FERC Rescinds Affiliate Waivers Granted to AEP, FirstEnergy; Will Evaluate Ohio PPAs Under Edgar/Allegheny Standard

Granting complaints filed by EPSA, the Retail Energy Supply Association, and other parties, FERC in separate orders rescinded affiliate waivers previously granted to various FirstEnergy and AEP companies, and will evaluate PPAs between FirstEnergy's and AEP's Ohio utilities and their merchant generation under the Edgar and Allegheny standards

The waivers, premised on the lack of captive customers in Ohio due to customer choice, had allowed sales between the companies' merchant generation and regulated EDCs without subjecting the agreement to FERC review under the Edgar and Allegheny standards

However, FERC agreed that the imposition of nonbypassable charges to support PPAs between the companies' merchant generation and regulated EDCs meant that Ohio customers were now captive, and required FERC review of the PPAs for customer protection

"While it is true that Ohio ratepayers will continue to have a statutory right to choose one retail supplier over another, we conclude, based on the record, that FE Ohio Regulated Utilities’ retail ratepayers are nonetheless captive in that they have no choice as to payment of the non-bypassable generation-related charges incurred under the Affiliate PPA. These non-bypassable charges present the 'potential for the inappropriate transfer of benefits from [captive] customers to the shareholders of the franchised public utility,' and, thus, could undermine the goal of the Commission’s affiliate restrictions," FERC said in its FirstEnergy order, making a similar conclusion with regard to AEP

"In light of the PPA Rider, all of FE Ohio Regulated Utilities’ retail customers in their retail distribution service territory have no choice but to pay the non-bypassable generation-related charge. Further, as explained by Complainants, the proposed PPA Rider charge could be used to effectuate precisely the type of affiliate abuse that the Commission identified in Order No. 697-A," FERC said, making a similar conclusion with regard to AEP

"Retail choice protects customers from affiliate abuse only to the extent they have a choice to undertake generation costs. Where, as here, circumstances demonstrate that a retail customer has no choice but to pay the costs of an affiliate transaction, they effectively are captive with respect to the transaction, FERC said

FERC's action did not judge the propriety of the PPAs themselves, only that such contracts will be evaluated under the Edgar and Allegheny standards

Dockets EL16-33 & EL16-34