Office of the Ohio Consumers' Counsel

Electric Industry

Federal Electric Issues

In order to bring benefits to consumers through the retail electric market, it is essential that the wholesale market be open and transparent so that wholesale power can flow reliably through the transmission lines without impediments.

Problems in the wholesale electric markets impact Ohioans and must be resolved at the federal level. These problems center around the operation of the transmission system which is regulated by the Federal Energy Regulatory Commission (FERC). Accordingly, the Office of the Ohio Consumers’ Counsel (OCC) has increased its advocacy at the federal and regional level on a variety of issues, including energy efficiency and demand response, electric reliability and the removal of obstacles to wholesale competition. Robust wholesale competition should result in lower energy prices paid by utility companies. Those lower prices should be passed on to consumers at the retail level.

The OCC has participated in cases before FERC and contributed to policy discussions at the national and regional level to ensure that the needs of our state’s residential consumers are addressed.

In 2006, many federal activities and decisions had the potential to impact the future rates and service for Ohio electric customers. In some discussions, the OCC joined consumer advocate offices from other states to form coalitions and express joint concerns and recommendations.

Regional Transmission Organizations

The Office of the Ohio Consumers’ Counsel (OCC) participated in numerous working groups and task forces of the two Regional Transmission Organizations (RTOs) to which Ohio’s electric utilities belong. RTOs are independent operators and gatekeepers of the transmission network that moves electricity into and around the region. While transmission systems have existed for decades, the concept of broader regional transmission systems run by RTOs is relatively recent.

In Ohio, the Midwest Independent System Operator (MISO) and PJM Interconnection serve this role. The two RTOs each serve specific utilities in Ohio. Duke Energy and FirstEnergy are members of MISO while American Electric Power and Dayton Power & Light are members of PJM. The geographic split within the state between these two RTOs requires close coordination to effectively and efficiently run the transmission network within the state and the broader Midwest region. The OCC advocated for the acceleration and enhancement of the cooperative relationship between MISO and PJM, which aims to form a “joint and common market” that encompasses the entire footprint of both entities. This market should allow for better regional planning and provide any company needing to move electricity into or out of Ohio with a single, unified process.

Having two RTOs has created significant issues in terms of trying to seamlessly integrate the flow of power between them. From an OCC resource standpoint, having two RTOs creates a challenge due to the vigilance, time and cost involved in protecting consumers.

Transmission costs related to RTO operations are part of residential customers’ monthly bills and the OCC advocates that RTOs perform their tasks in a cost effective manner. In 2006, the OCC continually expressed concern about the administrative costs spent by RTOs and stressed the importance of practices that do not give the RTOs’ member utilities an unfair advantage over alternative producers of electricity. Alternative producers, including competitive suppliers, need reasonably priced and nondiscriminatory access to transmission lines in order to be able to offer real electric choices to communities (through buying pools or aggregation) and individual customers.

FERC activities

The Federal Energy Regulatory Commission (FERC) regulates the transmission of electricity and monitors the wholesale market. Transmission rates are set by FERC and passed on to customers in Ohio and other states. A multitude of FERC’s 2006 proceedings were based on requirements set forth by Congress in the Energy Policy Act of 2005. Several are briefly mentioned below.

As mandated by the Energy Policy Act of 2005, a status report on the state of wholesale electric competition was produced by FERC in 2006, similar to past reports produced by the Office of the Ohio Consumers’ Counsel (OCC) for Ohio. The report found that wholesale obstacles have hindered development of retail electric choices for Ohio consumers. FERC also investigated the issues surrounding the protection of the nation’s critical energy infrastructure, including transmission facilities and information technology systems, from threats such as terrorism. FERC will continue this study in 2007.

Reliability

The Energy Policy Act of 2005 also called for the development of an Electric Reliability Organization that would be able to implement mandatory reliability standards for the nation. This measure was based in part on the August 2003 blackout that affected customers throughout northern Ohio and several eastern states. Following a rulemaking process and an opportunity for public comment, the existing North American Electric Reliability Council (NERC) was chosen by federal regulators to assume the role of the Electric Reliability Organization. Prior to 2006, NERC had administered voluntary reliability standards for the electric industry. As part of the establishment of the Electric Reliability Organization, most of the NERC’s existing standards were approved by federal regulators and became mandatory for utilities transmitting power across state boundaries.

Financial incentives

The Energy Policy Act of 2005 provided financial incentives for utilities or other companies to construct electric transmission lines. By providing companies with an enhanced rate of return on the investment, favorable accounting treatment and other incentives, Congress hoped to provide the necessary financial incentives for more high-voltage lines to be built. Since new lines would provide electricity to local utilities that serve residents and businesses, the costs would ultimately be passed on to customers through higher transmission rates in those areas.

FERC initiated a rulemaking proceeding to determine what incentives would accomplish the goals of Congress. The OCC participated in this proceeding by filing comprehensive comments on its behalf as well as on behalf of the National Association of State Utility Consumer Advocates (NASUCA). Several consumer-oriented groups, including the OCC, argued for stricter standards than FERC had initially set for awarding costly incentives and on rehearing the regulators concurred, reversing the earlier order.

Identifying the potential location for new transmission lines was another key issue in 2006. Typically, large, expensive transmission projects require the approval of regulators in several states prior to construction. The siting process in an individual state may be long and contentious. On a multi-state transmission project, the potential for lengthy delays is often very high.

PJM capacity market

Federal policymakers were – and continue to be – concerned with ensuring new generation is built to meet present and future needs. To encourage the building of new generation, PJM proposed to institute a capacity market which was estimated to cost consumers an additional $5 to $12 billion per year region wide. A capacity market is where electricity generators and utilities bid to provide power into a region. The Ohio utilities in PJM chose not to participate in the capacity market at this time, but will be able to revisit that decision in 2011. The OCC and many other consumer advocates and state public utility commissions participated in extensive negotiations over six months in an attempt to lower the additional expenses to consumers. The result was a less costly, better structured capacity market than PJM had originally proposed. However, based on changes to the agreement by FERC, additional incentives were provided to generators. Many parties, including consumer advocates, have asked FERC to reconsider its changes.

Transmission Congestion

Congress, through the Energy Policy Act of 2005, tried to ensure that new interstate transmission lines could be built in certain areas to be designated by the U.S. Department of Energy as “national interest transmission corridors.” These corridors are designed to address electric system reliability by connecting areas with surplus generation to areas with significant congestion. Within the designated corridors, federal regulators at FERC would have the power to issue construction permits if a state siting process results in unnecessary delays.

The Department of Energy concluded in a study that Southern California and certain areas in the Mid-Atlantic states contained areas of “critical” congestion. In addition, other areas of the country were identified by the Department of Energy for consideration.

Demand response and net metering

In addition, FERC conducted a survey on the availability and use of demand response and net metering. Demand response refers to residential and other electric customers responding directly to electricity prices by increasing or decreasing electricity usage. An example would be consumers directly managing their electricity usage based on market prices at a given point in time. Net metering refers to a metering setup that allows those customers who generate their own electricity and also purchase power from the local utility to be billed for the “net” flow in a given month. In other words, the net result of how much energy is provided to or used from the utility is applied to a customer’s bill. The survey began a collaborative dialogue between federal and state regulators on these issues.

The OCC will continue to monitor and participate in federal issues that affect Ohio’s residential utility customers.

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