Ohio Failed to Protect Customers and Markets – So Federal Regulators Came to the Rescue

columbus-898928_1280The Federal Energy Regulatory Commission (FERC) recently rejected Ohio-based utilities FirstEnergy and AEP’s bailout deals, which the Public Utilities Commission of Ohio (PUCO) recently approved. FERC, which is responsible for ensuring fair wholesale electricity prices, recognized that these backroom bailouts were “abusive,” taking advantage of “captive” customers and harming the competitive market. Fortunately, FERC’s rulings protect customers and markets – which the PUCO utterly failed to do in approving these deals.

FirstEnergy and AEP wanted these bailouts to protect their old coal and nuclear plants, which are losing money because they cost more to operate than the money received from power sales. The companies considered shutting down the plants, but they concocted the backroom bailout deals in a last-ditch attempt to keep them open and money rolling in.

FirstEnergy and AEP entered into the bailout deals with their sister companies that own and operate the plants – agreements that had no competitive bidding, no negotiation on price, and no protections for customers. Independent experts reported that the bailouts would cost customers $6 billion in above-market prices. The bailouts would keep these plants running for the next eight years, exposing the public to hundreds of millions of tons of toxic emissions.

Clearly, the bailouts were bad for customers, bad for the environment, and bad for the public. Yet, the PUCO approved the subsidy deals in March.

Ohio regulators failed to fulfill their duties

The PUCO’s website explains its mission statement as follows:

Our mission is to assure all residential and business customers have access to adequate, safe and reliable utility services at fair prices, while facilitating an environment that provides competitive choices.

The PUCO, by approving the bailouts, abjectly failed to uphold its mission. By stating the subsidies would stabilize prices and protect jobs at these plants, the PUCO tried to justify its decision. Although true, this does not justify saddling customers with $6 billion in above-market costs. Moreover, it stifles innovation and job creation in newer, cleaner energy technology.

In reality, the PUCO caved to political pressure from two large utilities that happen to be headquartered in Ohio. It’s a sad day in Ohio when regulators place utility interests above customer interests and abandon their mission as regulators, but that’s exactly what happened here.

The customer-funded subsidy deals were abusive because they would result in a “transfer [of] benefits to the affiliates and [their] stockholders to the detriment of the captive customers.”

Thankfully, FERC came to the rescue and acted to protect customers and competition. The federal agency acknowledged how bad these backroom bailouts were, describing them as “precisely the type of affiliate abuse” that the agency guards against. The customer-funded subsidy deals were abusive because they would result in a “transfer [of] benefits to the affiliates and [their] stockholders to the detriment of the captive customers.” FERC readily saw how bad these bailouts were for customers, and the PUCO knew this too, but still went ahead and approved them.

Going forward, we hope the PUCO commissioners will change their ways and begin protecting customers from these types of abusive deals, as they promised to do when they took office. The FERC commissioners provide a good example. Let’s have less of “politics as usual” and more of doing the right thing.

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2 Comments

  1. Scott Sklar
    Posted May 2, 2016 at 7:12 pm | Permalink

    Bailing out old electric generation plants do not save money for consumers in the long run. Consider it more like an old car whose parts that just keep just breaking down all the time. When is the time you just bail on it because the repair costs outweigh the monthly financing or leasing costs. Just like broken old cars, old generation plants can also beak down and have huge safety issues consequences. And now with smarter electric grid planning and technologies, electric generation plants can be sized to electric demand, rather than just building behemoth generators soaking rate payers for hundreds of millions of dollars. Electric utilities want to squeeze out the most out of their investment in electric power generation – that's no surprise. But that doesn't mean that approach lowers ratepayer utility bills or insulates them from risk of breakdowns, spills, fires, pollution, and worker safety — all costs passed on to the ratepayer. FREC did indeed make the right choice of not allowing these risks be pushed on the backs of ratepayer just to shield investors. Privately-owned utilities cannot have it both ways — have private control but without the risk. Ratepayers should not bail out electric utilities, since ta payers already subsidize power lines, pipelines, and treatment of generation property. Scott Sklar, Adjunct Professor, GWU

    • John Finnigan
      Posted May 3, 2016 at 2:19 pm | Permalink

      Thank you, Scott. We agree and appreciate your support.

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