FirstEnergy deal protects profits, not Ohio consumers
In a surprise reversal, staff at the Public Utilities Commission of Ohio signed on last week to a settlement in utility giant FirstEnergy’s latest rate plan. The plan, which includes an arrangement to have Ohio consumers subsidize two plants FirstEnergy says are at risk of closure, has been widely critiqued as a bailout. Responding to opponents, a PUCO administrative judge set new hearings in the case this week.
At the center of the plan is a complicated scheme to bypass the competitive market – because two outdated FirstEnergy plants can’t produce electricity at a competitive rate. The PUCO would allow the company to sell electricity to its own distribution utilities for a guaranteed rate, with consumers picking up the difference. In other words, consumers would subsidize FirstEnergy’s inefficiency.
PUCO staff earlier recommended that this be rejected outright. The latest iteration still defies the intent of Ohio’s 1999 deregulation law, which forbids collusion between segments of the utility that are supposed to operate independently.
Ohio electric consumers shouldn’t be forced to pay above market rates to subsidize these plants – the coal-fired W.H. Sammis plant on the Ohio River and the Davis-Besse nuclear plant near Toledo (pictured above). Some of the conditions FirstEnergy has accepted will indeed modernize and green Ohio’s electric infrastructure. They also better align FirstEnergy to compete on the electric market, meaning that the company is likely to take these steps without a bailout deal.
If the settlement is approved, FirstEnergy has committed to building new wind turbines; reducing its carbon dioxide (CO2) emissions by 90 percent below 2005 levels, and reimposing an efficiency plan. The utility had abandoned that plan after successfully lobbying the legislature to freeze Ohio’s energy mandates in 2014. The turbines, emissions reductions and efficiency sound great, but here are four reasons why it’s not worth it:
- Planned new wind generation is a drop in the bucket compared to the outmoded generation consumers would be forced to subsidize to get it. Davis-Besse can generate 900 megawatt hours of power, and Sammis a whopping 2,200. That means that to build wind turbines capable of producing 100 megawatt hours of electricity (enough to power 50,000 homes), Ohio consumers would support 22 times as much coal, and nine times as much nuclear. Put another way, the power generated in this deal would be 96.9 percent coal and nuclear, and just 3.1 percent renewables.
…and the power is already sold. FirstEnergy has already entered into renewables contracts, and that’s why it is building wind turbines. Right now, the company is buying what are called renewable-energy credits to satisfy those contracts (credits are like buying energy rights from producers of renewables). New wind turbines would give FirstEnergy a cost-effective way to meet renewables demand – without a bailout deal.
- The market is driving utilities toward renewables investments already – and driving old coal and nuclear plants out. Coal and nuclear plants have become uncompetitive, and are facing early retirements across the nation. This is the reason FirstEnergy wants customers to guarantee its profits in the first place. Ohioans have already shelled out $6.9 billion in “stranded” cost recovery for Davis-Besse and other FirstEnergy nuclear assets. Meanwhile, renewable energy becomes more cost-effective every year. That’s why renewables are the only power source that continues to grow in the face of falling consumer electric demand.
- Subsidizing CO2 emissions is a funny way to reduce CO2 emissions. FirstEnergy has committed to reducing its 2005 carbon footprint by 90 percent by 2045. Good news, but Ohio electric users shouldn’t be fooled into thinking it’s a concession. That’s because FirstEnergy can only hit that mark by closing coal plants that are losing money anyway – including Sammis. FirstEnergy has already cut CO2 emissions by 25 percent, mostly by closing down 12 unprofitable coal plants since 2011. Given its emissions, there is currently no way for FirstEnergy to reach the 90 percent benchmark without ultimately closing Sammis itself. This means that the plant’s eventual retirement must already be in FirstEnergy’s calculus, but the company wants to keep it online on consumers’ dime as long as possible. FirstEnergy is asking Ohioans to subsidize one of America’s dirtiest plants now, in exchange for cleaning up its act 30 years from now, and calling it a compromise. Ohio should call its bluff.
- FirstEnergy’s job claims are very expensive smoke and mirrors. And its workers deserve better. FirstEnergy has claimed that this deal would preserve 3,000 jobs. That’s an ambitious number to start with, since Sammis and Davis-Besse support only 1,250 workers combined. Based on Ohio Consumers’ Counsel projections, these jobs would come at a price tag of between $1.3 million and $3.1 million for each job. Also, while it’s true that coal and nuclear jobs are shrinking, green tech jobs are on the rise, and those jobs are affected by this deal, too. FirstEnergy has shed 1,700 jobs through attrition since 2011. Meanwhile, Pew Research Trusts reported last January that Ohio’s clean energy freeze – frozen because of FirstEnergy’s successfully lobbying - put over 5,800 wind and solar jobs at risk. Because a guaranteed consumer subsidy would enable FirstEnergy to undercut market prices for those more efficient power sources, the proposed bailout threatens green energy jobs (and natural gas jobs) in the same way. Ohio and the nation’s energy infrastructure are going through profound changes. Workers facing job loss as a result of the transition deserve a comprehensive plan to move them into the new opportunities that arise as old technologies are displaced by nimbler, more sustainable ones. And they deserve quality jobs with living wages, good benefits, and workplace representation through a union.
This settlement agreement is a bad deal for Ohio electric consumers. While it commits the company to a few concrete measures to make Ohio’s grid greener and more efficient, the changes are smart moves for the company in light of changing market conditions anyway. Nothing in the plan justifies the added price tag for consumers, the departure from Ohio deregulation law, or the incentive the scheme would create to maximize less-efficient coal and nuclear production and push out green tech while the profits are protected. With PUCO staff signed on, this plan goes to the commission for approval. The commission should say no.
-- Michael Shields
Michael is a Policy Matters researcher.