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Eyeing FERC end-run, Ohio utilities keep pressing state regulators to support old plants

Dayton Power & Light joined AEP and FirstEnergy in asking regulators to approve bill riders to keep aging coal and nuclear generation online

Ohio utilities are undeterred by federal regulators' decision in April to block affiliate power purchase agreements that would have supported older coal and nuclear generation. FirstEnergy, American Electric Power and, most recently, Dayton Power & Light have all filed new plans, making modifications which aim to avoid federal review.

But critics of the deals are not letting up, arguing the utilities are simply attempting to funnel captive customer funds back to their shareholders, while ignoring calls to invest in cleaner options. And as market conditions toughen, the utilities are cutting their losses, selling plants and shrinking their requests: AEP moved to sell some generation after federal regulators halted support for the plants. More recently, FirstEnergy said it would sell more than 800 MW of older fossil fuel capacity, most of which had been covered by the original PPAs.

But the decisions to sell or close some older plants does not go far enough, say critics.

"We shouldn't be forcing customers to prop up these generators," said Shannon Fisk, an attorney with Earthjustice, representing The Sierra Club. "And companies should be looking at a transition plan, to move to more cost effective and cleaner technologies."

The three utilities have asked Ohio regulators to approve bill riders that would support older plants that are struggling to remain in operation. The Public Utilities Commission of Ohio approved Power Purchase Agreement requests by FirstEnergy and AEP in March, following a lengthy and controversial proceeding. But the Federal Energy Regulatory Commission regulators blocked the deals by withdrawing affiliate transaction waivers, sending the utilities back to the drawing board.

Now, all three utilities have proposed bill riders in various forms. And because their new charges would only impact retail rates, rather than interfering with the wholesale market, they say FERC will not need to review the agreements. 

"Our modified request strictly involves adjustments to retail electric rates, which is designed to be solely under the jurisdiction of the PUCO," FirstEnergy spokesman Doug Colafella said in an email. FERC oversees interstate power markets, while state regulators are responsible for policies inside their own borders. 

The environmental groups say that may not be the case, however.

Avoiding FERC

Once the commission issues a ruling on a utility's rider, the basic avenue for a challenge would be to the Ohio Supreme Court. But Fisk said there "is also a question of whether there are avenues of taking this to FERC again."

In the first go-round, federal regulators had a clear say in the matter through the affiliate waivers needed for the PPAs. But "to the extent that these utilities are trying to achieve the same goal of funneling captive customer money to a parent company, we think there is still an opportunity," Fisk said.

FirstEnergy's proceeding is furthest along, likely making it an indicator of how the regulators will view each proposal. In the past, PUCO has treated the FirstEnergy and AEP proposals similarly in decisions, sometimes issuing rulings that address both proposals.

FirstEnergy wants to pull the rejected PPAs, but keep monthly surcharges on customer bills that came with the PPAs. However, the surcharges would no longer be based on wholesale power prices, but on the company's estimated power production costs.

FirstEnergy's PPA deal covered the Davis-Besse Nuclear Power Station in Oak Harbor, the W.H. Sammis coal-fired plant in Stratton, and a portion of the output of Ohio Valley Electric Corporation (OVEC) units owned by its generating affiliate FirstEnergy Solutions.

In total, the PPA covered 3,300 MW. But the utility has now decided to sell or retire four units at the W.H. Sammis facility, meaning it will no longer pursue riders to support about 720 MW of generation provided by Units 1-4 at plant.

FirstEnergy's Colafella called it a "business decision involving older, subcritical units that dispatched infrequently." Units 5-7 at Sammis "are supercritical, highly efficient units that will continue to bid into the market," he said.

"Continued challenging market conditions have made it increasingly difficult for smaller units like Bay Shore and Sammis Units 1-4 to be competitive," Colafella said. "It’s no longer economically viable to operate these facilities."

AEP originally requested income guarantees for 3,100 MW of older coal-fired generation in four plants. But after FERC's decision to halt the PPAs, the utility has downsized its proposal to 440 MW.

Terri Flora, director of communications for AEP, said in an email that it remains unclear whether or not FERC would have an oversight over the deal. "Since we have removed the competitive generation units from the filing and are only including our share of OVEC (non-competitive units), I am not sure why that would need FERC approval," she wrote.

AEP Ohio filed for rehearing of its PPA application, and Flora said that request remains open. The utility also has submitted a request to extend its current Energy Security Plan and is waiting on regulators to set a procedural schedule.

For DPL, it proposed a "reliable electricity rider" covering almost 2,200 MW at six coal-fired plants, that would apply to half a million Ohio customers. A variety of groups, including PJM Interconnection and environmental advocates, have filed to intervene. But according to the utility, if the plants were to close down it would cause $26.5 billion in "adverse economic impacts" in the state, including a rise in power prices and the loss of 19,000 jobs.

The utility's proposal can be found here.

Lost tax revenue from closing those plants would total $1.5 billion, DP&L said. And to mitigate reliability concerns, the utility would need to invest about $112 million in transmission projects.

"Even if the new transmission lines were constructed, the closure of 8,137 MW of coal-fired capacity in Ohio would create significant future reliability risks," the utility told regulators in its filing. "Maintaining generation plants in Ohio, which operate on a diverse mix of fuels, helps ensure the reliability of electric supply and reduces the risk of overdependence on any one fuel source." 

Modernization rider for FirstEnergy

Staff of the Public Utility Commission of Ohio have proposed a new $131 million Distribution Modernization Rider for FirstEnergy, but critics are quick to point out that there are no stipulations that the funds be used for modernization. The annual rider would be in place for three to five years

PUCO staffer Joseph Buckley submitted testimony earlier this month in support of the proposed rider. He said the rider would be established "to maintain investment grade by the major credit rating agencies."

"Staff believes three years is adequate time for FE to begin to address its financial situation. Additionally, if FE has not improved its credit position after three years, it could request an extension of the current plan for an additional two years," Buckley said. 

But Earthjustice's Fisk said that at a recent hearing on the rider "it became clear that it doesn't require any money to be spent on distribution modernization." He called grid modernization a "worthy goal," but said staff's proposal appears to "just bail FirstEnergy Corp. out of its bad coal investments.”

FirstEnergy's Colafella responded, saying the charges "may be used to promote long-term investments in Ohio’s energy future, including, for example, a broad-based strategy to keep electricity reliable and affordable through smart grid modernization and service reliability enhancements."

But the primary objective, he said, is to protect customers from higher energy prices.

"Under the arrangement, even when the modified rate provision results in a charge, customers benefit from lower generation prices that keep overall bills in check," Colafella said. "As wholesale market prices rise as projected over time, the rate provision will decrease – and ultimately provide credits for customers – serving to counterbalance retail price increases and serve as a hedge against volatility. "

The first phase of PUCO's hearing into FirstEnergy's proposal has concluded last week, and last week restarted with intervener rebuttals. Colafella said it is unclear how long this portion of the hearing will last, or when regulators will make a decision.

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Filed Under: Generation
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