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Public Utility Rates: Who's in Charge?

Q: Who controls the rates I pay for public utility services such as telephone, gas, electricity, water and sewer? 
A: The Public Utilities Commission of Ohio (PUCO) sets the rates for investor-owned utilities (IOUs), which provide most of the utility services in Ohio. These include companies like AT&T Ohio, Cincinnati Bell, Verizon North, Embarq, First Energy, AEP, Duke Energy Ohio, Dayton Power & Light, Columbia Gas, Dominion East Ohio, Vectren Energy Delivery of Ohio, and many other private companies. Some cities and villages provide utility services—usually water and sewer; their rates are set by the city or village council. The remaining utility services are provided by non-profit associations like the rural electric cooperatives (co-ops), or, in a few instances, by gas cooperatives where the customers own or are members of the cooperative. Their rates are set by their customers. 

While most basic telephone services from traditional telephone companies are set on the basis of cost of service, many non-basic telephone services are based upon market conditions. Cable television providers are not regulated by the PUCO, but are or will be issued video service authorizations by the director of the Department of Commerce. Some natural gas utilities have conducted auctions to secure and price natural gas for their customers. Some of these auctions have resulted in Standard Choice Offers where specific competitive retail natural gas suppliers are supplying gas to specific individual customers and the natural gas utility is only charging for the use of their distribution system to bring the gas to customers.

Some electric utilities are also in the process of conducting auctions to secure and price electricity for their customers.

Q: Can a customer “shop around” and buy a portion of his or her energy service from a non-utility?
A:
Yes, unless a customer is served by a municipal electric or gas system, receives service from a cooperative, does not “opt out” or decline to participate in a local governmental aggregation program, or lives in an area that is not served by one of the four largest gas companies. Currently, a gas customer who receives service from the four largest gas utilities (Columbia Gas, Dominion East Ohio Gas, Duke Energy Ohio, or Vectren Energy Delivery of Ohio), may qualify to choose his/her own third-party gas supplier. The gas supplier, or marketer, would charge the customer only for the gas itself. That supplier’s rates are not regulated by the PUCO. However, comparison of such gas rates contained in an “Apples-to-Apples” chart is available by logging onto the PUCO’s website (www.puc.state.oh.us) and clicking on the link for the topic, “Consumer Education.”

These programs that allow a customer to choose his/her own gas supplier are known as “Customer Choice” programs. Customers who participate in Customer Choice programs must continue to receive the actual physical delivery of natural gas from the public utility (such as Columbia Gas, Dominion East Ohio, or Duke Energy Ohio). Customers pay the utility “base rates” to cover the cost to transport the gas to the customer’s premises.  Not all gas companies offer Customer Choice programs and not all Customer Choice programs are available to every customer.

Some electric customers are able to choose their own generation supplier of electricity whose rates will not be regulated by the PUCO. However, electric customers who switch must continue to pay electric utilities’ rates for the transmission and distribution of electricity as well as, in some cases, “transition charges” for the next few years. Transmission, distribution, and transition charges will continue to be regulated by the PUCO; generation charges will not. Customers who do not “shop” or who “shop and return” to the electric distribution utility may purchase generation services at a Standard Service Offer based upon market prices. A customer who shops and returns may also be subject to a “minimum stay” provision that will require the customer to remain with the electric distribution utility for a period of time before shopping again.

In addition, a customer may be able to be part of a “governmental aggregation group” where the customer’s local government, such as a city, village, county or township, may purchase utility services on behalf of its citizens who do not choose to opt out or decline participation in such a program. If a customer does not opt out or decline to participate in the governmental aggregation group, the local governmental unit will do the shopping for such citizens who remain the governmental aggregation group.

Q: What is the PUCO?
A:
The PUCO is a state agency located in Columbus that has responsibility for regulating the rates and services of Ohio's regulated utilities. It consists of five commissioners, each of whom is appointed by the governor for a five-year term from a list of candidates provided by a special nominating council. Each commissioner is required to have experience in the fields of economics, law, finance, accounting, engineering, or sciences. PUCO commissioners are assisted by a staff consisting of accountants, economists, engineers, rate analysts, attorneys, and other support staff members. The staff not only advises the commissioners, but also has a very important role in the rate-setting process.

Q: Why do we need a PUCO?
A:
Some utility services are still monopolies with no competitive market for setting prices or quality standards. To prevent these monopolies from over-charging customers, the Ohio legislature created the PUCO in 1913. The PUCO was empowered to regulate the rates and services of utilities by balancing the interests of utility customers with those of utility investors. Now, as some utility services are becoming competitive, the legislature is beginning to de-regulate them. For a utility company that is competing with others in the marketplace (much like any other company), the market would replace the need for regulation by the PUCO.

Q: How does the PUCO set my utility rates?
A:
Rate cases at the PUCO usually are initiated by the public utility, although they may be initiated by customers or the PUCO itself. Generally, the utility begins the process by notifying the PUCO and the mayors of the affected areas of an intended rate increase. After the utility files a standardized application with numerous exhibits explaining why the increase should be approved, PUCO staff members analyze the information contained in the application and make field visits to review the utility's property, invoices, and accounting books.

Approximately five to seven months later, the PUCO staff files a document detailing its findings, conclusions, and recommendations. This is called a staff report. Other parties such as the Office of the Ohio Consumers’ Counsel (a state agency representing residential consumers), commercial customers, industrial customers, cities, as well as the applicant utility itself, may file objections to the staff report. Hearings are then scheduled so that witnesses supporting the positions of the parties for and against the rate increase may be cross-examined. At the end of the hearings, written arguments (briefs) are submitted. After reviewing the application, staff report, and the record of the hearing and briefs, the PUCO renders its decision to grant, modify, or deny the rate increase. The entire rate case process usually takes between ten and twelve months. Any party dissatisfied with the PUCO’s decision may appeal to the Supreme Court of Ohio. The appeal process may take more than a year.

11/20/2013

Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was prepared by Stephen M. Howard, an attorney with the Columbus office of Vorys, Sater, Seymour and Pease, LLP. 

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Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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