FirstEnergy Will Raise Rates to Recoup Bad Bets on Coal, the giant Ohio-based company that owns power plants and transmission lines in several midwestern and northeastern states, is ready to raise electricity prices for its customers. This is in part because three of its oldest coal-fired power plants are set to close, but also because of a few bad business bets.

Though finally shuttered this week, the three plant closures were announced in January 2012 so FirstEnergy could take advantage of a power auction planned by PJM Interconnection, the power grid operator in the Mid-Atlantic region. That auction determines the most efficient power plants to serve this region for the next three years.

By taking these old and dirty units out of the auction, FirstEnergy was able to push up prices for its other power plants.

At the time, environmentalists argued FirstEnergy should account for the efficiency gains that would result from state-mandated programs. Lower demand for electricity caused by efficiency improvements would have reduced the auction price for power. Although such energy efficiency is typically “bid” into PJM auctions in the same way coal or nuclear energy is, FirstEnergy refused.

A coalition of environmental groups complained to the Public Utility Commission of Ohio (PUCO), the state agency that regulates power companies. PUCO eventually ordered the utility to include energy efficiency – .

FirstEnergy then launched a successful multi-year lobbying campaign to freeze and gut the state-mandated efficiency programs. Meanwhile, FirstEnergy was still cashing in on these old power plants because, though they were not bid into the PJM auction, they were still technically open.

Since the 2012 closure announcement, FirstEnergy was allowed to collect up to $300 million a month with the assumption these units generated power all the time. But they didn’t run continuously.

Finally, FirstEnergy spent millions of dollars to build new transmission lines along the Ohio River. Federal regulations allow utilities to recoup such costs by hiking up electricity prices. According to John Funk of the Cleveland Plain Dealer, “So far the company has budgeted $263 million on the transmission projects — just the beginning of a $4.2 billion re-building effort, which will be reflected in future rates, which will increase annually.”

Part of the underlying problem is a lack of “corporate separation.” FirstEnergy’s power plant company, FirstEnergy Solutions, operates in competitive markets. That means it should operate separately from its distribution companies (Illuminating Company, Ohio Edison, and Toledo Edison). Under state law, the companies are not supposed to share information or give each other preferential treatment. The company’s lack of separation is now the focus of a PUCO investigation.

Regulators also need to review how market manipulations – ignoring energy efficiency and timing the closure of power plants – are resulting in rate hikes for FirstEnergy’s customers. Rather than bail out the company’s bad bets, we need markets that reward innovation. And instead of allowing FirstEnergy to expand its monopoly, we need to expand competition, for the benefit of both customers and the environment.

Photo source: Flickr/Rennett Stowe

This is one in a series of posts that examine FirstEnergy’s proposed bailout for its aging coal fleet and other market manipulations. Stay up to date on FirstEnergy by visiting EDF’s website, where we’ve published helpful resources and will host a series of newsletters. If you would like to receive our FirstEnergy newsletter directly, please click here.

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