We've all been laughing at the AEP vs. FirstEnergy TV commercial beat down going on in the state of Ohio.  The companies are doing such a bad job presenting a coherent message, the public is left wondering what it's all about.  While the commercials focus on a current AEP rate case, the FirstEnergy rate case also going on right now before PUCO is much, much more interesting and has more potential to rip off consumers than anything AEP could dream up.

You see, FirstEnergy's current rate ripoff scheme is just a small part of their long-term, grand design to manipulate markets, laws, and administrative processes in a number of venues in order to produce incredible financial windfalls for the company.  FirstEnergy put quite a lot of thought into machinations that would beat their competitors at the EPA coal plant closure game and manipulate the situation into a financial benefit for the company.  FE's stockholders may see it as great business sense, but for Ohio's electric consumers, it's a huge financial loss.  Whether FE will get away with pushing the legal envelope, or whether evidence of possible misdeeds will begin to float to the surface like untethered bodies, remains to be seen.

It started several years ago with FirstEnergy's acquisition of Allegheny Energy and its plethora of scrubbed coal generation.  Tony the Trickster admitted as much on some annoying idiot's TV talk show.  He claimed that the EPA's new rule will benefit FirstEnergy, while other companies, like AEP, were wasting their time whining and trying to lobby the rules away.  Here's how FE's plan worked:

1.    Acquire bigger footprint and additional scrubbed coal generation capacity.

2.    Close un-scrubbed coal plants several years earlier than necessary, on very short notice, and create localized capacity shortages (especially in FirstEnergy's home base of Ohio). 

3.    Generation shortage will drive capacity prices in ATSI up more than double those in the rest of the RTO.  FirstEnergy will be the beneficiary of increased capacity prices.

4.    Closures will result in reliability issues.
    a.    Possibility for very profitable "Reliability Must Run" contracts to keep plants slated for closure open until reliability solutions can be implemented. 
    b.    Propose $1B in new transmission "reliability" solutions to be owned and constructed by FirstEnergy that source to other existing FirstEnergy-owned generation in order to lock in future market domination.  The transmission will predominantly become the financial responsibility of consumers in the ATSI zone, and will consist of many small upgrades to FirstEnergy-owned transmission so as to avoid any competition for projects under FERC's Order 1000.

5.    File Ohio rate case to lock in all that juicy profit and rush it through approvals!

6.    Engage powerful competitor in silly tit-for-tat PR battle over their own rate case, in order to focus attention elsewhere.

Here's what's turned up in FE's Ohio rate case:

Read the brief of the Ohio Consumer's Counsel.  This agency, tasked with representing the interests of Ohio's residential ratepayers, was chopped and crippled by Ohio's Governor last year.  The ever-struggling OCC claims that FE, with the assistance of PUCO, rushed their case through the process and disenfranchised the public.  FE sought waiver of many important rules and kept evidence to a minimum.  FE engineered an upfront settlement with certain parties, who all received kickbacks for their cooperation.  No parties representing residential ratepayers were included in the settlement, leaving the ratepayers without representation and bearing the cost of the kickbacks the cooperating parties received.  FE's switch to a three-year auction leaves ratepayers at risk of higher prices.  Sure, your rates may be "stable," but that will be stably HIGH.  FirstEnergy's generation affiliates will substantially benefit from the three-year auction.  A distribution rider produces excessive cost to consumers and locks FirstEnergy into a guaranteed revenue stream without rate transparency.  FirstEnergy escapes Ohio's "significantly excessive earnings" test.  FirstEnergy's claimed "benefits" for consumers are nothing but smoke and mirrors.

Read the brief of AEP Retail Energy Partners.  Be sure not to miss their handy-dandy table of all the settlement parties who financially benefited from their support of FE's plan, how much they got, and who gets to pay for it (mostly Ohio's residential ratepayers).  See also AEP's arguments about how FE is, in fact, the one stifling competition in Ohio by locking customers into purchasing FE's generation.  So much for a level playing field, FE, you little fibber!  And this -- it's such a great line, I've got to quote it:

"In effect, what is presented to the Commission and the ratepayers of the FE EDUs is much like a bad sequel.  Even if one liked the original movie, there is no assurance that the sequel will be equally enjoyable.  Unlike a movie, however, the FE EDU customers must stay to watch, once they have paid."

But probably the most stunning evidence submitted in the case comes from The Sierra Club's brief.  The brief details how FE severely underbid energy efficiency into PJM's RPM auction.  FE's failure to bid even the minimum amounts of EE required by state law into the auction artificially drove up ATSI's capacity price in PJM's 2015/16 auction.  FE's gaming of EE capacity cost ATSI consumers $600M in unnecessary capacity costs and prevented them from realizing an additional $39M in revenue!

But, what will all this mean for Ohio consumers if FE's plan is approved?  You're going to be paying more... lots more!

FirstEnergy has a bunch of hungry mouths to feed, such as:

CEO "Tony the Trickster" Alexander, who pulled in $18.3M in total compensation in 2011, according to FirstEnergy's SEC Proxy filing.

CFO Mark Clark, who pulled in $6.6M in 2011.

General Counsel Leila Vespoli, who pulled in $5.5M in 2011.

Charles Jones, President of FE Utilities, who pulled in $4.7M in 2011.

And then there's FirstEnergy's dead weight, retired executives, who still have their hand in the till:

Gary Leidich, who walked away with $4.4M in 2011.

Paul "Mr. Burns" Evanson, who walked away with the big prize - $14.4M in 2011.

So, while you're struggling to pay your increased electric bill in the future, remember how hard your friends at FirstEnergy are also "struggling."

If you've heard that the EPA is causing your electric bill to "skyrocket," you're getting incorrect "information" spoon-fed to you by propagandists with an agenda.  You need to work a little harder to get the unvarnished truth.  The truth is that your Ohio electric bill is going to "skyrocket" because of the financial scheming of FirstEnergy.

Remember, while all those TV commercials are kinda funny, the real story can only be found elsewhere.

 


Comments

Ned Ford
06/28/2012 2:11am

Congratulations on your superior analysis.

I am an advisor to the Sierra Club.

There are three moving pieces in this case: the half-billion dollars locked into customer rates by the PJM auction in May for delivery in 2015, the billion dollars worth of transmission upgrades - mostly related to the FirstEnergy service area, although some of the costs fall into AEP territory, and the abundant efficiency and renewable alternatives that are cheaper.

We are reluctant to condemn FirstEnergy outright, simply because we need them to be a cooperative partner in this State. But we have every reason to want to flay their profits from profiteering, and to give them incentives to do things which save their customers money.

Our arguments are based on the fact that efficiency saves money. In the last year, renewables (wind) have become cheaper in Ohio than fossil fuels, notwithstanding all the garbage in the air about natural gas and fracking. Wind is still cheaper than fracked gas, unless they can keep their prices where they were two months ago for ten or fifteen years, which they can't do.

What we want to do is align utility economic signals with customer interests. Ohio is a state in transition, due to a flawed 1998 deregulation bill, which was fixed in 2008. WV is still a regulated state, which means that your regulators can figure out what we are doing right, and what we are doing wrong, and pick the winners. But if they don't do the homework, you all lose.

Coal is dead. It may take forty years to die, or it may take twenty years to die, but all the clowns who invested their billions in the coal industry were just as dumb as the guys who paid a quarter million dollars for a tulip bulb, about a hundred and thirty years ago. Coal can't compete with natural gas, and natural gas can't compete with efficiency or wind. In a couple of years, photovoltaics will also be cheaper than coal or natural gas.

So we see the crass manipulation of the PJM auction process by FE, and we want to correct it. Is the best response to reduce their rate of return to zero? Or is it to give them a healthy share of the money they save their customers, and cut their return on things they do that cost their customers money? Or both?

In 2011, the Ohio utilities spent about $300 million on efficiency programs., and saved about a billion dollars. The savings are highly speculative, and are probably closer to three billion, but we have arguments about that. What is certain is that the spending produced a net benefit in the first year, and that the installed technology will last an average of twelve years. West Virginia can have all that and more.

Ohio also has about a billion dollars worth of new wind turbines which are selling electricity into the market at such a low price that they are undercutting most of the utilities. The price of wind turbines is supposed to drop 20% in the next year or so.

West Virginia can have all of that, with some reservations about the amount of wind potential you have.

In spite of the massive dose of information and words in one of these utility cases, this is a small taste of the extensive flow of ideas and information that surround the case. Sierra Club filed its comments before the other parties you mentioned, and we were far more specific to the issues in the case - mostly because our traditional allies signed the stipulation when we did not.

The clean energy revolution is under way. It is sort of like the computer revolution, except that there are about three extra zeroes after the dollar sign. We are going to change the way this nation uses energy, not because we want to, but because what we want is cheaper. And getting cheaper each day.

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Keryn
06/28/2012 11:05am

PJM approved $2B of new transmission related to these plant closures. Of that amount, FE was awarded $1B. See this story http://www.cleveland.com/business/index.ssf/2012/05/firstenergy_will_spend_1_billi.html
Of course, this reporter has some misinformation (I wonder where that came from?) about when these projects will be paid for by electric consumers. The drain on your wallet has already begun and will continue for years. Federal forward-looking formula rates allow transmission owners to collect a yearly revenue requirement for projects under construction, as they are being built... and they also allow very attractive rates of return on the investment... with little to no oversight of the accuracy of the accounting or the prudence of the transmission owner's project spending. Auditing the transmission owner's cost recovery is YOUR job. The fox is watching the henhouse here.

Utility scale land based wind is the next big lie. It will require over $300B of new transmission investment (and transmission produces unbelievable profit for its owners). Stop lining up like hogs at the mega-utility trough and invest your money in your own smart power-producing investment instead. The traditional utility model is dying. These corporations must change.... or die.

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