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Ohio Regulators Approve Controversial Plans to Keep Outdated Power Plants, Switch Some to NatGas

The Public Utilities Commission of Ohio (PUCO) on Thursday approved controversial plans that would help both American Electric Power Co. and FirstEnergy Corp. subsidize their uncompetitive coal power plants, while also increasing natural gas-fired and renewable electric generation in the state.

While state regulatory approval is unlikely to end the bitter back-and-forth over the plans, with court appeals likely, the decision was met with a spate of opposition in a series of released statements that billed the approvals as a "blow to ratepayers" and an endorsement of "dirty energy."

In December, both companies reached power purchase agreements (PPA) with state regulators and other stakeholders (see Daily GPIDec. 17, 2015). The plan requires AEP to enter into an eight-year PPA for the capacity, energy and ancillary service output of its ownership share in nine generating units and the Ohio Valley Electric Corp.

AEP would purchase power from the unregulated subsidiary plants to guarantee a profit and recover costs through customer charges instead of selling the power on the open market. FirstEnergy reached a similar deal to help make four of its coal and nuclear power plants more competitive.

PUCO said the plans are incredibly "complex," but added that it must balance the interests of ratepayers, businesses and the public utility companies it regulates as the power market shifts and prices have been forced down on lower demand. In a unanimous vote, PUCO said it approved modified plans to better protect consumers, promote grid modernization and stabilize retail rates for the next eight years.

Under the plans, AEP and FirstEnergy would enter into unbid, non-competitive multi-year PPAs with their affiliate generation facilities. The PPAs would allow the companies to subsidize the uncompetitive plants by charging ratepayers a non-bypassable rider. The fact that electricity from the facilities won't be sold on the open market has outraged other power producers.

"Today's decision is very distressing for the future of competitive markets in Ohio and bad for ratepayers in this state," said Peter Rigney, project director for the Oregon Clean Energy Center, an 860 MW natural gas-fired power plant being constructed in Northwest Ohio. "...This bailout for aging and inefficient power plants sends the wrong message to investors and companies looking at Ohio."

Both Dynegy Inc. and Exelon Corp. have gone as far as saying they could build more natural gas-fired power plants in the state that would sell electricity on the open markets and save ratepayers billions of dollars to counter the PPAs (see Daily GPI,Jan. 14). Environmental groups, meanwhile, have decried the plans as corporate largesse that only prolongs the use of high carbon-emitting power.

"We are outraged that these proposals have been approved. These decisions lock in at least eight more years of harmful, unnecessary pollution and force Ohioans to pick up the tab for corporate welfare of the worst kind," said the Ohio Environmental Council.

But AEP and FirstEnergy have both argued vehemently that the plans promote stable electricity prices for the state, while ensuring a more reliable and diverse generation supply.

Under the PPAs, AEP would convert its Conesville units 5 and 6 in Coshocton County to co-fired natural gas by the end of 2017 and retire or refuel its Cardinal Unit 1 in Jefferson County to natural gas  by 2030. The company would also develop 900 MW of wind and solar energy projects in the state over the next five years, which would more than double Ohio's current wind power capacity and almost quadruple its solar capacity.

FirstEnergy has also established a goal of 90% carbon emissions reduction from 2005 levels by 2045 and more than 800,000 MW hours of annual energy savings through a restart of energy efficiency and peak demand reduction programs. It has also committed to submit a plan to procure 100 MW of renewable resources. Both companies, PUCO said, would be subject to regular audits and stipulations that would limit average customer bills, among other protections included in the plan approval modifications.

David Schlissel, director of resource planning analysis at the Cleveland-based Institute for Energy Economics and Financial Analysis, said he expects federal regulators to weigh in on both plans and anticipates that the PPAs are likely to be appealed to the Ohio Supreme Court.

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