What’s at stake in the FirstEnergy and AEP Ohio power plant subsidy hearings
ergy stakeholders in Ohio are in the middle of a marathon regulatory session that could shape the future of the state’s fuel mix and the region’s deregulated energy markets.
At present, the Public Utilities Commission of Ohio (PUCO) is evaluating two proposals for controversial power purchase agreements (PPAs) for aging baseload generation in the state.
FirstEnergy has asked the commissioners to approve a 15-year PPA for two plants — one coal and one nuclear — they say would become unprofitable and likely shuttered without the ratepayer support. That hearing began in early September and is ongoing.
American Electric Power (AEP) similarly requested the commission approve a PPA for existing baseload generation, but it wants income guarantees for the remaining life of four of its coal plants. Hearings on its proposal began this week.
Both proposals were made possible by a PUCO ruling in February on a separate AEP plant subsidy proposal. In that case, regulators rejected a proposal from the utility to guarantee income for two coal plants it owns stakes in, saying the deal was not in the interest of consumers. But it also ruled that the special PPA proposal is legal, paving the way for the utility proposals currently on the table.
The power plant subsidy issue in Ohio has quickly become one of the highest-profile and most controversial power sector stories of the year. On the first day of hearings for its case, FirstEnergy executives attempted to get a filmmaking crew from National Geographic thrown out from the hearing, and clean energy advocates around the country have slammed what they label as “bailout” bids for coal and nuclear plants in the press.
Behind all the bluster, though, lie some significant concerns about the resource mix in the Midwest, the functioning of PJM’s electricity markets and the future of utility sector regulation in the U.S.
Technically speaking, FirstEnergy wants PUCO to approve a PPA between its regulated distribution utilities in Ohio and FirstEnergy Solutions, the unregulated subsidiary that owns its generation assets. The agreement would cover the W.H. Sammis coal plant in Stratton, which began operations in 1959, and the Davis-Besse nuclear plant in Oak Harbor, commissioned in 1978.
The fundamental structure of its proposal is similar to AEP’s, but because hearings on the FirstEnergy bid have been going on for more than a month, it will serve as our primary example for understanding the subsidy issue that’s playing out in Ohio.
“Under this agreement the FirstEnergy utilities would essentially buy the output of these power plants, and then they would sell the output of those power plants into the competitive markets,” Doug Colafella, a company spokesperson, told Midwest Energy News when FirstEnergy unveiled the plan last year. “Based on how those power plants perform in the market, customers will either see a charge or a credit on their bill.”
FirstEnergy says the plants are under threat of being shut down because they cannot compete with cheap renewables and natural gas generation in competitive energy markets. That, the company says, could create reliability problems for Ohio customers.
“We see the need for increased reliability particularly as we witness what happened in the polar vortex and even what happened before the vortex,” Bill Ridmann, FirstEnergy’s vice president of rates and regulatory affairs, told Utility Dive in an interview. “In the fall of 2013 there were some reliability issues as the market changed, so I think that’s the primary benefit [of our proposal].”
Beyond that, Ridmann said the company also expects the PPA proposal to save customers money. While natural gas may be pricing the utility’s baseload plants out of the market today, FirstEnergy’s internal estimates see the price of gas rising in the next few years, meaning that locking in a lower PPA rate today could save customers money.
“Over the 15 year term of the PPA our customers we project will save about $2 billion,” Ridmann said.