FirstEnergy has negotiated a deal with PUCO staffers to keep older big power plants alive by having customers subsidize them because they cannot compete with cheaper power made by new gas-fired power plants.
AKRON, Ohio - FirstEnergy asked Ohio regulators Tuesday for permission to charge its customers an extra $400 million over the next two and a half years, in return for keeping its giant coal and nuclear plants in operation.
Whether customers will continue to pay extra for a longer time depends on the future price of natural gas, which currently offers a cheaper alternative power source.
First Energy says gas prices will rise, so customers will save in the long run. Its opponents say the vast reserves of natural gas in nearby shale deposits make any major price hike unlikely for the foreseeable future. Some argue that First Energy's 2 million Ohio customers could shoulder nearly $4 billion in higher costs if the request is approved by the Public Utilities Commission of Ohio.
The company calculates that residential customers would pay just $3.25 per month extra, but it based that estimate on consumption of 750 kilowatt-hours per month. That is well below the national average of 1,000 kilowatt hours.
First Energy's proposal has the backing of only 16 of the 41 companies, consumer groups and environmental groups that have been wrangling over subsidizing the plants since the fall of 2014. A January 2015 public hearing here drew a large angry crowd.
Filed with the state this morning, the plan would commit Ohio customers for up to eight years to buy all the power generated by the Davis-Besse nuclear plant near Toledo and by the coal-fired W.H. Sammis plant on the Ohio River, at whatever it cost to make, plus a profit.
The two power plants have been unable to compete with the prices offered by gas-fired power plants in Ohio's deregulated, competitive wholesale markets.
Ohio's deregulation laws require utilities such as the Illuminating Co. and Ohio Edison, which no longer own the power plants they built, to buy power through state-monitored wholesale auctions. Those auctions are open to all power-generating companies in the region.
The idea was that competition would drive down prices and benefit customers. And it has.
FirstEnergy championed deregulation just seven years ago. It threatened to sue the state if it tried to re-regulate prices.
But that was before shale gas. FirstEnergy's old coal and nuclear plants haven't been winning those wholesale auctions that gas-fired plants now dominate. The company has said it might have to shut down the old plants if they are not subsidized.
In exchange for the subsidy, FirstEnergy now would agree to an annual review of the transactions by the Public Utilities Commission of Ohio. After four years, the company says, it would give back $10 million to Ohio customers through an adjustment to rates.
Opponents, including the Sierra Club, call the plan a bailout that could cost customers billions, and would not encourage the company to move away from coal. The Ohio Consumers' Counsel and the Northeast Ohio Public Energy Council, or NOPEC, also jointly announced "strong opposition" to the plan.
"The new power purchase agreement proposal will cost consumers approximately $3.9 billion," they argued, adding that the proposal also contains "a virtual holiday wish list of favorable rate making for FirstEnergy."
FirstEnergy argues that the plan "outlines ambitious steps to safeguard customers against retail price increases in future years." That assertion assumes natural gas prices will soar past the price of coal and enriched uranium.
Also in exchange for the PUCO's approval of the subsidy, the company would re-activate its customer energy efficiency programs, which it shut down a year ago when lawmakers froze state energy efficiency rules for two years. Other Ohio utilities continued the programs.
FirstEnergy's opponents say that renewed commitment to energy efficiency does not hold the company to any efficiency standard and is not enforceable.
The company also promises to modernize its local grid -- the substations, wires and transformers that deliver power to its customers throughout the state. The upgrades would include "smart meters" giving customers far more control over how much power they consume, and when.
Those upgrades, though, would boost monthly bills. FirstEnergy is asking for a 10.38 percent rate of return on whatever it spends on local grid modernization. Its filing mentions deferring the costs, which could burden future customers with interest costs.
The company has already begun rebuilding and expanding its high-voltage power lines, at an even higher rate of return approved by federal regulators. Those increases are beginning to creep into monthly bills.
Another provision deep in the plan could radically alter the way monthly residential power bills are figured.
Those bills include both a usage charge and a delivery charge, currently based on usage. In the future, the company could calculate what it cost to maintain the entire system delivering power to a home, and bill each house at that rate, plus a profit margin, regardless of how much energy the household used.
That kind of billing already is used by Dominion East Ohio and Columbia Gas of Ohio, Opponents argue that it punishes customers who try to use less power.
The company's proposal promises "to establish a goal" to reduce its carbon dioxide emissions by 90 percent by 2045, no matter what happens to President Obama's Clean Power Plan. The federal plan would demand reductions by 2030. Opponents dismiss First Energy's promise as meaningless, because it lacks any detail.
FirstEnergy negotiated this latest plan in closed-door meetings with the staff of the PUCO. The staff opposed the company's original plan in testimony before a PUCO administrative judge.
The PUCO staff and FirstEnergy invited other opponents to review the plan and suggest amendments a week ago. The major opponents rejected the deal. The Sierra Club walked out of the talks and vowed to fight the plan in court.
Next comes round of formal objections and counter arguments. The company has told Wall Street analysts since October that it expected the PUCO to approve the deal by early 2016.
The commission does not have to approve the plan according to any specific timetable, but the company has asked the commission to approve it by Feb. 10, 2016. FirstEnergy's current rate plan expires May 31, 2016.