Frustrated by a federal order blocking millions of dollars in subsidies for some struggling Ohio power plants, American Electric Power Co. Inc.’s chief executive said the company will swiftly pursue alternatives.
Among them: lobbying for re-regulation of Ohio’s electric market.
The response from CEO Nick Akins came just hours after the Federal Energy Regulatory Commission rejected controversial plans by AEP and FirstEnergy Corp. to ensure the profitability of coal and nuclear power plants struggling to stay viable amid weak energy prices.
FERC blocked the agreements from taking effect based on its determination that customers in the utilities service areas were "captive" and would pay charges to keep the AEP and FirstEnergy plants running even if they purchased energy from an alternative provider (EnergyWire, April 28).
Those "non-bypassable charges" created the "potential for the inappropriate transfer of benefits from [captive] customers to the shareholders of the franchised public utility," FERC’s orders said.
"Retail choice protects customers from affiliate abuse only to the extent they have a choice to undertake generation costs," the orders said. "Here, circumstances demonstrate that a retail customer has no choice but to pay the costs of an affiliate transaction, they effectively are captive with respect to the transaction."
Akins said re-regulation of Ohio’s electric market could mean repealing S.B. 221 of 2008 or asking the Legislature for authority to put the power plants in the utility’s rate base.
"Whichever results in AEP becoming fully regulated earliest will be completed," he said during a conference call with analysts and investors. "This will secure Ohio’s role in determining its own resource mix with a structure that enables long- and short-term deployment of generation-related resources in the state."
While AEP is working on state policy, the company will also pursue a parallel path involving a possible sale of the plants, totaling about 3,000 megawatts.
The company is already in the process of seeking buyers for other merchant power plants and wants to wrap up a sale by the end of the year. The company will also now see what the market is for the units at the center of the Ohio case.
"The race is on," Akins said. "AEP has reached the point where it’s time to get this resolved once and for all."
Another option is to see a rehearing at FERC or reapply for a waiver that would allow the company’s generation affiliate to enter power purchase agreements with the utility. But going back to FERC in search of relief isn’t a likely solution, Akins said.
"We could perhaps ultimately prevail, but it’s a long, circuitous route to get there," he said. "We have no interest in getting involved in a protracted FERC-state jurisdictional dispute, so we will move as expeditiously on plan B as possible to resolve any uncertainty."
Wider support for re-regulation
Akins believes AEP would have support of other Ohio electric utilities in re-regulation.
Cleveland-based FirstEnergy is also weighing alternatives in the wake of FERC’s order rejecting its agreement, which could jeopardize the future of the Davis-Besse Nuclear Power Station and W.H. Sammis Coal Plant.
FirstEnergy’s chief executive, Chuck Jones, told The Cleveland Plain Dealer that he would support re-regulation of the Ohio electric industry "in a heartbeat."
Paul Patterson, an analyst with Glenrock Associates LLC in New York, said re-regulation would accomplish many of the same policy objectives as the power purchase agreements, without needing FERC’s approval of affiliate transaction waivers.
But ultimately, whether or not a sale of assets or re-regulation happens, the best answer for AEP depends on the political will of the Ohio General Assembly, he said.
"The key is what the appetite of the state Legislature is for this, and how quickly can they act on it?" Patterson said.
Akins declined to say whether he’s already had conversations with state legislators about re-regulation.
"I’m not going to address that," he said. "They’re fully aware what the issues are. It’s not a huge stretch for them to ask the question, ‘Well, why don’t you just re-regulate?’"
AEP and FirstEnergy initially proposed power purchase agreements as part of broader plans submitted in 2014. Both companies submitted scaled-back requests in December that were approved with modifications by the Public Utilities Commission of Ohio last month (EnergyWire, April 1).
The agreements would have required customers to subsidize plants struggling amid sluggish power prices. The utilities said consumers would save money in the end if power prices rise and keep plants online that support jobs and taxes. And PUCO ultimately agreed.
But consumer groups and rival generators that filed the complaint at FERC challenging the agreements said the subsidies represented a bailout that would cost consumers billions of dollars (EnergyWire, Feb. 1).
Ohio Consumers’ Counsel Bruce Weston yesterday said FERC’s decisions to reject the AEP and FirstEnergy agreements will save millions of Ohio electric consumers hundreds of dollars each over the next eight years "while advancing the competitive market envisioned by the Ohio Legislature."
But Akins said yesterday that re-regulating the electric industry would enable Ohio — not the region’s grid operator or the federal government — to maintain greater control of the state’s energy future. And that represents a better course of action for the state in the long run, he said.
"Ohio needs to decide expeditiously does it want to control its own development of resources within the state or leave it to PJM [Interconnection LLC] and the federal government that have conflicting multistate interests," he said.
While AEP doesn’t presently own enough generation to satisfy demand in its service area, that could also mean an opportunity to develop more natural gas and renewable generation in the years to come.
"I think it’s a perfect opportunity for the state of Ohio to look at natural gas and renewables to fill out that approach. As long as Ohio has control in doing that kind of thing, then we’re ready, willing and able to move in that direction," Akins said.