FirstEnergy’s Bailout Isn’t Just Bad Policy – It’s Illegal

Gavel_iStock000003633182MediumLast week, the Public Utilities Commission of Ohio (PUCO) staff endorsed a four billion dollar bailout for FirstEnergy’s coal and nuclear plants. The new deal modifies FirstEnergy’s original proposal and, if approved, would prop up the Akron-based utility giant’s uneconomic power plants for the next eight years – making its customers foot the huge bill. Many parties oppose the deal, because it is unfair to customers and interferes with the state’s competitive energy market.

Importantly, FirstEnergy’s bailout is not only bad policy, it also violates federal law.

Ohio restructured its electricity market several years ago, so FirstEnergy’s plants have been operating in a competitive wholesale energy market. The market covers 13 states and power plants bid into an auction to supply electricity to the region, ensuring customers get the lowest electricity prices possible FirstEnergy’s power plants are losing money because they are old and inefficient, and can’t compete with newer, cleaner natural gas and renewable energy that deliver electricity at a lower cost. As a result, FirstEnergy has asked the PUCO for a bailout.

But electricity is sold across several states in the wholesale market, and so is subject to federal law. And federal law bars states from erecting protectionist barriers that harm competition.

In this case, the bailout deal subsidizes FirstEnergy’s money-losing plants by forcing customers to pay for them, even when cheaper electricity is available from newer, more efficient power plants.  And since utilities still have a monopoly on service territories, FirstEnergy will deliver your electricity if you live in its territory – even if you buy your electricity from another supplier. That means the bailout will force everyone in the area to pay for these plants, regardless of their electricity provider. Moreover, the bailout guarantees payments for the plants’ electricity, so the utility will no longer be subject to competition.

Clearly, the FirstEnergy bailout runs counter to a competitive market – it harms competition.

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Two other states – New Jersey and Maryland – created similar schemes to subsidize plants located in their states. But in both cases, courts ruled that these subsidies were anti-competitive and therefore illegal. The wholesale market supervisor even filed sworn testimony before the PUCO on this point to show why FirstEnergy’s request was unlawful.

It’s a sad day when the PUCO staff – who are supposed to foster a competitive market – sides with large, highly-profitable utilities, rather than everyday Ohioans. The PUCO staff’s deal harms the environment too, because competition would have forced these outdated, polluting plants to close. But it’s even worse when the PUCO staff agrees to a deal that clearly violates federal law.

The PUCO commissioners still have a chance to reject the deal. A PUCO administrative law judge recently ordered new hearings to review issues raised by the settlement, beginning January 16. But if the commissioners do approve it, the federal court will likely overturn the ruling in order to uphold competition – even if the PUCO will not.

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