The company has proposed to regulators that Ohioans be forced to buy all the power produced at its unregulated ("competitive") Davis-Besse nuclear and Sammis coal-fired power plants at a fixed price that guarantees FirstEnergy a profit, and then sell the power into the PJM electric market. The impetus here is that power prices in the PJM market have been low. Competition was working to save ratepayers money! However, competition wasn't making FirstEnergy enough money, so FirstEnergy has been busy stashing its competitive generators into state regulated environments where the company could be guaranteed a certain profit. Have no doubt that once power prices recover and FirstEnergy has a chance to make more money competing to serve customers, that it will find a way to once again deregulate these power plants and keep the profits.
In addition to the current Ohio fiasco, FirstEnergy's competitive arm successfully "sold" its Harrison power station to regulated West Virginia customers several years ago at a huge profit. The ratepayers will hold the losses from the cost of operating this plant until such time as it once again starts generating a profit. Then FirstEnergy will probably propose to sell it back to itself at another huge profit. Although the West Virginia plan was hotly contested, all the opponents (except for the West Virginia Citizens Action Group) folded at settlement, content to accept cheap gifts in exchange for their support of the sale.
Not so in Ohio. The opponents are sticking to their guns and have rejected a backroom settlement deal crafted between FirstEnergy and the staff of the Public Utilities Commission of Ohio. Not that FirstEnergy cares... it's content to reach a settlement with a few parties who appreciate their cheap parting gifts. Whatever it takes to secure FirstEnergy's profits in a noncompetitive environment.
When will this nonsense end? Along with a plethora of stories about the deal (here and here, for example) came another story about FirstEnergy's stock price going up... directly tied to the backroom settlement:
The purchase power agreement (PPA) [with Public Utilities Commission of Ohio] was the last missing piece: balance sheet shored up; equity overhang removed — we see no more surprises for investors.
"FirstEnergy’s proposal will put safeguards in place to protect our customers from increased price volatility that’s expected to occur in the years ahead," said Doug Colafella, a company spokesman.
FirstEnergy's plan is to remove any threat of competition to its generating plants, ensuring they can thrive in a lower-priced market by using captive ratepayers to provide market power through subsidies.
... other utilities will want profit guarantees in Ohio and in neighboring states. This, in turn, will undermine a competitive market in which many companies do not have the resources to secure government help the way that FirstEnergy does.
Independent power companies competing against FirstEnergy for customers in Ohio and throughout the 13-state region where high-voltage transmission lines are controlled by PJM Interconnection are not asking for special deals like FirstEnergy is, said Glen Thomas, president of PJM Power Providers Group.
"Our members are competing to provide the most efficient and economic power to consumers in Ohio as possible. We oppose this deal. We see it as destroying all the benefits Ohio has gained from competitive markets.
"By going down a road where you subsidize plants that are not able to compete economically with other plants, you crowd out these economic advantages as well as send a terrible signal to the market that the best way ... is not to operate at most efficient levels but to seek a bail out from the PUCO."
This whole debacle is a lesson in the stupidity of allowing for-profit companies to provide a necessary public service in a monopoly market. Because investor profit that powers big salaries and sweet perks for utility executives will ALWAYS outweigh any obligation to customers. And big utility profits fuel backroom deals like the one proposed in Ohio.
I hope the Ohio opponents, such as Sierra Club, continue to call foul on this deal and don't knuckle under and give in like they did in West Virginia. Integrity is a valuable commodity in the market of real life.