Testimony for Steve Alexander Bozsa Jr. President

Viking Energy Resources, Inc.

House Public Utilities and Energy Committee

February 13, 2008

Representative Hagan and members of the committee, thank you for allowing me to testify today. I begin my remarks by listing two assumptions:

1. The All-American way to set prices for consumers is to rely on the forces of supply and demand operating in the free market. This achieves equilibrium and minimizes long term shortages or surpluses.

2. There is no security for northern Ohio consumers available in Columbus beyond the fine efforts of the Consumers Counsel. We consumers will have to look out for ourselves as far as controlling our electric price.

I want to illustrate my own feelings by asking the committee to do a poll of this room with your own eyes. First, how many people do you see that are in some way working for FirstEnergy? How many people do you see who are lobbying for huge corporations? How many members of the PUCO and its staff do you see? Finally, how many everyday consumers from northern Ohio and their representatives do you see? When I look around the room it is not hard for me to see why the Consumers Counsel feels alone at times in Columbus. Ohio has become victim to Regulatory Capture involving First Energy and the PUCO. The government regulatory agency which is supposed to be acting in the public interest has become dominated by the vested interests of the existing incumbents in the industry that it is supposed to oversee.

To provide background for my testimony I would like to provide a very brief interpretation of the history of FirstEnergy rates starting in the late 1970’s. The big picture is FirstEnergy’s three nuclear plants, constructed in the 1970’s are clearly not competitive, economical sources for the Midwest region due to their high investment costs. Under traditional regulatory rules the customers of FirstEnergy’s predecessors officially agreed to pay for them. The large customers knew about this obligation, but smaller consumers did not realize they had agreed to this huge obligation.

In the 1980’s and 1990’s the large customers demanded to be relieved of their obligations to pay for these nuclear plants. In effect, the large customers demanded to be charged average Midwest prices. FirstEnergy and the PUCO agreed to relieve the large customers of their tariff obligations temporarily by means of special contracts and side deals. These secret deals were financed by more obligations added to the accounts of the small consumers. The large customers then pressed for permanent release from traditional FirstEnergy rates through support for Senate Bill 3 in 1999.

In Senate Bill 3 a framework for gradual release from nuclear obligations during a transition period, 2000 to 2005, was devised by FIRSTENERGY, the PUCO, and the large customers. It involved the understanding that FirstEnergy would write-down or sell-off its nuclear plants, relieving customers permanently after 2005. This was in exchange for extra payments to FirstEnergy from customers from 2001 to 2005. These extra payments would soften the blows to FirstEnergy’s financial condition. These extra payments for this scheme would actually fall on the small consumers because the large customers would be allowed to continue their special contracts and side deals through the period.

Shortly after Senate Bill 3 was passed, FirstEnergy devised another scheme to avoid the promised write-downs of “stranded generation facilities”. FirstEnergy asked the PUCO to allow it to use its extra transition money to acquire East Coast customers by merging with GPU. These additional customers, who were used to high rates, would take over a major portion of the nuclear obligations after 2005. The thinking was that GPU customers would compare Perry, Davis-Besse, and Beaver Valley to the non-operating Three Mile Island unit. Paying for FirstEnergy’s past generation costs would no longer be the sole responsibility of FirstEnergy’s Ohio customers. FirstEnergy would avoid possible bankruptcy. Agreeing to this scheme, including re-organization of FirstEnergy’s generation under a non-regulated subsidiary, is when the PUCO lost all real leverage over FirstEnergys’ generation costs. In effect, FirstEnergy was on its way to becoming an East Coast utility with the ability to charge East Coast prices.

Smoothing the way for the actions of FirstEnergy, the PUCO, and the large customers during the transition period was the creation of NOPEC. NOPEC promised discounts and consumer choice to small consumers on an aggregated basis... However, switching and savings that NOPEC promised were illusions. The MSG discounts that Green Mountain and NOPEC were using to create savings for consumers were to be paid back later by the same consumers through RTC charges. The power supplying Green Mountain and NOPEC was still coming from FirstEnergy. No real switching or savings had occurred.

Moving forward to the present day, large customers now do not want to be released to the market to be charged East Coast prices by FirstEnergy. They are asking for continued protection from regulators and continuation of special contracts and side deals. Under SB221 small consumers will continue to be smothered by obligations that pay for big customers’ discounts.

Now let’s talk about the “Market Security Plan”. I think of the proposed “Market Security Plan” as the “FIRSTENERGY Market Protection Plan”. It’s protects FIRSTENERGY from competition for an extended period while they complete their plans for enjoying higher rates in the East after rate caps are lifted. I don’t Believe that FirstEnergy is truthful regarding their position on SB 221 Tony Alexander has said to this committee that” they prefer markets over re-regulation.” It protects the “secret” rate deals of the large corporations who have successfully made threats to leave Ohio for the last fifteen to twenty years in all four directions. It protects the prestige of the PUCO by allowing them to continue to set regulated rates for electricity in this era of market-based rates for natural gas and telephone service. PUCO Chairman Alan Schriber has said that the ESP price under the Market Security Plan is just a means to extending the transition charges from SB 3 in SB 221. These transition charges prevent customers from exercising choice under deregulation, and if allowed to remain in the final bill we would just be experiencing in the future more of the same stifled market we have now.

Ironically, the consumer pays the protection money in this Plan, for no real protection, in the form of extended transition charges. Since 2005 FirstEnergy has been planning on as shown in this filing dated September 9^th that they plan to collect Regional Transition Charges (RTC) through 2010 this is not consistent with FirstEnergys’ position on SB 221 in saying they want to go to market. FirstEnergy says they are against the ESP in the Market Security Plan, but based on this filing in 2005 they took steps that would allow them protect the residential market from competition bye the RTC rather then going to market. This action speaks to their credibility as to weather or not they truly want a retail market for the residential customers in Ohio.

Where do consumers start in their quest for real security as far as future electric rates?

Consumers looking for security should start by banding together in the largest possible aggregated groups. They need to look like big-time industrial customers to potential suppliers. This concept might bring to mind NOPEC. If NOPEC had as a goal of organizing customers to switch, then NOPEC was a complete success. If NOPEC had a goal of creating savings then NOPEC is a complete failure. I certainly know about the ideas that were used to form NOPEC. They were my ideas. NOPEC’s creators took my ideas and started a very successful organizing campaign. Then, their focus turned away from serving the interests of the mayors and consumers they were supposed to help. A group of insiders became more and more concerned about their own self interests. NOPEC today is undemocratic and unresponsive to the majority of its members. NOPEC has not led its members to find real alternative sources for power away from FirstEnergy. In fact, we have recently learned from Tony Alexander and others that NOPEC has not created any significant savings for its consumers. Consumers were financing the MSG discounts that NOPEC was using through additional transition (RTC) charges. This arrangement could be considered a “scam”. NOPEC has impeded the very market forces it says it seeks to serve by charging administrative fees to suppliers such as Green Mountain. It even sued Green Mountain when Green Mountain could no longer afford to be part of NOPEC’s and FirstEnergy’s scheme. NOPEC’s actions discouraged other marketers or suppliers, especially those not willing to pay NOPEC’s administration fees, from entering the Northern Ohio market. The consumers of northern Ohio deserve better.

Consumers should go looking for themselves for the most economical sources of power on the wholesale power market. This can be facilitated by a marketing firm run by consumers that is not like NOPEC. Consumers should attempt to lock in economical rates for the longest possible period to avoid price volatility. Consumers should find other consumers who have the expertise and experience to deliver the power through the MISO and PJM transmission systems to FirstEnergy’s distribution system. They should price the power to themselves and millions of fellow consumers at the lowest possible sustainable fixed price for the longest possible period. In other words, consumers should take charge of their own electricity pricing and security. The wholesale market in Ohio currently affords capacity of 13,000 megawatts that can serve consumers anywhere in Ohio on a daily basis for a long term fixed rate. If there is growth in Ohio then market supply will grow with demand as long as free market forces are not artificially blocked.

As far as measures you can take to help consumers, forget the Market Security Plan. Let FirstEnergy carry out their plan to “successfully manage regulatory transitions.” Let them move to market prices in Ohio as they did in Penn Powers’ territory at the beginning of last year. We consumers are ready to replace their power as they move on to greener pastures in the East. All we ask from you is to end double charging by FirstEnergy through endless transition charges, as soon as we consumers start providing for our own electrical supply. We consumers will be happy to no longer be responsible for paying for Perry, Davis-Besse and Beaver Valley.

Thank you again for your time and attention,

Steve A Bozsa Jr.

President; Viking Energy Resources, Inc.

Attachments Follow

Deregulation can lower bills

But electricity suppliers must play on a level field

Tuesday, February 28, 2006

Steve Bozsa

Many Ohioans write off electricity deregulation as a failure. Some conclude energy supply issues are beyond citizens' comprehension and are better left to public regulatory agencies. Others say California's experience a few years ago proves deregulating electricity is a bad idea.

Although utility deregulation can work (cell phones, for example), Northeast Ohioans doubt that genuine competition can prevail in the electric supply industry here.

As a further exhibit, the PUCO's "auction" process last week revealed no new bidders to serve the electric needs of Ohio's northern tier, which is served by FirstEnergy. We're supposed to concede to the challenge, "How can any doubt remain?" Yet reasonable doubt lingers.

Since the Ohio Legislature approved a system of deregulated electricity supply starting in 1999, our company, Viking Energy Resources, has met with large electricity-generating companies, numerous public officials and representatives of large consumer blocs. Those conversations prompt us to a different conclusion: Electric deregulation in Ohio can still work, if given a fair chance. We reject the conclusion that Ohioans might have reached from the awkward auction process - that only FirstEnergy has the desire and capacity to serve northern Ohio.

Even now, alternate suppliers of electricity wait in the wings; they need a level playing field and an environment that supports true competition. The field will become more level if customers realize that FirstEnergy's true unit price is not the "generation component" priced around 5 to 5½ cents. To get the total price, you must add "transition charges" (or "stabilization charges") of nearly two cents more.

For example, one typical residential CEI bill that I saw recently showed a true price of 7.3 cents per kilowatt-hour (including the extras), but claimed that the "price to compare" was 5.6 cents. That's like comparing the base price of a Cadillac to that of an accessory-loaded Chevrolet to prove Caddys are cheaper than Chevys.

Alternate suppliers would eagerly and profitably compete in a deregulated electricity market here, with a price in the 4.8 to 6 cents per kilowatt hour range. But they hold back because they anticipate that customers won't understand the difference between their openly "fully loaded" price and the deceptive "base price" from incumbent FirstEnergy, supplied locally by CEI, Ohio Edison and Toledo Edison. Alternative suppliers believe the auction process can't work and isn't necessary. So they did not submit bids last week because they didn't want to reveal their best pricing. The PUCO process was an all-or-nothing "auction" in which alternative suppliers would have difficulty reselling power to various classes of customers. FirstEnergy was also guaranteed the last bid.

FirstEnergy's proposed Rate Stabilization Plan defies legislative intent and would more likely restrict choices for consumers, perhaps forever. It continues a billing policy giving customers a paltry 4.5-cent per kilowatt-hour discount (the "shopping credit") when they seek supply alternatives. Why not require FirstEnergy to deduct the full price of more than 7 cents? Customers should not have to pay almost double for the same electricity.

Another element of FirstEnergy's strategy appears to be to resuscitate the weakened Northern Ohio Public Energy Council, a crazy-quilt municipal coalition across CEI and Ohio Edison territories. To its credit, NOPEC properly organized as a Council of Governments under the Ohio Revised Code, aggregating customers into a supplier-attracting critical mass. Its delivery on that considerable promise has, however, been a huge disappointment. Residents in NOPEC-participating communities have just watched the name "Green Mountain Energy" disappear

from bills as a contract between NOPEC and GME embarrassingly collapsed in late 2005. FirstEnergy has promptly signed on to supply NOPEC, continuing a token-discount program offered residents of NOPEC-member communities. The deal also seems to include subsidizing substantial personnel costs at NOPEC.

How real can competition be between NOPEC and FirstEnergy when the governmental coalition literally depends on FirstEnergy for its existence? Perhaps area mayors, city managers, council members and county commissioners should seek again to create a more responsive coalition-agency in place of NOPEC (and its newly-found patron, FirstEnergy).

Consumers should contact state legislators and the PUCO to urge reconsideration of the FirstEnergy Rate Stabilization Plan. Support efforts to require FirstEnergy to complete, rather than undermine, Ohio's 1999 deregulation process. No more ill-conceived all-or-nothing "auctions."

Tell your legislator that you want to be able to select an electricity supplier from a set of real alternatives and to reduce your electric bill to what Ohioans south of FirstEnergy's territories currently pay. FirstEnergy and the PUCO have not protected consumers from high electric rates.

Let's wisely and effectively use the tools provided in Ohio's original deregulation laws and rules to open the market to other suppliers and bring benefits of deregulation to Northern Ohioans. As winning professional sports teams demonstrate, the time comes to bring in new players to refresh the roster and make the games more competitive. And like good game officials, let those who make and enforce the rules "get out of the way and let 'em play!"

Electric deregulation in Ohio still retains potential to induce cheering by Ohio's taxpayers and energy consumers.

Bozsa is president of Viking Energy Resources, Inc., based in Lakewood.