It’s OK if you don’t understand — or care about — “stranded costs” and “retail marketing areas.” These terms may lace the vocabulary of those embroiled in Ohio’s electric restructuring debate, but the reality is deregulation hinges on something far more familiar: cold, hard cash.
“It is a fight between the utilities and customers over money. That’s what this is all about,” says Luther Heckman, former chairman of the Public Utilities Commission of Ohio. “Utilities that currently get money from customers don’t want to lose it and customers who have to pay utility bills would like to pay less.”
Here’s a look at two of the main money struggles:
1. Taxes As a regulated utility, the electric company passes all its taxes on to its customers. While passing along costs to customers is not so unusual in the business world, the fact that utilities are assessed at higher tax rates than other companies is a bit odd. For example, most businesses are taxed on personal property based on 25 percent of the value of the property. In utilities, however, property used to generate power is assessed at 100 percent of its value and property used to transmit and distribute power is assessed at 88 percent.
How those tax rates were set is not at issue in the deregulation debate; what to do about it is the question. Reducing the rate may seem like the obvious answer, but to do so could cripple dozens of school districts and local governments that rely on these tax dollars. According to Jim Henry of the Ohio Council of Retail Merchants, taxing utilities on 25 percent of their personal property value would take $189 million away from local coffers annually.
“There are 30 school districts in the state with major generating plants [in the area]. In some cases, almost half of their revenue comes from the electric utility tax,” he says.
Alternative solutions are likely to include some sort of replacement tax, but who should pay it remains a political hot potato.
2. Rates Politicians are also scratching their heads over the prices customers are being charged for electric service.
“Regulated rates are higher than market rates,” Heckman says. “Regulation is supposed to mirror the market.”
That isn’t happening. How to fix it is sticky. So much so that no fewer than six legislative proposals offering various cures have been introduced in the Ohio General Assembly during the past two years.
“If regulation accurately reflected the prices in the market, we wouldn’t be having this argument over money,” Heckman says. “Regulation has failed.”
Sen. Bruce Johnson, who co-authored one of the leading electric restructuring proposals in conjunction with Rep. Priscilla Mead, says the debate is coming to a head.
“I think we’re going to definitely pass restructuring this year,” he says. “Last year we focused on educating the General Assembly on what electric restructuring was … Now legislators have to come to the decision to cut the baby and move on.”
For more details — or to offer your input — on the electric deregulation proposals pending at the statehouse, contact Johnson’s office at (614) 466-8064.
