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PUCO Approves Distribution Modernization Rider For Cash Infusion at FirstEnergy EDCs, Not Tied To Specific Grid Modernization Milestones

PUCO Chair: Commission "Not A Bank"


October 13, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Public Utilities Commission of Ohio rejected a nonbypassable Retail Rate Stability (RRS) rider at the FirstEnergy Ohio utilities, but adopted a nonbypassable Distribution Modernization Rider (DMR) instead.

While ostensibly intended to support future distribution modernization endeavors, Rider DMR is not tied to any specific actions with respect to grid modernization. A FirstEnergy EDC grid modernization plan is pending before PUCO in a separate proceeding.

Recovery of revenue under Rider DMR is conditioned upon: (1) continued retention of the corporate headquarters and nexus of operations of FirstEnergy Corp. in Akron, Ohio; (2) no change in "control" of the EDCs as that term is defined in R.C 4905.402(A)(1); and (3) a demonstration of "sufficient progress" in the implementation and deployment of grid modernization programs approved by PUCO.

For purposes of the continuation of Rider DMR, "sufficient progress" will be determined at the sole discretion of the Commission, PUCO said. Furthermore, "sufficient progress" will only be determined with respect to the implementation and deployment of grid modernization programs actually approved by the Commission.

PUCO ruled that Rider DMR revenue shall be allocated between Ohio Edison, Cleveland Electric Illuminating, and Toledo Edison based upon 50 percent energy and 50 percent demand.

Revenue under Rider DMR was set at $132.5 million per year (to be grossed up for taxes annually). Rider DMR shall be in place for three years (subject to the conditions above), with the opportunity for an extension.

The FirstEnergy EDCs had been seeking $558 million annually (for 8 years) under Rider RRS

Rider RRS had been proposed as essentially a nonbypassable financial hedge that the EDCs said was to provide rate stabilization, and which was not tied to any specific PPAs or generation (to eliminate FERC jurisdictional issues)

Notably, while PUCO did not adopt Rider RRS, PUCO found that such a charge is authorized under R.C. 4928.143(B)(2)(d). PUCO said that important secondary benefits related to reliability, resource diversity, and economic development were absent from the EDCs' proposed Rider RRS which led to the rejection of the proposal.

In a concurring opinion, PUCO Chair Asim Z. Haque wrote, "It is clear based upon the record of the case, in tandem with FirstEnergy's roughly $4.5 billion request from the Commission, that FirstEnergy is presently experiencing financial challenges. Parties in the case have expressed that these challenges are self-created, while FirstEnergy maintains that wholesale markets are the driver for their hardship. FirstEnergy, however, is not the only utility nationally that is invested in either coal-fired or nuclear generation in a restructured state. That is, their wholesale market difficulties are not unique to them."

"If FirstEnergy truly needs $4.5 billion dollars to achieve full financial health, then the Commission decision today falls well short of that expressed need. The Commission does not intend to be, nor will it be, nor should it be the entire solution for FirstEnergy's current financial difficulty. In fact, we calculated Rider DMR to account for Ohio's share (22%) of FirstEnergy Corp.'s credit issues. The Commission is an economic regulator. It is not a bank. It is not a trust fund. We authorize rates and charges that come directly from the pockets of consumers and businesses in this state. We have no rainy day fund to dip into," Haque wrote

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