By Rich Heidorn Jr.

Ohio regulators on Wednesday rejected challenges to their order awarding FirstEnergy a subsidy worth more than $600 million, assistance the company said it needed to avoid having its credit rating reduced below investment grade.

The Public Utilities Commission of Ohio also rejected some rehearing requests by FirstEnergy while also granting others (14-1297-EL-SSO).

Opponents of the rider immediately vowed to appeal to the state Supreme Court.

In October, the commission unanimously rejected FirstEnergy’s request for an eight-year retail rate stability (RRS) rider totaling $4.46 billion, which the company said it needed to ensure its financial health at a time in which its coal- and nuclear-fueled generation is challenged by low natural gas prices.

Instead, the commission approved a three-year distribution modernization rider (DMR) totaling about $612 million for subsidiaries Ohio Edison, Cleveland Electric Illuminating and Toledo Edison. The commission said the additional money would allow the company to make investments in grid modernization. (See PUCO Rejects FirstEnergy’s $558M Rider, OKs $132.5M.)

In December, the commission agreed to consider FirstEnergy’s rehearing request, along with challenges by environmentalists, independent power producers, large customers and the Ohio Consumers Counsel (OCC).

In its unanimous ruling Wednesday, the commission said that it had already “thoroughly addressed” issues raised by OCC, the Northwest Ohio Aggregation Coalition, Cleveland Municipal School District and the Sierra Club. Commissioner Lawrence K. Friedeman recused himself.

It said the risk of FirstEnergy’s and its subsidiaries’ credit ratings dropping to below investment grade was “sufficient to constitute an emergency that threatens the utility’s financial integrity,” rejecting opponents’ claim that it should rely on the current credit ratings of the companies.

The commission also approved FirstEnergy’s request to strike portions of filings by the Ohio Manufacturers’ Association Energy Group, saying “new information should not be introduced after the closure of the record.” It also struck news articles included in filings by the Northeast Ohio Public Energy Council, which it said were hearsay.

In response to a request from FirstEnergy, it clarified its earlier ruling, saying that if Electric Security Plan (ESP) IV is terminated, the Rider Delivery Capital Recovery (DCR) revenue cap increases currently in place will continue until the commission establishes a new standard service offer (SSO). “If FirstEnergy exercises its right to terminate ESP IV at some point in the future following rehearing or an appeal, the Rider DCR revenue cap increases yet to be implemented at the time of termination will also be terminated along with the remaining provisions of ESP IV. However, FirstEnergy will be permitted to continue to recover costs already incurred under Rider DCR,” it said.

PUCO said it was “not persuaded by FirstEnergy’s assertion that DMR revenue could be recovered through a base distribution rate case. We do agree that certain costs of grid modernization, specifically the costs of any acquisition and deployment of advanced metering, including the costs of any meters prematurely retired as a result of the advanced metering implementation, may be recovered outside of an ESP [electric security plan]. Moreover, we also agree that the $568 million annual economic impact of the retention of the FirstEnergy Corp. headquarters is an economic benefit under the ESP and should be included as a consideration in the ESP versus MRO [market rate offer] test.”

Opponents of the rider reacted sharply, saying they will take their arguments to the Ohio Supreme Court.

“There is simply no basis in Ohio law to force utility customers to pay for a slush fund for FirstEnergy Corp. and its shareholders,” said Shannon Fisk, managing attorney at Earthjustice.

“We are very disappointed in the commission’s continued unwillingness to shield customers from FirstEnergy’s poor business decisions,” said Dan Sawmiller, senior representative for Sierra Club’s Beyond Coal Campaign. “The PUCO has missed yet another opportunity to focus the company on real efforts to modernize our electric grid and invest in new, clean energy technologies and instead has forced customers to pay up for unwise investments in outdated coal and nuclear plants.”

The Environmental Defense Fund said it was “confident the Ohio Supreme Court will … reject the regulators’ latest giveaway to dirty energy.”

FirstEnergy spokesman Doug Colafella said the ruling “affirmed the commission’s previous order that will help support future investments to modernize our electric system.”

“Grid modernization will benefit our customers and competitive suppliers by enhancing service reliability and enabling new products and services,” he said.