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AEP, FirstEnergy Win Regulatory Approvals


American Electric Power Co. (AEP) and FirstEnergy Corp., two of the largest electric utilities in the United States, won a crucial battle with critics this spring when Ohio regulators unanimously approved eight-year income guarantees for more than 6,000 megawatts (MW) of mostly older coal-fired power plants that faced possible retirement. The Public Utilities Commission (PUC) order could keep the plants running at least through 2024. Affected by the ruling is AEP’s 2,671-MW ownership in the Conesville, Cardinal, Stuart and Zimmer coal plants, all in Ohio, plus its 423-MW stake in the Ohio Valley Electric Corp.’s (OVEC) Kyger Creek and Clifty Creek coal plants, in Ohio and Indiana, respectively. FirstEnergy plants included in the arrangement are its 2,233-MW Sammis coal plant, 908-MW Davis-Besse nuclear plant, both in Ohio, and its approximately 200-MW interest in the OVEC generation.

But the Ohio PUC’s March 31 decision in the two power purchase agreement (PPA) cases may not be the final word on a highly contentious energy issue that has galvanized public sentiment in the Midwestern state like few others in many years. In late April, numerous parties including environmental, consumer and merchant power groups, as well as AEP and FirstEnergy, were preparing to appeal all or portions of the PUC order.

Meanwhile, all eyes were focused on the Federal Energy Regulatory Commission (FERC), a federal agency that oversees energy matters. Complaints filed by several companies including merchant generators Dynegy Corp. and NRG Energy Corp. urged FERC to rescind existing affiliate agreements involving AEP and FirstEnergy. Doing so, in essence, would overturn the PUC’s ruling. It was unclear when FERC will act, as there is no statutory deadline for a decision.

The two-year PPA drama played out against a backdrop of coal plant retirements in Ohio and surrounding states in the Midwest. AEP, headquartered in Columbus, Ohio, has shuttered coal plants representing more than 6,000 MW of generation over the period, mainly because of new federal Environmental Protection Agency regulations. FirstEnergy, located in Akron, Ohio, has closed several thousand megawatts of coal generation as well.

While they are including more natural gas and renewable energy in their generation fleets, AEP and FirstEnergy asserted they still require baseload coal plants to remain in the mix for reliability purposes. Under electric restructuring in Ohio during the past decade, utilities have spun off their generation to affiliates.

Hence the PPAs. Essentially, AEP and FirstEnergy affiliates will sell electricity from the affected plants into the PJM Interconnection market. PJM is a regional grid operator based in Pennsylvania. AEP and FirstEnergy utilities will purchase the power from the affiliates, with customers paying more or less under a special charge, depending on the market price. Critics such as the Ohio Office of Consumers’ Counsel and others claim AEP and FirstEnergy’s 3.5 million customers in Ohio could wind up paying as much as $6 billion under the PPAs over the eight years. AEP and FirstEnergy insist the end result will be net positive for customers, although they concede prices probably will be higher in the early years. For their part, the five PUC commissioners said the decision was one of the toughest they had ever made. But, they said, they believed it balanced the competing interests.

PUC Chairman Andre Porter said the decision “strikes the highly challenging balance between consumers’ interests in cost-effective electric service and the vested interests of other diverse stakeholders.”

One of those diverse stakeholders was the Sierra Club, a national environmental group that has pursued a “Beyond Coal Campaign” for the past several years in the U.S. Earlier this year, the Sierra Club and other parties entered into a proposed settlement with AEP that endorsed the PPAs as well as AEP’s commitment to add 900 megawatts of solar and other renewable energy over the next five years and the conversion of Conesville Units 5 and 6 to co-fire natural gas with coal by December 31, 2017.

Indeed, Sierra Club’s support for the AEP deal placed the group at odds with several other environmental organizations, including the Ohio Environmental Council. Nicholas Akins, AEP chairman, president and CEO, said the new plan “will ensure more stable electricity prices in Ohio and promote the development of new, renewable generation to support the state’s economy.” Charles Jones, FirstEnergy president and CEO, said the PUC decision will “help protect our customers against rising electric prices and volatility in the years ahead, while helping to preserve vital baseload power plants that serve Ohio customers and provide thousands of family-sustaining jobs in the state.”

In a lengthy concurring opinion, PUC Commissioner Asim Haque attempted to place the PPA dispute in focus. Coal, he said, “has a rich history here in Ohio. It has supported Ohio communities and families. It has helped preserve reliability of the grid and the cost-effectiveness of power.” Because of its chemical makeup, however, “coal does not hold the same favor that it once did. This, combined with the price of natural gas, makes for a very challenging market environment for coal.”

Haque added he supports research efforts to find ways to burn coal more cleanly. But he also said, “we must acknowledge the clean movement. Failing to do so runs afoul of what appears to be overwhelming consumer sentiment.” He concluded, “We must support clean solutions for coal, and must also realize that trying to push the baseload fleets out of the market sooner than our grid can account for may be very harmful.”