Restructuring Today
April 26, 2006

Politics is everywhere, say state regulators

State regulators at NEMA's conference yesterday underscored how politics influence their decisions.

          Only the legislature, not the governor, can fire James Cawley, vice chairman of the Pennsylvania PUC, he explained.

          But that doesn't mean Gov Edward Rendell, D, doesn't let commission members know what he wants.

          The PUC, Cawley noted, operates in a political environment that doesn't always allow members to do what they want to do even if all five members could agree.

          A classic case is Pike County Light & Power -- the tiny utility whose rates jumped to 14.4¢/kwh from 6.4¢ when caps ended in January.

          The PUC faced the choice of approving the IOU's auction for power or relying on the spot market to keep lights on for customers, Cawley explained.

          He wishes he hadn't OKd the results.

          "All hell broke loose" as some customers had to choose between refilling prescriptions or paying their power bill, Cawley noted.

          Five hundred members of the public showed up at a public meeting with police, thankfully, there to keep order.

          Citizens were very polite, he added.

          The way out of the dilemma is an auction today to find a supplier for the IOU's pooled customers.

          The PUC promised to award the deal to the winner Friday.

          "Hope we get some bids," Cawley said.

          The pool raises thorny issues such as government slamming.

          Cawley doesn't consider it slamming.

          It's getting a better deal via Pike's winning POLR supplier.

          Without the pool idea -- Direct Energy's by the way -- the political lid might have blown off in Pennsylvania, Cawley predicted.

          The threat of a political reaction to rate hikes should serve as a "salutary check and balance" for those who bid on POLR supply.

          Bids that are high create opportunities for marketers but bids that are too high invite political reaction.

          Pennsylvania commissioners are hamstrung too by a court decision that bars them from going after anti-competitive behavior even though he suspects some may be going on.

          "Politics weigh in quite heavily," Ohio PUC Chairman Alan Schriber acknowledged.

          The fear of price spikes when the rate freeze ended last year arose several years ago, Schriber noted, even before last year's frightful natural gas run up.

          Lawmakers who passed Ohio's restructuring law were gone by then because of term limits.

          Their replacements didn't want to hear from constituents hit with rate shock.

          "The General Assembly didn't want to go near this stuff," Schriber noted.  "They wanted nothing to do with it."

          They left it to the PUC, he noted.

          The PUC on its own came up with a way of postponing market rates called rate stabilization plans (RSPs).

          Utilities agreed to them, Schriber believes, because Wall St takes a dim view of risk and considers market rates risky.

          RSPs were designed to avoid rate shocks, protect utility finances and promote competition.

          A NEMA member asked how the RSPs promoted competition.

          Schriber blames the seams elimination (SECA) charge for chasing one marketer away -- Green Mountain Energy, supplier to hundreds of thousands of FirstEnergy customers through a government pool.

          "We didn't do anything," to chase them away, he claimed.

          But the NEMA member blamed the RSPs for his own company's souring on Ohio markets.

          The PUC isn't supporting competitive markets, the member accused. 

          It's a "no-brainer" that utilities would go along with an extended rate deal that freezes out competitors, the marketer noted.

          Schriber thinks other states will follow Ohio's lead in postponing residential power customers' exposure to market pricing.

          Ohio's gas market has been robust, Schriber said.

          Shopping has been successful because Ohio gas prices have been high -- giving marketers headroom.

          One LDC -- Dominion East Ohio -- in fact has petitioned to leave the merchant function, Schriber pointed out.

          The proposal has a political downside, the chairman noted.

          When LDCs buy for customers, the PUC has a tool for adjusting gas rates through gas cost recovery cases, said Schriber.

          The PUC loses that tool if the LDC isn't in the merchant business, he noted.

          Illinois Commissioner Kevin Wright and fellow members took nine months of heat over how power was to be bought after rate caps expire in January.

          Members were pressured by Gov Rod Blagojevich, D, to vote against an auction for Commonwealth Edison and Ameren's power supply.

          OKing auctions would be deemed incompetence -- a code word, Wright said, that can end the careers of political appointees.

          Instead, Wright noted, the threat "galvanized" the commission to "stay the course" and move toward "measured competition."

          Illinois lawmakers, meanwhile, passed bills that create a retail market advocate, market monitor and real-time rate options for consumers.

          The Legislature, Wright noted, wants to see competition succeed.

          Only Stan Wise, Georgia commission chair, is immune from pressure from elected officials.

          He was elected to the PSC in a statewide race.

          "We have spots available on the PSC every year," he noted, but he hasn't seen any state lawmaker -- past or present -- run for a seat.

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