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Power to the People

In the catfight over deregulation, consumers -- surprise! -- haven't been on the winning end.


DiLiberto envisions NOPEC's role as that of a consumer-guarding gorilla. - MARK  POUTENIS
  • Mark Poutenis
  • DiLiberto envisions NOPEC's role as that of a consumer-guarding gorilla.
NOPEC shouldn't be confused with OPEC, says Chairman Dan DiLiberto: "I don't wear a turban or sunglasses. And we don't meet in Egypt."

Still, the Eastlake mayor dreams that, someday, his Northeast Ohio Public Energy Council will influence local electricity rates the same way OPEC does the price of crude oil.

NOPEC formed just before the advent of deregulation in January 2001. Prior to then, investor-owned utilities had monopolized the sale of electricity, and their rates were controlled by the state. With deregulation's arrival, private companies were allowed to sell electricity on the open market.

It was supposed to be a bonanza for consumers, the theory being that fierce competition would drive down rates.

But Ohio's deregulation occurred years after it had in other states, and NOPEC's founders were aware of a crucial failing in the deregulation model: that electricity providers tend to neglect residential customers, who are too tiny, too diffuse to generate significant profits. It is far easier -- and far more efficient -- to court businesses and their big accounts.

NOPEC offered residential customers a chance to pool their buying power. Their combined numbers and energy needs would be so great that electric companies would pursue them with low, attractive rates. Or so the theory went.

This Sam's Club, buy-in-bulk logic was persuasive. Barely a year old, NOPEC today purchases kilowatts for 360,000 homes across 94 communities, making it the largest such electricity cartel in the nation.

But for an organization that believed energy corporations would grovel for its patronage, NOPEC has yielded disappointing results. In the first year, NOPEC households have saved just 1 percent off the standard electric rate, or roughly $1 a month per home. (Also a bulk buyer of gas, NOPEC has reaped more savings in that market.)

In its defense, NOPEC points out that any consumer saving a dime in a deregulated market is fortunate. After all, utility lobbyists -- not consumer activists -- were at the vanguard of the deregulation movement.

Whether in Ohio or elsewhere, deregulation has rarely produced the sort of free-market lowballing envisioned by its architects. In most cases, the public utility simply forms a subsidiary, takes the parent company's customers, and ends up with what is essentially an unregulated monopoly.

FirstEnergy, as the electric utility for Northeast Ohio, enjoys the home-field advantage here.

So with an eye toward competition, the Ohio Legislature stipulated that FirstEnergy lose 20 percent of its customers in the first two years of deregulation and provide ultra-cheap electricity to the first consumers who organized a bulk-buying group.

The latter was called "market support generation" (MSG), and every bulk-buying group in Northeast Ohio lusted after it. Whichever group received the MSG could offer a low rate to its customers, putting it in a prime position to win the 20 percent dropped from FirstEnergy. Such a group might emerge as a serious rival to FirstEnergy.

In their race to be first, NOPEC founders dashed around the region, pitching their plan to city councils in eight counties. The more cities that joined NOPEC, they reasoned, the larger and more appealing the group would be to suppliers. But there was little time to assess the cartel's benefits.

"It was like 'You're either in on the initial program or you will never be able to get these benefits,'" recalls Lorain Councilman Stan Cinniger. "We didn't know what was going on and whether it was good for the taxpayer, but we figured we'd let the voters decide."

"Unfortunately, that's the way it had to be," admits DiLiberto. "We were faced with deadlines."

The city of Parma, however, was moving faster. It voted to form its own bulk-buying group in March 2000. DiLiberto sensed a backroom deal. His reading of state law was that no city could vote till November 2000. Then he heard that Parma was consulting with FirstEnergy.

"FirstEnergy went to Parma with their [private] subsidiaries and said, 'If you vote now and get this done first, you'll be first in line to get MSG,'" says DiLiberto. "While everybody else had to wait till November, Parma snuck in and voted in March."

Parma did, in fact, receive the coveted MSG rates. DiLiberto believes FirstEnergy wanted Parma to have the rates because that way, the company loses only one city, nearly equivalent to the 20 percent required. Awarding MSG to a giant like NOPEC, on the other hand, might make NOPEC a superpower in the deregulated market.

Parma's winning of the MSG rates, DiLiberto says, was a "contrived thing."

Of course, FirstEnergy disagrees. "That's an out-and-out lie," says spokesman Ralph DeNicola. "Parma passed a law, they contacted us, gave us a list of their customers, and said, 'We'd like for you to serve them from your market support generation.' They were in line first."

Parma also denies the conspiracy theory. Law Director Tim Dobeck chalks the early vote up to "lucky" coincidence. By virtue of the special rates, Parma residents saved an average of $5 per month on their electric bills in 2001.

There's no controversy as far as the Public Utilities Commission of Ohio is concerned. The commission says it allowed FirstEnergy the right to decide on awarding MSG however it pleased.

DiLiberto was equally incensed about a FirstEnergy ad campaign launched weeks before the November elections. It offered customers a 10 percent discount if they contracted with the company's subsidiary. DiLiberto wasn't just angered that a public utility was shilling for its private subsidiary; he thought it was a brazen plot by FirstEnergy to sabotage the vote on forming bulk-buying groups.

After all, NOPEC was essentially trying to unionize FirstEnergy's customers, and the utility had plenty of reasons to wish its failure.

DiLiberto blasted the company in The Plain Dealer, calling the ads "misleading, unfair and, perhaps, unlawful." He said, "FirstEnergy wants deregulation, but not competition."

He also used the free media to preach NOPEC's merits. It would slice 8 percent off electricity bills, he predicted, and some homes would save $100 a year. "There is already a pile of companies lining up" to bid, DiLiberto told The News-Herald in September 2000.

The election was a rousing success. Of 108 communities considering it, 105 granted their cities authority to shop for power on their behalf. Of those, 94 joined NOPEC.

With that vote, NOPEC arrived as the nation's largest unionized electricity consumer. The strength of its numbers was supposed to unleash a vicious bidding war among electricity providers vying for the NOPEC contract. It never materialized.

The union had grown so large that just a few suppliers had the wherewithal to light 360,000 homes. So despite DiLiberto's claims of being besieged with offers, ultimately just two companies made bids.

"They threw a party," chides one energy insider, "and no one came."

NOPEC signed a six-year contract with Green Mountain Energy last March. If the deal didn't offer particularly steep savings, it did place an environmental feather in NOPEC's cap. Green Mountain is regarded as the cleanest large-scale electricity generator in the nation.

"We are excited . . . to offer our customers a premium product, clean, renewable energy at discount prices," gushed DiLiberto in a press release.

Words like "clean" and "renewable" are used rather loosely in the energy field, however. The name "Green Mountain" conjures images of castoffs from Ben & Jerry's creating electricity by hand on a farm in Vermont. In reality, the company is a venture by BP Amoco, and it's based in Texas.

True, 98 percent of Green Mountain's electricity comes from natural gas, which produces far less air pollution than traditional coal burning. The remainder comes from solar panels and wind farms. By comparison, 56 percent of FirstEnergy's electricity comes from coal.

But natural gas is nonetheless polluting -- and by no means renewable.

"Typically, natural gas does not count as 'green,' but there's really not a formal definition," says Stuart Siegfried, an environmental specialist with the PUCO.

Then again, critics say FirstEnergy isn't being entirely up front, either. Northeast Ohio consumers pay a monthly "transition charge" on top of usage fees. It's supposed to reimburse FirstEnergy for infrastructure investments made before deregulation. But DiLiberto and others charge that it's really a consumer bailout of "mismanagement and bad investments." Either way, the company will collect $7 billion from consumers over the next several years.

The state is so used to protecting the utility's interests -- as it did during the century of regulation -- that, DiLiberto believes, it made no effort to oppose the giant payoff.

"The PUCO is not a friend of the consumers," he says. "It's the friend of the utility."

Shari Weir of Ohio Citizen Action is more blunt. She calls it "possibly the largest financial scam in the history of Ohio."

FirstEnergy, she notes, doesn't look like a company starved by the lean years of regulation. It claimed a net income of $598 million last year while purchasing the New Jersey-based utility GPU and the nuclear facility at Three Mile Island.

Meanwhile, Northeast Ohio is paying electricity bills that, in some cases, are three times the size of those in southern Ohio, thanks in part to the transition costs.

Had the state balked at paying FirstEnergy, however, the company was prepared to sue. "If there wasn't the opportunity to recover those transition costs, there would never have been deregulation in the state of Ohio, because it would still be tied up in court -- and the utilities would have won," says DeNicola.

That would have been just fine with DiLiberto, who believes consumers were better off with a regulated market. "Now the government has a deregulated monopoly."

That leaves NOPEC to pick up the fight for consumers. By the end of this year, it won't even have saved its members enough to buy a compact disc. But DiLiberto believes its mere presence will at least protect consumers from being ripped off.

"If NOPEC is nothing more than a 600-pound gorilla sitting on those gas and power lines, letting the utilities know that we're there and we're watching, then we're doing our job."

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