Electric Industry Restructuring in Ohio: Residential and Low Income Customer Impacts

Throughout the country the long standing administratively based regulatory structure for determining the cost and service parameters for electric utilities is changing. More and more market elements are coming into the structure. There is a push by many players to eliminate much of the current regulation. For the production side of electricity at least, these players argue that a market approach will do a better n job of pricing power and making it available to customers. However, the electricity industry currently has a large base of investment in power production equipment, some of which may have difficulty competing in a market-based system. What to do about this potentially uneconomic existing investment is an important question receiving a great deal of attention at the policy discussion level. Some argue that if the investment in existing facilities is uneconomic in a new market based system, that is too bad for the owners of the above-market cost facilities, and customers should bear no responsibility to help make those owners whole. Others argue that the owners of above-market cost facilities invested in those facilities in good faith and should not be made to bear the cost of a changing underlying industry structure. The arguments on both sides are long and involved, and this paper is not the place to explore them. However, it is clear that the result of the debate is uncertain, and both approaches must be explored. The purpose of this report is to analyze the current electric utility cost structure in Ohio, estimate the expected changes in that structure and cost levels under various restructuring proposals, and determine the likely impact on low income and other residential customers. The report analyzes the likely cost impacts of a variety of approaches to the above-market cost facility problem. The range of potential outcomes is very wide.