Federal regulators flatly rejected an Ohio utility plan to subsidize the cost of running the state’s aging coal and nuclear fleet on the back of ratepayers.
The Federal Energy Regulatory Commission issued its decision late Wednesday on the plan approved by state regulators appointed by Republican Gov. John Kasich, who continues to compete for the GOP presidential nomination.
The Public Utility Commission of Ohio approved a set of highly contested power purchase agreements last month for major utilities American Electric Power and First Energy that operate coal and nuclear power plants in the state. AEP is one of the largest utilities in the country, with subsidiaries throughout the United States. Both companies are headquartered in Ohio.
The states sought the subsidies to keep some of their less-economic coal plants, and one famous nuclear plant named Davis-Besse, online during a time of increased competition from natural gas, say experts tracking the decision. The plan failed to pass muster. Along the way Kasich has kept his distance from the subsidy scheme, saying he trusted his commissioners to make the right decision.
The environmental activist community lauded FERC’s decision, calling it a triumph for those looking to maintain fairness in the nation’s electricity markets, while also opening the market for more natural gas and cleaner power plants that are more competitive. Their applause of the FERC decision is interesting because many of the same groups are simultaneously challenging the commission over its pipeline approvals to move shale gas to the Northeast via Pennsylvania.
As far as the FERC utility decision, American Electric Power said Thursday that it doesn’t have the patience for a long drawn-out fight with FERC to get the Ohio agreement approved.
“Although we believe the AEP Ohio power purchase agreement is the best long-term approach for our Ohio customers and the state and that it would survive FERC review, AEP is not interested in participating in a drawn-out FERC review process,” the company said on a morning call announcing its first quarter earnings.
The earnings report showed that the big utility’s coal-heavy fleet of generators sustained losses in the first few months of 2016, while expecting some marginal improvements throughout the year. Its transmission and distribution assets, however, sustained decent earnings despite a warm winter and lower heating demand.
Without the FERC approval, the utility said it will conduct a strategic review of the power plants considered for subsidy.
Dick Munson, Midwest clean energy director for the group Environment Defense Fund, says this means the company is likely to consider shutting those plants down, while seeking a new strategy to get rid of all its generating assets in Ohio in favor of being a distribution utility. This means they will own the wires that move the electricity to market, but not the power plants that generate it, Munson says.
But AEP plans to go further than that. It said on the call that it plans to begin lobbying the state’s legislature to reverse course from being a deregulated state, to being a regulated state. Ohio adopted deregulation a few years back, which entails divestment of all utilities’ assets to essentially end monopolies and spur increased competition under a regional operator overseen by FERC. AEP wants the state to end that framework and go back to simple regulation, which places the onus on the state to control the market.
“We are focused on being a regulated utility company, so we will initiate a strategic review of the generation assets in the power purchase agreement, similar to the review already in place for our other competitive generation assets,” the company said. “At the same time, we also will advocate for legislation in Ohio that would reregulate generation in the state or provide a mechanism for AEP Ohio to own and develop generation assets, including the plants included in the PPA and renewables.”
Munson says he doesn’t expect the Republican-dominated legislature to agree with the company, arguing that conservative free-market principles should dissuade them from endorsing a plan that seeks to support subsidies.
“I do think they will have a fight in the general assembly to see if they can get rid of deregulation,” Munson tells the Washington Examiner. “It will be hard to argue to abandon free-market principles in favor of subsidies.”
