Public Utility Rates: Who’s in Charge?
The days may be getting longer but the weather is getting colder and as a result, utility costs can soar this time of year.For the prudent consumer, it is vital to know how, why and by whom utilities are regulated.Retired attorney Stephen M. Howard, formerly with Vorys, Sater, Seymour and Pease LLP, provides an overview of utilities and rates in Ohio and explains why a lawyer can come in handy when those services are in dispute.
Who controls utility rates?
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 FirstEnergy, AEP Ohio, Duke Energy Ohio, Dayton Power & Light, Columbia Gas, Dominion East Ohio, Vectren Energy Delivery of Ohio, AT&T Ohio, Cincinnati Bell, Frontier and CenturyLink and many other private companies. Some cities and villages provide utility services (usually water and sewer) and their rates are set by the city or village council. The remaining utility services are provided by nonprofit 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 a member-elected governing board. (The Ohio State Bar Association has more information on rural electric co-opshere.)
While most basic telephone services from traditional telephone companies were set on the basis of cost of service, many nonbasic 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. The Ohio electric utilities and some natural gas utilities have conducted auctions to secure and price electricity and natural gas for their customers. Some of these auctions have resulted in standard choice offers (SCOs) where specific competitive retail energy suppliers are supplying electricity and/or gas to specific individual customers and the utility is only charging for the use of its distribution system to bring the electricity or gas to customers.
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.
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 deregulate 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.
How PUCO sets rates
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 10 and 12 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.
A consumer can shop around and buy a portion of his or her energy service from a non-utility unlessthe 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 customer of an Ohio electricity utility or a gas customer who receives service from one of 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 electric or gas supplier. The electric or gas supplier, or marketer, would charge the customer only for the electricity or gas itself. That supplier’s rates are not regulated by the PUCO. However, a comparison of such electric and gas rates contained in an “apples-to-apples” chart is available on the PUCO’s website.
Programs that allow a customer to choose his/her own gas supplier are known as “Customer Choice” or “Energy Choice” programs. Customers who participate in Customer Choice or Energy Choice programs must continue to receive the actual physical delivery of electricity or natural gas from the public utility. Customers pay the utility base rates to cover the cost to transport the electricity or 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.
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 in the governmental aggregation group.
The PUCO (1-800-686-7826) and the Office of the Ohio Consumers’ Counsel (1-877-742-5622) both offer services to try to resolve disputes between public utilities or competitive retail energy suppliers and their customers, especially residential customers, without involving attorneys. However, when those attempts are not successful or when the dispute involves a nonresidential account or issue, an experienced attorney can often be a valuable resource in navigating the customer through the PUCO rules and the commission-approved tariff of a public utility that governs the relationship between a public utility and its customers.
This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association. Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.