Parties argue FirstEnergy’s changing power plant protection program at FERC

Monitoring Analytics LLC, the Independent Market Monitor for PJM Interconnection, filed June 13 comments with the Federal Energy Regulatory Commission critical of a revised plan defore the Public Utilities Commission of Ohio to protect certain coal-fired and nuclear capacity of FirstEnergy (NYSE: FE).

Parties including Calpine Corp. (NYSE: CPN) and Dynegy Inc. (NYSE: DYN) had appealed a March 31 PUCO decision to FERC as an unlawful intrusion on PJM markets. The PUCO-approved plan allowed FirstEnergy to buy power on behalf of Ohio ratepayers from the Davis-Besse nuclear plant, the W.H. Sammis coal plant and a portion of the output of Ohio Valley Electric Corp.’s Kyger Creek and Clifty Creek coal plants. That effectively would protect those plants from any low power market prices.

The June 13 answer from Monitoring Analytics was to answers filed by FirstEnergy Service Co. on June 6, by Calpine and others on May 23, and by PJM Interconnection on June 6. “Because the complaint in this proceeding continues to identify an unjust and unreasonable defect in the Minimum Offer Price Rule (‘MOPR’), and continues to identify specific units that may receive subsidies to avoid market signals to retire, there is no valid basis to dismiss the complaint,” said Monitoring Analytics. “The motion to dismiss should be denied.”

The market monitor added: “FirstEnergy continues to argue that the complaint is moot because ‘the factual basis for the Complaint no longer exists.’ FirstEnergy argues that it is inaccurate to characterize its current position before the Public Utilities Commission of Ohio (PUCO) as a ‘modified scheme’ that ‘will still provide subsidies for the continued operation of existing generation that FirstEnergy has suggested may otherwise retire.’ Contrary to FirstEnergy’s assertions, the argument for a MOPR that protects against subsidies for units that would otherwise retire remains as urgent as ever and the factual basis for the complaint remains as strong as ever.

“FirstEnergy continues to pursue an active proposal that would allow it to obtain subsidies in Ohio for its units in spite of the Commission’s actions blocking its use of noncompetitive wholesale power purchase agreements. Under FirstEnergy’s active proposal, subsidies would be paid to the transmission/distribution affiliate rather than the generation affiliate of the electric utility. Payment of the subsidies would be tied to the continued operation of designated units that FirstEnergy states would otherwise retire.

“The accounting has changed and the need for a reviewable power purchase agreement avoided, but subsidies for the continued operation of the designated units remain in place in the rehearing proposal. Despite FirstEnergy’s suggestion otherwise, nothing material to the specific basis for the complaint has changed that would render the complaint moot. The need to improve the MOPR is now greater precisely because the new scheme evades the Commission’s ability to protect competition through review of wholesale power purchase contracts.

“Whether the complaint is moot does not depend upon the outcome of the specific cases in Ohio that provide examples of the need to reform the MOPR. However, the Ohio cases are not resolved. FirstEnergy’s and [American Electric Power‘s] proposed schemes to subsidize units that otherwise would have retired were approved, remain approved and continue to provide a concrete example that the threat is not theoretical. Dayton Power and Light Company has proposed a similar scheme that is now pending in Ohio.

“PJM markets have no protection against this emergent threat. Accurate signals for entry and exit are necessary for well functioning markets. Competitive investors rely on accurate signals to make decisions. The current MOPR only addresses subsidies for new entry. The actions of FE, AEP and Dayton Power and Light demonstrate that the markets need protection against subsidized, noncompetitive offers from existing as well as new resources. The MOPR should be expanded to address subsidies for existing units, and this proceeding provides an opportunity to address this issue expeditiously. This complaint will not become moot unless and until the MOPR is reformed.

“Action is needed in this proceeding to correct the MOPR immediately. PJM should be directed to make a compliance filing. Any stakeholder guidance to PJM should be provided in that compliance proceeding. PJM, the nominal target of the complaint, agrees that this is an appropriate path forward and commits to vetting its compliance proposal with stakeholders. The compliance directive should direct expansion of the MOPR to address subsidies to existing units and to develop an accurate default MOPR offer for existing units based on the principles established in the Capacity Performance market design.”

FirstEnergy Service in its June 6 filing argued two basic reasons why this case at FERC should be dismissed:

  • First,, the factual basis for the complaint no longer exists, rendering the complaint moot. The complaint was based upon the alleged implications arising from the potential pass through to Ohio retail customers of certain retail charges and credits associated with certain affiliate power purchase agreements (PPAs). However, on April 27, FERC issued orders rescinding FirstEnergy and AEP’s affiliate sales restriction waivers with respect to the PPAs at issue. In light of these orders, FirstEnergy and AEP each have informed the commission that they will not be moving forward with transactions under their respective PPAs at this time. These points, along with the fact that the 2019/2020 Base Residual Auction (BRA) has already occurred, removes the stated basis for the complaint.
  • Second, complainants’ claim that FirstEnergy is pursuing a “modified scheme” at the PUCO that will still provide subsidies for the continued operation of existing generation that FirstEnergy has suggested may otherwise retire is inaccurate and false, FirstEnergy Service said.

Opposing parties say efforts to ‘FERC-proof’ this subsidy program are a threat

The complaining parties, including Calpine, said in a May 23 filing at FERC: “As an initial matter, notwithstanding the rescission of their affiliate power sales waivers with respect to proposed affiliate power purchase agreements (the ‘Affiliate PPAs’), both FirstEnergy and AEP continue to pursue subsidies for their ‘unregulated’ affiliates’ uneconomic generation. FirstEnergy, in particular, is actively pursuing a modified subsidy scheme before the Public Utility Commission of Ohio (the ‘PUCO’) under which its Ohio utility subsidiaries would collect a non-bypassable charge based on projections of the same generation costs they would have incurred under FirstEnergy’s Affiliate PPA net of projected PJM market revenues.

“Even assuming arguendo that ‘the linkage to sales into the RPM has been severed’ by the new proposal, the modified scheme, like the original scheme, will still provide subsidies for the continued operation of existing generation that FirstEnergy has suggested may otherwise retire. It thus continues to threaten the same uneconomic non-exit problem described in the Complaint and addressed in prior Commission orders.

“Moreover, FirstEnergy’s modified scheme is ‘designed to be solely within the [PUCO]’s jurisdiction’ – i.e., to avoid the Commission’s jjurisdiction. If FirstEnergy has succeeded in making its scheme ‘FERC-proof’ from an affiliate abuse perspective, that would make it more, not less, important to grant the Complaint in order to address a threat to the market that will not be resolved by other means.

“For its part, AEP has stated its intent to lobby the Ohio legislature to re-regulate in a way that would allow for the transfer of the previously-divested generation back to its Ohio utility subsidiary. While presumably on a slower track than FirstEnergy’s proposal, AEP’s re-regulation scheme would have much the same result as its original proposal in that retail ratepayers would be subsidizing the costs of generation that, according to AEP, might otherwise retire.”

The complaining parties added that the Affiliate PPAs, “egregious” as they are in their own right, are only examples of a serious and growing threat to the market, which is state-approved out-of-market subsidies to certain favored existing resources that then crowd out other existing and new resources which would otherwise be economic. For example, Dayton Power and Light has the pending application before the PUCO proposing a scheme modeled after the FirstEnergy and AEP schemes, which, if approved, would be in place in advance of the 2020/2021 BRA. “Indeed, subsidies to prevent the retirement of uneconomic resources are part of a troubling trend that extends far beyond Ohio,” they added.

PJM asks for time to formulate a broader policy response

Said PJM’s June 6 filing in this FERC case: “This Complaint raises fundamental issues concerning the appropriate market response to state actions targeting specific subsidies to retain particular resources irrespective of market outcomes. All parties, including affected Independent System Operators (‘ISOs’), Regional Transmission Organizations (‘RTOs’) and potentially the Commission, may be struggling with this issue in defining the appropriate role for the Commission and the markets in general, in response to these state actions. Moreover, in prior pleadings , PJM has acknowledged its current Open Access Transmission Tariff (‘Tariff’) may be unjust and unreasonable in satisfactorily addressing these issues. For these reasons, PJM believes it would be most appropriate for the Commission not to simply dismiss this Complaint, but instead require PJM to report to the Commission on the scope of the problem and potential solutions to address these issues.

“The report could come in the form of a compliance filing should the Commission, based on the present record, find the existing Tariff is unjust and unreasonable under Section 206. In the alternative, the Commission could hold this case in abeyance and task PJM to address the scope of the issues raised in this Complaint and address potential solutions, all of which can be record evidence by the Commission in making its final determination in this case. In either case, PJM would work with its stakeholders in developing this submittal to the Commission.

“To ensure this stakeholder process produces a timely analysis for the Commission’s consideration, PJM proposes making this submittal to the Commission by May 1, 2017 with any resulting changes to PJM’s rules to be implemented in the May, 2018 BRA. PJM believes such a tasked assignment to PJM would enhance the record, providing the Commission with a more complete record to make the ultimate determination as to (a) whether, in fact, the existing Tariff is unjust and unreasonable and (b) if so, potential solutions to address the shortcomings in the existing Tariff.

“PJM also believes providing the Commission with a detailed analysis of the issue will enhance any additional action the Commission might take on this matter. ‘Staging’ the proceeding in this manner, with the directive that PJM work with its stakeholders and report back to the Commission while the Complaint is held in abeyance, would help to bring all parties to the table for a full and open discussion of these difficult issues and potential solutions in a way which cannot be done merely through more traditional Commission processes such as the existing Technical Conference format.”

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.