By Dick Munson

Wait – Ohio utility regulators did what?

The $6-billion bailout of uneconomical coal and nuclear plants is bad enough. But the decision by the Public Utilities Commission of Ohio to let two power companies saddle ratepayers with their bad debt also sets a dangerous precedent that could have ramifications for consumers in other states.

This is more than a local rate case. It’s about traditional utilities going on the offense against new and cleaner power providers that offer cheaper rates in a competitive energy market – a drama playing out nationwide.

All eyes are now on the federal agency overseeing wholesale electricity markets to see if the Ohio deal will stand or fall.

If the Federal Energy Regulatory Commission should side with Ohio and the two utilities, it could set off a domino effect of fossil fuel plant bailouts that will hurt the environment and consumer pocket books. There are indications similar utility subsidy deals are on the horizon in Michigan, New Jersey, New York and Texas.

That’s why it’s so important to get this one right.

Why this impending bailout for Ohio coal plants is bad news for America
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Protecting corporate profits at consumers’ expense

In essence, the Ohio deal forces power customers in the state – including those serviced by other providers – to buy electricity from FirstEnergy’s and American Electric Power’s uneconomical plants, and regardless of cost.

Here’s how the scheme works: FirstEnergy and AEP’s plants can’t compete in the marketplace because the power they produce is too expensive. So the utilities convinced state regulators to guarantee the purchase of the electricity, and to pass on the cost to Ohio ratepayers. The bill to consumers comes to $6 billion over the life of the contracts.

The truth is, the Ohio utilities made some bad investments years ago and have since been slow to adapt to change.

The power companies have defended the deal, saying their coal and nuclear plants need to keep running to maintain a reliable supply of electricity, steady market prices, and job security for plant workers.

Of course, this is not how it’s supposed to work in a competitive marketplace.

The truth is, the Ohio utilities made some bad investments years ago and have since been slow to adapt to change. Their plants became uneconomical when natural gas prices dropped and energy efficiencies took a bite out of power sales. They’re now at risk of becoming stranded assets.

We don’t think consumers or the environment should pay for these companies’ mistakes. This is not the time to keep dirty power plants on life support – in Ohio or anywhere else.

Photo source: Flickr/Robert S. Donovan.

This post originally appeared on our Voices blog.

By Dick Munson

Localized power grids that have the ability to disconnect from the main, centralized grid – known as microgrids – have become one of the electricity industry’s latest darlings. Particularly after Hurricane Sandy knocked out electric generators and wires along the Northeast coast in 2012, urban and utility planners have been devising localized grids that can operate autonomously, strengthen the overall power system’s reliability and resilience, and protect critical infrastructure like hospitals, water treatment facilities, and police stations in the event of a grid-wide outage.

There are environmental benefits to microgrids as well. Clean energy advocates tend to rave about the ability to integrate growing amounts of distributed energy resources, including solar, wind, energy storage, and demand response, which rewards customers for conserving energy. And by avoiding the long-distance transmission of electricity, microgrids and their distributed generators can also reduce energy losses and increase efficiencies. These outcomes all have the potential to curb pollution, while cutting costs for utilities and their customers.

More importantly, as microgrids expand, they prompt us to imagine broader opportunities – and recent developments in Illinois are exploring new frontiers. 

Thinking outside the microgrid box

There are many ways microgrids could serve as a critical piece to a smarter energy future:

• Think beyond electricity – Microgrids are not just smaller, more resilient systems to distribute power, they can also integrate a wide variety of services that enhance local economic development. In other words, microgrids could act as a platform for smart cities, facilitating communication between advanced electric meters, large-scale data, and other technologies with the urban environment. For example, by integrating sensors and networking technologies throughout a community, smart cities can also offer data that enables ride-share companies to optimize traffic flow. With a bottom-up approach, the availability of enormous quantities of new data can empower entrepreneurs to launch innovative businesses that integrate electric, security, communications, and internet services. 
  

  Thinking beyond Microgrids to Build a Smarter Energy Future
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• Think about contracts rather than monopolies – Typically, control over electric distribution wires is limited to a monopoly, but microgrids can be owned by different entities that contract with each other for exchanges and services. As an example, one microgrid owner, for a price, could promise to provide back-up power to a separate microgrid during a blackout; another with a large wind turbine could sell renewable energy to a separate microgrid lacking that technology. Instead of remaining dependent upon central planners and regulators, the electricity business can shift to operate like the rest of the U.S. economy – according to contracts. Such an evolution would focus on free markets and encourage more creative, efficient approaches.
• Think about bottom-up technology innovation – Rather than assume a single entity will control all wires and sensors, the advance of communication technologies into the electricity sector is opening opportunities for new players and enormous innovation. For instance, the addition of USB hubs on power transformers and streetlights could allow entrepreneurs to install an array of innovative devices and services that we can’t yet imagine.
• Think about data – Smart technologies, like advanced meters and modern sensors, have resulted in an influx of energy-use data. How we make that data available – for both planning and operations – will be critical to maintaining security while maximizing opportunities. Rather than continue to be controlled by a central authority, customer data is increasingly being owned by customers, who can independently supply their information to third parties that provide useful services to people and businesses. European cities, especially Amsterdam, have been using the new data to offer planning tools and maps that allow private companies to best target investments in energy efficiency, district heating and cooling, microgrids, and distributed generation.

Progress and new opportunities in Illinois

The number of microgrids is expanding, and Illinois is at the forefront of growth. For example, the state’s largest utility, Commonwealth Edison (ComEd), is building a microgrid in Chicago’s Bronzeville neighborhood, and recently received a $4 million grant from the U.S. Department of Energy to incorporate solar power and battery storage. And as an example of thinking beyond electricity, ComEd’s emerging Bronzeville microgrid will link to streetlights that can brighten automatically during a police emergency or dim in order to save energy.

ComEd’s emerging Bronzeville microgrid will link to streetlights that can brighten automatically during a police emergency or dim in order to save energy.

ComEd’s initiative and the Illinois Institute of Technology’s microgrid, which has everything it needs to operate the entire campus, offer changing perspectives on whether the localized grids need to be isolated. New technologies allow these two Chicago microgrids to be integrated in the main grid when appropriate in order to increase efficiencies, but they are still able to operate as islands when needed in emergencies.

Finally, ComEd is also in the midst of rolling out four million advanced meters, and, working with Environmental Defense Fund and the Citizens Utility Board, has taken the lead on providing households with real-time data on their electricity use. The utility’s microgrid could find new ways to transform this data, with customers’ permission, into useful services that save money and improve people’s quality of life.

Microgrids offer varied benefits, and Illinois’ developments will serve as a testbed. Some utilities see them as key parts of an emerging platform of services that will supply them with new revenue streams. A few in deregulated states also view microgrids as a backdoor means to own generation units. Technology companies view them as opportunities to offer new customer services. Environmentalists hope microgrids allow faster and more extensive deployment of efficiency and clean energy. More and more of the beholders, however, recognize microgrids challenge the basic, long-held assumption that the power grid must be controlled by a monopoly electric utility – opening the electricity-distribution market to innovation and investment from competitors.

Photo source: English Wikipedia/Buphoff

By Dick Munson

Imagine a utility receives $57 million from the Department of Energy and a matching amount from its customers, then uses that money to demonstrate how new technologies could save millions more. Sounds like a pretty sweet deal, right? Not if you’re FirstEnergy, whose business model doesn’t call for saving money.

FirstEnergy – serving several states in the Mid-Atlantic region, including Ohio where the power company is currently requesting a $4 billion bailout of its uneconomical power plants – recently filed a long-term infrastructure-improvement plan in Pennsylvania, setting out its strategy for modernizing the grid. And despite having seen the benefits firsthand, the utility didn’t include voltage optimization – or using technology to “right-size” the amount of voltage customers receive – in its plan.

Since utilities likely won’t modernize the grid on their own, Environmental Defense Fund (EDF) often intervenes before state public utility commissions. And in this case, EDF recommends the Pennsylvania Public Utilities Commission (PUC) should not approve FirstEnergy’s grid modernization plan unless it includes voltage optimization.

After getting the grant and great results, FirstEnergy gave up on voltage optimization

Many appliances work just as effectively, yet consume less energy, when the flow of electricity to them is reduced. Put another way, higher voltages generally make people and businesses use more energy than they need. Therefore, if voltage was “right-sized,” residents would get enough power to run their appliances efficiently, but not so much that they use more electricity than necessary. This increased efficiency saves money and cuts pollution.

Over the past decade, voltage optimization has seen significant advancements. Improvements in sensors, communications, control algorithms, and information processing mean technologies now can monitor voltage levels throughout the distribution system, as well as make near real-time adjustments in response to changing conditions.

FirstEnergy Comes up Short on Pennsylvania Grid Modernization Plan
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After receiving a federal grant, one of FirstEnergy’s Pennsylvania subsidiaries, Met-Ed, recently tested new devices and approaches in order to optimize the voltage on its electric wires. Unsurprisingly, the utility found these practices cut peak demand, saved electricity overall, and reduced losses on its lines. Surprisingly, FirstEnergy has since abandoned the effort.

With such results, wouldn’t a rational utility continue to use voltage optimization? After the $57-million Department of Energy grant, and the technology in place, the tool is nowhere to be found in FirstEnergy’s plan. We suspect this is because it would mean selling less electricity to customers, which equates to less revenue.

Other utilities are seizing the opportunity

I’ve often described FirstEnergy as having a backward-looking approach. Rather than embrace modern technologies, it seems to allow the inefficient status quo to lumber along. Rather than eliminate waste, it seems to generate electricity for its own sake.

In contrast, consider ComEd, a Chicago-based utility that also received a federal grant. It found voltage optimization could reduce the need for almost 2,000 gigawatt-hours of electricity (enough to power 180,000 homes) each year at an amazingly low cost of less than two cents per kilowatt-hour. That’s more than is achieved now from the utility’s other efficiency programs, and translates to $240 million per year in savings for ComEd’s customers.

While FirstEnergy felt threatened by efficiency, ComEd saw the opportunity to save people money and improve the system. It is interested in rolling out voltage optimization across its territory.

More and more utilities, in fact, are realizing voltage optimization is a lot less costly and risky than building new power plants and power lines.

More and more utilities, in fact, are realizing voltage optimization is a lot less costly and risky than building new power plants and power lines. The introduction of smart meters and advanced meter infrastructure – including microprocessor-based controls, modern sensor technology, and advanced software algorithms – enables utilities to virtually measure electricity use and vastly improve the efficiency of its flow. Combining this meter technology with voltage optimization allows utilities to:

• reduce electricity demand at peak times (like during a heatwave),
• improve efficiency throughout the power grid,
• cut harmful air pollution,
• improve electric reliability, and
• integrate more renewable generation resources, like wind and solar.

These are benefits any utility should strive for, and FirstEnergy is hurting its customers by not taking advantage of voltage optimization. To pay for the proposed grid modernization improvements in its plan, the utility is also asking the PUC to implement a new charge (in the form of a rate increase), known as a distribution system improvement charge. Without voltage optimization, the Commission should not approve the rate increase either.

Leaving important grid modernization technology out of its strategy is another example of how FirstEnergy acts against customers’ best interests when it benefits the company and shareholders to do so. Hopefully the Commission will require FirstEnergy to include voltage optimization, so Pennsylvanians can save money and have a cleaner, more efficient grid.

By Dick Munson

FirstEnergy’s plea to keep four aging power plants alive will cost Ohio customers almost $4 billion, according to a new study out today by the Institute for Energy Economics and Financial Analysis (IEEFA). The proposal is currently in front of the Public Utilities Commission of Ohio (PUCO).

The report, entitled A $4 Billion Bailout in the Buckeye State, outlines in clear terms how the utility giant hopes to force Ohioans to subsidize the continued operation of its outdated power plants, put customers on the hook for those plants’ escalating costs, and ensure future profits for FirstEnergy executives and shareholders.

FirstEnergy executives know economics are not on their side

Specifically, FirstEnergy’s Ohio utilities have proposed what they call a Retail Rate Stability Rider (otherwise known as a “bailout”) through which the costs and risks of three coal-fired plants (named Sammis, Clifty Creek, and Kyger Creek) and one nuclear reactor (named Davis-Besse) would be passed on to the utility’s captive customers. According to the IEEFA report,

These plants were all spun off to a deregulated affiliate created in 2000, when FirstEnergy expected that it would be able to earn substantial profits by selling energy and capacity into the competitive wholesale PJM markets. However, FirstEnergy clearly does not believe that the units are currently profitable. Nor does it believe that expected market conditions will make the units profitable in the coming years.”

In other words, FirstEnergy once embraced competition, thinking it could make lots of money selling power into regional markets. The corporation instead made lots of bad business decisions, like doubling down on coal investments. Not only are several of its generators no longer profitable, but they will remain uneconomic for years to come. FirstEnergy executives, says the report, “recognize this reality, which is why their proposal aims to transfer costs and risks to consumers.”

That is, the utility’s well-paid executives realize market forces are aligned against them. Consider, for instance, “the precipitous recent decline in natural gas prices and the decline in the cost of generating power at natural gas-fired power plants.” Other headwinds include the dramatic drop in renewable-energy installation costs and the flat growth in electricity demand because customers are cutting their waste by increasing efficiency.

Moreover, the report points out how FirstEnergy’s power plants are old – and getting increasingly expensive to operate. As generators age, their maintenance costs rise, they need additional capital investments, and their performance degrades. Utility executives recognize these facts, too, and they’d prefer shifting those rising costs to their customers.

Report findings reinforce high costs and big risks

The report also addresses the cost implications of the bailout. FirstEnergy claims its subsidies eventually will produce $561 million in benefits, yet IEEFA notes the utility has failed to make public its calculations and economic assumptions. Based on testimony before the PUCO, FirstEnergy is assuming natural gas prices will rise significantly, allowing their now-uneconomic power plants to better compete. As mentioned above, gas prices have been falling because new exploration and drilling technologies have increased supplies substantially. There is no sign of low natural gas prices going away.

Using more realistic assumptions, IEEFA calculates the subsidies will result in extra charges – at the hefty price of $4 billion – rather than benefits. This staggering cost mirrors the $3.9 billion predictions of the Ohio Consumers’ Counsel.

By looking at the economics of coal-fired power plants in other parts of the country, the report offers further evidence that FirstEnergy’s proposal is risky. The market for merchant, coal-fired power plants is essentially in free fall. According to the study,

Dynegy bought the Danskammer plant in Newburgh, N.Y. (along with a partial share of the Roseton plant) for $900 million in 2001. When the plant was resold in 2013, its value had plummeted to $3.5 million. Dominion Resources sold its 1600 megawatt Brayton Point coal plant in Southeastern Massachusetts for an estimated $55 million in 2013, shortly after spending $1 billion to complete capital upgrades on the plant. One month after acquiring the plant, the new owner announced a decision to retire Brayton Point in 2017.”

The same market forces that have reduced the value of these coal plants also apply to Sammis, Clifty Creek, and Kyger. FirstEnergy’s solution: transfer the costs and risks of those plants to customers.

The report makes several other important and telling points:

• FirstEnergy claims its proposed deal would promote resource diversity, when it actually would merely subsidize the continued operation of uneconomic generating units and expose customers to significant risks. The intention of resource diversity is to reduce risk.
• The bailout is a piece of FirstEnergy’s larger strategy to “re-regulate” (what we have called “re-monopolize”) some of its struggling power plants by shifting the costs and risks of those plants to ratepayers, while guaranteeing a 10.38 percent return on equity each year for FirstEnergy and its shareholders on the plants in question. Higher returns mean bigger bonuses for executives and larger dividends for stockholders.
• The FirstEnergy proposal is “a bad deal for Ohio customers:” It would lock Ohio into subsidizing the continued operation of aging and uneconomic power plants, while hindering opportunities for lower cost and cleaner energy resources that could provide jobs and significant economic benefits for the state.

Any which way you look at it, the subsidy plea only favors FirstEnergy – and leaves Ohioans to shoulder the brunt of the deal. Here’s hoping the PUCO commissioners read the report carefully.

By Dick Munson

Ohio utilities FirstEnergy and AEP, as readers of this blog know too well, want the Buckeye State to bail out their uneconomic power plants. Combined, their proposals before the Public Utilities Commission of Ohio (PUCO) would run Ohioans nearly $6 billion in increased costs. We understand where the companies’ greedy desire for subsidies comes from, but the arguments for them have become downright silly.

Let’s review why FirstEnergy and AEP’s bailout justifications don’t hold up:

Debunking silly arguments for utility protectionism
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• The power giants say their subsidies will be good for customers by providing certainty about future electricity rates. The only certainty is those same customers will need to pay an extra $130 per year so the companies can enjoy bonuses and dividends.
• They also argue the bailouts will be good for Ohio’s businesses. Yet industrialists, which are major electricity consumers, say the utilities’ income-guarantee plans “will make it more difficult for […] Ohio manufacturers to remain competitive in the global markets.”
• They claim the bailouts will save Ohioans money in the long run. According to a state agency, they will actually cost Ohio almost $6 billion.
• FirstEnergy and AEP also say the lights will go out if they have to close their power plants. Reliability, no doubt, is an important issue. That’s why the responsibility is in the hands of the regional grid operator, which can manage electricity across a wide area, not the regulators of an individual state. The regional regulator, in fact, says Ohio has lots of excess capacity and reliability is not an issue. Even the Public Utilities Commission chairman warned the utilities to stop scaring Ohioans. Viewing reliability from another perspective, the regional power market ensures power plants that are needed are paid for their electric capacity. In other words, unnecessary units don’t make the cut. The only reason FirstEnergy and AEP are seeking subsidies is their generators are expensive and not needed.
• FirstEnergy and AEP say regulators need to protect their financial health. Last time we checked, the regulators’ job is to protect the public interest – and to care more about fair customer bills than utility credit ratings.
• FirstEnergy complains Ohioans should not rely upon out-of-state power, forgetting electrons don’t really care about state boundaries. Once they’re on the regional grid, there’s no telling where they’ll end up. Plus, there are other Ohio-based generators willing to meet energy demand (like Dynegy, which has offered alternative plans).

AEP does say it’s willing to support a few hundred megawatts of solar and wind power, but its requested subsidies would ensure dirty power plants continue operating and spewing more than a few thousand megawatts worth of pollution.

Their strongest – although unspoken – argument seems to be political influence. The powerful utilities have made generous campaign contributions and hired trusted advisors to key elected officials, but the proposed “deals” are bad for business, reliability, customers, and the environment.

The PUCO should see right through these silly arguments and reject FirstEnergy and AEP’s requests for subsidies.

Photo source: Wikimedia/Joan Bryans

By Dick Munson

Clean energy investments are soaring worldwide, and the United States is no exception with $56 billion going toward renewable generation in 2015, an 8-percent increase over the year before.

So why are some utilities going against this trend – and risking a contest against more progressive competitors that are gaining market share at their expense?

To understand why, it helps to have a closer look at Ohio-based FirstEnergy, a large investor-owned energy company with operations in six states that has become the poster child for resistant utilities.

The FirstEnergy case also illustrates why companies that refuse change won’t be able to stop the rising clean energy tide, no matter how hard they try.

A $4-billion fossil bailout paid for by consumers

At the moment, FirstEnergy has an expensive proposal – to the tune of nearly $4 billion – before the Public Utilities Commission of Ohio to protect its inefficient, polluting and unprofitable fleet of power plants.

The utility has been trying to convince regulators to prop up its plants for the next eight years, essentially saddling people in Ohio with the cost of FirstEnergy’s coal and nuclear investments.

The company needs the money because it doubled down  on dirty power plants that became uneconomical when natural gas prices dropped and energy efficiencies took a bite out of the company’s revenues. These decades-old energy assets are now at risk of getting stranded as power costs drop.

If FirstEnergy prevails in the case it would be able to secure revenues – well above what the market would provide – from its uneconomical nuclear and coal plants through 2024, even ifless expensive electricity became available elsewhere.

Why this Utility Giant's $4-billion Coal Bailout is an Ill-Fated Energy Strategy
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Other power producers say the FirstEnergy deal is nonsensical.

Exelon has challenged FirstEnergy’s proposal and offered to provide carbon-free energy at a lower price for the same time period. And major utility Dynegy recently proposed that it, too, can meet Ohio’s electric demand more competitively than FirstEnergy’s subsidized power plants.

These companies’ alternative deals would not only avoid the multibillions in subsidy costs, but also provide multibillions of dollars in savings. Time is on their side as well, because cleaner energy is on the move regardless of the outcome in the Ohio utility rate case.

Investment in renewable energy sources worldwide reached a record high of $329 billion in 2015, and came in spite of falling oil and gas prices. Today, there’s a business case to be made for power sources such as sun and wind, and against carbon-based fuels that trap heat in the atmosphere.

These utilities get it

Not surprisingly, a number of American utilities are now taking steps to phase out coal, and invest in clean energy sources and energy efficiency programs.

California’s three largest utilities will soon create roadmaps to incorporate more distributed energy resources, such as rooftop solar and electric vehicles, onto the grid. In Illinois, electric and gas companies are partnering with environmental and consumer groups to dramatically increase adoption of smart thermostats in the state. And in oil-rich Texas, the state’s biggest electricity generator with a coal-heavy fleet, Luminant, recently announced plans to power more than 50,000 homes with West Texas solar by late 2016.

By bucking the tide of the global move to clean energy, FirstEnergy’s strategy is ultimately doomed, because economics is now driving these changes. FirstEnergy, by clinging to old and dirty assets, will be on the losing end of the new energy economy.

Photo credit: 24X7photo.com

This post originally appeared on our EDF Voices blog.

By Dick Munson

Reading testimony filed before any public utility commission can be a mind-numbing exercise. Comments often are filled with jargon, acronyms, and other elements indecipherable to an outsider.

But when it comes to recent remarks from Ohio corporations about FirstEnergy’s proposed bailout, which would prop up its outdated power plants for the next eight years, the filings are clear – and damning. The business community sees right through the unfair deal.

Consider Exelon, which bills itself as America’s leading competitive energy provider. Since Exelon and FirstEnergy are competitors, it’s telling that Exelon finds the FirstEnergy subsidy to be a “grossly lopsided deal” that would “cost Ohio customers billions in above-market costs.” Exelon goes further, putting its money where its mouth is; specifically, the generator guarantees to supply “100% emissions-free power that […] will provide well over $2 billion in savings to Ohio families and businesses.” It promises to deliver this energy during the same timeframe of the FirstEnergy deal. (And major power producer Dynegy recently proposed that it, too, can meet Ohio electric demand more competitively than FirstEnergy’s subsidized power plants.)

Rather than appeal to environmental or customer sentiments, Exelon’s critique is all about economics. The company says competition has “worked to lower energy costs and provide choice to millions of Ohio families and businesses.” It also suggests “a competitive process [is needed to] wash away the stain […] of the proposed out-of-market contract.” Exelon digs at its competitor, noting the irony at hand:

“FirstEnergy led the drive to competition and up until this proceeding took positions before this Commission and other agencies and public officials which embraced competition and retail choice. FirstEnergy was right then; it is wrong today. Competition will yield the best price.”

(Couldn’t have said it better ourselves, although we’ve tried.)

The business case against FirstEnergy’s bailout
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Exelon even echoes the cries of numerous critics by calling the FirstEnergy proposal a “backroom deal.”

Other electricity competitors, represented by the Electric Power Supply Association (EPSA), are equally blunt. The group says FirstEnergy’s plan “is unambiguously contrary to the interests of the general rate-paying public of Ohio.” EPSA’s key criticism is “the proposed plan would shift very large risks from [FirstEnergy’s] debt and equity investors onto the Companies’ captive ratepayers.” Noting the benefits of competition, EPSA declared, “The plan, in short, is what is commonly called a ‘bailout.’”

Even the Ohio Manufacturers Association (OMA), which represents major electricity consumers, finds the utility giant’s proposal “does not benefit customers and the public interest. The major beneficiaries […] are FirstEnergy, its stockholders, and management.” The OMA repeats the theme that FirstEnergy’s request “shifts business risk away from stockholders and management to customers.”

Keeping in mind Governor John Kasich said his primary concern is electric dependability, the state’s manufacturers also question this aspect. The OMA suggests the proposed deal “holds out the very real potential of deterring investment in the electric generating capacity and harming the long-term reliability of the electric system.” In other words, FirstEnergy claims it needs the subsidies to guarantee electric reliability, but it may have the exact opposite effect.

We knew the FirstEnergy bailout would harm the environment by subsidizing uneconomic power plants to keep spewing pollution. We also knew the deal would hurt Ohioans’ wallets – to the tune of $4 billion in increased costs. Now Exelon, the Electric Power Supply Association, and the Ohio Manufacturers Association have made the business case against bailouts equally clear. We can only hope the Public Utility Commission of Ohio will wash away the stain of this egregious deal.

By Dick Munson

Critics of American Electric Power’s (AEP) bailout have been quick to call out the utility for forcing Ohioans to prop up its uneconomic coal fleet. They note how the deal will cost customers $2 billion to keep open AEP power plants that would otherwise close.

One complaint we haven’t heard yet comes from Senator Bill Seitz, chairman of the Ohio Senate Public Utilities Committee. Sen. Seitz recently joined in on criticizing AEP’s bailout proposal – but for the wrong reasons. Rather than attack the multibillion dollar subsidies going to outdated power plants, the senator critiques a small carve-out for a new solar energy project in Appalachia that will employ veterans.

He believes the Public Utilities Commission of Ohio (PUCO) should not favor one technology over another, a reasonable point considering the PUCO is supposed to foster a fair, competitive electricity market. But that’s precisely why he should blast subsidies for coal plants that can’t compete in the marketplace. Unfortunately, AEP’s bailout request – and Sen. Seitz’s criticism – reflects a long U.S. legacy of protecting fossil fuels through subsidies.

Fossil fuels have long held the advantage

The argument that renewables should not receive preference over other energy sources is a familiar and tired one, and it completely ignores the broader history of our electricity system. When coal first arrived on the scene many years ago, it was not an affordable or competitive fuel source. Government support propelled it to become the traditional electricity source we know today.

Want a level playing field for #energy? Reject AEP’s bailout
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And those subsidies have continued long after fossil fuels have became the dominant form of energy. A recent report showed federal taxpayer incentives for non-renewable electricity sources were more than five times greater than those for renewables – and that’s just in the U.S. A recent Huffington Post piece illuminated the reality of the situation worldwide:

Last year, the Overseas Development Institute and Oil Change International concluded that a conservative estimate of global fossil fuel subsidies totals $775 billion, with an additional $88 billion per year spent on exploring further fossil fuel deposits (the U.S. alone spent $5.1 billion in fossil fuel exploration in 2013). Global renewable subsidies, by comparison, amounted to $101 billion in 2013.

Although Sen. Seitz and other conservatives rightfully argue for a level playing field, clearly all energy sources have never been treated equally. The government has been picking winners – in the form of fossil fuels – by subsidizing them with tens of billions of dollars, while externalizing the costs of pollution to the American people.

More importantly, the level playing field argument is exactly why conservatives should oppose AEP’s plea for subsidies. If its coal plants can’t stay afloat in a competitive marketplace, why should AEP customers pay to keep them open? (This same question holds true for FirstEnergy, another Ohio utility trying to force Ohioans to cover the costs of its bad business decisions.)

AEP’s bailout is the latest in a long line of efforts to protect long-standing fossil fuel interests. If Sen. Seitz doesn’t want to play favorites, he should oppose a deal that guarantees profits for a politically powerful utility. And, the PUCO should uphold its commitment to foster a fair, competitive electricity market by rejecting AEP’s deal.

By Dick Munson

Just in time for the holidays, the Pennsylvania Public Utility Commission (PUC) quietly gave the gift of more affordable electricity to millions of Pennsylvanians.

PECO Energy Company, a leading Pennsylvania utility, had requested a significant distribution rate increase – meaning higher bills for its approximately 1.6 million electric customers. After months of discussion, last week the PUC approved a settlement with a lower rate increase and a directive for PECO to hold a series of collaborative meetings with all interested parties on revenue decoupling, or separating a utility's profits from its sales. Decoupling suggests a system in which utilities are rewarded based on the overall service they provide, rather than the amount of electricity they sell.

The PUC’s decision represents a win for grid modernization and distributed energy resources like energy efficiency, energy storage, and rooftop solar in the Keystone State.

PECO settlement encouraging for clean energy

The U.S. electricity system is currently undergoing a major transformation in which more and more people are using less energy or generating their own power. As a result, utilities across the country have been trying to obtain fixed charges – or a set amount all customers must pay each month – to recoup investment and grid maintenance costs.

Higher fixed charges discourage the use of distributed energy resources, because people have to pay a high fee regardless of whether they are conserving or producing their own energy. That’s why the settlement – which reduces PECO’s rate increase request by 33 percent – is good news for small-scale clean energy resources.

[Tweet "Pennsylvania continues moving toward a smarter, cleaner #moderngrid]

Numerous diverse parties support the settlement, including:

• Keystone Energy Efficiency Alliance,
• the Clean Air Council,
• Natural Resources Defense Council,
• the City of Philadelphia,
• Environmental Defense Fund, and
• many more.

Furthermore, the addition of the decoupling collaborative gatherings reflects a greater trend among Pennsylvania regulators toward building a smarter grid. For example, Commissioner Robert F. Powelson indicated the collaborative is part of a broader discussion, saying, “The time has come to better align rate structures in a way that equally benefits all stakeholders, including ratepayers, utilities and the environmental community.” And Commissioner Andrew G. Place emphasized finding better ways to incorporate distributed energy resources and create a more efficient, reliable grid. Plus, the ruling follows a PUC move earlier this year toward more fairly valuing two key clean energy resources: energy efficiency and demand response.

The PECO decision demonstrates the Pennsylvania PUC is looking forward and creating pathways for a clean energy future – a fine way to ring in the New Year.

By Dick Munson

It started with U.S. Energy Secretary, Ernest Moniz. He was in Chicago to give a high-profile speech on the Iranian nuclear deal and had two free hours after the luncheon address. His staff called to ask if the secretary could come over to our office, which houses Environmental Defense Fund (EDF), an assortment of clean-energy start-ups, and the Energy Foundry, essentially a private-equity firm financing such entrepreneurs. Hard to say no to the head of the U.S. Department of Energy.

About a month later, we get a call from the Environmental Protection Agency (EPA). Gina McCarthy, head of the EPA, was going to be in Chicago for a press conference. She had some free time in the late morning and wondered if she, too, could drop by to talk. Who’s going to deny the EPA administrator?

After another month, we get another call. This time from the U.S. Small Business Administration, whose administrator, Maria Contreras-Sweet, was going to be in Chicago. She had heard from colleagues that our office was the “place to be,” and wanted her own informative tour. What could we say?

The U.S. is currently undergoing a major transition to a cleaner, smarter, more efficient electric grid, and Illinois is at the heart of this change – which is clearly attracting interest from prominent leaders. So what exactly did our high-profile guests want to learn about?

We talked with the energy secretary about how grid modernization can empower people with access to their own energy-use data, as well as how to calculate the greenhouse-gas reductions resulting from advanced energy meters (which Illinois utilities are currently trying to figure out, with our help).

We also walked Secretary Moniz around the office, and the MIT physicist regaled in conversations with creative developers of energy storage, which is starting to rival conventional energy resources. Chicago is becoming a center for battery research and demonstration, and EDF recently helped the iconic Merchandise Mart demonstrate how energy storage can benefit – and even generate revenue for – commercial office buildings.

EDF Chicago hosts high-profile energy visitors in 2015. #cleanenergynow
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Gina McCarthy was in town to announce an impressive Illinois initiative – the nation’s largest of its kind – to leverage customer rebates to get more than a million smart thermostats into Northern Illinoisans’ homes. While at our office, she was particularly interested in our work on demand response, a way to incentivize buildings to conserve energy when the electric grid is stressed. Specifically, she wanted to learn more about our partnership with the Combined Capacity Asset Performance Project (C-CAP), a collaboration with PJM (the regional grid operator) to demonstrate how demand response can continue to play a strong and vital role in PJM’s electricity market. She seemed to agree that demand response is a key tool for reducing carbon pollution, and the EDF-PJM initiative was an innovative means to achieve efficiency.

Of course, as the head of EPA, McCarthy also wanted to know about our efforts in Illinois to advance the Clean Power Plan's nationwide limits on carbon pollution from power plants. While some states are fighting the Clean Power Plan, Illinois has indicated it will develop an implementation plan and EDF is working with allies, like Citizens Utility Board and the Illinois Clean Jobs Coalition, to ensure the state complies.

Our third visitor, Maria Contreras-Sweet, heads up the Small Business Administration, a U.S. government agency that provides support to entrepreneurs and small businesses. She was particularly interested in how government financing and programs could encourage innovation and efficiency in emerging electricity markets. We told her about our efforts to help pass the Illinois Clean Jobs bill, which a recent report found would lead to 32,000 new jobs for Illinois – a direct result of expanding efficiency and renewable energy investments. The bill has support from a diverse set of groups and both sides of the aisle.

Maybe our high-profile visitors really didn’t have a lot to do in Chicago after they gave their planned speeches. Maybe they stopped by to enjoy a 12th-floor view of Millennium Park and Lake Michigan. Maybe they wanted to hang out with 30-something entrepreneurs (present author excluded). But we like to think our innovative energy developments are the big attraction for senior administration officials.

Our guests during 2015 came to learn, and we happily obliged by sharing information on the interesting work EDF is undertaking in the Midwest to transform the way energy is created, moved, and valued. While we navigated around their beefy security details, we expressed appreciation for their leadership, as well as their interest in the collaborative, clean-energy momentum building in Illinois.

Photo source: Tim Sackton (Flickr)

By Dick Munson

By: David Kolata, Citizens Utility Board executive director, and Dick Munson, EDF Midwest director, clean energy

If Illinois wants a cheaper, cleaner, and more stable power grid, then we have to put policies in place that make it easier for people to adopt solar in their neighborhoods.

Fortunately, solar energy’s future looks a little brighter in Illinois since two recent Illinois Commerce Commission (ICC) rulings. The Citizens Utility Board (CUB) and Environmental Defense Fund (EDF) applaud the decisions after months of dogged work advocating the reforms.

On November 13, the ICC simplified solar interconnection standards, enabling Illinoisans to more easily connect their solar panels to the power grid. It’s now cheaper than ever to generate electricity using solar panels, and the costs keep coming down. But we need to cut administrative burdens to make it easier for people to enjoy cheaper, cleaner power – and the ICC’s decision is an important step in this direction.

The ICC’s second decision, on the same day, involved net metering. Home solar panels often produce more electricity than the home requires. Net metering is a benefit that allows solar panel owners to receive credits on their electric bills in exchange for sending excess renewable energy back to the power grid. To ensure that these net metering credits are accurate and fair in Illinois, the ICC’s second ruling requires the utility Commonwealth Edison (ComEd) to make public data from new digital smart meters that measure electricity usage.

2 ways #solar energy’s future in Illinois just got brighter
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Plus, ComEd or any utility must offer an explanation if they reject specific proposals for virtual net metering. Virtual net metering allows entire neighborhoods to enjoy lower electric bills through solar – even homes that don’t have solar panels. That’s because customers can receive net metering credits for projects that are not on their property. For example, CUB and EDF support an Illinois community solar program through which neighborhood residents could invest in community solar projects (like at a business or church) and receive credits on their monthly electricity bills through virtual net metering. The ICC said that letting utilities disallow virtual net metering without explanation is “fundamentally unfair to customers” – a win for transparency as well as Illinoisans’ expanding solar options.

There's more work to do: The Illinois legislature must approve each ICC decision before it can take effect. But, along with other consumer and environmental advocates, we believe the ICC’s moves are a good sign. Victories don't always come easy, but these solar decisions are positive steps in Illinois' quest to build a cleaner, more affordable, and more efficient power grid.

By Dick Munson

Remember when we commended the Public Utility Commission of Ohio (PUCO) staff for looking out for Ohioans’ best interests and taking a reasonable stance against FirstEnergy’s $3-billion bailout request?

We take it all back.

It looks like the staff has taken a big gulp of FirstEnergy’s flip-flopping Kool-Aid.

The Akron-based utility giant has been trying to convince the PUCO to prop up its uneconomic power plants for the next 15 years, essentially saddling Ohioans with the cost of FirstEnergy’s poor investments. The PUCO is comprised of the staff – policy and regulatory experts – and the Commission itself, five Commissioners appointed by the Governor who ultimately will make the decision on whether to approve the bailout. Initially, the PUCO staff appeared to see right through FirstEnergy’s cheap trick and recommended the Commission reject the deal.

But last week – despite the previous objection to the subsidy plea – the PUCO staff embraced a backroom deal with FirstEnergy that gives the company even more than it wanted, presenting the utility with an incredible gift just in time for the holidays. This is a disappointing and shocking move that represents a reversal on Ohio’s decade-long commitment to competition in electricity markets.

FirstEnergy sought a bailout. Ohio regulators are simply selling out.
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Although the proposed settlement is laced with nice terms about it being good for customers, clean energy, and reliability, the actual provisions are laughable. For example, the utility’s so-called commitment to renewable energy would take effect only “if state or federal action has not fostered the development of new renewable energy resources.” The vague and unenforceable provision means FirstEnergy can get credit for trying to clean up its act without actually having to do anything.

Furthering the insult to Ohioans, the PUCO staff’s new deal offers giveaways beyond even what the greedy utility originally requested. For instance, the regulators offered to shift electricity rates to fixed charges, which ensure the utility receives more revenue – even if people are using less energy through efficiency or generating their own power.

And in Orwellian language, FirstEnergy claims the settlement will help customers obtain “more predictable prices for an extended period.” In reality, the only predictability is the utility’s extended profits.

The backroom deal can be reversed, but it will take a lot of outrage from Ohio businesses and citizens – and courage on behalf of the Commission. Dynegy and other power companies have threatened to file lawsuits against these subsidies and consumer advocates are likely to protest vehemently. The state’s major newspapers already complained about the bailout, and Friday’s backroom deal may accelerate their criticisms. But it will be up to the Commissioners to recognize there is no saving grace to the new settlement.

By rewarding power companies for bad business decisions, the PUCO is emboldening monopolies and stifling innovation. Even worse, if the new settlement is approved, it will send a signal nationwide to other utilities stuck in the past that backroom deals and empty promises can make your troubles disappear.

FirstEnergy’s settlement is a clear win for greedy utilities, an even bigger loss for Ohioans’ health and wallets, and a complete about-face from the PUCO staff. It’s a backward move Ohio cannot afford and should not tolerate.

By Dick Munson

At the heart of every major transformation are the people carving the new path forward. The same goes for the transition currently occurring in our electricity system, which is moving away from traditional monopoly utilities relying on coal, to a world with distributed energy generation (like rooftop solar),new technology, and disruptive market entrants.

But just who are these trailblazers and how do we identify them? Earlier this year, energy-centric outlet Midwest Energy News set out to do just that for seven states. It launched a call for nominations to recognize “emerging leaders throughout the region and their work to accelerate America’s transition to a clean energy economy” for its 40 Under 40 awards.

Recently, Midwest Energy News announced the winners, who come from a variety of sectors including industry, government, regulatory, business, academic, and advocacy. Environmental Defense Fund is proud to say the group includes Andrew Barbeau, our senior clean energy consultant leading efforts like our demand response collaboration in Illinois.

Using smart buildings to create a cleaner, more reliable grid in Illinois

Andrew leads the charge on our Combined Capacity Asset Performance Project in Chicago, a collaboration between Environmental Defense Fund, consumer advocacy watchdog Citizens Utility Board, and grid operator PJM Interconnection. The project resulted from new rules in the PJM electricity market that require energy sources to be available year-round, making it more difficult for newer players like renewable energy and demand response to participate.

Who will lead the #cleanenergy future?
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The pilot program will create dynamic clusters of buildings, home thermostat programs, wind and solar farms, and energy storage projects that will layer their capabilities together to provide electricity at any time of the year. The innovative project can serve as a model to other players in the PJM market, and will help ensure clean energy resources can continue to contribute to building a smarter grid in Illinois.

Congratulations to all of the winners! We can’t wait to see where you take the Midwest.

By Dick Munson

The list of things FirstEnergy isn’t good at continues to grow. First it was transparency. Then accuracy. Now it’s time to add consistency to the list.

You’ll recall that Ohio-based utility FirstEnergy is asking the Public Utility Commission of Ohio (PUCO) to grant it a $3-billion bailout in order to keep operating uneconomic power plants. Years earlier, FirstEnergy spoke out in favor of deregulation – and the competition it enabled – and against government support. But the bailout request represents a complete reversal for the utility giant.

De-regulate, no, re-regulate

Back in 2007, FirstEnergy’s CEO regaled about the wonders of deregulation and competition. In testimony before the Ohio legislature, he declared,

Competition drives innovation, a desire to succeed, efforts to improve productivity, and lower prices. This basic reality applies to today’s electricity markets – and it should remain a driving force for our business and industry in the years ahead.”

Maybe he didn’t mean the eight years between his testimony and the company’s current efforts to restrict competition.

FirstEnergy has shown itself to be consistently inconsistent #Ohio
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The story actually begins in 1999, when Ohio deregulated its electric utilities and required power companies to place their generators in a separate, unregulated subsidiary in order to participate in competitive markets. FirstEnergy happily established FirstEnergy Solutions and began making investments in new generating facilities and upgrading existing plants. Over the next eight years, the utility proudly declared it “improved the productivity of its generating fleet by 27 percent and added about 1,600 megawatts of capacity, at no risk to customers.”

The CEO in 2007 went so far as to say, “Our employees quickly recognized that competition made them more productive, and our company more successful.”

So pleased was FirstEnergy with competition that, when some Ohio manufacturers wanted to re-regulate utilities with the hopes of getting lower rates, the emboldened utility huffed:

“Flip-flopping between regulation and competitive markets whenever one offers a lower price than the other undermines the ability of utilities to make the investment decisions needed to maintain reliable and adequate service. And, if the basic rules of our industry are rewritten every eight years of so – irrespective of the long-term impact of doing so – major providers of capital won’t risk investing the billions of dollars it will take to meet Ohio’s energy needs in the years ahead.”

Eight years later, of course, it is FirstEnergy that is flipping and flopping – now trying to move away from competition and back to being a protected and subsidized monopoly. FirstEnergy is asking for a bailout because its plants can’t compete in regional electricity markets on their own. If it can’t get the bailout, the utility says it would support the Ohio legislature overturning its deregulation legislation, thus returning the power company to a monopoly protected from competitors.

Talk about inconsistency. In 2007, the utility’s CEO declared, “If re-regulation becomes a reality in Ohio, we should expect significant increases in regulated rates.” He also mocked anyone who would “avoid the real costs of producing and delivering electricity.” Today, the power company tries to argue that it suffers from such costs, requiring monopoly protection to protect consumers and reduce the utility’s risks.

Government bad, no, government good

The utility giant also seems to have changed its tune on government support, or “mandates.” In 2007, the CEO said,

Rather than relying on regulation and government mandates to meet our state’s energy objectives, FirstEnergy believes the competitive marketplace will deliver better products and prices and drive innovation and efficiency improvements.”

And, in 2015, FirstEnergy’s lobbyists convinced state legislators that clean energy incentives for energy efficiency and renewables were “mandates” that should be frozen indefinitely. Really, they just represented unwanted competition.

Now FirstEnergy is asking for guaranteed profits for its expensive power plants. It seems the utility supports government mandates when they subsidize its uneconomic power plants, but it rails against any state action that might enable clean energy entrepreneurs to compete.

FirstEnergy clearly favors whatever policy or stance benefits its interests at the time – not those of Ohioans.

This is one in a series of posts that examine FirstEnergy’s proposed bailout for its aging coal fleet and other market manipulations. Stay up to date on FirstEnergy by visiting EDF’s website, where we’ve published helpful resources and will host a series of newsletters. If you would like to receive our FirstEnergy newsletter directly, please click here.

By Dick Munson

One million is a big number, but that’s the goal for getting smart thermostats into Northern Illinois homes. In partnership with environmental and consumer groups, Chicago-based electric and gas companies this week agreed to offer rebates that will cut an intelligent monitor’s cost in half, helping empower people to reduce both their energy bills and pollution.

This smart-thermostat initiative is the nation’s largest and makes devices eligible for up to $120 in rebates (on average, a smart thermostat will run you about $250). The partnership between the utilities and advocacy groups expects the financing will lead to the installation of one million smart thermostats across Northern Illinois over the next five years.

A diverse group announced the program this week: Commonwealth Edison (ComEd), Nicor Gas, Peoples Gas, North Shore Gas, Environmental Law & Policy Center, Illinois consumer advocacy group Citizens Utility Board, Illinois Commerce Commission, and smart thermostat manufacturers, ecobee and Nest.

Smart thermostats lead to smarter energy use

Smart thermostats are WiFi-enabled devices that allow residents to easily control the heating and air conditioning settings in a home through their smartphones, tablets, and computers. On the simplest level they enable people to easily switch off their air conditioning or heating when the house is not occupied, but the technology is considered smart because, over time, it will do this for you by learning your behavior patterns.

For instance, some devices automatically learn when the house is likely to be occupied or empty, allowing the thermostat to pre-heat or pre-cool the house in order to provide a comfortable temperature when a resident arrives. Zoned systems also can control the temperature in individual rooms, providing energy savings when only a home office, and not the bedrooms, needs to be heated on a winter’s day, for example. Residents remain comfortable when they’re home, but save money on heating and cooling while away at work, on vacation, or even in a different room.

1 million & beyond: Rebates to accelerate smart thermostat adoption in Illinois
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The devices also empower people to customize their energy use, creating substantial opportunities for cost-effective energy savings. Rather than leaving homes at a constant temperature, the Nest Learning Thermostat, for example, has been shown to save people about 10 to 12 percent on their heating bills and about 15 percent on their cooling bills on average.

Smart thermostats tend to have several unique characteristics. They:

• Allow remote access to the unit and control of the heating and cooling (HVAC) system from a web portal or smartphone application.
• Offer the option to program a custom schedule to reduce energy use when residents are away from home.
• Report on performance of the HVAC system.
• Alert people when a problem arises with their HVAC system or when it is time for equipment maintenance.
• Display the current weather and five-day forecast.

Furthermore, smart thermostats enable energy efficiency, which means less demand on the grid and less power plant pollution. They also help unlock the potential of demand response, a cost-effective energy savings tool that rewards people for conserving the electricity when the grid is stressed. If you have a smart thermostat and agree to participate in a demand response event, your thermostat will automatically be minimally adjusted to ease the burden on the grid.

With this new initiative to bring one million intelligent devices to homes, Northern Illinoisans will be able to tap into energy and cost savings, all while breathing cleaner air from less carbon emissions.

 Photo source: Flickr/Green Energy Futures 

By Dick Munson

Photo By: www.SeniorLiving.Org

Nobody can predict the future. But from markets to sports, so much of our world is focused on speculation. Ohio-based FirstEnergy has a habit of missing market predictions in spectacular fashion, often because the numbers it advances “prove” the political point that would most benefit the utility’s bottom line.

Consider the case of Environmental Protection Agency’s proposal to reduce mercury and particulate emissions from power plants. FirstEnergy wanted to kill the Mercury and Air Toxic Standards (MATS) and argued the recommended rules would cost it some $3 billion to comply. That predicted cost came in the third quarter of 2011, before the EPA standard was finalized. A year later, after the final rule was released, FirstEnergy cut its estimate nearly in half, to $1.7 billion. A year later the number was down to $465 million, and by 2015 the company admitted it needed to spend only $370 million to comply with MATS.

FirstEnergy’s forecasting “prowess” also extends to its bailout request now before the Public Utility Commission of Ohio (PUCO). According to Cathy Kunkel with the Institute for Energy Economics & Financial Analysis (IEEFA), “FirstEnergy needs to show PUCO that wholesale market prices are likely to rise steeply so that ratepayers will benefit from the new contract it seeks.”

Unfortunately for the utility, its star witness, Judah Rose, admitted in testimony recently that wholesale electricity prices are about 10 percent lower and natural gas prices 30 percent lower than he had forecasted only a year ago. Rose also revealed that his forecasts did not account for energy efficiency, which reduces electricity demand and, therefore, wholesale prices.

Ohio’s FirstEnergy Forecasts are More Political than Accurate
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This is not the first time FirstEnergy used this star witness, nor is it the first time he exaggerated the future costs of natural gas and electricity. Two years ago, Rose said costs would rise substantially and convinced regulators in West Virginia to allow FirstEnergy to sell an uneconomic power plant to its regulated subsidiary. This means West Virginia ratepayers would have to pay the cost for power generated at the plant regardless of wholesale prices. Contrary to Rose’s predictions, wholesale electricity prices have remained low, so the power-plant sale has forced West Virginia ratepayers to face a 12.5 percent rate increase.

We’ve written before about FirstEnergy’s lack of transparency. Accuracy also seems to be a corporate weakness. Repeatedly, the utility giant has demonstrated its inability to know what’s coming. Ohio regulators should learn from MATS and West Virginia and be skeptical of the company’s numbers. Very skeptical.

By Dick Munson

At FirstEnergy, too much is never enough.

According to one Wall Street analyst, the Ohio-based utility “benefitted substantially” from recent auctions by PJM, the electric grid manager in the Midwest and Mid-Atlantic. In fact, it appears the company’s bounty for the next two years is $435 million more than it was projected to earn.

This is a direct result of FirstEnergy and other utilities’ successful efforts earlier this year to convince PJM to change how its electricity auctions were structured.

After the Polar Vortex of 2014, when many power plants shut down because they couldn’t obtain fuel over frozen pipelines or highways, the utilities argued PJM should provide higher payments for power plants that could provide reliable electricity in winter months as well as in the summer when air conditioning demands are high. The change, of course, would provide more revenue to coal-fired and nuclear-fired units that tend to run consistently, including FirstEnergy’s old and inefficient power plants.

You might think FirstEnergy would celebrate its success in redesigned power markets. But you would be wrong. Despite the auction windfall, the company maintains it still needs the Public Utility Commission of Ohio (PUCO) to approve a $3 billion bailout from Ohio customers to keep its inefficient, dirty power plants running. Fortunately, it appears the PUCO staff has seen right through this request.

PUCO staff: Reject the bailout

A conservative, private-sector company, FirstEnergy likes to argue for market-based solutions. When it comes to its bailout request, however, FirstEnergy tends to ignore the market, and instead pleads for assistance from regulators.

Ohio’s FirstEnergy gains hundreds of millions, but still wants more
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Last week the company got some bad news on that front when PUCO staff recommended the decision-making commissioners deny FirstEnergy’s $3 billion request. The staff experts said the utility was asking for income guarantees for too long a period (15 years), not providing the state with enough data to allow for a rigorous examination of its proposal, and insisting Ohio customers (rather than its shareholders) assume all the financial risk.

PUCO hearings on FirstEnergy’s bailout request will continue for a few more weeks, but the PJM auction results make it even harder for FirstEnergy to justify its appeal – and even easier for critics to label the utility as greedy.

By Dick Munson

After a long summer and several delays, the Public Utility Commission of Ohio (PUCO) is scheduled to begin hearing FirstEnergy’s plea for subsidies on August 31. Over the past few months, Environmental Defense Fund (EDF) and other stakeholders have hit the streets, airways, and internet to explain the company’s proposal. Thankfully for you, we’ve summarized the high-points of all this analysis in an easy-to-read outline. Here are the basics:

What is First Energy requesting?

• FirstEnergy is asking PUCO to approve non-competitive purchase agreements that would enable the utility’s distributors to buy power at above-market prices from FirstEnergy’s subsidiary power plants. August 31 marks the beginning of testimony and cross examination of FirstEnergy executives, as well as diverse stakeholders, including EDF. This process may take up to seven weeks.
• FirstEnergy is seeking subsidies for the 52-year-old Sammis coal-fired plant; two 60-year-old coal-fired power plants (Kyger Creek in Cheshire, Ohio, and Clifty Creek in Madison, Indiana); the Davis-Bessie nuclear plant, which is two years from the expiration of its 40-year license; and for the utility’s share of the Ohio Valley Electric Corporation. The subsidies essentially shift the financial risk of these older and more expensive generators from FirstEnergy’s shareholders to its customers, who would fund the proposal through fees and higher rates.

Everything You Need to Know about FirstEnergy’s Bailout Request
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What’s the cost?

• FirstEnergy claims the purchase agreements would save Ohioans $2 billion over the course of 15 years. The independent Ohio Consumers’ Counsel, however, estimates the proposal will cost customers $3 billion.

FirstEnergy’s scare tactics

• FirstEnergy argues that these older power plants – and the money it is requesting to keep them running – are needed to avoid blackouts, brownouts, and higher customer electricity bills. Such claims are not unusual in the energy business. A regulator accusing an energy company of scaring the public, however, is That happened last week, when the PUCO chairman Andre Porter told Columbus Business First’s Tom Knox that utilities like FirstEnergy should “stop trying to scare Ohioans.”

FirstEnergy’s bad bets

• FirstEnergy needs the money because it doubled-down on coal investments that went south due to low natural gas prices and substantial gains in energy efficiency. Critics wonder why the utility should be subsidized for bad business decisions. Corporate gambles strike at the heart of capitalism; however, public underwriting of those gambles does not.

A return to monopoly control

• Speaking of capitalism, FirstEnergy appears to be hedging its bets. Perhaps sensing it will not win before the PUCO, FirstEnergy is beginning to discuss the possibility of the Ohio legislature overturning deregulation and returning the company to a monopoly with guaranteed profits. FirstEnergy strongly supported deregulation when it thought it could compete in competitive power markets. This is a fairly dramatic flip-flop, and it’s unlikely conservative Ohio legislators will embrace a shift that runs counter to their free-market and pro-competition principles.

Stifling competition

• FirstEnergy doesn’t like competition. The company has been particularly concerned about demand response, an effective energy conservation tool that pays customers to reduce electricity use during times of peak demand when prices and pollution are high. This low-cost, zero-carbon energy resource saved customers in the mid-Atlantic region $11.8 billion in 2013, but FirstEnergy sees demand response as undercutting its old and inefficient power plants. The utility has filed appeals to restrict demand response, and the U.S. Supreme Court will hear arguments on the case in early October.
• To further stifle competition, last year FirstEnergy led the effort to make Ohio the first state to gut its clean energy and efficiency standards. In filings to PUCO, the utility admitted the initiatives saved families millions.

A two-for-one deal without the savings

• Adding insult to injury, FirstEnergy’s bailout appeal includes a provision that would force customers who choose to buy clean energy to also purchase FirstEnergy’s coal energy, unnecessarily paying twice for power.

Bottom line

• FirstEnergy’s behavior shows how much electricity politics have changed. Having argued against favorable policies for renewable energy, FirstEnergy is now asking for public policy that will effectively put coal and nuclear energy ahead. Conservationists are pushing for competition, while utilities are talking about re-regulation and monopolies. Proven and cost-effective energy solutions like clean energy, efficiency, and demand response can compete in a real market – free from customer-funded bailouts.

Utilities across the country are embracing energy innovation in the form of wind, solar, demand response, grid modernization, and efficiency. FirstEnergy, however, has become the poster child for last century’s utility business model: generate and sell as much dirty energy as you can.

No one can be sure how the FirstEnergy bailout saga will play out, but it’s likely to have repercussions throughout the industry. If PUCO denies FirstEnergy’s proposal, it could send a warning to other old-school utilities that choose to follow FirstEnergy’s path.

This is one in a series of posts that examine FirstEnergy’s proposed bailout for its aging coal fleet and other market manipulations. Stay up to date on FirstEnergy by visiting EDF’s website, where we’ve published helpful resources and will host a series of newsletters. If you would like to receive our FirstEnergy newsletter directly, please click here.

By Dick Munson

They say crises don’t test your character, they reveal it. I believe they do the same thing to your vision of the future. Times are tough for Ohio’s FirstEnergy, and CEO Chuck Jones is signaling where he wants the utility to be in the future: the past.

First, we need to look back to last year, when Jones pushed the Ohio legislature to halt state efficiency and renewable energy standards that helped reduce electricity demand and saved Ohio customers millions of dollars.

This year, Jones’ vision quest is a $3 billion bailout – to be paid for by his customers – that would guarantee the purchase of power generated by FirstEnergy’s older and costlier power plants. In a recent op-ed, Jones argued that the deal would secure Ohioan’s energy independence.

Just a few weeks after Jones’ energy independence play, he has put forth a new vision: re-regulation, which means returning FirstEnergy to a monopoly with guaranteed profits. It was less than a decade ago that Ohio deregulated its electricity market to the applause of the utility industry, including FirstEnergy. Clearly, the CEO is getting a little desperate.

There is no doubt Jones has a problem. Several of his power plants are old, inefficient, and costly, particularly compared to generators powered by natural gas and wind. They simply can’t compete.

Killing renewables and efficiency by sanction was step one. Step two – the bailout – now seems to be faltering as it undergoes scrutiny before the Ohio Public Utilities Commission (PUCO). Jones recently told financial analysts that the bailout is critical to his company’s future, and he seems increasingly stressed by the PUCO’s delays and the growing criticism from a broad array of stakeholders. Maybe sensing he will lose before the PUCO, Jones told the Plain Dealer he would embrace a move toward re-regulation “in a heartbeat.”

The heart of every Ohioan should skip a beat at FirstEnergy’s self-interested flip flopping on deregulation. Not too long ago, FirstEnergy embraced deregulation, thinking it could profit handsomely in competitive markets. And it did, for a while. But the company made numerous poor business decisions, like doubling down on coal rather than embracing cleaner forms of energy, like natural gas and wind. Now gas and wind prices are low, energy efficiency is reducing demand, and FirstEnergy is stuck with a pile of coal nobody wants.

This seems like a strange time to suggest re-regulation. The Ohio legislature is fairly conservative. A law to guarantee profits, kill competition, and re-establish a monopoly would likely run afoul of the free-market platform so many of them were elected on.

And it doesn’t look like Jones’ fellow utilities are ready to follow FirstEnergy to re-regulation. Though AEP wants a bailout similar to FirstEnergy’s, its CEO told reporters he would not embrace a return to state-controlled rates.

Perhaps most revealing is the reaction of Dynegy, a FirstEnergy competitor that owns 11 large power generators in Ohio. According to CEO Bob Flexon, Jones’ appeal for re-regulation is nothing more than FirstEnergy admitting it wants “big, fat margins so they can pay big dividends to shareholders,” without having to compete for them. Flexon went further: “Coal plants and nuclear plants in this market are losers. For some reason they want to keep them. In order to keep them, they need them regulated because they can’t compete.” And he went further still, saying FirstEnergy is “taking the weakest in the herd and putting it in the front to the benefit of the shareholders and the detriment of Ohio.”

Understandably, Jones seems increasingly nervous about his company’s fate. It’s true today’s energy market is different than it was ten years ago. But it will be different again in another ten. Companies like FirstEnergy expect their CEOs to look forward and lead them into the future. But whether it’s asking for a bailout, killing emerging energy resources like renewables and energy efficiency, or advocating re-regulation, Jones doesn’t appear to be looking forward at all.

Photo Source: William Warby

By Dick Munson

Over the past few months, I have written a good deal about FirstEnergy, the massive electric utility serving customers across six states, and specifically its attempts to saddle Ohioans with the cost of its risky investments. The company has asked the Public Utility Commission of Ohio (PUCO) to guarantee profits for its uneconomic power plants through customer-funded subsidies.

FirstEnergy has also prevented opponents of its bailout from examining all relevant information to the case, including the credibility of its key witnesses. But, last week, the PUCO rejected these attempts to hide information about FirstEnergy’s embattled $3 billion proposal. As we near the start of the proposed bailout hearings on August 31st, this decision is a victory for transparency – and places the utility’s proposal on shakier ground than ever.

The full story involves a consultant – Judah Rose of ICF International – who FirstEnergy hired to justify the bailout. Rose was asked to project future electricity market prices, which would determine the economic value of the power generation plants in question. This contributed to how FirstEnergy settled on the figures for its bailout request.

Some opponents of the proposal – particularly IGS Energy, a competitor that would be impacted by subsidies to FirstEnergy – argued Rose had a history of rosy projections that supported his utility clients’ arguments. Last December, IGS sought to obtain testimony from an earlier, unrelated case in which Rose appeared before the PUCO.

FirstEnergy tried to hide information about one of its key witnesses. Denied.
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FirstEnergy lawyers tried for months to squash the request. They argued that although the previous testimony had been presented to the PUCO, it was proprietary and should be kept confidential. They claimed the PUCO was not following procedures. They even asserted the utility was contractually prohibited from sharing such data.

A hearing examiner at the PUCO would have none of it. That regulator in June declared IGS Energy was, in fact, entitled to get testimony from another case that might impeach the credibility of one of FirstEnergy’s star witnesses.

The utility, as you might guess, appealed, arguing for strict secrecy and asking the full commission to overturn the hearing examiner’s decision.

IGS tried to be the voice of reason:

[T]he economics of this multi-billion dollar decision turn largely on Mr. Rose’s projections…Before the Commission agrees to commit FirstEnergy customers to [the proposed bailout] (based on Judah Rose’s forecasts), it is reasonable to test his forecast by comparing it with other forecasts Mr. Rose has produced."

An IGS lawyer went further: “IGS believes in free markets where competition, transparency, and responsiveness to consumer preferences drive innovation and efficiency.”

IGS was not alone in its calls for openness. The Office of the Ohio Consumers’ Counsel and the Northeast Ohio Public Energy Council also tried to obtain information from FirstEnergy. They argued such information was needed if their own in-house experts were to review and advise on the bailout request, saying in their joint brief, “This (proposed) limited access is a new policy that severely handicaps parties’ ability to challenge any charges.”

The full PUCO agreed last week, declaring IGS is “entitled to discover information related to the credibility of Mr. Rose, including the ability of Mr. Rose to reliably forecast future market prices.”

In its brief, the PUCO stated “We have been, and continue to be, skeptical of the use of claims of confidentiality to preclude cross-examination of witnesses.”

Agreed. Maybe FirstEnergy is afraid a little sunlight will debunk its projections. Maybe the utility fears that the more we know about its bailout proposal, the less we’ll like it. Fortunately, the PUCO is pushing for the transparency such a large customer-funded bailout deserves.

Photo source: Wikimedia/Niabot