The Business Case against FirstEnergy’s Bailout

Team of business people working together on a laptop

Reading testimony filed before any public utility commission can be a mind-numbing exercise. Comments often are filled with jargon, acronyms, and other elements indecipherable to an outsider.

But when it comes to recent remarks from Ohio corporations about FirstEnergy’s proposed bailout, which would prop up its outdated power plants for the next eight years, the filings are clear – and damning. The business community sees right through the unfair deal.

Consider Exelon, which bills itself as America’s leading competitive energy provider. Since Exelon and FirstEnergy are competitors, it’s telling that Exelon finds the FirstEnergy subsidy to be a “grossly lopsided deal” that would “cost Ohio customers billions in above-market costs.” Exelon goes further, putting its money where its mouth is; specifically, the generator guarantees to supply “100% emissions-free power that […] will provide well over $2 billion in savings to Ohio families and businesses.” It promises to deliver this energy during the same timeframe of the FirstEnergy deal. (And major power producer Dynegy recently proposed that it, too, can meet Ohio electric demand more competitively than FirstEnergy’s subsidized power plants.)

Rather than appeal to environmental or customer sentiments, Exelon’s critique is all about economics. The company says competition has “worked to lower energy costs and provide choice to millions of Ohio families and businesses.” It also suggests “a competitive process [is needed to] wash away the stain […] of the proposed out-of-market contract.” Exelon digs at its competitor, noting the irony at hand:

“FirstEnergy led the drive to competition and up until this proceeding took positions before this Commission and other agencies and public officials which embraced competition and retail choice. FirstEnergy was right then; it is wrong today. Competition will yield the best price.”

(Couldn’t have said it better ourselves, although we’ve tried.)

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Exelon even echoes the cries of numerous critics by calling the FirstEnergy proposal a “backroom deal.”

Other electricity competitors, represented by the Electric Power Supply Association (EPSA), are equally blunt. The group says FirstEnergy’s plan “is unambiguously contrary to the interests of the general rate-paying public of Ohio.” EPSA’s key criticism is “the proposed plan would shift very large risks from [FirstEnergy’s] debt and equity investors onto the Companies’ captive ratepayers.” Noting the benefits of competition, EPSA declared, “The plan, in short, is what is commonly called a ‘bailout.’”

Even the Ohio Manufacturers Association (OMA), which represents major electricity consumers, finds the utility giant’s proposal “does not benefit customers and the public interest. The major beneficiaries […] are FirstEnergy, its stockholders, and management.” The OMA repeats the theme that FirstEnergy’s request “shifts business risk away from stockholders and management to customers.”

Keeping in mind Governor John Kasich said his primary concern is electric dependability, the state’s manufacturers also question this aspect. The OMA suggests the proposed deal “holds out the very real potential of deterring investment in the electric generating capacity and harming the long-term reliability of the electric system.” In other words, FirstEnergy claims it needs the subsidies to guarantee electric reliability, but it may have the exact opposite effect.

We knew the FirstEnergy bailout would harm the environment by subsidizing uneconomic power plants to keep spewing pollution. We also knew the deal would hurt Ohioans’ wallets – to the tune of $4 billion in increased costs. Now Exelon, the Electric Power Supply Association, and the Ohio Manufacturers Association have made the business case against bailouts equally clear. We can only hope the Public Utility Commission of Ohio will wash away the stain of this egregious deal.

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