FirstEnergy (NYSE:FE) said Aug. 4 that it has filed a plan with the Public Utilities Commission of Ohio (PUCO) that would freeze distribution rates in place while preserving critical baseload power plants.
“Our utilities have made great strides enhancing service reliability across our system of poles and wires, but Ohio’s economic security and quality of life is highly dependent on maintaining a diverse mix of baseload coal and nuclear power plants,” said FirstEnergy CEO Anthony Alexander said.
“Powering Ohio’s Progress helps ensure these vital facilities continue powering the state’s energy-intensive economy, helps protect customers against volatility as future prices rise, and preserves $1 billion in annual statewide economic benefits, vital tax revenues for local communities, and an estimated 3,000 direct and indirect jobs created by these plants,” Alexander said.
Owners of coal and nuclear baseload plants have increasingly asserted that various current market structures don’t adequately recognize the value of baseload power.
The FirstEnergy plan dubbed “Powering Ohio’s Progress” proposes to establish electric service for a three-year period from June 1, 2016, through May 31, 2019, for customers of FirstEnergy’s Ohio’s utilities – Ohio Edison, Cleveland Electric Illuminating and Toledo Edison.
A key component of the plan is a 15-year stability program that will help mitigate rising retail prices and help ensure that vital baseload power plants built to serve Ohio customers remain available to support the state’s electric consumers and businesses, FirstEnergy said.
The proposed program will reflect a purchased power agreement involving the Davis-Besse nuclear station in Oak Harbor, Ohio; W.H. Sammis coal plant in Stratton, Ohio; and Ohio Valley Electric Corp. (OVEC) units in Gallipolis, Ohio, and Madison, Indiana.
FirstEnergy’s Ohio utilities will purchase the output of these facilities and sell it into the wholesale energy and capacity markets. As power prices increase as projected over time, proceeds from the market sales that exceed costs from the purchased power agreement will be applied as credits on customers’ electric bills to mitigate volatility and address rising retail prices.
While the typical residential customer using about 750 kilowatt-hours of electricity per month could expect to see a “modest increase” in the initial years, the proposed program should save customers about $2bn over 15 years.
Under FirstEnergy’s proposal, Ohio customers would retain the frozen base distribution rates through May 31, 2019; continue to provide generation supply to non-shopping customers through a competitive bid process; and retain customers’ option to shop for a competitive retail electric supplier.
UBS thinks FirstEnergy plan ‘is a stretch’
“We think the current proposal is a stretch, but something could materialize,” according to a UBS Global Research assessment led by Analyst Julien Dumoulin-Smith.
UBS cited the PUCO staff’s rejection of an American Electric Power (NYSE:AEP) proposal to add just its OVEC ownership into a PPA rider. It expects a similar reaction to the FirstEnergy proposal.
“More importantly, we believe the PUCO is poised to reject AEP’s proposal as well (without prejudice), allowing the company to re-file later in 2015 to contract the assets,” UBS said.
“We see both Sammis and Davis-Besse at clear risk of early retirement given the stretched balance sheet of FES, particularly as 2017 looms,” UBS said.
FirstEnergy on Aug. 5 announced second quarter 2014 basic operating (non-GAAP) earnings of 49 cents per share of common stock. These results exclude the impact of the special items. This compares to basic operating (non-GAAP) earnings of 59 cents per share of common stock in the second quarter of 2013.
On a GAAP basis, the company reported basic earnings of 16 cents per share of common stock (15 cents diluted) in the second quarter of 2014 on earnings of $64m and revenue of nearly $3.5bn. In the second quarter of 2013, the company reported a loss of $164m, or 39 cents per share, with revenue of more than $3.5bn.
“We are making steady progress with our plans to focus on growth through our regulated businesses,” Alexander said.