The Public Utilities Commission of Ohio (PUCO) has rejected the FirstEnergy (NYSE:FE) modified Retail Rate Stability (RRS) rider or “virtual PPA” proposal.
PUCO ordered FirstEnergy’s Ohio utilities (Ohio Edison, Cleveland Electric Illuminating and Toledo Edison) to establish PUCO staff’s recommended Distribution Modernization Rider (DMR) instead, and to eliminate the existing RRS rider, PUCO said in an Oct. 12 news release.
The PUCO order authorizes the companies to collect approximately $204m per year over a three-year term. The charge is expected to result in a $3 increase on monthly bills, or about 3%, for a typical residential customer using 750 kilowatt-hours per month, FirstEnergy said.
With the new charge, total monthly bills for FirstEnergy’s residential customers are expected to be lower than they were a year ago and remain among the lowest in the state, the company said.
“Today’s decision is disappointing for our customers,” said FirstEnergy President and CEO Charles E. Jones. “While we clearly demonstrated to the PUCO what is essential to ensure reliability for customers in the future, the amount granted is insufficient to cover the necessary and costly investments. The decision also fails to recognize the significant challenges that threaten Ohio utilities’ ability to effectively operate,” Jones said.
The company is evaluating the Commission’s order and considering next steps.
In its application for rehearing, FirstEnergy proposed to modify rider RRS such that it would continue as a financial hedge, but would not be tied to the physical operation of generation in the state. PUCO rejected FirstEnergy’s proposal because it lacked important benefits related to reliability, resource diversity and economic development, the commission said.
Rider DMR, set at $132.5m per year (to be grossed up for taxes annually), will provide FirstEnergy with an infusion of capital so that it will be financially healthy enough to make future investments in grid modernization.
The commission limited Rider DMR to three years, with the possibility of a two-year extension, subject to PUCO approval. FirstEnergy requested that Rider DMR be granted in the amount of $558m per year for eight years.
During the term of rider DMR, FirstEnergy will maintain its headquarters in Akron, Ohio, and make sufficient progress in grid modernization initiatives ordered by PUCO, including its deployment of smart grid technology in the companies’ service territories.
“The DMR’s primary purpose is to ensure that FirstEnergy retains a certain level of financial health and creditworthiness so that it can invest in future distribution modernization endeavors,” said Chairman Asim Z. Haque.
“We expect that these future endeavors will advance the electric industry in FirstEnergy’s service territory and benefit Ohio’s consumers and businesses,” Haque said.
In May, FirstEnergy and other interested parties filed applications for rehearing following the PUCO’s March 31, opinion and order establishing an electric security plan.
An evidentiary hearing was held at the PUCO in July and August 2016 in order for interested parties to provide testimony on the rehearing applications.
On Aug. 4, 2014, FirstEnergy filed an application to establish its fourth ESP, for the period of June 1, 2016 through May 31, 2019. The application also proposed to freeze base distribution rates through the end of the requested ESP period.
In this application, FirstEnergy proposed to secure all supply needed for its standard service offer (SSO) for Ohio Edison, Toledo Edison and The Cleveland Electric Illuminating companies through a competitive bidding process.
FirstEnergy requested approval of a Retail Rate Stability (RRS) rider to act as a retail rate stability mechanism through a 15-year power purchase agreement.
In the application, the companies sought to acquire generation from their share of Ohio Valley Electric Corporation and generation from the Davis-Besse and W.H. Sammis plants and then sell that capacity, energy and ancillary services back to the PJM wholesale market.
The proposed rider would include the net costs associated with legacy contracts, capital investments and credit to customers the revenue from selling the capacity, energy and ancillary services from the associated plants into the PJM markets.