FirstEnergy bailout proposals grow more audacious, and onerous, for Ohio ratepayers

FirstEnergy Corp has made a series of management decisions over the past decade that have caused its financial condition to deteriorate. Although Ohio’s electricity market was deregulated at the turn of the millennium, and although FirstEnergy took advantage of that deregulation, the company is backtracking now and asking that its customers be made to pay for the costs of its uneconomic power plants as if those plants were still subject to regulation.

FirstEnergy has made several attempts over the past two years to get a ratepayer bailout. FirstEnergy succeeded in March 2016 in winning approval from the Public Utilities Commission of Ohio (PUCO) for a bailout that IEEFA calculated would have cost customers $4 billion over eight years. FirstEnergy has proposed modifying that bailout, in hopes of avoiding intervention by the Federal Energy Regulatory Commission (FERC), and PUCO staff have offered a counter proposal that, in turn, has been countered by FirstEnergy.

Three separate bailout proposals are pending before the PUCO:

• FirstEnergy’s “Modified Rider RRS,” which, using updated market forecasts, IEEFA estimates would cost consumers at least $4.18 billion during the 92-month period from October 1, 2016 through May 31, 2024;
• The PUCO staff’s “Distribution Modernization Rider” proposal, which would cost customers from $393 million to $655 million over three to five years; and
• First Energy’s alternative “Distribution Modernization Rider” proposal, which would cost consumers from a low of $4.3 billion to a high of $8.6 billion during the 92-month period from Oct. 1, 2016, through May 31, 2024.

FirstEnergy’s initial proposal sought to directly bail out certain financially challenged coal and nuclear plants owned by FirstEnergy Corp’s merchant affiliate, FirstEnergy Solutions. None of the three proposals now pending make that claim. FirstEnergy says its Modified Rider RRS proposal would not directly bail out the individual plants, but would purportedly provide “rate stabilization.” The explicit aim of the Distribution Modernization Rider proposals put forward both by the PUCO staff and FirstEnergy is to bring in enough funds as a subsidy from customers to keep FirstEnergy Corp’s credit rating from being downgraded and, in FirstEnergy’s proposal, as an incentive to keep the company’s corporate headquarters and nexus of operations in Akron. But with no limits on how the revenues collected under any of these three plans could be used, there is nothing stopping FirstEnergy from indirectly using them to bail out FirstEnergy Solutions and its uncompetitive power plants by funneling the revenues through the parent FE Corp.

Both of FirstEnergy’s new proposals are more expensive for customers than their original Retail RRS plan approved by the PUCO in March.

Please view full report PDF for references and sources.

Press release: IEEFA Ohio: Damn Tradition, Bailouts Are Where It’s At