Ohio Supreme Court ends FirstEnergy’s illegal subsidies in a win for customers and the environment

Update: On August 20, the Ohio Supreme Court rejected FirstEnergy’s motion for reconsideration of “credit support” charges approved by state regulators in 2016. The Supreme Court ordered the charge be removed, saying state regulators had failed to place the necessary conditions on how FirstEnergy spent the subsidies. 

In the three years’ time the appeals process has taken, FirstEnergy has collected nearly all of the $600 million it was seeking. Current law states that FirstEnergy gets to keep the $600 million rather than refund it to customers. Environmental Defense Fund and our partners have been working hard to change the refund law and today’s ruling should give added momentum to this effort.

The Ohio Supreme Court today rejected FirstEnergy’s “credit support” charges approved by state regulators in 2016. The Supreme Court ordered the charge be removed, saying state regulators had failed to place the necessary conditions on how FirstEnergy spent the subsidies.

For years, FirstEnergy has been seeking a bailout for its uneconomic coal and nuclear plants. The Ohio-based utility finally got its wish in late 2016, when the Public Utilities Commission of Ohio approved more than $600 million in customer-funded subsidies.

Today the Ohio Supreme Court ruled that those customer funded subsidies must be removed. In the three years’ time the appeals process has taken, FirstEnergy has collected nearly all of the $600 million it was seeking. Current law states that FirstEnergy gets to keep the $600 million rather than refund it to customers. We have been working hard to change the refund law and today’s ruling should give added momentum to this effort.

History of subsidy-seeking

FirstEnergy first sought a bailout in 2014. The PUCO approved FirstEnergy’s initial proposal, which would have cost customers $4 billion. Fortunately, regulators at the Federal Energy Regulatory Commission ruled that the bailout scheme was illegal. Because the power plants operate in the competitive wholesale market (over which FERC has jurisdiction – not Ohio), FERC declared that FirstEnergy’s captive utility customers couldn’t be forced to pay for them.

In an attempt to work around the FERC ruling, the utility revised its bailout plan, and the PUCO approved it — allowing FirstEnergy to collect more than $600 million from its customers. Sadly, rather than requiring the utility to use the money for grid improvements, the PUCO’s approval was broad enough to allow FirstEnergy to send the entire amount to its parent company for credit support, such that customers would receive no benefit.

Supreme Court steps in

Ohio law prohibits using the money to directly support the failing coal and nuclear plants, but FirstEnergy could do so indirectly. That’s because the PUCO gave the money to the utility, which could transfer all of the funds to its parent company. FirstEnergy’s parent company could then use these revenues to help out the power plants, so EDF, OEC, and ELPC challenged the bailout at the Ohio Supreme Court.

FirstEnergy is leading the pack of the subsidy-seekers, but it’s not alone: Other utilities have also sought bailouts for their old coal plants. These utilities simply don’t want the competitive market to operate the way it has been designed – i.e., to shut down old, inefficient energy technologies that are losing money.

Today’s ruling sets a precedent that will block state regulators from approving such orders in the future, which is important because FirstEnergy has a pending application to extend the bailout for another two years at a total cost of $400 million. Today’s Supreme Court ruling should also give pause to Ohio lawmakers who are hearing testimony on HB 6, which would create a new bailout program for FirstEnergy’s old coal and nuclear plants.

Different versions of this post were published on March 19, 2018 and January 4, 2019