Fight Continues Over New Fees to Pay for Old Power Plants

Apr 6, 2016

FirstEnergy's Sammis plant in southern Ohio is one of the plants that will benefit from a new fee added to customers bills to subsidize its more expensive power generation.
Credit FIRSTENERGY

Ohioans could see a new charge on their electric bills as early as June, now that state regulators have approved plans by FirstEnergy and AEP to guarantee income for struggling coal plants. But opponents of the costs say the fight isn’t over. 

The decision from the Public Utilities Commission of Ohio last week allows FirstEnergy and AEP to institute the new charge on electric bills to guarantee income for their struggling coal plants. Opponents say this is a bailout for coal plants that can’t make it on their own.

AEP President Pablo Vegas counters that it’s important to keep coal plants going in order to avoid higher energy costs.

“We don’t want to see that kind of price shock. So we think that having a gradual transition away from coal is a much more responsible way to do it because it’s going to take time to build its replacement.”

The tale of the new fee, known as a power-purchase agreement, boils down to two things: the costs that come with generating energy such as coal and natural gas, and how well those sources fare in the market.

"This decision by the PUCO unravels six years of tax cuts by the Kasich Administration and the General Assembly." -- Gene Krebs

Ohio has a handful of coal plants that are inefficient and cost a lot to operate. Then they don’t get much money in return when AEP and FirstEnergy go to sell their coal power to the market. Vegas says that’s because of the abundance of natural gas, which is cleaner and cheaper.

And Vegas adds that regulations, such as cleaning up coal plants, can up the expense that comes with generating power.

“This is not a free market in the traditional sense of how you and I might talk about the free market of sneakers or the free market of consumer electronics," says Vegas.

"This is a federal regulated market that has just as many regulations and rules around it as almost any state regulation does.”

But opponents of the approved plans argue that the big players like AEP and FirstEnergy are getting a break that other energy providers don’t get to enjoy.

Where's the choice?
Former PUCO chairman Todd Snitchler is with the Alliance for Energy Choice, which represents several of those groups, including Dynegy, which bought Duke Energy’s generation plants.

Here’s the dilemna,  according to Snitchler. AEP and FirstEnergy generate power. But they also distribute power. So they have actual customers wired to the grid that they can charge to prop up their generation side. Snitchler says that’s unfair to energy companies that only work in generation.

“I don’t have someone that I can pass this charge on to in a non-bypassable fashion and guarantee that income comes in and my rate of return is guaranteed. I have to compete the way I always did.”

Gene Krebs, who sits on the board of the Ohio Consumers’ Counsel, says this is a loss for AEP and FirstEnergy customers as well.

“This decision by the PUCO unravels six years of tax cuts by the Kasich Administration and the General Assembly,” says Krebs.

Krebs and Snitchler both contend that this also makes Ohio unattractive to new businesses looking to move.

Big-ticket customers
Sam Randazzo is with the Industrial Energy Users, representing companies ranging from Marathon to McDonald’s. He says here are other aspects of Ohio’s utilities regulations remain attractive for companies, including the ability to run via of 100 percent renewable energy.

As Randazzo explains, the larger problem is with the wholesale market that focuses on the short term, while investment in something like coal can be a 30-year investment. So to Randazzo, these power-purchase agreements are more of a Band-Aid than major surgery.

“Customers, buyers and sellers are captive to a structure that has a short term perspective that is a root cause to the problem and so the PPA’s are a bridge, they’re an answer for some of the side effects of this root cause.”

Snitchler says this is not the end of the fight and believes there’s a good chance the debate will end up in the Ohio Supreme Court.