Many opponents remain, including the Office of the Ohio Consumers’ Counsel, which says the plan would lead to a huge shift in risk from AEP to its customers; competing energy companies such as Dynegy Inc., which say the proposal is an illegal subsidy that would disrupt Ohio’s competitive electricity market; and environmental groups such as the Ohio Environmental Council, which say the deal is tilted to favor AEP’s interests over all others.

Still, the No. 1 commitment for AEP is its shareholders.

The Public Utilities Commission of Ohio is expected to decide on the proposed settlement early next year. Having the respected Sierra Club on its side should help ease the decision.

This ESP has been controversial. The reason is because FirstEnergy, as part of its plan, has asked the PUCO to pass a fee through to its ratepayers to support its subsidiary’s struggling coal and nuclear generation. The subsidy would be supported by all of FirstEnergy’s Ohio distribution customers, regardless of whether they acquire their generation from FirstEnergy’s subsidiary. The subsidy would be assessed through a rider that is based upon a power purchase agreement (PPA), pursuant to which the ratepayers would guarantee for 15 years a price for the electricity generated, regardless of market conditions.

What I want to focus on now is the tactic FirstEnergy has used to assimilate support for its ESP. In my January blog, I noted that FirstEnergy had assembled what Edward “Ned” Hill, the then-dean of Cleveland State University’s Maxine Goodman Levin College of Urban Affairs, called a “redistributive coalition.”

A redistributive coalition, according to Professor Hill, exists when a small group of stakeholders band together to seek mutually favorable policy treatment at the expense of the public at large. Typically, the coalition incurs little cost in coordinating its efforts. However the public, being heterogeneous and widely dispersed, incurs great cost and difficulty in organizing a response.

FirstEnergy was able to induce companies to support its ESP by including special rates or programs for the coalition members — with the costs therefore borne by the ratepayers. In his original testimony, Hill pointed that the redistributive coalition was assembled to present to the commission (and the public) the appearance of not only broad support for the ESP, but also a broad range of benefits that would flow to varying classes of customers, including those with low income. However, Hill demonstrated that the benefits would only flow to the members of the coalition — a very small group.

But what really caught my attention in Hill’s testimony was his discussion of another concept that FirstEnergy cynically exploits: “rational ignorance.” Rational ignorance is the term used to describe reasonable disengagement by a public unable to digest complex technical arguments set forth by more knowledgeable industry experts.

In this context, Hill noted that FirstEnergy looks to exploit the general public’s inability to understand the nuance of the coalition support. On its face, the coalition seems to be asking for policy that the public should support — things such as price breaks for the poor, energy efficiency programs for small businesses, and so forth.

But under close examination, it turns out that the programs are narrowly crafted to help only those in the coalition. Why, for instance, would we only support the city of Akron and no other urban areas in northern Ohio? And why only support the members of the Council of Small Enterprise and not other small businesses?

Utilities AEP and Duke also sought PPAs. Yet neither sought to assemble redistributive coalitions for PPAs to try to fool or confuse the public. But then again, they were unsuccessful in their applications.

AEP has proposals pending with Ohio regulators that would provide a profit guarantee for five plants, four of which are part of the unregulated fleet. The company has said the plans would allow it to continue operating the plants, as opposed to a potential sale or shutdown.

FirstEnergy lost two large power plants during January's arctic-like weather -- the 2,490-megawatt coal-burning Bruce Mansfield plant in Shippingport, Pennsylvania, and right next door, one of its 900-megawatt nuclear reactors at its Beaver Valley power plant.

And then the company found it could not buy natural gas for its 545-megawatt gas turbine plant in Lorain. The shutdowns and inability to buy gas forced the company to buy power on the regional grid -- just as wholesale market prices soared.

Power purchases during the 10 days of sub-zero January weather knocked down earnings by 13 cents per share, Leila Vespoli, chief legal officer and executive vice president of markets, told financial analysts during a public teleconference Tuesday and now available on the company's website.

She said power purchases over the entire quarter reduced earnings by a total of 23 cents per share.

Then extra charges levied by PJM Interconnection, the manager of the grid in Ohio and 12 other states, nicked another 10 cents per share out of gross profits, she said, though the company is planning on recovering about half of that from commercial and industrial customers.

Higher prices exasperated the earnings impact of our power purchases.

The emergence of Microgrids for power generation could threaten the dominance of the age-old power distribution system in the U.S. Microgrids have evolved from simple power backup systems to small smart grids. The swift and cost effective installation of Micro grids could help distribute electricity among the masses. These rooftop solar systems meet the energy needs of the customers. In addition, the customers are allowed to sell excess power back to the utilities.
A report from American Society of Civil Engineers estimated that utilities need to spend $763 billion by 2040 to properly modernize and harden the existing grids against natural disasters. We believe that rather than going for a very costly maintenance, it will be economical to develop these Microgrids, which could lend support to the existing system.

A microgrid is a localized grouping of electricity generation, energy storage, and loads that normally operates connected to a traditional centralized grid (macrogrid). This single point of common coupling with the macrogrid can be disconnected. The microgrid can then function autonomously. Generation and loads in a microgrid are usually interconnected at low voltage. From the point of view of the grid operator, a connected microgrid can be controlled as if it were one entity.
Microgrid generation resources can include fuel cells, wind, solar, or other energy sources. The multiple dispersed generation sources and ability to isolate the microgrid from a larger network would provide highly reliable electric power. Produced heat from generation sources such as microturbines could be used for local process heating or space heating, allowing flexible trade off between the needs for heat and electric power.

"FERC transmission regulation provides forward-looking formula rates, true-up mechanisms and premium authorized returns on equity. Transmission owners face limited revenue risk, owing to strong counterparty relationships with the operating utilities and the regional transmission organization," Moody's said.

And then, when you look at the other capital that we're spending, it's block and tackle spending that typically is recovered from a regulated standpoint.

Residential sales, shown in the upper left quadrant, were up 0.9% for the quarter, which brings the annual sales flat to 2012. We continue to see modest customer growth in our Western service areas, while our East customer accounts were essentially flat. Average usage per customer has been impacted by home energy efficiency programs. For these reasons, we are expecting normalized residential sales to be down nearly 1% in 2014.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Yes, 2 questions unrelated. First, on the transmission side. We've seen in the MISO and in New England dockets where interveners are seeking lower transmission base ROEs. If same things happens in some of -- whether it's the Southwest Power Pool, whether it's in PJM, how -- what do you think that tipping point is where we change or, I don't know, you're incentive or your desire to be a sizable investor in transmission in the U.S.?

Nicholas K. Akins - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Policy Committee
I think, as long as transmission is, at a premium or equal to the state rates, we're in good shape. And I think, clearly, there is an incentive being placed on building transmission. We're happy with that. And if -- really, once again, the FERC needs to send some messages here that from a policy perspective that we want to continue building transmission in this country. And as long as that premium is at or above the state rates, then we're in good shape.

Brian X. Tierney - Chief Financial Officer and Executive Vice President
FERC was clearly, Michael, looking to attract a capital into this space. And what they've done with their ROEs has done exactly what FERC wanted to happen. So as long as they, as Nick was saying, as long as they continue to send a signal that they want increased investment in this area, we'll respond to that signal.

Nicholas K. Akins - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Policy Committee
Okay, I think it's good -- I think, it continues to be part and parcel to the overall grid expansion that's going on in the resilience of the grid. And there's going to continue to be spin regardless. The question is, do you really want to satisfy that precursor of transmission being build out to respond to the generation retirements and so forth to optimize the grid so that you can do that as a prerequisite and then focus on the rest of the underlying system. That's what key. I think you got to get through this transitional process we're at in this industry. So transmission needs to be incentivized in that regard because that will provide the greatest benefit in terms of resiliency of the grid, but also in terms of the optimization of the resources that are attached to the grid.