FirstEnergy files deal that would still protect nuclear, coal capacity

FirstEnergy Corp.‘s (NYSE: FE) Ohio utilities on Dec. 1 filed a comprehensive settlement in support of Powering Ohio’s Progress, their proposed Electric Security Plan (ESP) at the Public Utilities Commission of Ohio (PUCO).

The PUCO is expected to rule on the settlement early next year, FirstEnergy noted in a Dec. 1 statement. FirstEnergy has been working for months to get some form of this plan approved by the commission.

The settlement filed by Ohio Edison, The Illuminating Company and Toledo Edison outlines ambitious steps to safeguard customers against retail price increases in future years, deploy new energy efficiency programs, and provide a clear path to a cleaner energy future by reducing carbon emissions. It has been signed by 16 parties, including the PUCO staff, EnerNOC, an energy management solutions provider, and Ohio Partners for Affordable Energy, a low-income customer advocacy group.

The settlement outlines an eight-year rate provision associated with a Purchased Power Agreement (PPA) with Ohio-located baseload power plants. The rate provision will help protect customers against rising retail price increases and market volatility, while helping preserve vital baseload power plants that serve Ohio customers and provide thousands of family-sustaining jobs in the state, said FirstEnergy. The PPA includes: the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio; the W.H. Sammis Plant (fired by coal) in Stratton, Ohio; and a portion of the output of Ohio Valley Electric Corp. (OVEC) units in Gallipolis, Ohio, and Madison, Ind. (at the Kyger Creek and Clifty Creek coal plants).

The agreement establishes a goal to reduce carbon dioxide (CO2) emissions across the company’s six-state footprint by at least 90% below 2005 levels by 2045. This goal represents a potential reduction of more than 80 million tons of CO2 emissions, and is among the most aggressive targets in the utility industry. 

“The proposed settlement is expected to deliver significant benefits to customers, protect thousands of family-sustaining jobs and vital tax revenues in Ohio communities, and provide for a cleaner energy future,” said Charles E. Jones, FirstEnergy President and Chief Executive Officer. “The agreement also illustrates that a wide variety of parties support FirstEnergy’s proposal and agree that it will serve the best interests of Ohio electric customers. The eight-year term provides an insurance policy for customers by keeping a diverse set of fuel sources available to generate electricity, rather than risking more plant closures and building costly transmission to import out-of state energy sources that put Ohio at greater risk of higher prices in the years ahead.”

FirstEnergy said that other key benefits proposed in the settlement include:

  • Preserving $1 billion in annual statewide economic benefits, including tax revenues and an estimated 3,000 direct and indirect jobs created by operations at the Davis-Besse and W.H. Sammis power plants in Ohio.
  • Since 2009, residential customers’ monthly distribution rates have increased an average of only $1.31, based on typical usage of 750 kilowatt-hours per month. Under the ESP, the PUCO must approve a request to file for a base distribution rate increase during the term of the plan.
  • A commitment to evaluate future initiatives for smart meter/smart grid technologies across FirstEnergy’s Ohio service area for PUCO consideration and approval.   

Eileen M. Mikkelsen, employed by FirstEnergy Service Co. as the Director of Rates and Regulatory Affairs for the Ohio utilities, said in Dec. 1 supporting testimony that the signatory parties to this Third Supplemental Stipulation include the Ohio Energy Group, City of Akron, Council of Smaller Enterprises, Nucor Steel Marion Inc., Material Sciences Corp., The Association of Independent Colleges and Universities of Ohio, International Brotherhood of Electrical Workers–Local 245, Council for Economic Opportunities in Greater Cleveland, Consumer Protection Association, Cleveland Housing Network, Citizens Coalition, Kroger, EnerNOC and Ohio Partners for Affordable Energy.

This deal, among other things, resolves concerns raised by the PUCP staff and others in this proceeding (e.g., by shortening the term of the Economic Stability Program from fifteen to eight years), Mikkelsen noted. This deal better assures customers of more stable distribution and generation pricing over the eight-year term and continues or expands support for energy efficiency, economic development, low income customers, the retail market, in-state renewable energy, grid modernization, reductions in CO2 emissions, and a longer-term wholesale capacity product.

Mikkelsen added: “Approval of the Stipulated ESP IV no later than February 10, 2016 is necessary in order for the Companies to have adequate time to prepare for and conduct their standard service offer competitive procurement auctions in an orderly fashion to source the generation needed to serve the Companies’ non shopping customers commencing June 1, 2016, and to allow the Companies sufficient time to prepare the first Rider RRS filing which will be filed on or before April 1, 2016.”

Sammis is among the largest coal-fired power plants in Ohio. Its seven coal-fired units collectively produce 2,220 MW. Units 6 and 7 are designed to be baseload units rated at 1,200 MW in total, and Units 1-5 are load-following units rated at 1,020 MW in total. The plant uses an average of 18,000 tons of coal daily for an annual average of 6.6 million tons, including coal from Ohio mines.

Davis-Besse is a nuclear plant in northern Ohio along the shore of Lake Erie designed to be a baseload unit rated at 908 MW. Davis-Besse is owned by FirstEnergy Nuclear Generation LLC, a subsidiary of FES, and operated by FirstEnergy Nuclear Operating Co.

Dynegy says litigation is possible over this deal

The PUCO staff has decided to put the shareholders of FirstEnergy ahead of Ohio residents and businesses by coming to this eight-year agreement on a PPA, said FirstEnergy competitor Dynegy (NYSE: DYN) in a Dec. 1 statement. It said the PPA is a subsidy that only benefits FirstEnergy, while increasing power costs for the citizens of Ohio and their businesses, negatively impacting economic development in the state, and distorting the power market for FirstEnergy’s benefit.

Recent market awards indicate that FirstEnergy is already set to receive significant revenue for capacity at all of its Ohio plants for the next three years, Dynegy said. According to FirstEnergy’s own data from a recent investor presentation at the Edison Electric Institute’s Financial Conference, FirstEnergy’s fleet has been awarded more than $2.3 billion in revenues over the next three planning years from the PJM Capacity Auction with all of the FirstEnergy generating plants clearing the most recent capacity auctions, which is significantly more than the amount expected at the time of FirstEnergy’s original subsidy request. As part of the award, FirstEnergy’s plants are now obligated to run through May 31, 2019, without any PPA, meaning there are no risks of near-term retirements at these facilities, Dynegy said.

“The fault of FirstEnergy’s inability to compete in Ohio lies with FirstEnergy and it should not be dependent on the citizens and businesses of Ohio to provide a bail-out,” said Robert C. Flexon, President and CEO, Dynegy Inc. “Dynegy will pursue all available avenues, including litigation, to prohibit the power purchase agreement from being enacted so as not to compromise the competitive market design, and we strongly encourage the PUCO commissioners to oppose and vote down this adverse anti-market public policy.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.