Ohio electric utilities want return to regulation to guarantee profits on power plants; Good or bad idea?

Posted by Laura Arnold  /   August 11, 2014  /   Posted in AES, American Electric Power (AEP), Duke Energy, Uncategorized  /   No Comments

Electricity companies seek some regulation

By Dan Gearino The Columbus Dispatch  •  Sunday August 10, 2014 8:11 AM

Brace yourself for a fight over a potentially big change in the way Ohio regulates electricity utilities.

Three of Ohio’s four largest utilities — companies that rarely agree on anything — are teaming up in an attempt to dial back on deregulation.

The companies — American Electric Power, Duke Energy and FirstEnergy — are asking state regulators to guarantee profits on a select number of power plants that might otherwise be decommissioned.

Customers would see a small increase in their bills initially but potentially could save money later, when the market price of electricity is likely to increase. The companies say this would lead to more-stable prices and help retain the jobs and electricity from plants that might otherwise close.

Environmentalists and consumer groups oppose the plans.

If approved by regulators, this would represent a significant change of direction after 15 years of state policies that sought to phase out regulated pricing. The utilities would have some plants with regulated pricing and others with prices that rise and fall with the market.

“It gives you the best of both worlds as a state policy,” said Pablo Vegas, president and chief operating officer of AEP Ohio.

His company has submitted a proposal to change the regulatory arrangement at one plant it co-owns and is preparing a larger plan that would seek to do the same thing for several other coal-fired plants. The larger plan will likely be filed this month, company officials said.

Meanwhile, the Sierra Club has launched a media campaign decrying the proposals as a bailout. “ These are old, dirty, obsolete coal plants that customers should not be paying for,” said Dan Sawmiller, an Ohio staff member with the Sierra Club’s Beyond Coal Campaign.

The utilities have been shutting down coal-fired plants for two reasons: to comply with clean-air regulations and because many of the plants are not profitable enough in a competitive market.

FirstEnergy and AEP have already announced plans to close certain plants and aren’t proposing to reverse course on any of those plans. Instead, the new plans cover, or will cover, plants that are on the cusp of being part of future shutdown announcements, company officials said.

Another opponent is the Retail Energy Supply Association, a national trade group for unregulated energy marketers, which has said the plans are an abandonment of state policy.

“There’s no consumer benefit with these proposals,” said Dwayne Pickett, Ohio government-affairs representative for Integrys Energy, a member of the trade group. “It only benefits utilities, at the expense of the competitive market.”

The first inkling of this idea came from Columbus-based AEP in December when it proposed a special regulatory arrangement for its share of the Kyger Creek Plant, a southeastern Ohio plant that has eight co-owners. This summer, Duke proposed something similar for its share of Kyger Creek.

Last week, FirstEnergy revealed a much larger version of the concept, asking regulators to guarantee profits at Davis-Besse Nuclear Power Station, the coal-fired W.H. Sammis plant and the company’s share of Kyger Creek.

FirstEnergy estimates the 15-year plan will lead to a net cost to consumers in the first three years and a net benefit for the remaining 12. The monthly charge to consumers would be $3 to $4 in the first year, and the company’s profit would be 7 percent.

“It provides a hedge for customers against rising prices,” said William Ridmann, FirstEnergy’s vice president of regulatory affairs.

The FirstEnergy plan and AEP’s expected plan would cover about one-third of each company’s Ohio power-plant capacity. That would leave about two thirds of capacity that would continue to have prices that rise and fall with the market.

The state’s other major utility, Dayton Power & Light, supports the proposals from the other companies but does not have one of its own.

A few years ago, Akron-based FirstEnergy would have opposed this type of plan. The company was a leading advocate for letting market forces set prices, while AEP has long argued for a more regulated approach. Regulators and legislators were often torn between the dueling priorities of two large and influential companies.

What has changed? The market price of electricity has been low for years, and FirstEnergy’s finances have taken a big hit. The company is now emphasizing the regulated parts of its business.

At the same time, the state continues to operate in a deregulated market. Those laws and rules are now a potential obstacle to the current proposals. The Public Utilities Commission of Ohio staff has recommended rejecting AEP’s plan for Kyger Creek; the staff has not yet stated an opinion about the other applications.

The utility companies are asking the agency’s five-member governing board to decide against its staff’s advice. This would be one of the first significant decisions of the panel’s new chairman, Thomas W. Johnson, a political veteran who was appointed last winter.

Close observers of the PUCO noted Gov. John Kasich’s statements at Johnson’s swearing-in: “The ideological effort to deregulate, I’m not so sure it’s the smartest thing we’ve done in the state of Ohio.”

Officially, the governor has no role in PUCO cases, but his comments have made people close to the process speculate that the commission will seriously consider the current proposals, in spite of the vocal opposition.



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