Monday November 14, 2016

In case you've been a bit distracted by national news, we wanted to make sure you knew the Public Utilities Commission of Ohio (PUCO) made its decision on FirstEnergy’s requests for money.

So did the Ohio-based utility giant get what it wanted? Not quite. The PUCO handed over $600 million, a mere 5 percent of FirstEnergy’s $12 billion ask. (Imagine a spoiled teen asked his dad for 100 cars, and received 5. It’s a fraction of what he wanted, but still way more than he needs.)

If read through rose-colored glasses, the regulators’ decision killed FirstEnergy’s massive bailout and ordered the utility to modernize its grid. If read realistically, the PUCO is providing FirstEnergy a no-strings-attached subsidy.

As the PUCO’s Chairman Asim Haque put it, the ruling was “undoubtedly unconventional.” Since it seems highly unlikely FirstEnergy will spend any of that money to modernize its grid, Environmental Defense Fund, among others, will be following up at the Ohio Supreme Court to make sure it does.

You can always visit EDF’s FirstEnergy website for our newsletter archive and links to the latest news about FirstEnergy’s bailout.

FirstEnergy Continues Dangling Threats

FirstEnergy’s response to the PUCO decision was again to cry, “Wolf!” 

Despite the $600-million giveaway, its generation subsidiary casually mentioned declaring bankruptcy as a possible option down the road. If it doesn’t obtain protection from competition, FirstEnergy also threatens to sell many of its uneconomic power plants to out-of-staters, hinting that Ohio jobs will be lost. The utility fails to acknowledge that the new owner would most likely continue to operate the units, employ the workers, and pay taxes to support local schools and public services.

Realizing that it doesn’t operate very well in competitive power-generation markets, FirstEnergy wants either to receive subsidies or return to the guaranteed profits from being a regulated monopoly (more on that below). At a time when the nation’s electricity system is embracing new competitors and the innovation and investment they provide, FirstEnergy wants to move backwards, to dangle threats rather than embrace markets.

Ohio Utilities Play Follow the Leader

Looks like FirstEnergy set a precedent in Ohio. The rubber-stamp regulators last Friday announced new profit guarantees for AEP’s share of two uneconomic coal-fired power plants. Dayton Power and Light (DP&L), moreover, is holding out its hand and hoping millions will drop in.

The Dayton-based utility is asking for $145 million per year to improve its “weakening credit ratings.” Sound familiar? DP&L’s rate increase is also called a “distribution modernization rider” – the very same deceptive language used in the FirstEnergy request.

And just like with FirstEnergy, if the deal is approved, it will be everyday customers footing the bill.

FirstEnergy Focuses on Lobbying Rather than Business

Rather than focus on making sound business decisions, FirstEnergy executives have decided to hire well-connected lobbyists to bail them out.

In fact, new data from the National Institute on Money in State Politics shows “FirstEnergy ranked fourth in the Institute’s list of top contributors for Ohio, behind ‘unitemized donations’ and the Republican Senate Committee of Ohio and the Ohio Republican Party.” So, aside from those two political groups, FirstEnergy is spending more money than anyone else in the state to influence politics.

Recent updates suggest Ohio is not their only target.

The West Virginia Public Service Commission recently sided with FirstEnergy, and “denied a staff petition that would have required Mon Power Company to seek competitive bids before increasing capacity,” as the Institute for Energy Economics and Financial Analysis explains. Rather than see if competitors would offer lower-priced power, FE’s WV subsidiary, Mon Power Company, would prefer to give a sweetheart deal to its own dirty and uneconomic coal-fired power plant. Again, FirstEnergy lobbyists earn their large consulting contracts and West Virginians suffer higher rates.

Over in Pennsylvania, SNL Energy reports that the utility’s approved rate increases “are viewed as another positive step for the company's earnings and credit outlook.” They can also be viewed as more millions in FirstEnergy’s pockets.

FirstEnergy may look at its lobbying prowess and these decisions as “wins,” but it’s hard to see them as such when competition, the environment, and customers all lose.

Ohio: Harbinger of Re-Monopolized Future?

Utility Dive recently highlighted the spate of state subsidies for power plants, and how efforts to abandon competitive electricity markets are brewing across the country.

Guess what it called out as the “bellwether” state for re-monopolization? Starts with an ‘O’ and ends with a ‘Hio.’
That’s because (as we pointed out in our last newsletter) AEP is determined to make re-reg happen. Basically, its bailout efforts failed, so now the utility is looking to reinstall the comfort and safety of guaranteed profits by moving back to a regulated, vertically integrated system. In a recent investor call, AEP’s CEO even said, “The new story of AEP is one of […] more regulation.”

Now the plot has thickened. In its most recent earnings call, FirstEnergy’s CEO Chuck Jones jumped on the bandwagon, announcing, "We are looking to convert competitive generation to a regulated or regulated-like construct in Ohio." Because “regulated-like” sounds so much less severe. It’s unclear whether or how these efforts will align with AEP’s.

The Ohio deregulation debate is a “big battle to watch” (according to Utility Dive), and its implications will stretch far beyond the state’s borders. If Ohio retreats from a competitive electricity market – which we know leads to lower costs for customers and cleaner energy – it could set a dangerous precedent for other baseload-heavy utilities clinging to the ways of the past.

Quote of the Week

If you recall, just a few weeks ago, FirstEnergy had three requests before the PUCO, totaling more than $12 billion, in order to reduce its debt and keep its good credit rating:

1. $4 billion for its original proposal for a virtual power purchase agreement that would keep its uneconomic power plants operating;
2. $4 billion+ for money to help reduce the utility’s debt and maintain its credit approval; and
3. $4 billion+ to compensate the company for keeping its HQ in Ohio.

That’s a lot of billions.

In our quote of the week, which comes from Crain’s Cleveland, it would appear that figure was, um, a little inflated.

“Chuck Jones needs to find about $200 million. That’s roughly the amount that Jones, CEO of Akron-based FirstEnergy Corp., says he needs to find in cost savings to preserve his company’s credit rating.”

Really? Not even a billion? Then what was all of that $12-billion pleading all about?