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FirstEnergy’s Pitch for an Ohio Subsidy Isn’t in Its Customers’ Best Interests

September 30, 2015
William S. Bowen

FirstEnergy Corp.’s proposed Power Purchase Agreement to commit its customers to pay for electricity generated by WH Sammis—an old coal-fired power plant in Stratton—might help FirstEnergy but it isn’t in the best interest of its ratepayers.

If the Public Utilities Commission of Ohio approves the proposal, the company would be guaranteed a profit on the power sold from Sammis for 15 years.

The proposed Power Purchase Agreement stipulates that if the cost of producing power from Sammis exceeds the price of electricity in regional markets, customers in FirstEnergy’s service zone would make up the difference by paying a charge on their monthly bills. If the opposite happens, customers would get a credit. FirstEnergy’s position is that this mechanism would create stability in the face of fluctuating electric prices.

Price stability is no doubt a good thing, all things considered. But forces are at work today that suggest the price of electricity from old coal-fired power plants is likely to continue to get more expensive relative to electricity from other generation sources.

The EPA’s recent formalization of its Clean Power Plan, for instance, will almost certainly make coal-generated electricity more expensive than electricity generated by other sources. The EPA plan calls for a reduction of 28.5 million tons of carbon-dioxide emissions from Ohio’s fossil fuel-burning electric power plants, or about a 28 percent reduction, over the next 15 years. The state’s electric power industry today emits about 102.2 million tons of carbon every year. The EPA rule calls for a reduction to 73.8 million tons at about the time the FirstEnergy plan, if approved, would expire.

APPROXIMATELY 89 PERCENT OF THE CARBON DIOXIDE EMITTED AS A BYPRODUCT OF GENERATING ELECTRICITY IN OHIO COMES FROM COAL, 9 PERCENT FROM NATURAL GAS, AND 2 PERCENT FROM PETROLEUM. So all else being equal, unless Ohio utilities like FirstEnergy can somehow reduce emissions from their coal-fired plants, and can do so without increasing their cost of doing business, compliance with the EPA Clean Power Plan will lead to an increase in the cost of generating coal-fired electricity.

Regulations like the EPA’s generally increase the cost of doing business. For FirstEnergy, this would mean an increase mostly in the cost of generating coal-fired electricity.

In a free and competitive market, consumers would respond by decreasing the amount of coal-generated electricity they consume. But, as history has shown and as the company’s current pitch to PUCO indicates, that wouldn’t be in keeping with FirstEnergy’s business model. FirstEnergy sued the Federal Energy Regulatory Commission to keep demand-response programs—which reward energy-saving behavior—out of our region’s wholesale markets. It led the fight to overturn Ohio Senate Bill 221, the state’s energy efficiency and renewable energy portfolio standard. It cancelled all of its own residential and industrial efficiency programs.

Carbon-dioxide emissions from Sammis total 9.4 million tons per year, which is about 9 percent of the total currently emitted by Ohio’s electric power industry. If the state approves the company’s proposal, the electric power industry in Ohio would probably have to look somewhere other than Sammis to comply with the EPA rule.

A far better situation would include greater consideration for the welfare of Ohio’s electricity consumers. It would include FirstEnergy leadership investing their time and attention preparing the grid for the electricity system of the future rather than shoring up the electricity system of the past.

Every indication is that change is coming to the electric power industry, regardless of what FirstEnergy does. While the company’s current pitch to Ohio regulators may bring price stability, it will most likely do so only at the cost of electricity consumers paying considerably more than is either necessary or is in their longer-term best interest.

William S. Bowen is professor of public administration and urban studies at the Maxine Goodman Levin College of Urban Affairs at Cleveland State University and associate editor of the International Journal of Energy Technology and Policy. This commentary is a version of one that appeared recently in Crain’s Cleveland Business.

William S. Bowen

William S. Bowen is a guest contributor at IEEFA.

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