Ohio utilities are appealing to the Public Utility Commission of Ohio (PUCO) for a multi-billion dollar bailout in order to continue operating costly power plants at a profit. After a nearly seven year push by Ohio electricity utilities to secure profit guarantees for their power plants, a decision is close to reality. The deal will effectively create a monopoly for FirstEnergy and AEP to purchase electricity from their unregulated subsidiary power plants, at above market rates, and re-sell that power to consumers at a guaranteed profit. FirstEnergy and AEP argue the deal is necessary to maintain grid reliability, additionally stating that these plants may otherwise close if this agreement does not occur. Both utilities further cite their inability to compete with newer gas-fired plants.
Who makes the decision?
According to a recent article in the Columbus Dispatch, FirstEnergy is working to finalize a revised 8-year agreement with PUCO staff. Earlier in September, PUCO staff rejected the original FirstEnergy proposal for a 15-year deal. Regardless of staff recommendations, the PUCO 5-member board has the authority to accept or reject any proposal.
What happens next?
FirstEnergy and AEP have concluded their trial-like hearings, following testimonies from several dozen parties over the last month. Currently, formal discussions are now in place to hash out the details and logistics of a revised agreement. Once completed, the PUCO will review the case and rule, which will likely occur sometime in early 2016. However, if there is a settlement, the process could conceivably be prolonged, and there will be another round of hearings to re-examine the benefits of the deal.
Why we agree with opponents
EPCO firmly believes this agreement will lead to higher commodity prices for consumers and ultimately prove harmful to the business community at-large. FirstEnergy invested heavily in coal at a time where natural gas prices plummeted. FirstEnergy is now looking to the consumer to bail them out of a bad bet. FirstEnergy should solely be held accountable for investment decisions that have failed to pay off.
Opposition to this newly proposed agreement has been swift and fierce. Opponents of the deal argue that a bailout of this nature only serves to benefit the utility companies’ at the expense of consumers. The claims made by the utilities of projected future consumer savings have been deemed as patently false.
In the 1990’s, FirstEnergy worked to deregulate the energy market and were a key component in making that happen in 1999. During the next 8 years, FirstEnergy talked about how it “improved the productivity of its generating fleet by 27% and added about 1,600 megawatts of capacity, at no risk to the customer.”
When Ohio manufacturers wanted to re-regulate utilities in hopes of getting lower energy rates, FirstEnergy argued that, “flip-flopping between regulation and competitive markets whenever one offers a lower price than the other undermines the ability of utilities to make the investment decisions needed to maintain reliable and adequate service. And, if the basic rules of our industry are rewritten every eight years of so – irrespective of the long-term impact of doing so – major providers of capital won’t risk investing the billions of dollars it will take to meet Ohio’s energy needs in the years ahead”.
We do not want to return to monopolies
Now, FirstEnergy is working to re-regulate utilities, with the intent of becoming a subsidized and protected monopoly once again. FirstEnergy is struggling to compete in the regional electricity market. If the bailout doesn’t occur, FirstEnergy has spoken out saying it would support Ohio legislators overturning the deregulation legislation FirstEnergy once fought for in the 1990’s, which would in turn, make the company a monopoly protected from competition.
At EPCO, we believe that consumers, both large and small, should have the right to shop for a low competitive price on their electric generation. This proposed bailout amounts to nothing more than monopolies for FirstEnergy and AEP in their respective territories. The end result will be an increased cost of doing business that ultimately will adversely affect from business growth and development in Ohio.