By Ted Caddell

In recent policy disputes over capacity markets and energy price caps, FirstEnergy and the independent power producers of the Electric Power Supply Association have usually been on the same side.

When EPSA won a federal appeals court ruling voiding FERC’s authority over demand response last year, FirstEnergy asked the commission the same day to prevent DR from being included in PJM’s capacity auction.

But when the Akron-based utility announced last week that it had reached a settlement with the staff of the Public Utilities Commission of Ohio to secure guaranteed rates for several of its merchant plants, the company found itself under attack by many of its former allies.

By Thursday, EPSA had corralled Dynegy, Talen Energy, the PJM Power Providers Group (P3), the Sierra Club of Ohio, AARP and others in a coalition blasting the deal. Dynegy and Talen threatened to sue.

“The fault of FirstEnergy’s inability to compete in Ohio lies with FirstEnergy and it should not be dependent on the citizens and businesses of Ohio to provide a bailout,” said Robert C. Flexon, CEO of Dynegy, which increased its stake in PJM with its purchase of 12,500 MW of generation from Duke Energy and Energy Capital Partners earlier this year. (See Dynegy Wins FERC OK for $6.25B Duke, Energy Capital Partners Generation Deals.)

“Dynegy will pursue all available avenues, including litigation, to prohibit the power purchase agreement from being enacted so as not to compromise the competitive market design, and we strongly encourage the PUCO commissioners to oppose and vote down this adverse anti-market public policy.”

Dynegy said that FirstEnergy is already enjoying the benefits of the wholesale market and shouldn’t need any further assistance.

“Recent market awards indicate that FirstEnergy is already set to receive significant revenue for capacity at all of their Ohio plants for the next three years,” Dynegy said. “According to FirstEnergy’s own data from their recent investor presentation at the Edison Electric Institute’s Financial Conference, FirstEnergy’s fleet has been awarded more than $2.3 billion in revenues over the next three planning years from the PJM capacity auction with all of their generating plants clearing the most recent capacity auctions, which is significantly more than the amount expected at the time of FirstEnergy’s original subsidy request. As part of the award, FirstEnergy’s plants are now obligated to run through May 31, 2019, without the PPAs.”

Reliability Threat

FirstEnergy has said that it needs the income guarantees, in the form of PPAs for its Davis-Besse Nuclear Power Station, the W.H. Sammis coal-fired plant and its share of Ohio Valley Electric Corp.’s generation output, to keep them profitable.

American Electric Power has a similar proposal pending before the Ohio commission. Without the guarantees, the companies say, they might have to retire their plants, threatening system reliability.

Sixteen parties, including PUCO staff and civic groups, signed on to the proposed settlement filed with the commission last Tuesday (14-1297-EL-SSO). Several other organizations, including the Office of the Ohio Consumers’ Counsel, rejected the deal and joined in a motion to reopen the record.

FirstEnergy’s first proposal, which PUCO staff rejected earlier this fall, called for income guarantees for 15 years. The settlement seeks income guarantees for eight years. Ratepayers would make FirstEnergy whole if its generators were not profitable based on their capacity and energy sales in the competitive market.

Although PUCO staff approved the settlement, it still needs approval of the commission. FirstEnergy said it expects the commission to hold hearings on the proposal early next year.

Picking Winners and Losers

Talen joined Dynegy in promising to contest the deal in court if it is approved by the commission.

“As you are aware [PPL, one of Talen’s predecessors] led successful legal challenges in the federal courts against generation subsidy initiatives in New Jersey and Maryland,” Talen spokesman Todd Martin said Thursday. Before PPL’s generation assets were spun off to form Talen, the company won court rulings voiding PPAs obtained by Competitive Power Ventures for two merchant plants. (See CPV Md. Plant Goes Forward Despite FERC Ruling.)

“We believe states with competitive electricity markets must let those markets operate without interference or subsidies, and should not in effect be picking winners and losers,” Martin said.

P3 President Glen Thomas said PUCO staff’s “about face” represents “corporate welfare at its worst.”

“Forcing customers to buy overpriced electricity from uncompetitive plants to deliver windfall profits to FirstEnergy is a holiday offering that only the Grinch could support,” said Trey Addison of AARP Ohio.

“This bailout would leave Ohio locked into outdated and costly coal and nuclear plants, when we should instead be working to transition to a cleaner and more competitive energy system,” said Shannon Fisk, managing attorney with Earthjustice. Fisk was involved in settlement negotiations on behalf of the Sierra Club but withdrew in protest just before Thanksgiving.

Also weighing in was anti-nuclear group Beyond Nuclear, which blasted any deal that would result in the continued operations of FirstEnergy’s Davis-Besse nuclear plant. “The ratepayers of Ohio would be gouged additional billions of dollars on their electricity bills to prop up the uncompetitive Davis-Besse atomic reactor, effectively being forced to fund 20 more years of radioactive Russian roulette at the problem-plagued atomic reactor,” Beyond Nuclear spokesman Kevin Kamps.

$20/MWh Premium

Despite the opposition, UBS analysts predicted last week that the commission will approve the PPAs, which the analysts valued at $68/MWh.

That would be $20 MWh above market prices, based on Ohio’s most recent auction for default service. PUCO in November accepted the results of AEP Ohio’s third wholesale auction to determine the default price through May 2018, at $48.29/MWh. That price will be blended in with result from other auctions to determine the price-to-compare for June 1, 2016, to May 31, 2018. The $48.29 price was the result of a 13-round auction with six competitive suppliers participating.

On Monday, UBS upgraded AEP to “buy” on the expectation that it will win PUCO approval of its deal.

FE: Looking out for Ratepayers

For its part, FirstEnergy said it wasn’t surprised to see the blowback from competitors.

It said it alone is looking out for Ohio’s ratepayers. Although residential ratepayers would pay an extra $3.25 to $3.50 a month during the first year of the deal, the company claims it will produce overall savings of about $560 million. FirstEnergy’s projections, which assume sharply higher natural gas prices in the latter years of the deal, have been widely disputed.

“FirstEnergy has stated from the outset that customers will likely see a monthly charge in the first three years under this arrangement, with the charges converting to credits for customers for the remainder of the eight-year term,” FirstEnergy spokesman Doug Colafella said Friday.

“Out-of-state power producers opposing our plan are betting on sharply higher power prices in Ohio down the road, so naturally they would oppose putting safeguards in place to protect our customers,” Colafella said. “Our proposal is that safeguard.”