Dynegy Inc. (NYSE: DYN) President and CEO Robert C. Flexon reacted quickly in an April 28 statement to April 27 decisions by members of the Federal Energy Regulatory Commission to rescind the affiliate waivers for American Electric Power and FirstEnergy in Ohio related to power plant protection deals recently approved by the Public Utilities Commission of Ohio.
Said Flexon, who leads a company that fought those PUCO approvals: “Dynegy applauds the Federal Energy Regulatory Commission’s unanimous action to protect consumers and the wholesale markets from abuse by ridding Ohio of the affiliate waivers for AEP and FirstEnergy. FERC agreed that customers are indeed captive to the out-of-market and exorbitantly priced PPA proposals that were accepted by the Public Utilities Commission of Ohio (PUCO), and has now ensured a transparent and thorough review for the benefit of Ohio residents and businesses.”
In each case, the PUCO had approved AEP and FirstEnergy plans to protect existing power plants (coal plants for AEP and a mix of coal and nuclear from FirstEnergy) through complex power purchase agreements (PPAs) that would be paid for by the ratepayers of each company that reside in Ohio over multi-year periods. Ohio is a deregulated state and AEP’s and FirstEnergy’s regulated utilities no longer own power plants there.
Independent power producers like Dynegy and NRG Energy, and parties like the Electric Power Supply Association, appealed to FERC, saying the Ohio plans violate FERC market requirements. They requested that the federal commission rescind the waiver of its affiliate power sales restrictions that it previously granted as that waiver relates to a particular power sales contract.
Under the commission’s affiliate power sales restrictions, no wholesale sale of electric energy or capacity may be made between a franchised public utility with captive customers and a market-regulated power sales affiliate without first receiving commission authorization under section 205 of the Federal Power Act. Applicants may seek “waiver” of the affiliate power sales restrictions by requesting a commission determination that the Order No. 697 requirement to obtain prior approval for affiliate sales of energy or capacity does not apply. AEP and FirstEnergy had previously gotten those waivers. The April 27 FERC orders rescinded the waivers, meaning these PPAs will now need FERC review.
In the April 27 decision on the complaint brought against the AEP companies, FERC summarized the position of those AEP companies: “In their Answer, Respondents argue that the complaint poses the question of whether the Ohio Commission’s approving a non-bypassable rate mechanism in AEP Ohio’s service territory would render retail customers captive for purposes of the Commission’s affiliate restrictions, thereby requiring the Commission to review the Affiliate PPA. Respondents argue that the answer to this question is “no” because Respondents’ proposed retail rate mechanism would not impair the legal right of retail customers in Ohio to select an alternative power supplier. Therefore, Respondents argue that there are no changed circumstances that would justify granting the complaint.”
Said FERC in the AEP decision about complaints lodged by various outside parties: “Parties filing comments in support of the complaint argue that the Affiliate PPA will have a detrimental effect on Ohio consumers. Ohio Consumers’ Counsel estimates that if the involved generation clears the PJM capacity auction, the cost to Ohio’s customers would be approximately $700 per customer and approximately $1.9 billion in total over its eight-year term. If the involved generation does not clear the auction, the cost to Ohio customers could balloon to $1,000 per customer and approximately $3.1 billion over the eight year term. Hardwood Flooring adds that the costs being passed through to consumers are driving businesses away from Ohio, which in turn harms the state economy by driving away prospective homeowners, retail establishments, and other industries.”
FERC said in agreeing to rescind the AEP waiver, a decision echoed in the FirstEnergy decision: “We agree with Complainants and the supportive commenters that the non-bypassable charges associated with the Affiliate PPA and the PPA Rider represent a reportable change in circumstances from the conditions under which the Commission granted waiver of the affiliate restrictions to AEP Ohio and its affiliates.
“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 those AEP 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. These non-bypassable charges present the “potential for the inappropriate transfer of benefits from [captive] customers to the shareholders of the franchised public utility,” and, thus, could undermine the goal of the Commission’s affiliate restrictions.”
FERC later added: “Our determination to rescind Respondents’ waivers as to the Affiliate PPA does not frustrate or usurp the Ohio Commission’s role in protecting retail customers. Rather, this Commission has an independent role to ensure that wholesale sales of electric energy and capacity are just and reasonable and to protect against affiliate abuse.”