FirstEnergy’s proposed PPA deal in Ohio sparks controversy

October 07, 2014

FirstEnergy has asked the Public Utilities Commission of Ohio to approve a power purchase agreement under which its regulated utilities would buy electricity from FirstEnergy Solutions, its unregulated subsidiary. The company says the plan will protect customers from future rate increases. Critics say it’s a bailout.

Under the proposal, Toledo Edison, Ohio Edison, and The Illuminating Company would sign 15-year PPAs to buy all of the power from the Davis-Besse nuclear plant in Oak Harbor, Ohio, and the W.H. Sammis coal-fired facility in Stratton, Ohio, both of which FirstEnergy owns. The agreement would also cover purchases from two units of the Ohio Valley Electric Corp., which FirstEnergy funded and in which it has a 5 percent ownership stake.

FirstEnergy would then sell the power – about 3,200 MW – into PJM’s capacity, energy, and ancillary markets from June 2016 through May 2031. Customers would receive either a credit or a charge depending on whether there was a profit or a loss on those sales.

“In effect,” RTO Insider reported, “(First Energy) wants distribution customers of Toledo Edison, Ohio Edison, and The Illuminating Company to subsidize the plants in at least the short term in return for the potential upside in the later years.”

William Ridmann, vice president of rates and regulatory affairs for FirstEnergy, told the Cleveland Plain Dealer that the PPAs aren’t about subsidizing the plants but rather are designed “to provide benefits to our customers.”

“As we see it, future prices are increasing, and after the first three years, there is a credit coming to customers to lower their bills in the following 12 years,” he said.

To support that argument, FirstEnergy said costs for a typical residential customer would increase $42 in the first year, $26.52 in the second year, and $2.64 in the third year. But for the remaining 12 years, ratepayers would receive an average annual credit of $35.73. Savings over the 15-year life of the PPA would be $2 million.

FirstEnergy Chief Executive Officer Anthony Alexander contended that the proposal – dubbed “Powering Ohio’s Progress” – would deliver benefits to the state that go beyond the direct rate impact.

“Ohio’s economic security and quality of life is highly dependent on maintaining a diverse mix of baseload coal and nuclear power plants,” Alexander said. “Powering Ohio’s Progress helps ensure these vital facilities continue powering the state’s energy-intensive economy, helps protect customers against volatility as future prices rise, and preserves $1 billion in annual statewide economic benefits, vital tax revenues for local communities and an estimated 3,000 direct and indirect jobs created by these plants.”

FirstEnergy’s positive outlook aside, the plan has come under attack from multiple directions. As reported by Midwest Energy News, reactions included:

• Sam Randazzo, an attorney for Industrial Energy Users – Ohio: “If it turns out that the proposal FirstEnergy is presenting is not superior to the market and would cost money instead of saving money, then not only will it be opposed on factual grounds, but it will be challenged legally.”
• Dwayne Pickett, state electric caucus chair for the Retail Energy Supply Association: “FirstEnergy admits that there are going to be costs, but that somehow everything will change, and in the out years there will be benefits. This is a bad idea.”
• Dan Sawmiller of the Sierra Club: “What we have here is a bilateral agreement (between subsidiaries of the same company) that was not competitively bid or sourced.”
• Scott Gerfen, spokesperson for the Ohio Consumers’ Council: “FirstEnergy’s requests include asking the government to guarantee profits for what are deregulated power plants whose profits should instead be determined by the electricity market. Needless to say, we are concerned for consumers.”

FirstEnergy has asked the Public Utilities Commission to approve the plan by April 2015.