The PUCO Money Tree

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A friend of mine recently said, “People will keep shaking the money tree as long as it is still producing.” This couldn’t be truer when describing the relationship between the Public Utilities Commission of Ohio (PUCO) and three of the four Ohio investor-owned utilities.  This month, the PUCO issued two rulings handing out over $1 billion of ratepayer money to prop up corporate earnings of FirstEnergy and allowing an “unknown” amount for subsidies on unregulated AEP Ohio generation.  Both these cases were initially filed years ago to provide additional money for coal and nuclear power plants that are not competitive in this low energy price environment. This concept was radical as it shifted the success or failure of utility profits from shareholders to captive utility ratepayers.

Over the period of two years, lawyers from all sides have been busy with this contentious fight. The initial request by FirstEnergy and AEP Ohio to the PUCO was so large that it turned the heads of many even outside the energy business. There were no bones about it; the money was a subsidy to keep inefficient coal fired power plants on line thereby squeezing out new, more efficient, natural gas fired units and renewables. This wouldn’t be so shocking except for that fact that Ohio deregulated at the request of the utilities when market prices were high. Now that prices are low they want help with their earnings at the same time making a push with their army of lobbyists to re-regulate the state completely.

AEP Ohio was the first to develop this concept of subsidies and FirstEnergy was soon to follow. Although the PUCO allowed the subsidy construct by approving the Power Purchase Agreement rider, the Federal Energy Regulatory Commission (FERC) subsequently ruled that electricity under such an arrangement would have to be competitively priced with the market. Knowing that the cost to produce this electricity is well above market, the utilities bailed on this concept but not the idea of asking for subsidies entirely.

Quick maneuvering of the English language allowed FirstEnergy to skirt the FERC competitive requirement by now calling the subsidy a “Distribution Modernization Rider.” This semantics strategy would allow the money to be collected and better yet allow the company more flexibility with how it could use the funds including paying shareholders dividends. In its recent order granting $1 billion, the PUCO acknowledged the charge would not actually pay for any specific grid modernization projects, but would mainly serve to prop up FirstEnergy’s credit rating. This is an incredible admission by the regulatory body whose mission is “to assure all residential and business consumers access to adequate, safe and reliable utility services at fair prices, while facilitating an environment that provides competitive choices.”

In addition to FirstEnergy, AEP Ohio was recently awarded approval of a profit guarantee for two coal plants and also the right to pass along half the costs to ratepayers for 900 MW’s of new renewable generation. This again is a complete departure of deregulated open markets as AEP Ohio now gets 50% of these projects fully funded by ratepayers. This is not a “loan” from ratepayers; it is a gift from the ratepayer money tree.  Neither AEP Ohio nor the PUCO have any idea what the costs will be to the consumer.

Seeing the success of its utility neighbors, Dayton Power and Light has recently started shaking the PUCO money tree by asking for a cool $1.5 billion for the same Distribution Modernization Rider. Since this is one of the smaller utilities in Ohio it is estimated such a charge could increase non-bypassable delivery rates by nearly 50%.

Let’s be clear, as publically traded companies the utilities have a fiduciary duty to work for their shareholders. If there is an avenue to have someone else pay for their expenses by all means they have an obligation to get it.  And since the PUCO is willing to deliver the money then they will continue to ask. If only we all had a prolific money tree to shake.