Dayton Power & Light received the AEP treatment from the Public Utilities Commission of Ohio last week. The power company gained a guaranteed cushion of cash, just as American Electric Power did a year ago, justified by the commission as necessary to move the utility “to market-based rates in the quickest period possible.”
Actually, there is a quicker way. The commission could enforce state law.
Ohio set in motion the shift to a deregulated market for electricity a dozen years ago. FirstEnergy, the Akron-based utility, moved almost from the outset to comply. State lawmakers then updated and revised the law a few years ago, the letter and spirit putting electricity consumers first. In that way, a utility may opt for sticking with a more or less regulated regimen for pricing, yet that proposal must be tested against the market. If a competitive auction delivers a lower price than the regulated plan, consumers prevail, their bills driven by the least costly alternative.
In the cases of AEP and Dayton Power & Light, the commission ducked the auction test, conjuring an alternative measure to deliver what the utilities wanted. Thus, Dayton customers will join their AEP counterparts in failing to benefit sufficiently from the lower prices the auction method currently would bring. Instead, they will pay a “service stability rider,” generating $330 million during the next three years, plus an additional $45 million if the rider is extended five months.
Both companies have argued that the revenue is necessary to maintain an adequate financial position as they move toward a market approach. The commission has portrayed itself as managing a smooth transition for the two utilities, with Duke Energy in a similar position and all but certain to follow the same path soon.
Yet from another perspective, the added revenue amounts to a subsidy, ratepayers coming to the rescue, the commission rewarding companies for moving slowly to meet what the law long has required. Dayton and AEP may contend that they performed a favor by resisting deregulation. What they overlook is that customers are supposed to be the winners, served by the least costly path. In other words, ratepayers shouldn’t be placed in the position of putting up an added $375 million.