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PUCO rate authority challenged in court case

By: Larry Limpf |

The Ohio Supreme Court heard oral arguments Wednesday in a case involving the role of the Public Utilities Commission of Ohio in setting rate policy for FirstEnergy Corp. and its subsidiaries.

At issue is the approval by the PUCO of what is called a distribution modernization rider for three FirstEnergy companies, Ohio Edison, Cleveland Electric Illuminating and Toledo Edison, which distribute and transmit power service.

A rate rider is a temporary credit or charge on users’ bills that reflects the difference between actual and estimated costs for delivering energy.

A proposal by FirstEnergy in 2014 that would have been in effect from June 2016 through May 2019 offered customers the option of receiving electricity partially from power plants operated by FirstEnergy Solutions and from other markets. Under the company’s proposed rate stability rider, if the costs to provide power through the combination of FES-generated power and market-rate power were cheaper than the average market price, FirstEnergy would lower the bills for customers in its service territory. If the production price was higher, then customers would pay extra for electricity to offset the cost regardless if they chose FES and market mix plan or another electricity provider.

Opponents of the plan argued it was a scheme to saddle Ohio residents and businesses with subsidizing “non-competitive” coal and nuclear plants operated by FES.

After hearing a complaint from opponents, the Federal Energy Regulatory Commission ruled any plan to combine rates by FES and the markets had to be approved by the FERC.

FirstEnergy withdrew its rider proposal and proposed a new rate plan. Meanwhile, the PUCO in 2016 proposed an alternative rider and promoted it as a means to upgrade the FirstEnergy electric grid, which could result in a savings for customers and boost economic development. Under the PUCO rider, FirstEnergy would collect about $132 million annually from January 2017 through 2020.

The Ohio Manufacturer’s Association Energy Group and Sierra Club appealed the PUCO approval of the FirstEnergy plan with the grid modernization rider to the state supreme court. The Ohio Consumers’ Counsel, the Ohio Environmental Council and other organizations also appealed.

A common element in their opposition to the PUCO decision is that it doesn’t require FirstEnergy to use the rider revenues on grid improvements. When it approved the FirstEnergy plan, the PUCO said it would provide credit support for FirstEnergy Corp., which was facing the prospect of a downgrade in its credit rating.

In a July brief to the court, the Sierra Club argued the approval of the distribution modernization rider wasn’t authorized by any provision of Ohio law.

“Because the DMR neither recovers costs for, nor requires the companies to invest in, distribution services for their customers, this rider is not approvable…,” the brief says.

The PUCO has countered the Ohio Revised Code has granted it broad powers to improve the distribution grid.

It also rejected the argument the rider provides transition revenues to the financially troubled coal and nuclear power plants, noting that their parent company, FirstEnergy Solutions, is separate from the distribution companies.

FirstEnergy Solutions announced in 2018 it planned to deactivate the Davis-Besse Nuclear Power Station by May 2020. The Perry Nuclear Power Plant in Perry Ohio is scheduled to be deactivated by May 2021 and units 1 and 2 of the Beaver Valley Power Station in Shippingport, Pa. are to be deactivated by May 2021 and October 2021 respectively.