Regulators have blocked Ohio’s approval of profit guarantees for FirstEnergy and American Electric Power, saying the electric utilities must secure federal approval for the plans.
In two orders late Wednesday in response to complaints about the Public Utilities Commission of Ohio’s approvals of power purchase agreements for Akron-based FirstEnergy Corp. and Columbus-based AEP, the Federal Energy Regulatory Commission said the plans are not valid. The utilities must first apply for and receive approval from the agency.
The PUCO’s 5-0 decision in late March was expected to spark legal challenges and questions from federal regulators.
The complaints to FERC were submitted by competitors and opponents. In FirstEnergy’s case, the opponents said the deal was a “coal bailout” to keep two older, high-cost power plants operating. The company had said the PUCO approval was necessary to protect jobs, the company and electric rates.
However, in a first-quarter earnings call with analysts on Wednesday, FirstEnergy executives acknowledged that the two plants — coal-fired W.H. Sammis plant on the Ohio River and the Davis-Besse nuclear plant — had made a profit.
Company spokesman Doug Colafella on Thursday said the profits are due to limited special payments made by PJM Interconnection, the company that manages the high-voltage grid. Those payments are set to expire May 31.
“These plants have been economically challenged for some time. While they may be contributing positively to earnings in 2016, there are no assurances they will continue to be profitable in years to come,” he said.
Consumers to save
The federal rulings could save consumers millions, said Ohio Consumers’ Counsel Bruce Weston, whose agency is the state’s residential utility advocate.
The orders “provide Ohioans the benefits of competitive markets and lower rates that they did not receive from FirstEnergy, AEP and state regulators,” Weston said.
Shannon Fisk, managing attorney for Earthjustice, called the profit guarantees “a sweetheart deal” and a “bailout.” His firm represented the Sierra Club in the complaint.
“There is a strong case that the transaction cannot survive such review,” he said in a news release.
FirstEnergy expressed its disappointment in a news release.
“The PPA [power purchase agreement] will benefit our customers by protecting them against rising retail prices and volatility in future years,” it said. “We also believe that the PPA complies with existing FERC rules.”
PUCO spokesman Matt Schilling said the commission had no comment on the FERC ruling.
‘Abuse’ alleged
Houston-based Dynegy, a FirstEnergy competitor and vocal opponent of the profit guarantees, applauded the decision.
Robert C. Flexon, Dynegy’s president and CEO, issued a statement commending FERC’s “unanimous action to protect consumers and the wholesale markets from abuse.”
FirstEnergy was set to file its new rates on Monday, the deadline the PUCO had set in order for the new rates to go into effect on June 1, said Colafella. The company will still file new rates, but they will not include the charge for the PPA, he said.
Colafella declined to say what the proposed charge would be, saying the company has a lot of options to weigh.
Before the March PUCO decision, FirstEnergy had said the cost would be $3.25 per month, but that figure went into question when the PUCO’s decision included a clause saying the utility could not increase electric rates in the first two years.
Electricity prices have dropped sharply in the last two years. Colafella said it is still expected that customers’ rates effective June 1 will be lower as a result. The rates would have still been lower, even with the PPA charge, he said.
The average residential customer now pays $96 a month.
The next step is unclear and depends on what FirstEnergy and AEP decide to do, said Todd Snitchler, a former Public Utilities Commission of Ohio chairman from Stark County who now works as a lobbyist for a group that opposes the profit guarantees.
“Clearly we’re happy that this went our way, but it doesn’t resolve the issue. It’s a step in the right direction,” he said.
Snitchler said he’s reluctant to predict how a governing body will rule, but “the language of FERC’s decision establishes a fairly high bar that needs to be met” by the utilities.
“Customers can take some satisfaction that they won’t pay more right away … it’s our position these are unneccessary charges altogether,” he said.
Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com. Follow her @blinfisherABJ on Twitter.