FirstEnergy down about 10% on the ruling.
It is Davis Besse that is in the bull's-eye?
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Federal regulators dealt a blow to Ohio utility profit guarantees on Wednesday, saying the plans cannot go into effect until after a review of whether federal rules are being violated.
The Federal Energy Regulatory Commission asserted its authority in a pair of orders, finding that the plans are not valid unless American Electric Power and FirstEnergy apply for, and receive, approval from the agency.
The orders were in response to complaints filed by competing companies that have argued that the AEP and FirstEnergy plans are illegal subsidies that intrude upon the interstate market for electricity. The Office of the Ohio Consumers’ Counsel and others have raised similar issues.
The Public Utilities Commission of Ohio approved the eight-year profit guarantees late last month, allowing Columbus-based AEP and Akron-based FirstEnergy to receive benefits for selected power plants that might otherwise close.
Until Wednesday, it was not known whether the federal commission would intercede.
A key issue in the federal complaint is whether AEP and FirstEnergy customers are “captive,” in that they have no choice but to cover costs related to the plans. The PUCO and the Ohio companies said customers are not captive because they continue be able to choose an alternative provider in the state’s open market.
The federal commission disagreed, stating that “AEP Ohio retail ratepayers are nonetheless captive in that they have no choice as to payment of the non-bypassable generation-related charges” embedded in the profit guarantees. Opponents of the plans say that wording shows that the Ohio companies are facing a highly skeptical audience in the federal commission, as opposed to the more friendly panel in Ohio.
AEP spokeswoman Melissa McHenry said, “The decision is a disappointing and unfortunate intrusion by FERC into Ohio’s ability to protect its retail customers from market volatility and plan for the state’s generation needs.”
Meanwhile, opponents of the profit guarantees praised the actions.
“Today, federal regulators stood up for customers and defended fair markets and competition, sending a clear signal to any utility trying to bail out their uneconomic power plants through political prowess,” said John Finnigan, lead counsel for climate and energy for the Environmental Defense Fund.
Bruce Weston, the Ohio consumers’ counsel, said the federal commission “today provided Ohioans the benefits of competitive markets and lower rates that they did not receive in the state plans."
He said the decision will help lower electricity bills that would have been inflated by the profit plans. At the same time, AEP, FirstEnergy and the PUCO have said the plans will lead to a net savings for consumers. That is one of many areas of disagreement.
AEP will have additional comments about the orders today when its top executive, Nick Akins, holds a conference call with analysts to discuss first-quarter financial results.
***Frustrated AEP CEO: Ohio should reverse energy deregulation or we'll sell our plants; 'no interest' in prolonged debate with FERC
AEP CEO Nick Akins spoke this week at the company's shareholders meeting in Columbus.Tom Knox
“I think AEP has reached the point where it’s time to get this resolved once and for all,” he said Thursday morning.Last month the Public Utilities Commission of Ohio approved plans by AEP and FirstEnergy Corp. to have customers subsidize some of their Ohio power plants. The utilities said the "power purchase agreements" would save customers money in the long term and would keep the plants open and operating in Ohio under their control.
Late Wednesday, though, the Federal Energy Regulatory Commission threw a major wrench in AEP's plans by requiring the electric utilities to prove the plans won’t force all Ohio ratepayers to subsidize their plants, even those who have opted for other suppliers in Ohio's electric choice program.
"While it is true that Ohio ratepayers will continue to have a statutory right to choose one retail supplier over another, we conclude, based on the record, that ... Ohio retail ratepayers are nonetheless captive in that they have no choice as to payment of the non-bypassable generation-related charges incurred under the affiliate PPA,” FERC said in its ruling. “These non-bypassable charges present the ‘potential for the inappropriate transfer of benefits from (captive) customers to the shareholders of the franchised public utility.’"
AEP responded strongly: It's not going to play along.On an earnings call Thursday morning, Akins said the company has “no interest in getting involved in a protracted FERC jurisdictional debate.” Instead, it will pursue a two-pronged approach:
- AEP will begin trying to sell all its Ohio plants. The $16.5 billion utility always said this was an option if the PPAs weren't approved, and it is already looking to sell power plants in the state that weren’t included in the proposals.
AEP could still challenge the FERC ruling and ultimately prevail but that’s the third and most unlikely option.“I think that’s probably a longer hurdle at this point,” Akins said.
- AEP will push for re-regulation in the Ohio legislature, including the repeal of Senate Bill 221, the 2008 bill that refined the state’s deregulation of the energy market. This was often a rumored response to an AEP loss with the PUCO. Akins said legislators would have to move "very aggressively."
A stock analyst asked Akins if the company has talked to legislators about reversing deregulation.“I’m not going to address that,” he said. “They’re fully aware what the issues are. It’s not a huge stretch for them to ask the question, ‘We’ll, why don’t you just re-regulate?’”
Akins also said it might be simpler for ownership of the plants, now operated by an affiliate, to transfer back to AEP instead of pursuing full re-regulation. A transfer would need legislative and FERC review, but Akins said there is precedent for FERC approving such transfers.AEP services 5 million customers in 11 states, most of them regulated. Utilities prefer regulation because of guaranteed returns, and AEP has zeroed in on improving and increasing its regulated transmission and distribution business – the infrastructure that helps get power to customers – while shedding its power plants in states like Ohio that have competitive marketplaces.
At AEP’s annual shareholders event this week, before FERC’s intervention, Akins said AEP is undergoing an “unprecedented transformation.”
An analyst asked if AEP would work with other utilities to lobby the Statehouse. FirstEnergy's CEO has previously advocated for re-regulation. Akins said his company's interests align with others. Akron-based FirstEnergy (NYSE:FE) said it is evaluating its options, including seeking a FERC rehearing or letting FERC review it.“It’s always been our position that the PPA will satisfy the FERC’s guidelines for an affiliate contract that benefits customers,” spokesman Doug Colafella said in an email.
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