Dive Brief:

• American Electric Power and FirstEnergy have submitted to federal regulators power purchase agreements approved by Ohio regulators last week, and they face opposition from generators and interventions from a host of other groups wary of the arrangements, RTO Insider reports. 
• Last month, Ohio regulators approved income guarantees for a group of coal plants and one nuclear plant through eight-year power purchase agreements, which must now clear federal scrutiny as well.
• RTO Insider reports Guggenheim Securities analyst Shahriar Pourreza is predicting AEP will sell the remaining 5 GW not covered by the agreements, as the company seeks a path towards a fully regulated business model.

Dive Insight:

If you thought the saga over power purchase agreements in Ohio was done, think again. AEP and FirstEnergy have submitted the agreements to FERC, where they will face familiar opposition and questions

After a year of contention, PUCO approved the proposals to guarantee income for eight years for some of FirstEnergy and AEP's nuclear and coal plants. While the companies argued the generation is necessary to ensure reliability and shield against future cost increases, opponents objected to subsidizing plants otherwise deemed uncompetitive in PJM power markets and took issue with the companies' cost projections.

Generators Dynegy and NRG Energy have asked FERC earlier this year to rescind a waiver allowing the AEP and FirstEnergy to engage in affiliate power transactions. And almost a dozen additional generators, RTO Insider reports, want PJM Interconnection to alter its minimum offer price rule to prevent the deal and other subsidizations.

Since PUCO approved the power purchase agreements last week, several parties have intervened at FERC, including: the Pennsylvania Public Utility Commission, the PJM Power Providers Group and CPV Power Holdings.

For FirstEnergy, the agreements keep two power plants operating: the Davis-Besse Nuclear Power Station in Oak Harbor and the W.H. Sammis coal-fired plant in Stratton. In AEP's case, the PPAs support Unit 1 at the Cardinal coal plant, Units 4-6 at the Conesville plant, Units 1-4 at the Stuart plant and Unit 1 at Zimmer. The PPAs would also cover the utility's contractual share of Ohio Valley Electric Corp. generation.

To limit impacts on customers, PUCO said they froze the utilities' base distribution rates for the eight-year term of the "electric security plan" for FirstEnergy's distribution utilities. For AEP, PUCO said they "incorporated additional safeguards for consumers through enhanced PUCO oversight including regular audits." 

The agreements, now approved, could help clear the way for AEP to transition to a fully-regulated business model, said Guggenheim Securities analyst Shahriar Pourreza.

In a research note reported on by RTO Insider, Pourreza said he believes AEP will divest its remaining 5 GW of generation. “We estimate the sale could generate $1.9 [billion to] $2.3 billion, which we expect to be redeployed into transmission to offset lost earnings,” he wrote.

FirstEnergy's balance sheet was sufficiently aided by the PPAs that it likely will not require additional equity. “We see FE as a turnaround story with the PPAs approved,” Pourreza said.