Latest Six-Year Fixed Product from FirstEnergy Solutions Reinforces How Capacity Market Skews Playing Field in Retail Market

As the latest round of comments concerning capacity markets roll into the Public Utility Commission of Texas, it's serendipitous that FirstEnergy Solutions (FES) announced on the same day the expansion of its ultra-long-term fixed priced offer to the PECO service area, because it's an example of the type of unfair competitive advantage asset-owning retail suppliers receive when an unhedgeable obligation such as capacity is placed on retail suppliers.

Click here for related story on FES 6-year product

The offering of a six-year fixed electric rate (or 7 years, as FES does in some PJM areas) is unique, and to Matters' knowledge, is exclusively offered by FES in the residential market.

A natural question is how can FES offer a fixed rate for so long? Even FES's website invites customers to, "Learn how we can offer PriceControl."

Specifically, under this section, the FES website states, "FirstEnergy Solutions is one of America's largest energy suppliers, and our family of companies owns our power plants. That means we have the resources to help you lock in your electric generation price. And that's how we can offer Pennsylvania residents true PriceControl."

In short, FES can offer an exclusive product such as a six-year fixed contract because it owns power plants.

That's fine -- if it assumed all the risk of plant ownership.

But in PJM, it doesn't.

Instead, those power plants, if they clear the capacity market, are being subsidized by all retail suppliers in the market -- the competitors of FES are paying the fixed costs of the FES power plants, which FES uses to offer an ultra-long fixed price contract which retail competitors cannot match, since they do not have access to such subsidized generation resources.

FES is given a superior position in the retail market, not just because it owns power plants, but because market rules compel retail suppliers to pay for those power plants even though they receive no energy from the plants, which are operated for the sole benefit of FES.