Environmental Defense Fund: "The more you learn about the proposed FirstEnergy bailout, the less you'll like it"

From the March 1st, 2017 Environmental Defense Fund Newsletter:

Two months into 2017, and if you thought the year would be free of FirstEnergy drama, think again. The subsidy-seeking utility giant is back at it, and therefore so are we.

You can always visit EDF’s FirstEnergy website for our newsletter archive and links to the latest news about FirstEnergy’s bailout.

New FirstEnergy Bailout, Same Wolf Cry

FirstEnergy may not be consistent, but it is persistent. The utility giant regularly adjusts its rationale for subsidies, but its bail-out pleas keep popping up.

FirstEnergy began about two years ago asking for $4 billion so it could keep operating several of its uneconomic power plants. After the Federal Energy Regulatory Commission blocked that request, arguing the bailout would illegally distort regional power markets, the Ohio-based utility requested a remarkable $12 billion rate increase in order to reduce its debt and keep its headquarters in Akron. Ohio’s regulators instead offered “only” $600 million, yet even that largess probably will be overturned by the Ohio Supreme Court. Unsurprisingly, FirstEnergy is back with a new plea – that it (still) needs huge subsidies so it can sell its two uneconomic nuclear reactors and make a higher profit.

FirstEnergy CEO Chuck Jones is “optimistic” Ohio lawmakers will introduce and approve legislation that provides financial support for the Perry and Davis-Besse reactors. Having tried before to argue such subsidies were needed to ensure the lights would stay on (grid operator says: reliability not an issue), Jones now has become something of an environmentalist, suggesting the reactors are needed because they do not emit carbon pollution.

Jones points to recent efforts in New York and Illinois to provide such zero-emission credits, although they were part of packages that transition those states to healthier, cleaner energy systems. FirstEnergy, on the other hand, has no interest in advancing low-carbon efficiency or renewable energy; it simply wants subsidies so it can maintain the status quo.

Moreover, FirstEnergy plans to sell the nuclear plants anyway. Funnily enough, it would continue to collect the proposed rate increase even if the plants are sold, and the buyer would be under no obligation to keep them open.

The utility vaguely threatens its generation subsidiary will declare bankruptcy without the bailout, not acknowledging that other American companies take that route when their bad business decisions catch up with them. Perhaps to appreciate the dangers of consistently crying “Wolf,” Jones might want to read Aesop’s Fable #210.

 
 

To Re-Monopolize or Not? Squabbling Utilities

Ohio’s other major utility, AEP, prefers a different route for its dirty and uneconomic coal-fired power plants: re-regulation. While FirstEnergy proposes a bailout for its two reactors, AEP, in contrast, wants to overturn the state’s deregulation law and ensure its old generators (as well as any new ones it might build) avoid competition and obtain guaranteed profits.

It seems the utility giants can’t agree on a strategy. Should it be subsidizing reactors or re-monopolization? AEP’s CEO Nick Akins says “outstanding issues” remain between the two companies on a path forward.

Greed can be such a deadly divider.

 
 

Where are the Market-Loving Legislators?

You would think opposing bailouts would be a no-brainer for conservative Ohio lawmakers.

The new leader of the House Public Utilities Committee, Rep. Bill Seitz (R-Cincinnati), claims to want to protect competitive markets. Yet when it comes to politically-powerful utilities asking to advance one energy technology (nuclear power) over others, Seitz had to “confess I don’t know where we’re going to come out on this yet.” He did admit “it’s a very difficult issue for those of us whose natural inclination is to recognize free markets.” 

To ensure consistency to conservative principles, we say: “Let your natural-inclination flag fly.”

March 4, 2016

Higher utility bills? Here could be reasons why:

Study: FirstEnergy's rate plan is a bad idea

Cheap natural gas for years to come plus a continuing surge in construction of wind and solar power plants because of decreasing costs means FirstEnergy's bet on keeping its fleet of coal-fired and nuclear power plants--by shifting the risk to customers--is a $4 billion loser for customers, say analysts with the Cleveland-based Institute for Energy Economics and Financial Analysis, or IEEFA.

Copyright 2016 The Plain Dealer

March 3, 2016

The Sound of Ideas

FirstEnergy and American Electric Power want customers to pay more to aid aging power plants that can’t compete with new natural gas plants. 

Copyright 2016 WCPN | ideastream

February 26, 2016

Bailouts for FirstEnergy, AEP should be rejected: John Finnigan (Opinion)

Ohio-based utilities FirstEnergy and AEP are trying to get subsidies for several old, dirty coal plants owned by their sister companies. These assets are losing money because customers can buy cheaper power from new, cleaner renewable energy and natural gas plants. And instead of closing their outdated Ohio plants, the powerful utilities have made proposals to the Public Utilities Commission of Ohio (PUCO) to bail them out. By guaranteeing the purchase of power for the next eight years, the deals would force Ohioans to pay billions of dollars to keep the FirstEnergy and AEP plants running.

Copyright 2016 cleveland.com

February 18, 2016

Ned Hill commentary: Would FirstEnergy and AEP rate plans be good for consumers? No

Consumers will pay to pad the earnings of utilities

The Public Utilities Commission of Ohio (PUCO) should reject the Affiliate Power Purchase Agreements proposed by American Electric Power and FirstEnergy as bailouts and bad public policy.

These proposals are about paying above-free-market rates for about 30 percent of the electricity AEP and FirstEnergy generate in Ohio. And, the proposals will transfer all of the business risk in operating these units from the companies’ stockholders and management to all electricity users in their territories—even if they are not customers of the utility.

Copyright 2016 The Columbus Dispatch

February 14, 2016

NEWS-The Energy Collective

By Dick Munson

Debunking Silly Arguments For Utility Protectionism

Ohio utilities FirstEnergy and AEP, as readers of this blog know too well, want the Buckeye State to bail out their uneconomic power plants. Combined, their proposals before the Public Utilities Commission of Ohio (PUCO) would run Ohioans nearly $6 billion in increased costs. We understand where the companies’ greedy desire for subsidies comes from, but the arguments for them have become downright silly.

Copyright 2016 The Energy Collective

February 8, 2016

Report by: Institute for Energy Economics and Financial Analysis

A Utility Company’s Subsidy Plan Ignores The New Energy Economy

We’ve published a report today that outlines in fresh detail how the proposed bailout of the Ohio utility giant FirstEnergy is a raw deal for ratepayers.

Our report, "A $4 Billion Bailout in the Buckeye State," concludes that the FirstEnergy scheme, if approved by the Pubic Utility Commission of Ohio, would cost ratepayers across northern and parts of central Ohio hundreds of millions of dollars annually through 2024.

Copyright 2016 IEEFA

Estimated PPA Rider Costs To Manufacturers

The tables below show estimates of the Power Purchase Agreement costs to small, medium, large, and extra-large manufacturers. For FirstEnergy, annual cost estimates are based on FirstEnergy’s own estimates of costs for the first three years of its PPA. AEP’s annual cost estimates, as well as estimated total eight-year costs for FirstEnergy and AEP, are based on estimates from an Ohio Consumers’ Counsel expert.

Energy Economists Agree: AEP And FirstEnergy Bailouts Will Hurt Consumers And Ohio's Economy

“A bailout.”
“Economically nonsensical.”
“Detrimental to the public interest of Ohioans.”

Experts don’t often see eye-to-eye. But energy experts weighing in on AEP and FirstEnergy power purchase agreements are united in their scathing criticism and warnings of danger to Ohio consumers, businesses, and the national interest. These energy authorities slammed the proposed deals in written testimony in advance of new hearings at the PUCO.

Here are comments from the energy experts:

Edward W. Hill, Professor of Public Affairs and City and Regional Planning and a member of the Faculty at The Ohio State University’s John Glenn College of Public Affairs and College of Engineering; retired Dean and Professor at Cleveland State University. 

“Deters new entry into the electric generating market, thwarting both competition and hurting the long-term reliability of the electric power system as a whole in the state of Ohio.”

“The Joint Stipulation shifts business risk away from stockholders and management to customers.”

“Adopting the Joint Stipulation that subsidizes and favors one generator ... will result in higher costs to consumers, and over time, less reliable power supplies.”

 

Joseph P. Kalt, Ford Foundation Professor Emeritus of International Political Economy at the John F. Kennedy School of Government, Harvard University.

“I find the claim that captive ratepayers will realize a net benefit ... economically nonsensical.”

“The economics of the Companies’ own calculations showed that their proposed plan would burden the Companies’ captive ratepayers with $220 million of uncompensated risk. It would do this without any compensating benefits or return to the general ratepaying public. The plan, in short, is what is commonly called a ‘bailout.’”

“ ... the plan will distort the efficiency of [the regional power grid] ... to the detriment of the public interest of Ohioans and the broader national public.

 

Joseph Cavicchi, Executive Vice President, Compass Lexecon, S.M. in technology policy from MIT, an S.M. in environmental engineering from Tufts University and a B.S. in mechanical engineering from the University of Connecticut.

“The only clear beneficiaries of AEP Ohio’s Joint Stipulation are the shareholders of American Electric Power (“AEP”), AEP Ohio’s parent company.”

“There is simply no factual basis upon which [AEP’s estimated dollar benefit] is in any way realistic. ... the Joint Stipulation will clearly cost AEP Ohio’s ratepayers dearly over the next couple of years and be highly unlikely to ever provide positive financial benefits.”

 

Stephen E. Bennett, consultant on wholesale and retail energy matters, senior policy manager for energy companies, B.S. of Science in Civil Engineering from the University of Maryland-College Park.

“Subsidies harm open markets, but the PPA Rider is particularly pernicious because the benefit of the subsidy accrues exclusively to AEP Ohio’s affiliate.”

“At the extreme, the subsidy could even force existing merchant plants in Ohio that do not receive a ratepayer guarantee to close.”

“AEP should not be allowed to tap its captive customer base to fund the development and return on equity of these renewable [wind and solar] generation assets.”

 

Joseph E. Bowring, Market Monitor for PJM and President of Monitoring Analytics, LLC, the Independent Market Monitor for PJM.

“AEP is requesting that the plants and the contracts be returned to a version of the cost of service regulation regime that predated the introduction of competitive wholesale power markets.”

“Such subsidies would negatively affect the incentives to build new generation in Ohio and elsewhere in PJM [the regional power grid] ...”

 

John Seryak, lead analyst at RunnerStone, LLC and Chief Executive Officer of Go Sustainable Energy, LLC, a consultant that provides technical assistance on energy efficiency matters.

“In light of PJM’s load forecast reduction ... the Companies’ estimate of benefits to customers ... in the later years of the eight-year term is unlikely.” 

Independent Study Confirms: Deregulation Has Been Positive For Ohio

For appoximately 15 years, residents of Ohio have been able to choose their electricity provider, bringing competition to an industry that had been a monopoly for generations. (Transmission and distribution of electricity from the generating site are still regulated.)

Not all states allow choice and some still question whether choice is good for consumers. By comparing states that have deregulated with those that have not, a study commissioned by a coalition of electricity stakeholders has demonstrated the many benefits of deregulation, including:

- Lower cost of electricity and
- More investment in generating capacity.

In short, competition works and consumers benefitThe study* compares monopoly states in the Industrial Upper Midwest Region (Indiana, Michigan and Wisconsin) with those allowing choice (Ohio and Illinois). 

Here Are Some Of The Results; Quoted From A White Paper Summarizing The Study:

 

Monopoly regulation drove electricity prices substantially higher in Indiana, Michigan and Wisconsin, while prices in Illinois actually declined and those in Ohio rose only modestly...”

 

“... monopoly regulation is driven by the imperative of setting tariffs to recover fixed costs and rising expenses even if doing so means increasing per unit prices because of a declining or static base, – i.e., the “death spiral” syndrome. In contract, competitive markets respond to actual economic conditions.”

 

“At the outset, Customer Choice opponents claimed retail electricity competition would increase prices and price volatility and decrease generation investment and electric reliability. The empirical data demolish those claims, showing instead that, whenever allowed, consumers enthusiastically embrace Customer Choice...”

 

“One key measure of the vitality of Customer Choice is its ability to grow and increase market share even though overall electricity demand has been flat or declining. By that measure as well, Customer Choice is a stunning success...”

 

Competitive markets have attracted billions of dollars for tens of thousands of new megawatts of generating capacity that is, based on objective criteria, outperforming generation in the Monopoly States... Generation production in the Customer Choice Jurisdictions outpaced consumption growth, while in the Monopoly States consumption growth outpaced generation production.”

 

“Overall, electricity in the Monopoly States accounts for a larger share of consumer cost of living... whereas in the Consumer Choice Jurisdictions electricity’s share of the consumer pocketbook was less...”

 

Favorable price performance under choice has benefited all consumer classes...”

 

*Evolution of the Revolution: The Sustained Success of Retail Electricity Competition, by Philip R. O’Connor, Ph.D., and Erin M. O’Connell-Diaz, July 2015. Study completed for The COMPETE Coalition, made up of 788 electricity stakeholders, including customers, suppliers, traditional and clean energy generators, transmission owners, trade associations, technology innovators, environmental organizations and economic development corporations – all of whom support well-structured competitive electricity markets. 

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