The Davis Besse nuclear plant is among those covered by a proposed FirstEnergy settlement.

Marc Haserodt / Creative Commons

The Davis Besse nuclear plant is among those covered by a proposed FirstEnergy settlement.

Critics say proposed FirstEnergy settlement still a bad deal for customers

Opponents of FirstEnergy’s plan to guarantee sales for some of its less profitable nuclear and coal plants continue to say a proposed settlement is still an uncompetitive “bailout” with no net benefit to consumers.

“This settlement will cost ratepayers another $10.50 a month,” said Kathy Keller of AARP Ohio. “That’s a huge whopping impact on people with fixed incomes.”

And while the settlement proposal contains additional provisions, none has been sufficient to convince any environmental advocates to sign onto the arrangement, as the Sierra Club has done with yesterday’s settlement proposal for American Electric Power. The Ohio Environmental Council, Environmental Defense Fund, Office of the Ohio Consumers’ Counsel and others oppose the AEP settlement, as well as the FirstEnergy proposal.

Still a “loser”

The proposed FirstEnergy settlement would shorten the term of the proposed power purchase agreement from 15 years to eight, but would still cover the same four plants.

In addition to the Davis-Besse nuclear plant in Oak Harbor, which federal regulators recently granted a 20-year license extension for, FirstEnergy hopes regulators will require all its distribution customers to guarantee the sale of all output from FirstEnergy Solutions’ W.H. Sammis coal plant in Stratton, as well as FES’s interest in two additional 1950s-era coal plants.

“Essentially, our utilities will buy the output of certain power plants and then sell that power into the marketplace,” explained FirstEnergy spokesperson Doug Colafella. “Depending on how those power plants perform in the market, customers will either see a charge on their bill or a credit on their bill.”

Those plants have already been performing poorly in the market, and FirstEnergy has admitted that customers would wind up paying more for the first several years. One big reason is the recent huge influx of natural gas from horizontal drilling and fracking.

Nonetheless, FirstEnergy has claimed that the price of natural gas will stop falling and that electricity prices will climb again. At some point those prices would be greater than the price that would be locked in under the proposed plan, the company has argued.

Under the initial 15-year plan, FirstEnergy claimed customers would eventually get a net benefit of about $2 billion. Colafella said the company expects the revised eight-year plan will provide customers with a net benefit of $560 million.

In case those expected benefits do not materialize during the last half of the plan, terms of the settlement would also have FirstEnergy absorb up to $100 million of potential losses.

“That’s a sharing in the risk if power prices remain low and don’t rise to the projected levels,” said Colafella.

“$100 million sounds like a lot of money, but you’ve got to put it in context,” said Rob Kelter of the Environmental Law & Policy Center.

The $100 million of losses FirstEnergy might have to pay is only about 2.5 percent of $3.9 billion. That’s how much consumer and environmental advocates have said customers stand to lose, even with a shorter eight-year term.

“The numbers that FirstEnergy has provided are based on outdated projections,” noted Shannon Fisk of Earthjustice, which represents the Sierra Club in the Ohio regulatory case. Those calculations by FirstEnergy’s experts also rely on overly optimistic assumptions, making the deal seem better than it is, he said.

“The market has gone exactly the opposite of what FirstEnergy was projecting,” Fisk added.

The price of renewable energy has dropped in recent years, and advocates believe it will become even more competitive as prices keep falling, battery storage grows, and other advances take place. Meanwhile, coal-fired power plants will likely incur additional environmental costs or see further shifts in their market share as a result of the Clean Power Plan and other regulations.

“The way that most experts believe the market is heading, this deal would continue to be a loser for customers through the entire eight years,” Fisk said.

Eroding competition

Opponents also continue to object to the noncompetitive nature of the proposed plan. Under a 1999 law, electricity generation was deregulated, to allow customers to choose their own competitive supplier.

Opponents of the FirstEnergy plan say it is illegal under Ohio law, which bars a distribution utility from giving preferential treatment to an affiliate.

“FirstEnergy’s proposal also violates federal law since FirstEnergy is part of a regional wholesale market, in which blocking competition is considered unlawful,” noted Catherine Ittner of the Environmental Defense Fund.

“Utilities knowingly entered into this market and took risks on, and after many years of FirstEnergy making their high profits, they’re now coming back and asking for what is really a bailout,” Kelter said.

FirstEnergy’s own reluctance to accept more than a tiny portion of the potential downside under the plan is evidence of that, said John Shelk of the Electric Power Supply Association.

“The benefits to FirstEnergy are guaranteed, while the supposed benefits to consumers are not,” he said. “If FirstEnergy is so confident that the projections they paid for are accurate and these consumer benefits over the life of the eight-year plan are true and going to actually happen, then they should guarantee them as part of any settlement.”

Moreover, approval of the plan would be inherently unfair to competitors, who did not have the benefit of ratepayer dollars to build their power plants, Shelk said. Those competitors “invested billions of dollars in Ohio…at their own risk and not on consumers’ backs,” Shelk stressed.

Subsidizing plants that are not able to compete “sends a signal to the market that the best way to get recovery is not to operate at the most efficient level, but to seek a bailout from the PUCO,” said Glen Thomas of the PJM Power Providers Group. “We think this is a terrible deal. It sends completely the wrong signal.”

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