Ohio Regulators

In a long-awaited decision, Ohio regulators with the Public Utilities Commission (PUCO) approved a $600 million electricity rate plan for Ohio utilities provider, FirstEnergy. FirstEnergy has been struggling financially since a 2011 merger with Allegheny Energy. The utility paid a premium to acquire Allegheny’s coal dependency just as the cost of natural gas began its rapid decline.

The PUCO decision was in response to FirstEnergy’s $4 billion bailout plan, which the Federal Energy Regulatory Commission (FERC) rejected after determining the bailout equated to an illegal subsidy that distorted competitive electricity markets. In order to avoid FERC jurisdiction, FirstEnergy revised its bailout request to remove language regarding the continued operation of power plants. FirstEnergy indicated that the revised request involves adjustments to retail electric rates, which is designed to be solely under the jurisdiction of the PUCO. It also requested an additional $8 billion to reduce its debt and to maintain its corporate headquarters in Ohio. The PUCO staff recommended the utility receive only $600 million – just 5 percent of the utility’s $12 billion request – on the premise that the utility would then have the capital to invest in grid modernization. The recent decision essentially approved that staff recommendation.

One read of the decision is, regulators killed the utility giant’s massive bailout and ordered the utility to modernize its grid. If accurate, this would be an incredible victory: Dirty power plants would not be subsidized, FirstEnergy would not be rewarded for poor business decisions, and the company would invest in measures that increase efficiency and welcome clean-energy resources.

The order declares that the approved funds “should be conditioned upon the implementation of all grid modernization programs approved by the Commission.” Yet, it also includes that the regulators “will not place restrictions on the use” of the funds. In other words, FirstEnergy could use the money solely to reduce its debt, without the need to show any connection to grid modernization efforts. So, the more realistic read is, Ohio regulators are simply handing FirstEnergy $600 million in hopes the subsidy will help to improve the utility’s balance sheet. Then, FirstEnergy will (hopefully) propose grid modernization efforts that the PUCO will consider and fund down the line.

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