FirstEnergy is running into stiff opposition to its ratepayer-subsidized bailout plan at hearings under way before the Public Utilities Commission of Ohio.
FirstEnergy wants permission to set up a long-term contract by which its electricity customers in Ohio will pay for the output of FirstEnergy’s struggling Sammis coal plant and Davis-Besse nuclear plant for the next 15 years. Currently, Sammis and Davis-Besse—like other power plants in Ohio—sell their output into PJM’s regional electricity markets, and FirstEnergy earns a profit only when the market price for power is above the price of generating power at those plants (which, these days, is seldom). FirstEnergy customers purchase electricity directly from the PJM markets.
Under the company proposal, FirstEnergy customers would pay the cost of generating electricity from Sammis and Davis-Besse independent of market prices. If the market prices turn out to be higher than the cost of generating power at those plants, ratepayers benefit. If they don’t, FirstEnergy benefits and ratepayers lose.
Expectations about future wholesale market prices are critical to seeing whether this proposal is good for Ohio ratepayers. The decision falls ultimately to the Public Utilities Commission (PUCO).
For the past several years, of course, low natural gas prices have driven down wholesale market prices and made it hard for plants like Sammis and Davis-Besse to compete—indeed, that’s why FirstEnergy is making this proposal. The company hopes to shift the risk of low market prices away from its shareholders and onto its customers. But to be successful in persuading the commission, FirstEnergy needs to show PUCO that wholesale market prices are likely to rise steeply so that ratepayers will benefit from the new contract it seeks.
In PUCO hearings last week, FirstEnergy witness Judah Rose—who provided the long-term natural gas and energy market price forecasts underpinning FirstEnergy’s case—conceded that what he has previous stated as his expectations for high prices have not materialized. As reported in the Cleveland Plain-Dealer, Rose admitted that wholesale electricity prices today are actually 8 to 10 percent lower and natural gas prices 30 percent lower than what he forecast a year ago. He also stated that he now expects wholesale prices to remain at today’s levels through 2019. And Rose revealed that his long-term price forecasts had not taken into account the impact of energy efficiency, which reduces wholesale prices by lowering demand.
THERE’S SOME HISTORY HERE WORTH NOTING: FIRSTENERGY ALSO USED ROSE AS ITS EXPERT WITNESS ON FUTURE NATURAL GAS AND WHOLESALE ELECTRICITY PRICES BEFORE THE WEST VIRGINIA PUBLIC SERVICE COMMISSION two years ago. In an arrangement very similar to what FirstEnergy is trying to finagle now in Ohio, FirstEnergy sought to sell the Harrison power plant from a deregulated subsidiary to its regulated West Virginia subsidiary, meaning that West Virginia ratepayers would pay the cost for generating power at the plant no matter what wholesale prices turned out to be.
As it is doing now in Ohio, FirstEnergy provided a very high forecast for future natural gas and wholesale electric market prices to justify that deal. And because wholesale electricity prices have remained low—contrary to the rosy predictions of Rose and other FirstEnergy witnesses—West Virginia ratepayers are now facing a 12.5 percent rate increase.
Cathy Kunkel is an IEEFA research fellow.