Retail choice started in Ohio in 2001, and the full transition to competition has continually been extended. In 2008, legislators again tacked on several more years in the transition to full competition.
Most Ohio utilities continue to own generation, but the FirstEnergy companies sold off their power plants. The utilities continue to own the transmission and distribution wires, while also providing "backstop" power to customers who do not shop for electricity.
With the move to competition, Ohio utilities have separated their service into two parts:
• Regulated distribution of power, which is still only provided by the utility, and
• Supply of the electric commodity, which is open to competition.
Customers can choose to receive their electric supply from their utility, or an alternate electric provider.
Under 2008 legislation, utilities were required to develop "Electric Security Plans" to serve customers who do not choose an alternative energy supplier. The pricing under the electric security plan depends on the utility, and is essentially negotiated with the Public Utilities Commission of Ohio. The exception is at the FirstEnergy utilities, where an auction is used to set electric rates.
The problem with the electric security plans is that they are not reflective of current costs. For example, the initial electric security plans took effect in early 2009, when power prices were much higher. As the recession lingered, power prices dropped dramatically throughout 2009, 2010 and into 2011. The electric security plan prices, however, remained at the higher early 2009 levels, meaning customers were paying much more for power than they had to.
These high utility prices led a large number of Ohio customers to shop for a competing electric supplier, which can offer prices at lower market rates.
The Ohio utilities may also apply to offer market-based pricing to customers (called a Market Rate Offer), but to date the Public Utilities Commission has denied these applications.
Natural Gas:
The Public Utilities Commission of Ohio has reformed the natural gas industry to give customers a chance to shop for lower natural gas rates. Customers at Dominion East Ohio, Columbia Gas, Duke Energy and Vectren Energy Delivery have the ability to choose an alternative supplier for their natural gas supply service. Their gas supply will still be delivered by the local utility, but customers will be buying their gas supply from a new company.
A customer's natural gas bill has been separated into two parts:
• Regulated distribution of gas, which is still only provided by the utility, and
• Supply of the gas commodity, which is open to competition.
Customers can choose to receive their gas supply from their utility, or an alternate gas provider.
Traditionally, local utilities arranged for gas supply for their customers and charged a supply rate known as a Gas Cost Recovery (GCR) rate. The rate could be compared to the rates charged by alternate suppliers.
However, most of the local utilities are transitioning away from arranging for gas supply for customers who don't choose an alternate provider, and are doing away with the GCR rate. Under this process, utilities are exiting what is called the "merchant" function of gas supply service, and instead will merely bill for gas supply that is arranged by another company.
Utilities are engaged in a multi-step transition away from this merchant function, with the first step being auctioning off customers' supply needs to competing suppliers, rather than the utility procuring the supply needs itself. Under the new process, the utility no longer charges a GCR rate, but instead charges something new called a "Standard Service Offer" rate, or SSO. The SSO is similar to the GCR in that it is a supply price which customers should use to compare offers from competitors. However, the SSO rate is set by competing suppliers in the market via an auction and is based on the NYMEX price for natural gas, unlike the GCR which was based on a utility supply portfolio.
Currently, Columbia Gas uses an SSO auction to set prices.
Dominion East Ohio and Vectren Delivery have actually moved beyond the SSO to another process called the "Standard Choice Offer." This is an auction very similar to the SSO, but instead of buying wholesale gas in an auction, the utilities "sell" the right to serve their customers to competing retail gas suppliers for a period of 12 months. The winning suppliers win the right to serve these customers for one year, and have their name appear on the customer's bill. However, at the end of the 12 months, the customer may be re-assigned to another supplier based on the next annual SCO auction, unless the customer affirmatively chooses a different supplier by shopping for their gas supply.
Columbia is also in the process of moving to an SCO auction.
The SCO, SSO, and GCR rate all change monthly, which means customers are exposed to volatility. Choosing an alternative gas provider permits customers to lock-in a cheap rate before the more expensive winter season.
No matter who you choose to buy energy from, your local utility will continue to deliver your gas and respond to service interruptions and outages. You will still pay your utility for these services. Depending on your area, you can choose to receive a single bill from your utility listing your utility delivery charges and competitive supply charges, or separate bills from the utility and alternate energy provider.