FirstEnergy's plan to have the Illuminating Co., Ohio Edison and Toledo Edison buy all of the electricity generated by David-Besse nuclear power plant and the very large H.W. Sammis coal-fired power plant instead of less expensive power in the wholesale markets is headed for a showdown in January.
View full sizeFirstEnergy Corp. briefly mothballed its W.H. Sammis power plant in 2012 because the company could buy gas-fired electricity in wholesale markets for less than it cost Sammis to generate it. The huge, coal-fired power plant on the Ohio River generates twice as much electricity as two nuclear power plants. Now the company wants its regulated companies to buy all of the plant's output for 15 years. COLUMBUS, Ohio -- The latest proposed FirstEnergy rate plan would cost customers an extra $3 billion, an expert retained by two consumer organizations charged earlier this week.
The plan would have "a net cost to customers of about $3.1 billion to $3.2 billion," wrote Matthew Kahal, an expert consultant retained by the Ohio Consumers' Counsel and the Northeast Ohio Public Energy Council, or NOPEC.
"The commission should protect Ohio customers from this result and reject the ... proposal," wrote Kahal in testimony filed with the Public Utilities Commission of Ohio.
With 35 years experience in more than 400 U.S. utility rate cases, Kahal was one of 15 experts filing testimony on behalf of more than 20 parties by Monday's deadline.
The testimony sets the stage for three public hearings on the plan to take place in Akron on Jan. 12, Toledo on Jan. 15 and Cleveland on Jan. 20.
A fourth hearing, a kind of trial overseen by a PUCO administrative judge, is set to begin Jan. 28 at the PUCO's Columbus headquarters. That hearing could take several days as attorneys for the company defend the plan against mounting opposition from consumer and environmental groups.
FirstEnergy has asked that the commission vote on the plan by April 8.
The company filed the rate plan in early August. The plan would run from June 1, 2016, through May 31, 2019.
It would extend many of the provisions of the current rate plan -- and add one new wrinkle -- a 15-year agreement between FirstEnergy's three regulated Ohio distribution companies to buy all of the power generated by two, apparently uncompetitive, power plants owned by the corporation's unregulated FirstEnergy Solutions.
The Davis-Besse nuclear power plant near Toledo and the W.H. Sammis, coal-fired power plant in Stratton, Ohio, on the Ohio River, are two plants that FirstEnergy's own expert revealed in earlier testimony that the company may not be able keep open if they have to compete against the lower-priced power available on the regional high-voltage grid.
That power is generated by gas-fired power plants and wind turbine farms.
By law, FirstEnergy's three Ohio distribution companies, the Illuminating Co., Ohio Edison and Toledo Edison, buy their power in competitive auctions monitored by the PUCO and other agencies.
The proposed power purchase agreement in the new rate plan would commit the companies to buy all of the output of Davis-Besse and Sammis from June 1, 2016 through May 31, 2031, at whatever it costs to generate. The output of the two plants is about 25 percent of what the three local companies require, FirstEnergy has said.
In the proposed arrangement, the three distribution companies -- which no longer own the power plants -- would buy all of the output of the two aging plants -- and then immediately re-sell it into competitive wholesale markets, absorbing the loss and having customers pay for it with an increase in rates.
FirstEnergy agrees that there will be financial losses, but only the first three years. After that, the electricity generated by the two power plants will actually be less costly than the market price and that the price differential, along with other programs the company is offering to sweeten the deal, will net customers about $2.1 billion in benefits over the 15-year agreement.
Opponents already have challenged that argument as unprovable, given that technology is changing, future pollution standards unknown, and the cost of natural gas a decade and longer from today is just speculation.
Opponents are also arguing that the power purchase deal is just not legal, given that Ohio has deregulated its public utilities, which was a change that FirstEnergy fought to taken advantage of six years ago, even hiring a former U.S. solicitor general to talk about the constitutionality of re-regulating its power plants.
Others filing testimony in opposition Monday included:
>The City of Cleveland's outside expert, Garrett Cole, said the power purchase deal would expose customers to whatever the cost of further pollution control equipment the company may have to add to Sammis to meet future federal standards. Cole also questioned the use of a "cost plus" deal without comparing the cost to other sources of power.
>The Ohio Manufacturers Association's expert Edward Hill, Cleveland State economic development professor and dean of the Maxine Goodman Levin College of Urban Affairs, said the power purchase agreement would violate the intent of the state's 1999 deregulation law, force consumers to pay a massive subsidy to keep the aging plants running and "fundamentally distort the electricity wholesale energy markets."
>The Industrial Energy Users of Ohio's Executive Director Kevin Murray testified that the power purchase agreement's provision is actually a method to allow the company to charge its customers more for the transition to deregulation -- on top of the $7 billion the PUCO allowed during the past 15 years.
>The Retail Energy Supply Association, representing unregulated retail power companies competing in Ohio for customers, argued in testimony provided by David Scarpignato, director of regulatory affairs for Houston-based Direct Energy, that the special deal for Sammis and Davis-Besse would force grid manager PJM Interconnection to modify its rules and push more charges onto FirstEnergy customers. The deal would also force other power companies in PJM's 13-state region to seek subsidies, destabilizing the deregulation, he wrote.
>Walmart and Sams Club submitted testimony opposed to the power purchase arrangement and urged the PUCO to simplify the enormous array of special riders that make up FirstEnergy's current rates.
Steve Chriss, senior manager for energy regulatory analysis for Wal-Mart Stores East, LP and Sam's East, Inc., urged the commission to simplify FirstEnergy's rates, which already include nine special riders, and argued against the new rate rider designed to subsidize Sammis and Davis-Besse operations.
>The PJM Market Monitor, which is an independent company retained as a watchdog to monitor the actions of PJM Interconnection, the non-profit company that controls the grid, also filed testimony in opposition.
Joseph Bowring, president of Monitoring Analytics, which serves as the independent monitor over PJM, noted that FirstEnergy had already admitted that "the economic viability of the (Sammis and Davis-Besse) plants is in doubt."
Arguing that the arrangement would be anti-competitive across the region, Bowring added, "Nonetheless, FirstEnergy wants to shift the costs and risks of these resources to ratepayers. FirstEnergy has not made clear why customers should take these risks, if a well informed generation owner is not willing to take these risks."
>FirstEnergy also filed an agreement it reached with 12 supporters -- companies, a city, and a number of associations and groups with which it had negotiated agreements in exchange for supporting the new rate plan.
The agreement, for example, includes a deal between the company and the Council of Smaller Enterprises, or COSE, in which FirstEnergy would subsidize COSE's energy efficiency programs with cash contributions totaling $240,000 between 2016 and 2019.
The company called the contributions "seed money" to start a COSE loan fund to help with energy efficiency projects. FirstEnergy also agreed to pay COSE up to $1 million to administer such projects for is commercial and industrial customers, which FirstEnergy would submit to the PUCO to meet state energy efficiency standards -- the same standards that FirstEnergy lobbied successfully to have frozen at 2014 levels for the next two years. The company already has announced it plans to end consumer energy efficiency programs on Jan. 1.
Three Cleveland-based organizations whose mission is to help low-income consumers and represented by attorney Joseph Meisner, also agreed to support the company by signing the agreement supporting the rate plan.
In exchange, FirstEnergy will contribute $1.39 million a year to continue a "fuel fund" assisting low-income families in paying their electric bills from 2017 through 2019. The company will pay three groups that administer the fund a total of $926,666 to cover their costs.
Four environmental groups are also involved in the case. They are the Sierra Club, the Ohio Environmental Council, the Environmental Defense Fund and the Environmental Law and Policy Center.
Robert Kelter, a senior attorney with the Environmental Law and Policy Center, commented on the agreement that FirstEnergy filed on Monday.
"This plan puts the interest of FirstEnergy shareholders before the interests of its customers. It's a terrible deal for customers and nobody should be signing onto this for any reason. It's Inexcusable for anyone to sign onto this deal."