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PUCO Gives Modified Go-Ahead to AEP, FirstEnergy Profit Guarantee Proposals

April 1, 2016 By Cheryl Kaften

The Public Utilities Commission of Ohio (PUCO) gave a limited go-ahead on March 31 to two controversial rate requests – one, from American Electric Power Ohio (AEP), intended to guarantee its income from six area coal plants (Docket No. 14-1693-EL-RDR); the other from FirstEnergy, designed to mitigate the financial risks of operating its nuclear facility and several coal-fired generators statewide (Docket No.14-1297-EL-SSO).

Industry pundits already are predicting that the settlement – which effectively would allow the utilities to increase what they charge for the power from their coal and nuclear plants in order to guarantee their income from those plants – will be appealed to the Federal Energy Regulatory Commission (FERC) and beyond.

“Even though the PUCO has approved the charge, I don’t think it will end up on customer’s bills,” Matt Brakey, an energy consultant and president of Shaker Heights-based Brakey Energy, told Crain’s Cleveland Business. “I think FERC will act.”

In the case of AEP, which serves nearly 1.5 million customers in the Buckeye State, the company hoped to guarantee the income from its ownership interests in four AEP Generation Resources (AEPGR) coal plants and its stake in two Ohio Valley Electric (OVEC) coal plants for the full operational life of those units.

With respect to FirstEnergy, which serves 2.2 million ratepayers statewide, the company wanted to protect its operations at the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio; the coal-fired W.H. Sammis Plant in Stratton, Ohio; and a portion of the output of Ohio Valley Electric Corporation (OVEC) coal-fired units in Gallipolis, Ohio, and Madison, Indiana.

Both deals had been harshly critiqued by consumer advocates and environmental groups – who characterized them as unfair bailouts of failing generators that would cost consumers big bucks and delay the transition to renewable energy. What’s more, they warned that the “bailout trend” could sweep the rest of the country.

“We think the decision is saddling customers not only with high costs for the next eight years, but with old coal plants that should be on their way to retirement…,” Trish Demeter of the Ohio Environmental Council told the local Toledo Blade. “Let’s be clear. Day one, the utilities, both AEP and FirstEnergy, are getting everything they want, which is a profit guarantee and seven coal plants that will stay on-line for at least eight years,” she said.

How much will it really cost? The Ohio Consumers’ Counsel estimated that the settlements would cost ratepayers $5.9 billion combined over the eight years (from June 1, 2016, to May 31, 2024) of the plan. Others have set the bottom line a bit lower, at $2 billion. Customers would pay those costs as distribution fees on their monthly bills, regardless of whether they buy their electricity from retail energy suppliers.

Conversely, AEP and FirstEnergy had argued that the rate provisions would help protect customers against rising retail price increases and market volatility over the next eight years, while preserving vital base load power plants that serve Ohio customers and provide thousands of family-sustaining jobs in the state.

In fact, AEP predicted that its customers would enjoy a net savings of $214 million because the rate increases at the beginning of the plan would be followed by decreases in later years. The commission order limits increases in customers’ bills during the first two years to no more than 5 percent annually

AEP Settlement
In its decision on the AEP filing, the commission directed the utility to work toward the retirement of its traditional plants, to add renewable generation to the mix, and to identify transmission upgrades that would address reliability concerns.

With respect to Conesville Units 5 and 6 and Cardinal Unit 1, AEP Ohio will open a docket at the commission no later than December 31, 2024, which it will update annually, known as the “Retirement Readiness” docket. The purpose of the docket will be to identify and remove any barriers to retiring, refueling, or repowering Conesville Units 5 and 6 and Cardinal Unit 1.

By December 31, 2024, AEP Ohio or an independent third party will identify specific transmission upgrades and/or non-transmission alternatives that would completely alleviate any identified reliability concerns. AEP Ohio will analyze non-transmission solutions to any reliability problems projected to result from the retirement of the units, including energy efficiency, demand response, and distributed generation resources.

The commission has also placed limits on the power purchase agreement (PPA) rider to ensure further rate stability for consumers.

The commission directs AEP Ohio to create and submit a grid modernization plan. “Advanced technologies reinforce Ohio’s energy infrastructure, enable customer engagement, help utilities better respond to service issues, promote energy efficiency and encourage innovation in the competitive marketplace,” the PUCO said.

FirstEnergy Settlement

Many of the provisions of the FirstEnergy settlement are similar to those of the AEP plan. The order limits bill increases; promotes a modernized grid, and reinforces support for retail shopping. The plan will ultimately determine the standard service offer (SSO) from June 1, 2016 through May 31, 2024.

“The commission order strikes the highly challenging balance between consumers’ interests in cost-effective electric service and the vested interests of other diverse stakeholders,” said PUCO Chairman Andre T. Porter. “Today’s opinion and order affirms Ohio’s commitment to encourage a modernized grid and retail competition.”

The commission’s opinion and order includes the approval of a Retail Rate Stability (RRS) rider, which is intended to stabilize retail rates in FirstEnergy’s service territory. The PUCO has incorporated additional safeguards for consumers through enhanced PUCO oversight, including regular audits and monitoring of rider RRS. In order to protect customers against price fluctuations and provide additional rate stability, the commission has modified the stipulations to limit average customer bills. Included in the commission’s decision, the utilities’ base distribution rates will remain frozen for the eight-year term of the ESP.

The commission also has directed FirstEnergy to submit a grid modernization plan. Additionally, FirstEnergy has committed to submit a plan to procure at least 100 megawatts of renewable resources.

Finally, value for Ohio’s consumers and businesses is highlighted in this order through contributions to low-income and economic development programs including a funding commitment from FirstEnergy for energy conservation and job retention programs and the continuation of the automaker credit.

What’s Next?

The decisions are expected to be appealed, not only at FERC but in the Ohio court system. The court challenges may take several years.

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