FirstEnergy Utilities Propose Ratepayer Backed 15-Year Contracts to Support Affiliated Plants

As part of their electric security plan for the period beginning June 1, 2016, the FirstEnergy Ohio utilities have proposed implementing 15-year ratepayer backed contracts to support two power plants owned by FirstEnergy Solutions (as well as its share in a jointly owned plant) under an "Economic Stability Program"

The 15-year contracts would compel ratepayers to support the operation of FES's Davis-Besse Nuclear Power Station and the W.H. Sammis Plant, along with those costs assessed against FES's share of the Ohio Valley Electric Corporation (OVEC)

The utilities said that they would sell the energy, capacity and ancillary services from the proposed purchase power agreements into the wholesale market, and net 100% of the revenues against costs, with the difference being passed along to customers through a nonbypassable Retail Rate Stability Rider (Rider RRS)

The utilities said that output from the plants would not be bid into the Standard Service Offer auctions.

Accordingly, the EDCs characterized the proposal as competitively neutral to the retail market, since it would not affect the Price to Compare nor impact SSO procurement.

Although the utilities described various due diligence in evaluating the plants for these ratepayer contracts, from a cursory review of the testimony supporting the application, we did not see any indication that the utilities evaluated contracts with non-affiliate generation (new or existing) to achieve the same rate stability goals, either through an open competitive solicitation or through bilateral negotiations.

Notably, the ratepayer support for the plans will include support for an ROE of 11.15% for FES.

The utilities said that they intended to sell capacity from the plants into the PJM capacity auction, but from a cursory reading of testimony, did not describe the risk to ratepayers that this capacity may not clear the auctions, especially considering rules aimed at preventing EDCs from bidding these type of contracts into RPM as price takes ($0). While the plants may be safely under the marginal plant in RPM under current pricing, 15 years may see profound changes in the electric market (one of alleged needs for the PPAs to support generation in an uncertain environment), and it is not without risk to presume that the plants will always clear RPM.