FirstEnergy is leaving the competitive power plant business, closing or selling all of its plants, including its nuclear plants, by the middle of next year.
Ohio, like many other areas, deregulated electric markets. So the Illuminating Co., Ohio Edison and Toledo Edison buy the power they deliver through an ongoing series of state-monitored auctions designed to obtain the lowest wholesale price.
FirstEnergy Solutions, the unregulated subsidiary of FirstEnergy which owns the power plants, competes in these state-monitored auctions. Sometimes it doesn't win even a portion of what the three delivery companies think they will need because of the heavy competition.
Additional power, if required, is also purchased from wholesale markets where day-ahead and hour-ahead competition determine the price.
Not all of FirstEnergy's customers buy power from the local delivery companies. Customers who have signed power contracts with outside suppliers, some many states away, would not be affected if a nearby FirstEnergy Solutions plant were closed.
In other words the power flowing second-by-second into homes and businesses here could have been generated anywhere in the region by any number of power companies.
PJM is the non-profit company charged with keeping the high-voltage grid stable and with making sure there is enough power minute-by-minute in Ohio and 12 other states from Illinois to New Jersey, Maryland and Washington, D.C. PJM has a lot to say about power plant closures. PJM can ask a company to continue to operate a power plant if it concludes the closing would jeopardize grid stability. The company can then go to the Federal Energy Regulatory Commission to ask for extra payments to continue operating.
In such cases, PJM provides the extra payments to the power plant owner as it did in 2012 when FirstEnergy announced that it would close a series of power plants on the lake, including the Eastlake plant. Customers paid those extra charges on the delivery side of their bills.
PJM required FirstEnergy to build a new transmission line from the Ohio River to Cleveland before it would approve the closings. Eastlake finally closed in 2015.
Closing any power plant means the layoff of employees and a loss of property taxes to local schools, and FirstEnergy is expected to make these kinds of arguments when it appeals to state lawmakers for a new kind of subsidy.
FirstEnergy's acknowledgement that it plans to sell or close its three nuclear plants came 24 hours after an Ohio lawmaker revealed that FirstEnergy is seeking what amounts to additional and unprecedented rate increases.
The money from these first-of-a-kind charges would be earmarked for Davis-Besse, located east of Toledo, Perry, located east of Cleveland, and Beaver Valley, northwest of Pittsburgh.
FirstEnergy is proposing that the state create a program awarding Zero Emission Credits (ZEC) to the three plants because nuclear reactors do not produce carbon dioxide or other combustion pollutants.
In other words, the state would give zero carbon emissions a financial value, just as it previously enacted laws giving a financial value to wind and solar power by creating renewable energy credits, or RECs, which power companies could buy if they did not own their own wind and solar farms.
But in this case, customers would pay directly for those credits -- called ZECs -- on the delivery side of their monthly bills.
If lawmakers approve the plan, consumers would see an estimated 5 percent increase in their monthly bills. Commercial and industrial customers would see bills increase by 5-to-9 percent to reflect the value of the millions of megawatts the nuclear plants generate.
The Zec program would give the company's nuclear fleet an increase of about $300 million a year, maybe enough to offset the losses competitors running gas turbine power plants have inflicted.
The gas units have driven down prices in competitive markets where The Illuminating Co., Ohio Edison and Toledo Edison buy power, the same markets the FirstEnergy Solutions power plants must sell into. In Ohio alone there are currently four large gas turbine plants under construction. Another seven or eight are seeking permits.
Even if the state creates a ZEC program to subsidize FirstEnergy's nuclear plants, the company acknowledges that it intends to try to sell them because it no longer wants to operate in competitive markets.
FirstEnergy wants to operate as a regulated utility -- with guaranteed rates of return for improving or expanding its local wires and distant high-voltage transmission line.
FirstEnergy made it clear then that unless Ohio would consider re-regulating, FirstEnergy would sell or close its old power plants and become a delivery-only company. Lawmakers have not shown any desire to tackle re-regulating the state. Such a legislative move would take years, not the 18 months the FirstEnergy wants.
The company's background materials accompanying Wednesday's financial report show that FirstEnergy Solutions has a total value of$1.6 billion But the subsidiary carries a long-term debt of $3 billion. The nuclear power plants are now valued at $900 million -- with a debt of about $1.3 billion, the documents show.
The new charges would be "non-bypassable," meaning a customer could not avoid the ZEC charges by purchasing power from another supplier.
The Ohio ZECs would be similar to a program Illinois created last fall to assist nuclear plant owners there. Opponents immediately sued in federal court, claiming an unconstitutional subsidy because the state is deregulated and power prices are set on competitive markets.
A piecemeal state-by-state ZEC program to bail out nuclear plants could pose a problem for PJM. The PJM believes such a program would be more cost effective if done on a regional basis rather than one state at a time or one plant at a time. It would also spread out the costs. (Cleveland.com, The Plain Dealer, 2/22/2017)