Ohio’s FirstEnergy Forecasts are More Political than Accurate

rp_future-pic-300x200.jpgNobody can predict the future. But from markets to sports, so much of our world is focused on speculation. Ohio-based FirstEnergy has a habit of missing market predictions in spectacular fashion, often because the numbers it advances “prove” the political point that would most benefit the utility’s bottom line.

Consider the case of Environmental Protection Agency’s proposal to reduce mercury and particulate emissions from power plants. FirstEnergy wanted to kill the Mercury and Air Toxic Standards (MATS) and argued the recommended rules would cost it some $3 billion to comply. That predicted cost came in the third quarter of 2011, before the EPA standard was finalized. A year later, after the final rule was released, FirstEnergy cut its estimate nearly in half, to $1.7 billion. A year later the number was down to $465 million, and by 2015 the company admitted it needed to spend only $370 million to comply with MATS.

FirstEnergy’s forecasting “prowess” also extends to its bailout request now before the Public Utility Commission of Ohio (PUCO). According to Cathy Kunkel with the Institute for Energy Economics & Financial Analysis (IEEFA), “FirstEnergy needs to show PUCO that wholesale market prices are likely to rise steeply so that ratepayers will benefit from the new contract it seeks.”

Unfortunately for the utility, its star witness, Judah Rose, admitted in testimony recently that wholesale electricity prices are about 10 percent lower and natural gas prices 30 percent lower than he had forecasted only a year ago. Rose also revealed that his forecasts did not account for energy efficiency, which reduces electricity demand and, therefore, wholesale prices.

This is not the first time FirstEnergy used this star witness, nor is it the first time he exaggerated the future costs of natural gas and electricity. Two years ago, Rose said costs would rise substantially and convinced regulators in West Virginia to allow FirstEnergy to sell an uneconomic power plant to its regulated subsidiary. This means West Virginia ratepayers would have to pay the cost for power generated at the plant regardless of wholesale prices. Contrary to Rose’s predictions, wholesale electricity prices have remained low, so the power-plant sale has forced West Virginia ratepayers to face a 12.5 percent rate increase.

We’ve written before about FirstEnergy’s lack of transparency. Accuracy also seems to be a corporate weakness. Repeatedly, the utility giant has demonstrated its inability to know what’s coming. Ohio regulators should learn from MATS and West Virginia and be skeptical of the company’s numbers. Very skeptical.

Photo source: www.SeniorLiving.Org

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