Ohio ruling doesn’t rule out ‘bailout’ plans in the future

While Ohio regulators last week rejected one utility’s plan to guarantee income for its power plants – characterized by critics as a “bailout” – the decision left the door open for similar proposals in the future.

Meanwhile, protective orders will continue to prevent public disclosure of all the facts and figures behind the plans proposed by utilities.

Last Wednesday the Public Utilities Commission of Ohio (PUCO) rejected a proposal by American Electric Power (AEP) that would have guaranteed sales for AEP’s share of all electricity from two coal plants owned by the Ohio Valley Electric Corporation. All ratepayers would have had to cover the costs of that plan, whether they chose AEP for their electricity generation company or not.

AEP claimed the plan would give ratepayers a hedge against long-term inflation. It described its plan as a Power Purchase Agreement (PPA).

Environmental and consumer advocates have said the plans would impose huge immediate costs on ratepayers with the likelihood of large long-term net losses as well.

In AEP’s case for the Ohio Valley plants, the company’s own estimates of the plan’s probable impacts varied widely. Estimates ranged from a net benefit of $8.4 million to a net cost of roughly $52 million over the first three years of the plan.

Opposing advocates foresaw net losses for consumers in both the short and long terms.

After weighing the evidence, the PUCO found that the plan could “result in a net cost to customers with little offsetting benefit.” Because AEP failed to prove a net benefit to ratepayers from its plan, the commission did not approve the proposed Power Purchase Agreement.

“Today’s decision is great news,” said Rachael Belz, executive director at Ohio Citizen Action. The group had encouraged large numbers of people to voice an “outcry” against the utility plans. “One down, two to go!” she said, referring to similar proposals from FirstEnergy and Duke Energy.

“PUCO’s decision today recognizes that consumers should not be forced to subsidize aging, polluting coal plants,” said Howard Learner, Executive Director of the Environmental Law & Policy Center. “That’s a win for Ohioans.”

“Ohioans can breathe easier knowing PUCO has chosen clean air and customer choice in Ohio,” said Trent Dougherty, managing director of legal affairs for the Ohio Environmental Council. The group was “cautiously optimistic” that the PUCO would treat the decision as precedent for future decisions, he added.

Yet while the PUCO did not approve AEP’s plan, it did not categorically reject the idea, either.

Rather, the PUCO let AEP set up a “placeholder” rider. The amount would be set at zero for now, but could turn into an actual cost for consumers at some later time.

In other words, the PUCO left the door open for AEP to come back and pitch the plan again.

“We recognize that there may be value for consumers in a reasonable PPA rider proposal that provides for a significant financial hedge that truly stabilizes rates, particularly during periods of extreme weather,” the PUCO’s opinion said.

Beyond that, the PUCO laid out a blueprint of evidence it would want to see in any future hearing.

Among other things, the PUCO said, AEP would have to show the necessity of keeping a power plant open, its financial need, impacts of any potential closure and plans for complying with “all pertinent environmental regulations,” including ones which are pending.

“The commission’s order does recognize the legality of a PPA being established by a regulated utility,” said AEP spokesperson Terri Flora. She added that the company would “now have to work with the commission to understand their concerns.”

Fights in other cases continue

Meanwhile, other cases remain pending before the PUCO.

Although last week’s decision didn’t rule on the merits of those other cases, it “lays the groundwork for the commission to reject similar proposals by FirstEnergy and Duke,” as well as another pending plan by AEP, said Learner.

“That said, we’ll continue our work to show that bailouts like this go against consumer interests and harm the environment,” Learner added. “We hope that the commission will apply the same thorough scrutiny to these pending cases as it did to AEP’s claims.”

Duke Energy has asked to guarantee sales for its entire share of electricity from the Ohio Valley plants. AEP’s other pending proposal seeks to have ratepayers cover costs for all electricity produced by four additional coal plants. And FirstEnergy has a case scheduled for an evidentiary hearing on April 13.

In addition to purchasing power from the same Ohio Valley plants, FirstEnergy wants to guarantee sales for all the output from FirstEnergy’s Sammis coal-powered plant and the Davis-Besse nuclear plant.

FirstEnergy spokesperson Doug Colafella expressed confidence in the company’s case after last week’s ruling.

“The decision makes clear that the commission has jurisdiction to approve proposals designed to help keep vital power plants available to serve Ohio electric customers, and we’re confident that our plan is consistent with the criteria established by the commission for evaluating such proposals,” Colafella said. “We will continue to demonstrate to the commission and other interested parties that our plan offers numerous benefits for our customers and communities across Ohio.”

FirstEnergy has claimed customers will save about $2 billion over a 15-year period if its plan is approved, while the Office of the Ohio Consumers Counsel has projected a net loss of approximately $3 billion.

That $5 billion difference is “a lot worse” than the $60 million-plus disparity that the PUCO found was too speculative in last Wednesday’s ruling, said Dan Sawmiller of the Sierra Club’s Beyond Coal program.

Sawmiller predicted an “uphill battle” for FirstEnergy, AEP or other utilities to show a net benefit to customers based on all the factors specified by the PUCO. That’s especially true when it comes to considering costs for all “pertinent” and “pending” environmental regulations, he noted.

“This is an opportunity to look at the true cost of coal and what customers are expected to pay,” Sawmiller said. “And there’s just no way that comes out in favor of the utilities in Ohio.”

Transparency and competition

Regardless of how the PUCO ultimately rules on the plans, much of the cost data behind the companies’ plans will remain hidden from the public.

Intervenors in the cases have been able to get some information, but only if they agree to keep that data confidential under the terms of a protective order. Even then, discovery disputes between parties in the cases have continued.

Advocates say that the public deserves more information about just what ratepayers are being asked to pay for.

“Harnessing the disinfecting power of sunlight on these issues has, unfortunately, been a battle for years,” said Dougherty. “The amount of money paid by the utility to purchase the generation is important for the utility to keep secret. But it definitely is the most important issue for customers to know and understand.”

As much of that information as possible should be “publicly available, especially in self-dealing type transactions between affiliate companies,” Dougherty continued. “Consumer and environmental advocates will continue to push for as much transparency on these deals as possible.”

The affiliations between utilities and the generation subsidiaries particularly trouble advocates because Ohio law generally prohibits utilities from giving preference to those companies.

“We disagree with the PUCO that these bailouts are a legal proposal in accordance with Ohio law,” Sawmiller said.

Additionally, advocates worry about the impacts on competition. In 1999, Ohio law deregulated the generation side of the state’s electricity market. Although utilities continue to enjoy monopolies subject to PUCO oversight, electricity generation companies are now supposed to compete.

As advocates see it, the proposed Power Purchase Agreements would have insulated various plants from the competitive market and shifted their financial risks to ratepayers.

“Ohioans pay higher rates on average than consumers in 31 other states,” said spokesperson Scott Gerfen at the Office of the Ohio Consumers’ Counsel. “Ohio’s electric utilities want the protection of more government regulation, but consumers need the protection of more competition to lower their electric bills in this era of historically low energy prices.”

“It’s time to end the electric utilities’ slow march to competition and adopt the competitive markets that Ohio lawmakers envisioned in 1999,” Gerfen added.‎

Editor’s note: An earlier version of this story misspelled Rachael Belz’s first name.

The Sierra Club, the Environmental Law and Policy Center , the Ohio Environmental Council and Ohio Citizens Action are members of RE-AMP, which publishes Midwest Energy News.

Comments are closed.