it applied amounted to a guess. The commission has yet to test the power company’s proposal in a real auction.
Which invites questions about where the commission stands. With customers?
Consider that as the commission weighed the AEP case, it knew well that Duke Energy had submitted to a competitive bidding process, the auction resulting in customer bills declining by 17 percent. For a longer period, FirstEnergy of Akron has set pricing through such auctions, and its prices have dropped. More, AEP has participated in FirstEnergy auctions — with winning bids, at much lower prices than AEP is charging customers.
The AEP rate case desperately could use a credible auction, or what the law intends. How rich that the governor and state lawmakers saw fit to slash the budget of the Office of the Consumers’ Counsel, arguing that it duplicated the work of the commission. Stunned AEP customers may disagree.
What should have been a transparent process ended up behind closed doors. With electricity prices dropping elsewhere in Ohio, the commission has yet to explain why it saw fit to pretend otherwise for American Electric Power.