Akron, Ohio-based FirstEnergy made its latest proposal (Case No. 14-1297-EL-SSO) on August 29 to the Public Utilities Commission of Ohio (PUCO), continuing a two-year effort to shift the financial risks of operating two of its generating plants away from the company’s subsidiaries – Ohio Edison, Cleveland Electric Illuminating, and Toledo Edison – and to their 2.2 million ratepayers in the Buckeye State.
FirstEnergy claims that energy produced by the two traditional plants – one, a nuclear facility; and the other, a coal-fired generator – is vital in order to maintain grid reliability and cost stability in its combined service areas statewide.
Environmentalists argue that both plants should be shuttered – and renewable generators should take their place. What’s more, they assert that Ohio’s residents and businesses should not be asked to shoulder the costs of the failing generators – essentially “bailing out” power producers doomed by flawed economics.
“When they first told me that was in there, I thought it was a joke,” Eric Burkland, the president of the Ohio Manufacturers’ Association, which opposes the fee increase, told Bloomberg. “From a manufacturing ratepayer’s perspective, it’s just bizarre.”
While governments often offer tax breaks to lure businesses, Burkland said he was unaware of another utility asking ratepayers for payments tied to the company’s headquarters.
“They should weigh the value of keeping our nexus of operations” in Akron, Eileen Mikkelsen, vice president for Rates and Regulatory affairs at FirstEnergy, said in rebuttal testimony. “If the commission thinks that is important to the state, they should recognize that in their order.”
“When all is said and done, consumers could be charged up to nearly $8.9 billion to support the financial integrity of FirstEnergy,” the Ohio Consumers Office said in a brief. “The record reflects no evidence that FirstEnergy plans to relocate its headquarters away from Akron.”
In fact, the company announced in May 2015 that it that it had signed an 8.5-year lease extension for its 19-story downtown Akron headquarters and would “remain in this downtown Akron location through June of 2025.”
Arguing strongly against the proposal, the Ohio Consumers Office stated, “There are important policy goals involved in preventing consumers from bailing out FirstEnergy’s corporate parent. One of these policies is that in doing so, the PUCO could be incenting risky behavior on the part of the corporate parents of distribution utilities. This is exemplified in the economic concept of ‘moral hazard.’ Moral hazard is the notion that, ‘there is a distorted incentive structure in place that motivates investors to make suboptimal choices because they do not bear the adverse consequences of these choices.’”
“By bailing out FirstEnergy’s parent corporation,” the Ohio Consumers Office said, “the PUCO would be promoting additional risky behavior. Furthermore there would be no incentive not to engage in risky behavior for the corporate parent because they know the PUCO will insulate them from any bad consequences at captive consumers’ expense. Such a policy precedent would in the end harm consumers because they would bear the burden of bailing out these parent corporations.”
Other companies, including independent power producer Dynegy, have characterized the proposal as “insanity.” In an email to Columbus Business First, Dynegy CEO Robert C. Flexon stated, ““Please let it be known, that for $4.5 billion or half the price of what [FirstEnergy] is dictating, we will move our entire corporate and regional offices into the very space [FirstEnergy] occupies today once they pack up and leave town.”