Does anyone remember “as sands through the hourglass, so are the Days of our Lives”? This is what it seems to be as the “Battle in the Buckeye State” has become with FirstEnergy and AEP Ohio and the approval of their respective rendering of the PPA’s. What had captured national attention from investors and regulators watching from the wings has now garnered the attention of the Feds. Specifically, the Federal Energy Regulatory Commission (FERC). The approval by our PUCO has now been put on hold by FERC for additional review and scrutiny for various reasons.
What seems to be at the heart of the issue is that both proposals put the consumers into a position that they are not able to mitigate or get out of having to pay (non-bypassable) charges that these PPA’s would have triggered.
For those of you who had money on the Final Four tournament, the Masters or the passage of the new ESP for FirstEnergy or the PPA filings in AEP, my guess is we all came up a little short. Not to mention what the impact will be going forward over the next 8 years. Only time will tell.
On March 31st, Ohio regulators approved the “income guarantees” for a number of AEP’s coal fired generation plants and FirstEnergy’s Davis Besse nuclear facility, a coal facility (Sammis) and their share of OVEC (Ohio Valley Electric Cooperative).
The PPA portions for both utilities, according to them, not only stabilizes rates, and provides job security but also guarantees their rate of return on their assets for the next 8 years. We will have a clear picture in 9 years! As a side note, DP&L is preparing their PPA proposal so those in that market area probably will not be left out!
Every rate payer within their respective service territories [AEP Ohio & FirstEnergy Ohio] will be affected, whether supply is taken from a supplier or directly from the utility. The charges (or credits) are unavoidable and non-bypassable on the distribution side of the bill meaning we all get to share equally.
Here are some links to the official PUCO comments:
Over the past couple of years, we have seen electric suppliers’ fixed rate offerings devolve into agreements that are less and less fixed. The Public Utility Commission of Ohio recognized the broken “fixed” rate situation, and this past November mandated guidelines for electric contracts being marketed as fixed.
We initially reported this development in our last newsletter, but what about the underlying issues that led us here, and what should customers expect going forward?
The Roots of Pass-Through Charges in Fixed Rate Contracts
Occurrences over the past few years, such as the 2014 Polar Vortex and the 2015 PJM capacity performance reform, have encouraged suppliers to adopt clauses within their agreements to protect them from the financial risks of events outside of their control. These clauses allowed suppliers to pass-through additional costs to fixed rate customers based on certain events, potentially making the rate not so fixed. Regulatory change clauses have become common among the majority of supplier contracts, as it protects and allows them to pass through cost increases based upon unforeseen governmental or regulation changes.
The devolution from supplier protection to price manipulation
In a free market, businesses must often adapt or die, and this has been true of the deregulated electric market. Suppliers who have become less competitive, have had to make business decisions into finding ways to lower their rates to appear in line with their competitors. Until this past November, there was little regulation to these pass through clauses within fixed price agreements. This created opportunities for noncompetitive suppliers to further broaden language within their fixed price agreements. In doing so, these suppliers were able to move risk to the customer and shave costs off of their quotes, making their rates seem more appealing. Material adverse change clauses allow rates to be adjusted or costs to be passed through based on component costs that are not yet realized, or even ones that are likely to change. Examples of such would be changes in initial contracted amounts of usage and/or capacity obligation (PLC’s).
Is the fixed price issue fixed?
The PUC’s new “fixed means fixed” guidelines are now active as of January 1st, 2016. While the commission attempted to make buying electricity less cryptic and deceptive for customers, the only real change we expect to see is the title of supplier offerings, formally known as “fixed”. For the most part these programs are suppliers’ standard offers, and whether they are now named Fixed Introductory, All Inclusive, Fully Bundled, Full Requirements, what have you, nothing has really changed, and the nature of power buying will still be as confusing for customers as before.
What’s important to take away from all of this is the same issues of evaluating; what’s included in a supplier’s rate, what’s missing, what could be passed through, all are expected to continue. A trained monkey can give you a piece of paper and point you to the lowest rate, but now more than ever it’s imperative for customers to understand the lowest rate may not be the lowest cost option.
FirstEnergy’s and AEP Ohio’s Power Purchase Agreements (PPA) are currently pending approval by the PUCO. If approved, it will guarantee the utilities a 10% rate of return (wouldn’t you like to earn a 10% Return on your money) and add unnecessary (in our humble opinion) charges to your electric bills that you can’t control.
Why should we bail out First Energy and AEP for their bad business decisions and insulate them from competition? The proposals force us, the consumer, to pay for their old, outdated and inefficient power plants.
To take a stand I encourage you and anyone with an electric bill to visit the FIGHT THE HIKES WEBSITE and voice your opposition of these PPA’s. Simply click on the “ACT Now” button to have your voice heard by the Governor, your state senator and representative, the commissioners and chairman of the PUCO.
The issue shouldn’t be about what’s best for utility companies and their shareholders, but what’s best for all Ohioans. It’s not about reliability. If you have any questions please contact me, Huck Hayes at 866-646-7322.
In March 2014, the Public Utility Commission of Ohio (PUCO) became aware that electric suppliers have been including pass-through clauses in their supply agreements. Such clauses allow the supplier to pass through to the customer cost changes for certain events. A prime example was FirstEnergy’s RTO charges that were passed-through, even on fixed price contracts.
As a result, there were concerns that permitting pass-through clauses in a fixed rate contract confuses customers. This contract language made it difficult for consumers to compare other fixed rate offers that didn’t contain such clauses.
As we have advised customers forever, lowest price should not be your sole deciding factor. One needs to know what the contract language is telling you.
Remember the BIG print giveth and the SMALL print taketh.
After hearing all the supporting arguments to include or exclude pass-through language, the PUCO has come to the conclusion that all electric supplier contracts, whether residential, commercial or industrial, “fixed” should mean “fixed”. As such, supplier contracts going forward, may not include a pass-through clause in a contract labeled as “FIXED RATE”.
This does not eliminate suppliers from continuing to offer products that contain pass-through provisions, it just means they must alter the contract label to “variable or introductory rates”
The PUCO recognizes that regulatory out clauses are included in supplier contracts as a means to pass-through charges that they have no control over. The PUCO believes these clauses should be available in very limited circumstances and clearly spelled out in plain language.
Moving forward under the new fixed means fixed guidelines, if the supplier wants to revise its pricing, they must inform the customer by proposing a new contract price. If the customer agrees to the revised pricing, the contract remains in place under the current contracted terms.
However, if the customer would “reject” the revised agreement, the customer would be permitted to pursue default service or other supply offerings without being subject to penalties.
These changes are intended for any new contracts and the PUCO noted that this order makes no ruling with respect to existing contracts.
The implementation for the PUCO finding, suppliers shall have until January 1, 2016 to bring all contracts into compliance with the “fixed means fixed” guidelines.
If you have missed all the happenings going on at the PUCO over the last few months, FirstEnergy’s PPA (Power Purchase Agreement) has been negotiated with and approved by the PUCO staff. As of this writing, the agreement is expected to be signed by the commissioners early in 2016 (and take effect starting June 1, 2016). The AEP filing approval is not far behind.
The FirstEnergy PPA was originally proposed as a 15-year arrangement as a means to keep viable some of the legacy generation assets (coal and nuclear) with a guaranteed rate of return. The Retail Rate Stability Rider (RRS) of the PPA returns First Energy Solutions generation facilities (Davis Besse, Sammis and their share of OVEC) to a “cost plus” regulation where they are guaranteed to cover the costs with a “reasonable” rate of return.
These plants are not able to compete with low cost natural gas produced electricity in the market. The PUCO accepted a negotiated plan of 8 years to begin in June 2016 and expire in May 2024. As the wholesale market has changed, the utility system(s) had to come up with “innovative” ways to keep operating their facilities and it looks like everyone in the FirstEnergy (and AEP) footprint will see increased distribution costs passed along to them. This ruling, if approved, will have no effect on your ability to participate or secure your power on the open market.
When all the dust settles and no matter the “spin”, this is a shift from de-regulation to, at least for now, partial re-regulation. According to FirstEnergy’s analysis, this program will “save” consumers $590 Million – the Ohio Consumers Council independent study asserts it will cost us $3.9 Billion, this is quite a spread. Now more than ever, we as consumers in Ohio need to make our collective voices heard.
Write/Call/Email – Since the first word of the acronym for the PUCO is Public, as ratepayers within the great state of Ohio, if we collectively express our displeasure with the pending approval of the PPA, maybe we will be heard. Not all that long ago, in the AEP market after a rate plan went into effect, there was a public outcry. The PUCO reversed their decision and had AEP return to their prior rate structure until a new and more “reasonable” plan was adopted. Can history repeat itself?
Update: New hearings have been set by an administrative judge at the PUCO regarding FirstEnergy’s PPA to begin on January 14th with no timeline announced for conclusion. The AEP PPA was approved by staff at the PUCO on 12/14/2015 but still has to be signed off by the commissioners.