It’s not usually a good idea to dis federal regulators. FirstEnergy doesn’t seem to care.
Almost two months ago, the Federal Energy Regulatory Commission (FERC) ruled against the Ohio-based utility giant’s request to bail out its uneconomic power plants. FirstEnergy then tweaked its proposal to obtain the same result but, according to its CEO, “without the need for…FERC approval.”
To “FERC-proof” its bailout scheme, FirstEnergy now tries to mockingly call its subsidy a “surcharge” rather than a “power purchase agreement (PPA).” Put another way, by simply changing the wording of the original bailout, the utility’s sleight of hand aims to skirt federal oversight.
Environmental Defense Fund (EDF) is joining the Electric Power Supply Association (EPSA) and others in asking FERC to overturn this end-run attempt – something we’re calling FirstEnergy’s “Virtual PPA.” It’s virtually the same as the original rotten deal, and it’s just as bad for customers, clean air, and markets.
FirstEnergy’s “new” deal has the same results
The utility does deserve credit for persistence and creativity, yet its new proposal doesn’t even pass the laugh test. To avoid FERC jurisdiction, for instance, FirstEnergy now claims its subsidy will no longer guarantee the operation of its uneconomic power plants. Yet the utility’s new surcharge is contingent on the continued operation of virtually the same number of megawatts of its nuclear and fossil generation. A virtual guarantee.
FirstEnergy’s original bailout was based on the explicit sale of power, which falls under FERC’s jurisdiction in a regional market. FirstEnergy now claims its electricity-generating affiliate will no longer be selling “electricity itself” to its electricity-distributing affiliate, but instead will be selling “the ability to provide it when necessary.” Unfortunately for the utility, that phrase is the very definition of providing “capacity,” which FERC has the authority to regulate as well.
FirstEnergy also conveniently forgets it’s a large company with several affiliates – and there are clear rules prohibiting one affiliate from providing special treatment to another. A few months ago FERC ruled it illegal for FirstEnergy’s generation affiliate to sell power at inflated rates to its distribution affiliate. Now FirstEnergy wants to have the surcharge go to the distribution affiliate, trying to hide the fact the extra revenue will flow back to the parent company, which will be used to keep the generation affiliate’s uneconomic power plants operating. Different path, but virtually the same end point. FERC has a time-honored saying for that deception: “One may not presume the right to do indirectly what one may not do directly.”[1] In other words, don’t think you can get your way by simply pretending you’re taking a new approach.
The EDF/EPSA protest is even more direct, stating: “A bribe is still a bribe if it is paid to the politician’s spouse, and a capacity payment is still a capacity payment if it is transferred up to the common parent through a dividend or other intra-corporate transfer.”
The subsidy also allows old and uneconomic power plants to continue spewing pollutants, well beyond when market forces would have forced their closure.
Creative wording and rerouting doesn’t stop the money from ending up in the exact same place, performing the exact same role.
Regulators must once again stand up for competition
The utility’s convoluted arguments reveal it’s speaking out of both sides of its mouth. When addressing state regulators at the Public Utilities Commission of Ohio (PUCO), it claims the new proposal is little changed from its previous plea, hoping Buckeye State regulators again will quickly rubber stamp the subsidy. Yet when addressing FERC, it claims the new proposal is an entirely different animal over which federal regulators no longer have jurisdiction.
Why is this regulatory dissing important? For one, FirstEnergy’s greedy request will hurt customers, to the tune of $3.6-$5.15 billion, according to the Ohio Consumers’ Counsel.[2] That’s a lot of money. As noted by the Northwest Ohio Aggregation Council and ten Northwest Ohio communities, “(w)hen all the jargon is stripped away, the [FirstEnergy scheme] requires regular people to pay an extra month’s electric bill each year for eight years.”[3]
The subsidy also allows old and uneconomic power plants to continue spewing pollutants, well beyond when market forces would have forced their closure. Furthermore, FirstEnergy’s requested bailout would disrupt electricity markets, making it harder for innovative and clean generators to compete.
The utility’s new bailout plea is nothing more than a blatant attempt to flout FERC’s previous directives and make a mockery of affiliate-subsidy restrictions. A virtual PPA is still a PPA, no matter how creatively you word it. Having been dissed, federal regulators should see through FirstEnergy’s latest sleight of hand and again protect competitive markets.
By Dick Munson
Originally Published on June 17, 2016
The Energy Exchange Blog is a forum where EDF‘s energy experts discuss how to accelerate the transition to a clean, low-carbon energy economy. Follow them on Twitter here: @EDFEnergyEX
[1] Tennessee Gas Pipeline Co., L.L.C., 143 FERC ¶ 61,128 at P 61 (2013).
[2] Motion to Intervene and Comments in Support of the Office of the Ohio Consumers’ Counsel at 2, Docket No. EL16-34-000 (filed Jan. 27, 2016)
[3] Motion to Intervene and Comments in Support of the Northwest Ohio Aggregation Council, Lucas County, the City of Toledo, the City of Perrysburg, the City of Sylvania, the City of Maumee, the Village of Waterville, the Village of Holland, the Village of Ottawa Hills, the City of Northwood and Lake Township at 2, Docket No. EL16-34-000 (filed Feb. 23, 2016)
