Dive Brief:
- FirstEnergy plans to file a proposal with Ohio utility regulators by the end of November to decouple the link between the company's revenues and the amount of electricity used by its customers, President and CEO Chuck Jones told analysts on the company's third quarter earnings call Tuesday.
- The move "supports continued energy efficiency efforts while ensuring that our utilities have adequate resources to continue providing safe and reliable power to our customers," Jones said.
- FirstEnergy's plan would keep base distribution rates at 2018 levels for residential and commercial customers. Once the plan is filed, the Public Utilities Commission of Ohio (PUCO) will have 60 days to review and approve it.
Dive Insight:
When a utility's revenues and financial well-being are dependent on electricity consumption, that can create a disincentive to promoting energy efficiency and other conservation measures to reduce use.
"By establishing the fixed base [for distribution costs in Ohio], it's going to accomplish what the legislature tried to do. It allows us to continue to promote energy efficiency with our customers so that they can get the benefit of that without impacting our base revenues," Jones said.
"It fixes our base revenues and essentially it takes about one-third of our company and I think makes it somewhat recession-proof," he added.
At least 32 states and Washington D.C. have adopted decoupling policies for electric or gas utilities, or both, according to the National Conference of State Legislatures (NCSL).
"Decoupling breaks the link between electricity sales and profits while allowing utilities to collect approximately the same revenue as they would under traditional regulation," NCSL noted in its April 2019 report, State Policies for Utility Investment in Energy Efficiency.
The approach "allows for full recovery of investments and operating costs, even if sales decline due to efficiency improvements," the report continued.
Regarding other Ohio activities, Jones noted that in mid-October a federal bankruptcy court approved the reorganization plan of FirstEnergy's bankrupt generation subsidiary, First Energy Solutions (FES). "FES has stated that it plans to emerge as an independent company with a new name by the end of this year," Jones said.
In addition, FirstEnergy is starting to implement its $516 million three-year Grid Modernization program, which includes installing 700,000 smart meters and related infrastructure. The plan, approved by PUCO last July, also includes "building an advanced distribution management system in [FirstEnergy's] Ohio Edison Illuminating Company and Toledo Edison service areas [and] ... installing voltage regulating equipment on more than 200 circuits to provide energy efficiency benefits by optimizing voltage levels on the distribution grid."
FirstEnergy expects Ohio regulators to approve the company's decoupling plan in 2020, Jones said.
