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Complex choices Featured

9:36am EDT July 22, 2002

In late July, the PUCO approved plans by FirstEnergy to move to a deregulated marketplace by Jan. 1, 2001.

Our experience in more than three-and-a-half years of studying energy deregulation tells us that while the situation will improve over time, there will be significant complexity in the short term for small business.

Many business owners are looking forward to energy deregulation as a means of gaining better rates through a more competitive marketplace. And it's about time small- and mid-sized companies got some help. While residents get rate protection and representation by the Ohio Consumer Counsel (OCC) and the largest corporations have their impressive buying power to leverage discounts, it's the smaller businesses that have taken the brunt of changes in energy and related costs for years.

But you'll learn in the coming months that while deregulation has the potential to bring relief, the savings won't add up dramatically -- at least not immediately. However, joining with other businesses or residential customers through aggregators that give energy buyers the ability to pool together for increased buying power can maximize these initial savings.

To understand the complex deregulatory picture, keep in mind that in Northeast Ohio, the process won't be finalized until some time in 2008. The more immediate alterations, which will occur on Jan. 1, 2001, are part of a transitional phase on the way to more comprehensive changes.

FirstEnergy will start the process of retooling to the demands of a competitive market and begin making capacity available for competitive electricity shopping for 20 percent of the region's electric needs. If you participate, you'll see your charges for electricity broken out in new ways. Whether or not your company takes part, you'll also assume a new charge for paying down the large investments that FirstEnergy made in past years to serve the region but won't be able to recover due to deregulation (stranded costs).

Only about 77 percent of your electric bill -- the tab for generating power -- is up for discussion. The rest of the itemized charges are for such nonnegotiable items as transmission and distribution of the electricity through the poles and wires still owned by First Energy. We estimate that a reduction of 5 percent to 10 percent is a realistic expectation during this transitional phase, and even that's only likely to occur if you buy through an aggregator like COSE.

That doesn't mean you won't be promised a better deal by unfamiliar energy companies. Watch out for rates that sound too good to be true. As with some long-distance telephone carriers, energy marketers might get a foot in the door with a lowball rate that escalates rapidly as the provider discovers the difficulty of maintaining profitability even through volume.

Our understanding of the experience in other states that have gone through these changes is that buyers, especially small businesses, must ask lots of questions of these new and evolving providers.

Energy deregulation can be as frustrating as the similar occurrence years ago in long-distance communications, but a thorough understanding of the situation could be critical to your company's bottom line. Businesses in Northeast Ohio -- which currently pay about double the energy costs of companies in other parts of the state -- could begin to save in the neighborhood of 25 percent of their current energy bill by the time true deregulation kicks in.

That's a nice neighborhood for any business. Stephen A. Millard is executive director of COSE, the nation's largest chamber of commerce and the region's largest small business organization. COSE, which provides such small business advantages as health insurance, workers' compensation coverage, education, networking opportunities and government advocacy, will serve as an educator and aggregator of energy buyers for increased savings. Millard can be reached at (216) 592-2436 or online at www.cose.org.


A deregulation primer

We've all got plenty to learn about the complex issue of energy deregulation as it relates to residents and business owners. Here's a good start:

When do I get to choose my electricity supplier?

Beginning Jan. 1, 2001, Ohio consumers and business owners can select the company that generates their electricity.

What are stranded costs?

The terms refers to the financial investments, such as additional generating plants, made by the utility company. These costs are considered to be unrecoverable from ratepayers in a competitive marketplace. In a regulated environment, the utility company would have been able to pay for these investments by including costs in their regulated rates.

Who should I call if I have a power outage?

If you experience a power outage or have concerns about safety and service reliability, you will continue to call your current electric company. It owns and maintains the wires that deliver electricity to your home or business.

What is an aggregator?

It is an entity that puts customers together in buying groups for the purchase of commodity services at favorable rates. The vertically integrated investor-owned utility, municipal utilities and rural electric cooperatives perform this function in today's power markets. Other entities such as buyer cooperatives or brokers could perform this function in a restructured power market.