The Public Utilities Commission of Ohio could wrap up hearings today, looking into FirstEnergy's plan to continue operating a pair of aging power plants and an eight-year settlement surrounding the proposal. But once the hearings wind down, it may still be months before an order is issued, and given events in the past few weeks it is not clear what will happen.

On the table is an eight-year settlement designed to keep two power plants operating: the Davis-Besse Nuclear Power Station in Oak Harbor and the W.H. Sammis coal-fired plant in Stratton. While consumers would pay more up front, FirstEnergy believes they save hundreds of millions over the length of the deal, while the plants stay open.

Waiting in the wings, however, is a pair of offers from Exelon and Dynegy that could upset the deal. The generators say they can offer Ohio power so much cheaper that consumers will save at least $2 billion, while allowing competitive markets to function.

And of course, some parties support neither option. There are 16 signed onto the settlement – utilities, regulatory staff, consumers and a demand response provider – but not present is Earthjustice, which is representing the Sierra Club in the case. Despite calling for more renewable energy, the environmental groups say the “bailout” of older plants can't be supported.

American Electric Power is pushing a similar income guarantee arrangement for four of its older coal-fired power plants, and has reached a settlement with multiple stakeholders, including the Sierra Club, to develop 900 MW of renewable energy and convert some coal units to natural gas. Those hearings are ongoing, but Exelon and Dynegy say they their offer applies to the AEP proposal as well.

“Our proposal provides a lot of benefits that an outside supplier cannot provide,” said Doug Colafella, a spokesman for FirstEnergy.

FirstEnergy: 'Our plan is about keeping Ohio plants operating'

FirstEnergy is proposing power purchase agreements that would guarantee income for the pair of power plants, allowing them to continue to operate. That would require customers to pay about $3.25 more per month in the first year of the deal, but the company says they will save more than $560 million over the life of the arrangement, in part due to expected increases in retail power prices, fueled by expected increases to natural gas costs.

The settlement also provides for more than $102 million to help low-income customers with bill payment and energy efficiency programs, economic development funding for Ohio communities and commitments to reduce carbon emissions across FirstEnergy's six-state territory.

“We really feel like our plan offers the most benefits for Ohio,” Colafella said. “We've made a significant carbon reduction goal in the plan, it keeps Ohio plants operating, and there are a lot of benefits an out of state provider can't bring. Our plan is about keeping Ohio plants operating.”

FirstEnergy has agreed to reduce carbon dioxide emissions across the company's footprint by at least 90% below 2005 levels by 2045, a goal the utility said represents a potential reduction of more than 80 million tons of CO2 emissions.

Other aspects of the settlement include: preserving $1 billion in annual statewide economic benefits, holding onto 3,000 jobs directly and indirectly supported by the plants, a future commitment to evaluate smartgrid technologies, and to examine energy efficiency and renewables as part of a resource diversification plan.

“Our plan really addresses a couple of key policy goals in Ohio,” Colafella said. Among those: economic development and energy security.

“One of the nice things about our plan is the ability to maintain baseload coal and nuclear power. We believe it's important to maintain diversity of supply. It keeps prices stable over the long term,” Colafella said. “Dynegy's plan really doesn't address this, and obviously Exelon doesn't own plants in Ohio. On both points, those offers don't fulfill a couple of key policy goals.”

Competing proposals could derail settlement

Sensing opportunity in the contentious subsidy hearings, both Dynegy and Exelon moved in.

Exelon is the largest nuclear generator in the country, but it does not own generation in Ohio. Still, the company said it believed it could sell 3,000 MW of carbon-free generation into the state – and at $2 billion cheaper than FirstEnergy's proposal.

Dynegy, which owns more than 5,400 MW in the state, said it could provide the necessary power at a savings of up to $2.5 billion, and made an offer in American Electric Power's ongoing PPA case as well. Dynegy called the proposed power agreements “exorbitant and counter-productive subsidies” that provided little benefit in exchange for out of market rates.

“At the proposed rates, Dynegy could replace the plants being subsidized under the FirstEnergy and AEP PPAs by building 6,300 MW of new, clean natural gas powered generation in Ohio, bringing new jobs to the state, increasing economic activity and development, and providing reliability and resource adequacy for decades,” the generator said in a statement.

Dynegy has not made a formal filing in the AEP case, and FirstEnergy's Colafella said it is not clear if the commission would allow it at this point. 

Micah Hirschfield, managing director of communications for Dynegy, said at this point the company does not have more to add to its statement but “we do believe it remains and will continue to be superior and better for Ohio than the proposals AEP and FirstEnergy have filed.”

Dynegy has threatened to sue if regulators approve the FirstEnergy or AEP subsidies, and its CEO called on regional and federal officials to intervene if the proposals go through.

“I certainly hope PJM is going to defend its market," CEO Bob Flexon said at a recent power conference, "and I certainly hope FERC is going to step in and say ‘You can’t do that.”

For Flexon, what's at stake is the integrity of the PJM market. The key to its success, he said, is that it doesn't mix vertically-integrated, regulated utilities with independent power producers in the same competitive market. Other markets, like SPP or MISO, he said, have both fully-regulated utilities and independent producers.

“Mixing in those two models creates a real disadvantage for competitive generators,” he said. “You either need to be regulated company or an unregulated company. You can’t have a market that starts combining these things.”

The FirstEnergy proposal, he told the audience, “tears away the competitive fabric of the market.”

Paul Adams, media relations manager for Exelon, said the company is a strong supporter of competitive markets and is simply “advocating for a competitive bidding process for any power purchase agreement, should the commission decide that such an agreement is needed.”

But the company also points out that it does not actually support the power purchase agreement strategy – but it wants to supply the power, should Ohio regulators go in that direction. The company filed testimony by Lael Campbell, Exelon's director of regulatory and governmental affairs, saying the company “opposes the FE PPA and a process where a company’s regulated and unregulated businesses craft a self-serving agreement that is not tested by competition.”

Campbell told regulators that Exelon was “taking the unprecedented step of committing to offer into that competitive process at a price level that will guarantee billions in savings so that no one can misunderstand the gravity of the harm that would to Ohio customers if the commission approved the stipulation without an appropriate competitive process.”

Earthjustice: First Energy failed to consider the market

The settlement FirstEnergy reached includes a range of parties, including the Consumer Protection Association, City of Akron, large consumers, the Ohio Energy Group and of course the FirstEnergy utilities.

But absent from the list are environmental groups. “We've opposed the FirstEnergy proposal from day one,” said Shannon Fisk, managing attorney of the Earthjustice's coal group.

Fisk said there are several reasons Earthjustice is opposed, including of course the continued use of coal. But the utility has been cagey in its answers, Fisk said. “FirstEnergy has refused to say these plants would definitely close.”

What needs to happen is for parties to develop “an orderly way to transition away from struggling plants to better types of energy. But that's what is not happening here,” Fisk said.

As for the generator proposals, Fisk said they show FirstEnergy failed to do its homework. “One of the many flaws with FirstEnergy's proposal is, they didn't go to the market and look at whether what they're offering is competitive. … Ohio was transitioning to market-type power, and this would be a huge step backwards.”

An order is expected out sometime in mid- to late March.

Correction: An earlier version of this post stated that Earthjustice is representing the Sierra Club and the Chesapeake Climate Action Network in the FirstEnergy case. That is incorrect. Earthjustice is representing the Sierra Club in the case.