Pa. PUC wary of Ohio electric deals with FirstEnergy and AEP



Pennsylvania regulators are unnerved about what’s happening across the border in Ohio.

Two electric utilities, owned by FirstEnergy Corp. and AEP Corp., have spent more than a year trying to convince the Public Utility Commission of Ohio that all of their customers should help prop up a handful of money-losing power plants.

The plants belong to affiliates of FirstEnergy and AEP utilities. Without multiyear power purchase agreements, they are likely to close, taking 6 gigawatts of generation off the market. That’s enough to power more than 4 million homes.

While the debate involves Ohio utilities and Ohio power plants, what happens there bleeds into the Keystone State through the power grid and has a direct impact on Pennsylvania’s generators and consumers, the Pennsylvania Public Utility Commission believes.

“This is not an Ohio issue or a Pennsylvania issue — this is a market issue, and we would be concerned about this type of arrangement wherever it was proposed,” said Nils Hagen-Frederiksen, a spokesperson for the commission.

The two states are linked by the nation’s largest power grid, where a Valley Forge-based nonprofit PJM Interconnection LLC coordinates the flow of electricity to 13 states and 61 million customers.

To ensure a reliable supply of electricity is available in the future and to give generators and investors a price signal to build or retire their assets, PJM holds annual capacity auctions. Resources that plan to be around three years from the auction date bid in their operating costs and PJM matches anticipated demand with the lowest-cost producers.

The PUC thinks that artificially supporting certain power plants distorts that electricity market.

“We are concerned that state-subsidized generation in the wholesale capacity market will result in the retention of expensive and inefficient generation that should otherwise be retired and replaced by more economically efficient generation,” Mr. Hagen-Frederiksen said.

Ohio regulators are expected to rule on the power purchase plans as early as next month, but in a last-ditch effort to foil the deals, opponents have appealed to the Federal Energy Regulatory Commission to review the contracts.

The charge is being led by an industry group, Electric Power Supply Association, and several large generation companies, including Dynergy Inc., which last month offered to undercut the FirstEnergy and AEP proposals by $2.5 billion each.

Exelon Corp., another opponent of the proposed agreements, said it would provide the same amount of electricity for $2 billion over the proposed eight-year term, and that all of it would come from 100 percent non-emitting sources.

The Pennsylvania PUC, which lent its voice to the effort earlier this month, has expressed similar concerns in two other cases in which utilities in New Jersey and Maryland sought to subsidize building new natural gas power plants.

The commission “has a long history of supporting the integrity of organized wholesale electric markets and opposing initiatives that interfere or tamper with the efficient functioning of these markets,” the PUC wrote in its brief to the federal commission earlier this month.

A nod to re-regulation

Akron-based FirstEnergy — which owns the southwestern Pennsylvania utility West Penn Power, the Bruce Mansfield coal-powered plant and the Beaver Valley Nuclear Station in Beaver County — originally wanted a 15-year contract for two of its power plants in Ohio.

There, as in Pennsylvania, the electric market is deregulated. That means utilities that bring electricity into your home can’t also make a profit from selling you the electrons. They are, in essence, pass-throughs for both the electricity and its cost.

Deregulation was supposed to encourage competition among electricity suppliers — and it has. But the low price of natural gas, which tends to set the price of power generation in the market, has made it much less profitable to operate so-called merchant plants in deregulated states.

FirstEnergy, which years ago enthusiastically advocated for deregulation, is now hanging its hat on a simulation of the old model — where utilities own power plants and are allowed to recover the cost of operating them, plus a profit, from ratepayers.

Where the market failed to provide a good return on these assets, FirstEnergy wants customers to pick up the slack. If they don’t, FirstEnergy argues that a large coal plant and a nuclear plant in Ohio will be forced to retire.

“The idea is to help preserve these plants,” said Doug Colafella, a spokesperson with FirstEnergy.

Mr. Colafella said the company anticipated the kinds of arguments made in last month’s appeal to the Federal Energy Regulatory Commission, but it believes that only Ohio regulators — not the federal government — have jurisdiction over this matter.

While there’s no set timeline for the federal commission to decide on the matter, it is expected to happen sometime before May, when PJM holds its next capacity auction.

Anya Litvak: alitvak@post-gazette.com or 412-263-1455.

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