Leadership Views...Trent Smith

Toledo Business Journal, Jul 01, 2007

Toledo Business Journal recently interviewed Trent Smith, Toledo Edison regional president, about deregulation of the electric utility industry in Ohio. Here are his thoughts.

Toledo Business Journal: From a customer's perspective,can you explain what deregulation of Ohio's electric utilities really means?

Trent Smith: Under full deregulation of the electricity generation market in 2009, Toledo Edison and other electric companies will become electricity delivery companies. We will still maintain and operate the wires, the poles, and the transformers that deliver the electricity to our customers, and the price for delivery will still be regulated. But the sale of the electricity itself will be offered through the open market by competing providers, and the price will be completely market driven --o just as natural gas is today.

There are significant differences between a regulated electric utility industry and uderegulated one. Under the regulated model, the utilities document and disclose all their costs -- generation, transmission and distribution - to the regulators: work with them to resolve such issues as recovery of costs, return on investment, and reliability standards: and derive electric rates from that process.

By contrast, deregulation goes from that model to an open market for generation, a fully competitive scenario where the price of electricity is based on such market influences as supply and demand. The electric utility functions of generation, transmission, and distribution are separated into distinct entities, with transmission and distribution (the fatter being the service offered by Toledo Edison) remaining regulated and only generation pricing becoming deregulated.

In Ohio. deregulation has been under development 2001 and was originally scheduled to be completed in 2006. That [date] has been postponed to January 2009 when the electricity -- the generation portion of the customer's bill -- will be market-based. The industry and regulator have used the time from 2001 to January 2009 as a transition period to allow the generation market to develop, putting mechanisms in place to protect the customers from sudden rate hikes or rate fluctuation impacts.

TBJ: With deregulation a year and a half away and given what some states have experienced in terms of electric rates following deregulation, how will deregulation impact customers in Ohio and in our part of the state?

TS: The good news for Toledo Edison customers is that the Toledo Edison portion of the bill - for delivery of electricity will be reduced beginning in 2009. FirstEnergy and Toledo Edison notified the commission last month that we are preparing a rate case that would go into effect in 2009 and would basically set the delivery prices beginning then.

Also. on January 1, 2009, customers will choose who they purchase their electricity from. The biggest potential change in cost will be with open-market generation -- nobody can really predict what amight happen with those prices.

TBJ: What have you seen in other states in terms of this deregulation scenario and what happened after the scenario, price-wise?

TS: It's pretty well documented that in many stales that have gone through this [process], customers have seen price increases -- some very signifies. What is different in Ohio is we have incopoiated a trams period to allow all stakeholders, including customers, to understand deregulation and have an opportunity to prepare for it. In some of the other states, the transition from below-market pricing to market based pricing happened quickly, and that drove significant price increases.

TBJ: How can customers -- residential, commercial, and industrial - prepare for buying electricity in the new marketplace?

TS: In general, all customers should try to become more knowledgeable about how they use energy. For large industrial and commercial customers, it would be very important to understand what time of the day they use their energy, [understand] when they hit their peak demand, and to develop an historical database over a period of time showing energy use patterns. We have customer support representatives that work with larger customers to help them understand and manage their energy usage.

For residential customers, this kind of preparation may be on a smaller scale, but the principle is the same. FirstEnergy's website offers customers a number of tools to help them work through this process, including an "energy calculator" that enables them to learn how much electricity certain appliances use and how to better manage energy use.

TBJ: Some cities are looking at creating their opwn municipal electric utility as a way of avoiding the potential negative impact of deregulation. Can you share your insight on this situation?

TS: Cities wanting to start their own municipal electric system in a deregulated, competitive environment are faced with several difficult and complicated questions. For example, in what areas will they be able to compete to achieve savings for their customers: the generation side or the distribution side?