By Ted Caddell and Suzanne Herel

Dynegy entered the Ohio PPA fray last week, floating an offer to the Public Utilities Commission of Ohio that it said would save consumers in the state $5 billion over eight years.

The company said it was making its counter offer “in response to the exorbitant and counterproductive subsidies currently under consideration” for American Electric Power and FirstEnergy. It would either provide power from its existing generation fleet in the state, or replace subsidized American Electric Power and FirstEnergy plants with new, natural gas-fired generation.

The Ohio-based companies have proposed power purchase agreements to PUCO that would provide a guaranteed return for their embattled generating stations for eight years. PUCO staff has signed on to both proposals, which have been attacked by independent power producers and others. (See Merchant Generators Lead Opposition to FirstEnergy-Ohio Settlement.)

Dynegy’s offer comes two weeks after Exelon made its own offer to PUCO, proposing a competitive bidding process to supply the 3,000 MW for which FirstEnergy is seeking guaranteed rates (the combined value of FirstEnergy’s W.H. Sammis coal plant and its Davis-Besse nuclear station).

Local Provider?

One difference in Dynegy’s offer is that it bills itself as a local provider. “The power provided by Dynegy will be generated by Ohioans, at Ohio plants, for Ohioans,” Dynegy said in its announcement. Dynegy said it has 5,400 MW of generation in Ohio and hundreds of employees in the state and would use the state’s natural gas, “providing further benefits to the state.”

Dynegy CEO Robert Flexon, who has threatened to sue if PUCO accepts either the AEP or FirstEnergy proposals, said his company has the winning answer.

“If the PUCO and other elected officials in the state are interested in protecting consumers’ and businesses’ long-term interests while ensuring long-term reliability and price stability, then in lieu of accepting FirstEnergy’s and AEP’s proposals for long-term power purchase agreements, the PUCO should adopt one of the alternate, superior proposals Dynegy is putting forth,” he said. “The PUCO could also institute a request for proposal process containing the same arrangements in the AEP and FirstEnergy PPA proposals. Exelon’s recent proposal is also thoughtful, and Dynegy agrees with Exelon that this process should be competitive.”

Flexon will join CEOs from Calpine, NRG Energy and Talen Energy, as well as officials from Advanced Power and the PJM Power Providers Group (P3), in Columbus on Wednesday to lobby against the deals. The officials will hold a press conference at the state capitol at 2:15 p.m.

FirstEnergy: Dynegy ‘Misses the Point’

FirstEnergy spokesman Doug Colafella said Dynegy’s offer is off the mark.

“Dynegy’s proposal offers few specifics and provides no assurances that its power plants in the region will continue operating over the long term,” he said Friday. “Dynegy is a power marketer from Houston with an established track record of entering and exiting competitive markets. While its brand of investors may be willing to tolerate its ‘boom and bust’ approach to energy markets, this approach fails to deliver on two key policy goals in Ohio — energy stability and economic stability.”

“In addition,” he said, “Dynegy’s offer to fill the void with gas-fired plants if Sammis and Davis-Besse were forced to close completely misses the point about having a diverse set of fuels available to produce electricity in Ohio, an important ingredient for ensuring price stability for customers.”

AEP: Dynegy Wants Higher Prices

AEP Ohio spokeswoman Terri Flora also took a shot at Dynegy’s new generation option.

“If Dynegy could build new generation in Ohio under current market conditions, they would,” she wrote. “But, they haven’t built new generation in Ohio and they can’t afford to build it under current conditions. They need energy costs to rise dramatically for their business model to work so they want to force existing power plants to close.”

FirstEnergy Hearings Continue

The sparring proposals and letters came as PUCO continued hearings last week on the FirstEnergy proposal. The hearings are expected to run through the end of this week. Final arguments are likely in February and a commission vote possible by March, the Cleveland Plain Dealer reported.

On Thursday, lawyers for the Sierra Club questioned PUCO’s director of rates and regulatory affairs about FirstEnergy’s projection that natural gas prices will rise above $4/Mcf — a key assumption in the company’s contention that its proposal will save consumers money.

Prices for January are below $2.40/Mcf and New York Mercantile Exchange futures are below $4 through 2024.

FirstEnergy Answers PJM Member Criticism

FirstEnergy also responded to criticism of its proposal from P3 and the Electric Power Supply Association in a letter to the PJM board. (See Exelon Calls FirstEnergy PPA ‘Grossly Lopsided,’ Says it can Offer a Better Deal.)

Amid an industry in transition, “a number of states are considering retail rate policy reforms that support long-term resource planning, generator diversity and economic stability,” wrote Steven Strah, president of FirstEnergy Utilities. “While some participants may disagree with our proposal, it is legal from a state and federal perspective, and consistent with traditional state and federal regulatory rules.”

Strah also criticized PJM’s request that PUCO require FirstEnergy and AEP’s Ohio generators to offer their output into the RTO’s markets at no lower than their actual cost, with no consideration of offsetting revenue provided by Ohio retail customers. (See PJM Seeks Changes to AEP, FirstEnergy PPAs.)

Strah said such a mandate would violate federal appellate court rulings that prohibit state regulators from “dictat[ing] generator offer behavior in PJM’s FERC-jurisdictional wholesale markets.”

Meanwhile, the independent generators received support from Advanced Power Asset Management, which is developing two combined cycle projects in Ohio.

In its letter to the PJM board, it called the FirstEnergy and AEP deals “a special subsidy to incumbent Ohio- and Indiana-based PJM generators [that] will circumvent the PJM capacity and energy markets,” lowering prices for other market participants and creating a disincentive to new investment.

Advanced Power is developing Carroll County Energy, a 700-MW natural gas-fired combined cycle generator expected to go online in the second half of 2017. The $899 million project is fully funded, “predicated on the PJM market mechanism, which is the largest and most liquid competitive capacity and energy market in the U.S.”

Also being developed — but not yet funded — is the 1,100-MW South Field Energy combined cycle project in Wellsville, Ohio.