By Ted Caddell

Ohio regulators Wednesday rejected FirstEnergy’s request for an annual $558 million rider for eight years, voting instead to give the company $204 million annually for only three years.

FirstEnergy, whose request would have totaled $4.46 billion, will receive $612 million (nominal dollars) under the unanimous decision by the Public Utilities Commission of Ohio.

The company said the eight-year retail rate stability (RRS) rider was necessary to ensure the corporation’s financial health at a time in which its coal- and nuclear-fueled generation is challenged by low natural gas wholesale energy prices.

The commission said its staff proposal for a distribution modernization rider (DMR), introduced in July, would do that. (See PUCO Staff Recommends $131M Annual Rider for FirstEnergy.)

The staff’s proposal “will provide FirstEnergy with an infusion of capital so that it will be financially healthy enough to make future investments in grid modernization,” the commission said in a statement. The commission’s unanimous order limited the rider to three years, with the possibility of a two-year extension.

The company reported a $1.1 billion loss in the second quarter, much of it related to the closure of five coal-fired units. (See FirstEnergy Posts $1.1B Loss, Eyes Exit from Merchant Generation.)

‘Not a Bank’

Chairman Asim Z. Haque said  the rider is not meant to solve all of FirstEnergy’s financial problems.

“If FirstEnergy truly needs $4.5 billion to achieve full financial health, then the commission decision today falls well short of that expressed need,” he wrote in his concurring opinion. “The commission does not intend to be, nor will it be, nor should it be the entire solution for FirstEnergy’s current financial difficulty. … The commission is an economic regulator. It is not a bank. It is not a trust fund. We authorize rates and charges that come directly from the pockets of consumers and businesses in this state. We have no rainy day fund to dip into.

“I do, however, want our regulated utilities to be healthy so that they can invest in bettering the delivery of services to consumers and businesses in the state of Ohio,” he went on. The rider “is meant to assist FirstEnergy in deploying the grid of the future while simultaneously providing it with a boost to improve its credit rating and financial health.”

FirstEnergy Unhappy

FirstEnergy will collect $132.5 million a year, with the balance of the $204 million going to taxes, said company spokesman Doug Colafella. Haque concurred with that figure “assuming current tax rate.”

The charge will boost monthly bills $3 (about 3%) for a typical residential customer using 750 kWh, the company said.

The company was not pleased with the decision.

“Today’s decision is disappointing for our customers,” said CEO Charles E. Jones. “While we clearly demonstrated to the PUCO what is essential to ensure reliability for customers in the future, the amount granted is insufficient to cover the necessary and costly investments. The decision also fails to recognize the significant challenges that threaten Ohio utilities’ ability to effectively operate.”

FirstEnergy said it is evaluating the order and considering its next steps. It has 30 days to appeal.

The modified RRS was FirstEnergy’s latest attempt for a state bailout. Its first attempt, submitted as a power purchase agreement, was approved by PUCO but collapsed after FERC said it — and a similar deal involving American Electric Power — would be subject to stringent reviews. (See FERC Rescinds AEP, FirstEnergy Affiliate-Sales Waivers.)

FirstEnergy and AEP went back to the drawing board. While FirstEnergy went with the modified rider request, AEP has chosen to go a different route: It is currently working with Ohio legislators to reverse customer choice and reregulate the industry.

Opponents also Miffed

Environmental groups and consumer advocates argued that the FirstEnergy request was unreasonable.

“Today’s decision takes hundreds of millions of dollars out of customers’ pockets in order to create a massive slush fund for FirstEnergy Corp. and its shareholders,” said Shannon Fisk, attorney at the nonprofit environmental law firm Earthjustice.

“The fact that FirstEnergy asked for billions more does not make this decision any less unreasonable.  Rather than forcing customers to prop up profits for a corporation that made a bad bet on aging coal plants, the commission should be looking after customers and ensuring investments in job-creating renewable energy, energy efficiency and smart grid initiatives.”

The Sierra Club said PUCO could have used the ruling to encourage FirstEnergy to make further efforts to move toward more renewable energy.

“In this long-awaited and complicated decision, PUCO missed a critical opportunity to seriously focus FirstEnergy on the more diversified, cleaner energy future that tens of thousands of customers wrote the commission asking for,” said Dan Sawmiller, senior representative for the Sierra Club’s Beyond Coal campaign in Ohio.

“A few months ago, FirstEnergy took an important step in moving beyond coal when it announced closure of four units at its Sammis coal plant. With PUCO’s decision now issued, we hope to be able to work with FirstEnergy to accelerate its path beyond coal and nuclear and toward new investments in clean energy, energy efficiency and other modern grid initiatives like infrastructure for electric vehicles.”

IPPs Weigh in

The Alliance for Energy Choice, an organization funded by independent power producers, said FirstEnergy is still getting a good deal at ratepayers’ expense.

“The PUCO once again granted the utility’s request for more money with no corresponding benefit to customers,” Alliance spokesman and former PUCO Chair Todd Snitchler said. “Businesses and families will again be required to pay more for the same service they already receive with only a hope that customers will gain an upgraded grid if and when the utility elects to do so.”

“FirstEnergy should simultaneously be required to file a distribution rate case to document the need for, and amount of, a true grid modernization program,” Snitchler said.