The Damage Done, State Consumer 'Advocate' Quits

The Ohio Consumers' Counsel (OCC) is on the ropes, battered by a barrage of accusations that the group's leader, Robert Tongren, is less interested in protecting consumers' interests than in he

Nov 12, 2003 at 2:06 pm

The Ohio Consumers' Counsel (OCC) is on the ropes, battered by a barrage of accusations that the group's leader, Robert Tongren, is less interested in protecting consumers' interests than in helping utility companies boost profits.

The General Assembly created the OCC in 1976 to act as the legal representative for the state's residential utility consumers. Ohioans certainly needed vigilant representation in late 1999 and early 2000, the period immediately following the deregulation of the state's electric utility industry.

The most significant, unresolved issue at that time was "stranded costs," investments made by utilities prior to deregulation. In the regulated environment, these investments were paid by consumers through rates approved by the Public Utilities Commission of Ohio (PUCO).

Under deregulation, new electric providers without such investments could drive rates down, so the General Assembly established a five-year transition period during which fixed rates would allow electric companies to recoup these old investments. Lawmakers ordered the PUCO to determine the stranded costs each utility would be allowed to recover.

FirstEnergy asked PUCO for the right to recover $6.9 billion of stranded costs. The OCC commissioned a study at a cost of $579,000 from La Capra Associates, Boston-based energy consultants. A draft version of testimony prepared by that firm's managing director, Daniel Peaco, indicates that FirstEnergy's true stranded costs are less than half of the utility's request.

"FirstEnergy's proposal, if adopted, would provide a $3.5 billion windfall to FirstEnergy at the Ohio consumers' expenses," the draft testimony says.

Amazingly, neither the PUCO — whose own study showed FirstEnergy's stranded costs to be $4.4 billion — nor the OCC challenged the request, and FirstEnergy is now charging its customers for the entire $6.9 billion.

The OCC withheld the study from the stranded-cost negotiations organized by the PUCO, according to David Hughes, executive director of Citizen Power, an environmental and consumer advocacy group that focuses on energy-related issues.

"We were aware of the La Capra report," said Hughes, who took part in the negotiations. "We were told what the report contained. We were excited about it becoming a part of the discussion, but it never did."

In the midst of the talks, Hughes mentioned the OCC study to a reporter from The Cleveland Plain Dealer. The paper requested it, but Tongren denied the request on the grounds that the report was part of an ongoing case.

When The Plain Dealer, its interest in Ohio electric companies sparked by this summer's blackouts, again requested the study, they were told that it had been destroyed in late July under new OCC procedures that reduced record retention periods. Consumer watchdog Ohio Citizen Action and others accused the agency of attempting to hide the report's findings.

Late last month, the OCC found and released an electronic version of the La Capra report and the draft version of the testimony Peaco would have given if called by the agency.

Although he withheld the report from other consumer advocates and from the press, Tongren shared it with FirstEnergy in the midst of the negotiations.

In testimony before the Public Utilities Committee of the state senate, which is investigating the OCC's handling of the report, Tongren claimed that he used the study as a bargaining chip. He listed the following benefits he garnered for Ohioans as a result: increased discounts that consumers receive when they switch electric providers; an agreement from FirstEnergy to sell electricity to competitors at a discount; a $500 million penalty to be paid by FirstEnergy if less than 20 percent of its customers switch to new providers; funding for energy programs for low-income consumers; and a two-year extension of a rate freeze negotiated prior to deregulation. Tongren also claims that, by keeping the study secret, he avoided litigation.

Hughes sees problems with several of Tongren's claims.

"The funding to help low income customers was not negotiated by Tongren," he said. "That was something that advocates for the poor insisted on."

Hughes also maintains that, because customers who switched to FirstEnergy's own unregulated subsidiaries count toward the 20 percent goal, both Tongren and FirstEnergy knew the $500 million penalty would never be paid.

The OCC has never determined the value of the increased shopping discounts and FirstEnergy sales agreement, according to OCC spokeswoman Carah Brody. Perhaps one way to approximate the impact of these benefits is to compare the savings achieved by consumers who have left FirstEnergy.

As of June 30, 803,747 consumers have switched from FirstEnergy to alternate providers. Approximately 50 percent of those jumped to the Northeast Ohio Public Energy Council (NOPEC), by far the largest single alternate provider. NOPEC advertises a 6 percent savings on the generation portion of residential electric bills, which translates into a savings of 2.5 percent to 3.5 percent on the total bill. NOPEC's residential customers, therefore, save between $30 and $43 per year on FirstEnergy's average annual bill of $1,231.

Assuming that other alternate providers offer similar savings, Ohioans who switched from FirstEnergy will have cumulatively saved less than $186 million during the five-year transition period. Since the number of those switching and the per-customer savings have ramped up dramatically since Jan. 1, 2001, the beginning of the transition period, the actual savings will fall far short of this rough estimate.

But even this inflated approximation seems scant when compared to the $3.5 billion that Tongren handed to FirstEnergy without a fight. Savings from the two-year rate freeze, estimated at $18-$60 per customer per year, increases the value of Tongren's claimed benefits to between $250 million and $400 million, still a fraction of the potential stranded cost savings.

Tongren's claimed benefit of avoiding litigation is equally questionable. Litigation would most probably have postponed, but certainly not eliminated, most of the benefits that consumers have recognized. With billions of consumers' dollars at stake, it seems that the wait and the fight would have been worthwhile.

Tongren's cozy relationship with utility companies might not be limited to the stranded cost negotiations. In spring 2003, he and FirstEnergy met behind closed doors to discuss future electric rates. NOPEC requested admission to the talks but was denied entry. FirstEnergy has since asked the PUCO to extend the current rates for an additional three years, through 2008, which would allow them to recover stranded costs in excess of even their calculations.

Even a cursory analysis reveals that Tongren negotiated a horrendous deal for Ohioans and a very profitable deal for FirstEnergy. This opinion was held in common by such disparate groups as Ohio Citizens Action and fiscal watchdog Ohio Taxpayers Association, both of which demanded Tongren's resignation.

Such attacks, combined with four separate investigations into his actions and near-daily front-page coverage of the scandal in most of Ohio's newspapers, eventually wore Tongren down. He resigned last week.