FERC Blocks Ohio Power Plant Subsidy Deal

Throwing yet another twist into a long-running saga, the Federal Energy Regulatory Commission (FERC) on April 27 blocked a pair of power purchase agreements (PPAs) that would have supported continued operation of FirstEnergy’s Davis-Besse nuclear plant and several aging coal-fired plants belonging to FirstEnergy and AEP.

The Pubic Utilities Commission of Ohio approved the PPAs on March 31 over strident objections from ratepayer groups and rival generators. FirstEnergy and AEP say the PPAs are necessary to keep the plants operating, and that their closure would imperil reliability in the state. Consumer groups charge that the deals, which would have allowed the utilities’ distribution units to purchase power from the plants at guaranteed, above-market rates for eight years, amounted to corporate welfare.

On April 27, in a pair of rulings, FERC agreed with the groups challenging the PPAs, rescinding previous waivers it had issued to FirstEnergy and AEP allowing them to purchase power from their affiliate generators. Loss of the waivers effectively blocks the utilities from purchasing power under the PPAs until FERC has had a chance to review them.

“While it is true that Ohio ratepayers will continue to have a statutory right to choose one retail supplier over another, we conclude, based on the record, that [Ohio ratepayers] are nonetheless captive in that they have no choice as to payment of the non-bypassable generation-related charges incurred under the Affiliate PPA,” the FERC ruling said. “These non-bypassable charges present the ‘potential for the inappropriate transfer of benefits from [captive] customers to the shareholders of the franchised public utility,’ and, thus, could undermine the goal of the Commission’s affiliate restrictions.”

The ruling represents the second major blow this month against state efforts to support generating plants that have been unable to compete in interstate power markets. In two decisions, the U.S. Supreme Court blocked programs in Maryland and New Jersey that sought to incentivize power plant construction through subsidies keyed to PJM capacity auctions.

—Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).