Who should be paying to keep power plants afloat that are inefficient and don’t do very well in the market: the utility company or its customers?
That’s the question these proposals, known as power purchase agreements, boil down to.
AEP Ohio and FirstEnergy have both submitted plans that would allow them to add an extra fee, or rider, to a customer’s electric bill. That fee would ensure that their coal plants would still make a profit even if they don’t perform well in the capacity marketplace where they have to compete with more cost-efficient energy resources such as natural gas and alternative energy.
Opponents of the plan call it a scheme to bail out costly coal plants. But AEP spokesperson Terri Flora says keeping these coal units going will make sure Ohioans have enough energy to avoid outages.
“We were looking to keep these plants that we have in the state that are environmentally friendly but at risk to being shut down due to economic reasons, stay within the mix in order to continue grid reliability.”
And that’s the key word: reliability. It’s the main argument from the utilities for why the PUCO needs to approve the power purchase agreement.
Countering the reliability claim
But there’s a faction of energy industry experts who are strongly fighting back against that claim. That includes Perry Oman of Muirfield Energy, a consultant group that helps companies keep their electric costs down.
“They’re screaming reliability cause they know that’s a code word that will panic many people when there is no reliability issue.”
Another voice of opposition is Dean Ellis, vice president of regulatory affairs for Dynegy. Dynegy owns energy generation around the country and just recently bought nine coal and natural gas plants in Ohio from Duke Energy.
Ellis says Ohio has more than enough energy generation to keep going without these struggling coal plants because of its abundant natural gas supply.
"That’s going to drive this new generation, fired primarily by gas, in and around Ohio. So there’s sufficient mechanisms in place, sufficient infrastructure in place to replace any less efficient uneconomic plants that might need to retire in the future.”
An unfair advantage?
The regional power grid operator that services Ohio is PJM Interconnection, which holds an auction to see which companies can offer energy generation at the lowest price. In the latest auction, most of AEP and FirstEnergy’s coal plants made it in. That means coal, from their efficient plants at least, is still on the grid through 2019.
Oman says this so-called bailout gives AEP and FirstEnergy an unfair competitive advantage for their less-efficient plants.
"I’m outraged by it because they’ve made…have made some very poor business decisions which have left them with outdated, dirty plants. From an environmental standpoint these plants are a mess and they should be shut down.”
The Governor's position
The PUCO is holding hearings on the plans this month. Last month Gov. John Kasich said he has no official stance and leaves it up to the commission. However, the governor, who appoints the commissioners, called for the PUCO to take a close look at all the facts and suggested this decision can determine the landscape of utility oversight moving forward.
“As we deregulated everything a long time ago it was based pretty much on a theory and so the question is where does this shift in terms of what is practical here in the state to make sure that we’ve got a stable system.”
The bottom line for consumers
The Ohio Consumers’ Counsel is projecting that the average AEP customer could see an increase of up to $700 on their electric bills over the course of eight years. For FirstEnergy customers, the estimate is $800. These plans would end after eight years but the utilities could come back and ask for approval again.
AEP’s plan promises to shut down three of their coal units by 2030. But environmental advocates say, without the help from ratepayers, those plants would close much sooner.