Well, that was completely unsurprising. FERC said the Power Purchase Agreements requiring captive Ohio distribution company customers to purchase generation from AEP and FE merchant generators don't pass the sniff test.
Even though the Public Utilities Commission of Ohio (PUCO) approved the deals, FERC rules about affiliate transactions cannot be bypassed (or politically influenced).
FERC rescinded previously granted waivers to allow AEP & FE to engage in affiliate transactions without review. The waivers were granted when the companies spun off their regulated generators into merchant companies because the generation companies no longer had captive customers. In that case, any deals between regulated distribution affiliates and unregulated generation affiliates would have been subject to market forces. If the deals were too expensive, then customers could bypass the charges and switch to another, cheaper, generator. But AEP & FE made the mistake of placing the cost burden of these PPAs on captive distribution customers, and not free choice generation customers. Because then the customers would choose a cheaper generator.
Contrary to some of the articles I've read, the FERC decision does not reverse the PUCO's decision to allow the cost of the PPAs to become the responsibility of captive distribution customers. It simply rescinds its prior waiver of review of the PPA itself. The companies are now free to submit the PPAs to FERC for review. If FERC approves them, then everything can proceed as planned. However, it is unlikely that FERC will approve the PPAs because they allow AEP & FE to charge their captive customers to subsidize their shareholders profits.
So, what's a greedy and poorly managed utility to do? FE initially wanted to pretend that its PPA will be found just and reasonable by FERC. How much money and political influence would THAT require? Remember, the cost of civic and political activities is the financial responsibility of shareholders, not ratepayers. The cost of buying FERC is likely to obviate any temporary profits that may come from an 8-year PPA. They're not a cheap date like state utility commissions. However the company has apparently crunched the numbers and come to its senses. FE is now attempting to bypass FERC review by doing away with the PPA, while still collecting the charge it would levy on Ohio consumers. AEP is being a little more realistic, if not downright arrogant. AEP's CEO soothed investor agitation by claiming it will make the Ohio legislature re-regulate generation so that it may collect the cost of service, plus a return, for its Ohio generators. This would effectively end retail generation choice in Ohio. Is legislation that will cost Ohio electric ratepayers more money really that easy for AEP that it simply needs to want it and wave its magic wand? Time will tell.
Meanwhile, FirstEnergy wants to make its regulated Mon Power and Potomac Edison affiliates in West Virginia purchase another non-competitive generator from its competitive generation affiliate. It's just like re-regulating generation in Ohio, but the legislative work is already done. And FirstEnergy has already successfully pulled off a similar affiliate transaction a couple years ago when its competitive generation affiliate "sold" the Harrison Power Station to regulated Mon Power and Potomac Edison. West Virginia electric consumers have already bailed out one of FirstEnergy's uncompetitive generators, what's one more? This time, FE wants to "sell" its Pleasants Power Station to Mon Power and Potomac Edison. But Mon Power already owned an 8% share of Pleasants, which it "sold" to FE Generation as part of the Harrison deal. Now FE Generation wants to sell the same power station back to Mon Power. Pleasants is like the FE hot potato, bought and sold among affiliates as necessary to generate cash. The only fly in the ointment this time is that FE put a price on Pleasants when it "sold" it last time. I'm sure the cost to Mon Power can't be more than what FE Generation paid them for the plant a couple years ago. It's not like the price of antique coal generation stations has shot up in the past few years. But, never fear, I'm sure FE can pay the right people to convince the WV PSC that the plant is as valuable as the amount of cash FE needs to raise from its sale.
And don't forget... all this stashing of competitive generators into regulated companies is only temporary. If power prices recover and these generators once again become competitive, AEP & FE will find a way to "sell" these plants back to their competitive generation companies. It's all about shareholder return and making as much money as possible.... and ratepayers are the source of investor owned utility profits. The idea that regulation protects consumers in the absence of competition is nothing more than a fig leaf. Utilities that operate in both a competitive and regulated environment will continue to shift assets around to generate the most profit for their shareholders.
Even though the Public Utilities Commission of Ohio (PUCO) approved the deals, FERC rules about affiliate transactions cannot be bypassed (or politically influenced).
FERC rescinded previously granted waivers to allow AEP & FE to engage in affiliate transactions without review. The waivers were granted when the companies spun off their regulated generators into merchant companies because the generation companies no longer had captive customers. In that case, any deals between regulated distribution affiliates and unregulated generation affiliates would have been subject to market forces. If the deals were too expensive, then customers could bypass the charges and switch to another, cheaper, generator. But AEP & FE made the mistake of placing the cost burden of these PPAs on captive distribution customers, and not free choice generation customers. Because then the customers would choose a cheaper generator.
Contrary to some of the articles I've read, the FERC decision does not reverse the PUCO's decision to allow the cost of the PPAs to become the responsibility of captive distribution customers. It simply rescinds its prior waiver of review of the PPA itself. The companies are now free to submit the PPAs to FERC for review. If FERC approves them, then everything can proceed as planned. However, it is unlikely that FERC will approve the PPAs because they allow AEP & FE to charge their captive customers to subsidize their shareholders profits.
So, what's a greedy and poorly managed utility to do? FE initially wanted to pretend that its PPA will be found just and reasonable by FERC. How much money and political influence would THAT require? Remember, the cost of civic and political activities is the financial responsibility of shareholders, not ratepayers. The cost of buying FERC is likely to obviate any temporary profits that may come from an 8-year PPA. They're not a cheap date like state utility commissions. However the company has apparently crunched the numbers and come to its senses. FE is now attempting to bypass FERC review by doing away with the PPA, while still collecting the charge it would levy on Ohio consumers. AEP is being a little more realistic, if not downright arrogant. AEP's CEO soothed investor agitation by claiming it will make the Ohio legislature re-regulate generation so that it may collect the cost of service, plus a return, for its Ohio generators. This would effectively end retail generation choice in Ohio. Is legislation that will cost Ohio electric ratepayers more money really that easy for AEP that it simply needs to want it and wave its magic wand? Time will tell.
Meanwhile, FirstEnergy wants to make its regulated Mon Power and Potomac Edison affiliates in West Virginia purchase another non-competitive generator from its competitive generation affiliate. It's just like re-regulating generation in Ohio, but the legislative work is already done. And FirstEnergy has already successfully pulled off a similar affiliate transaction a couple years ago when its competitive generation affiliate "sold" the Harrison Power Station to regulated Mon Power and Potomac Edison. West Virginia electric consumers have already bailed out one of FirstEnergy's uncompetitive generators, what's one more? This time, FE wants to "sell" its Pleasants Power Station to Mon Power and Potomac Edison. But Mon Power already owned an 8% share of Pleasants, which it "sold" to FE Generation as part of the Harrison deal. Now FE Generation wants to sell the same power station back to Mon Power. Pleasants is like the FE hot potato, bought and sold among affiliates as necessary to generate cash. The only fly in the ointment this time is that FE put a price on Pleasants when it "sold" it last time. I'm sure the cost to Mon Power can't be more than what FE Generation paid them for the plant a couple years ago. It's not like the price of antique coal generation stations has shot up in the past few years. But, never fear, I'm sure FE can pay the right people to convince the WV PSC that the plant is as valuable as the amount of cash FE needs to raise from its sale.
And don't forget... all this stashing of competitive generators into regulated companies is only temporary. If power prices recover and these generators once again become competitive, AEP & FE will find a way to "sell" these plants back to their competitive generation companies. It's all about shareholder return and making as much money as possible.... and ratepayers are the source of investor owned utility profits. The idea that regulation protects consumers in the absence of competition is nothing more than a fig leaf. Utilities that operate in both a competitive and regulated environment will continue to shift assets around to generate the most profit for their shareholders.
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