Crews install new LED lighting in the sign at FirstEnergy's Akron headquarters.

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Crews install new LED lighting in the sign at FirstEnergy's Akron headquarters.

Critics: New FirstEnergy ‘bailout’ plan ‘would make Houdini blush’

FirstEnergy’s latest attempt to recast its Ohio plan to guarantee income for certain power plants remains fatally flawed in the eyes of challengers and other critics.

Rather than let federal regulators scrutinize its proposed power purchase agreement, FirstEnergy now wants to withdraw that part of the plan, which was unanimously approved by the Public Utilities Commission of Ohio on March 31.

Yet the company still wants ratepayers to pay the charges it previously proposed.

According to FirstEnergy, the modified plan is now basically a “hedge” to protect customers when electricity costs eventually rise. Critics disagree.

“It’s not clear to me what it means to say it’s a hedge against future price increases,” said William Bowen, an energy policy expert at Cleveland State University. “What’s the difference between a hedge against future price increases and excess profits today?”

The average consumer household could wind up paying more than $10 more per month if the plan goes forward, consumer advocates have found.

“This continuing saga of the FirstEnergy bailout remains a great risk for Ohioans’ electric bills and, nearly two years into the state process, an imposition on government regulation that the public funds,” said Ohio Consumers’ Counsel Bruce Weston. “Enough is enough.‎”

‘Nothing changes’

Late last month, the Federal Energy Regulatory Commission ruled that it would require prior review before FirstEnergy’s generation affiliate could proceed with the power purchase agreement that started out as central to the company’s plan.

Under the contract — whose initial 15-year term was later shortened to eight years — FirstEnergy utilities would have bought all the output from certain nuclear and coal plants in which their unregulated generation affiliate has an ownership interest. The utilities would then have resold the electricity in the competitive market and charged (or credited) all ratepayers for the difference between the selling price and the contract price.

FirstEnergy conceded that the plan would cost ratepayers millions of dollars for at least the first three years, but claimed customers would eventually see savings.

The Office of the Ohio Consumers’ Counsel and other challengers argued that the plan would ultimately cost customers anywhere from $3.6 billion to $5.15 billion, while propping up noncompetitive coal and nuclear plants.

On May 2, challengers asked the PUCO to reconsider its March 31 approval of the plan.

The challengers’ objections were buoyed by FERC’s April 27 ruling, requiring detailed review of the power purchase agreement before FirstEnergy could proceed with the deal.

In a surprise move, however, FirstEnergy also filed a request for reconsideration, seeking to now drop the power purchase agreement altogether.

“We’ve gone back asking for a modification of our plan so we can continue to offer the benefits in the plan, but we can continue to do it without needing this PPA and FERC approval,” said FirstEnergy spokesperson Doug Colafella. “This arrangement now is solely a rate stability program on the utility side.”

Nonetheless, he noted, the justification for the charges would continue to use “all the information that’s already been shared and evaluated by the commission.”

Those numbers included FirstEnergy’s market projections and estimates of costs for the power purchase agreement, including a 10.38 percent rate of return on equity for the covered coal and nuclear plants.

“All the same numbers that we initially submitted [and] the amount we project our customers to save” would stay the same, Colafella said. “Nothing changes.”

A shift in focus

In its prior filings and at the administrative trial in the case, FirstEnergy had argued strenuously that the power purchase agreement was essential to keep open the Sammis coal-fired power plant and the Davis-Besse nuclear plant, which provided jobs to hundreds of people and revenues to local governments.

Without those guaranteed sales, the company had argued, the plants could close, with the result that there would be less “resource diversification” and a threat to in-state reliability.

Now, those justifications appear to be off the table, with only retail rate stability as a rationale for the new customer charges. Yet there are questions about how the utilities would actually use that money.

“The money will be collected by the utilities. They’ll use it to promote investments over the term” of eight years, Colafella said. “That could include smart grid modernization, service reliability enhancements. But essentially it works like an insurance policy.”

However, current and proposed riders already cover things such as grid modernization and other distribution enhancements.

“Again, the primary purpose of this arrangement is to work as a hedge to protect our customers against long term price increases down the road,” Colafella said after acknowledging the existence of those riders and other provisions.

“It’s just a mechanism to provide a hedge for customers,” Colafella stressed.

‘Sleight of hand’

“It’s a rhetorical sleight of hand,” countered Dick Munson of the Environmental Defense Fund.

As he sees it, the utilities would collect customers’ money, but the benefits would ultimately flow to FirstEnergy and its shareholders, cushioning them against the impacts of competition on the generation side of the business.

“At the end of the day the subsidy still goes back to the parent and the parent can distort markets,” Munson said.

“If anything, this new unprecedented scheme is worse,” said John Shelk, president of the Electric Power Supply Association. “It shows what we have said all along. This isn’t about protecting customers and retail rate stability, but about bailing out shareholders and management in the face of a looming credit downgrade.”

In his opinion, the “escape attempt” from FERC’s order requiring scrutiny of the power purchase agreement “would make even Houdini blush.”

‘Unreasonable’

FirstEnergy may face other obstacles in its quest to get the charges approved. Among other things, a rate stability charge can’t be approved unless it relates to specific items listed under Ohio law.

“As explained in our briefs, the bailout scheme cannot be authorized” under the statutory provision, Earthjustice attorney Michael Soules said after the PUCO’s March 31 order came out. Earthjustice represents the Sierra Club in the case.

Indeed, FirstEnergy’s May 2 filing appears to acknowledge that the PUCO failed to make one of the necessary findings in its case. And now FirstEnergy charges that the absence of that finding was “unreasonable.”

Beyond that, Munson said, the PUCO’s principles for approving the bailout deal were all “related to the continued operation of these power plants.” But now, he noted, the plants are supposedly not part of the deal at all.

“If the commission is really not a rubber stamp agency, they have to see this as a material change that went totally contrary to the very principles that they outlined,” Munson said.

Indeed, Munson argued, it would be “corporate cronyism” for the commissioners to “overlook their own principles to give a bailout to the companies that they’re supposed to be regulating.”

Other parts of FirstEnergy’s May 2 brief fault the PUCO for adding terms beyond the settlement stipulation and failing to spell out conditions from the stipulation that could arguably excuse it from a “commitment” to add renewable energy generation in Ohio.

Timing is also a problem. FirstEnergy wants the PUCO to rule quickly on its plan modification, so it could be approved by June 1.

But approving the company’s suggested schedule for review of the changed plan would feel like “you’re ramming it down people’s throat without a care for the facts or debate,” said Munson.

“FirstEnergy’s latest gambit underscores that its bailout proposal has nothing to do with protecting customers or preserving Ohio generation, and everything to do with propping up corporate profits,” said Shannon Fisk of Earthjustice on behalf of the Sierra Club

“We urge PUCO to reject FirstEnergy’s attempt to evade federal review of an illegal bailout that FirstEnergy acknowledges would cost customers at least $363 million in the first 31 months alone,” Fisk added.

One thought on “Critics: New FirstEnergy ‘bailout’ plan ‘would make Houdini blush’

  1. Like oil pipeline giant Kinder Morgan, why can’t First Energy reduce or eliminate its dividend to help conserve cash in order to fund and maintain operating expenses. They can’t do that. Without guaranteed income, it would be such a shame for executives to lose their bonuses due to reduced net income. This suggestion also applies to American Electric Power as well.