With Sierra Club Deal, AEP Files Profit-Guarantee Rate Plan in Ohio

December 21, 2015

After reaching a deal with one of its chief critics, AEP has filed a rate plan with the Ohio Public Utility Commission that would guarantee the utility profits at customer expense in exchange for promised investments in clean energy. Meanwhile, FirstEnergy (FE) – which has submitted a similar proposal, though without the environmental sweeteners – hit a roadblock in its efforts to seek state-sanctioned subsidies. 

AEP’s agreement with the PUCO followed a decision to back the plan by the Sierra Club, which had previously assailed the two utilities’ proposals as “bailouts.” Although no other environmental groups agreed to the settlement, the Sierra Club’s opposition was clearly allayed by AEP’s willingness to develop 900 MW of solar and wind power.

As has been the case with the FirstEnergy plan – which, like AEP’s, assures profits for older, higher-cost facilities over an eight-year period – supporters and critics sparred over the rate burden that customers would eventually have to bear.

AEP conceded that the agreement would increase a typical residential customer’s monthly bill by 62 cents, but said that overall ratepayers would save $721 million during the life of the plan. Opponents argued that those savings estimates are rooted in a projected decline in natural gas prices, which many observers do not believe is on the horizon any time soon. The Ohio Consumers’ Counsel has pegged the additional cost to AEP’s customers at $2 billion.

“It’s a sad day for AEP’s consumers when, 16 years after the 1999 deregulation law, the government is being asked to impose charges on consumers for a bailout of deregulated power plants,” said Consumers’ Counsel Bruce Weston. “Consumers should not be charged a penny more than the cost of power in the market.”

Weston was not alone in suggesting that the plan undermined Ohio’s competitive electricity market. The Cleveland Plain-Dealer reported that the AEP and FE deals “would represent a significant retreat from Ohio’s previous push for a deregulated utility market.”

The AEP plan, which would end in May 2024, covers 2,671 MW from nine of the utility’s generating its, as well as its share of Ohio Valley Electric Corp.’s generation, which totals 423 MW.

Ohio Power, the regulated delivery company that is an AEP subsidiary, would purchase power from those units for the duration of the agreement. If the market price was higher than the generating costs, customers would receive a rebate. But if it was lower – which critics say will be the case, given low natural gas prices – they will pay the difference.

The big difference between the FE and AEP proposals, and the inducement that attracted the Sierra Club in the end, was the latter’s clean energy commitment. The utility agreed to close or convert three coal-fired plants to natural gas by 2030, totaling 1,500 MW. Additionally, it will bring 400 MW of solar and 500 MW of wind projects to the state by 2020.

That was good enough for the Sierra Club, one of whose stated goals is to close coal-fired plants. 

“This settlement is an important step to cut dangerous carbon pollution, reinvigorate the clean energy economy in Ohio, and ensure workers are treated fairly during the transition," said Dan Sawmiller, who work’s on the group’s Beyond Coal campaign. 

But the Sierra Club’s praise did little to tamp down the otherwise-harsh reactions to the power purchase agreement.

A new advocacy group, the Alliance for Energy Choice, was created to fight the plan and retained former PUCO chair Todd Snitchler to head the effort. “If FirstEnergy’s deal is a corporate bailout,” he said, “AEP’s deal is a corporate handout.” 

Heads of the PJM Power Providers Group (P3) and the Electric Power Supply Association (EPSA) were equally critical.

“It just doesn’t make sense that in the face of overwhelming testimony that competitive markets are working to push electricity rates to historically low levels in Ohio that the PUCO staff would yet again agree to a misguided proposal that will not improve reliability, will not reduce volatility, will force consumer to pay more for power, and will drive innovation out of the state,” said P3’s Glen Thomas. “We…call on the five commissioners of the PUCO to reject this noxious corporate welfare.”

Added EPSA’s John Shelk: “(We) and others warned when the FirstEnergy bailout was hatched that the contagion would spread, and sure enough AEP is rushing to replicate the sweetheart deal sought by its cross-state rival. There is no justification whatsoever to saddle consumers with the considerable risks and costs inherent in this latest monopoly utility power grab. The only way to stop the contagion is for the PUCO to just say no to the bailouts.”

Even some segments of the green movement were unhappy, as the Ohio Environmental Council called the agreement “shortsighted and a raw deal for people and their health. 

While FirstEnergy was facing a new round of hostility-by-association with the AEP deal, it also suffered a potential setback in efforts expedite its own purchase agreement.

An administrative judge at the PUCO scheduled a new round of formal hearings on FE’s plan beginning Jan. 14. She agreed with opponents that the settlement recently presented to the commission involves issues that were not covered during a seven-week trial that was held this fall.

Those issues included whether FE’s plan to reduce carbon dioxide emissions is a goal, as critics charge, or a guarantee; and whether the company’s commitment to bring back previous scrapped customer energy efficiency programs carries any weight in the absence of state verification and enforcement.

A FirstEnergy spokesman said that despite the ruling, the company still hopes for a decision from the PUCO in early 2016.