Dive Brief:

• The Federal Energy Regulatory Commission on Jan. 12 unanimously rejected an attempt by utility and coal generator FirstEnergy to transfer a struggling coal-fired power plant to its regulated utilities in West Virginia, where it would receive cost recovery. 
• FirstEnergy sought to sell the 1,300 MW Pleasants Power Station, owned by its subsidiary AE Supply, to its utility companies Mon Power and Potomac Edison for $195 million. The utilities argued the plant was needed to meet a capacity shortfall and that West Virginia regulators would review the transaction to avoid cross-subsidization and undue costs to ratepayers. 
• FERC ruled that state regulatory measures were not enough to prevent cross-subsidy issues and that the FirstEnergy utilities had not properly compared the plant with alternatives. FERC said the utilities should run open solicitations to meet their expected capacity shortfall. 

Dive Insight:

On Friday, FERC dealt Ohio-based FirstEnergy its second setback in a week, unanimously rejecting its plan to transfer a struggling merchant coal generator in Ohio to two of its regulated utilities in West Virginia, allowing ratepayers to cover its costs. 

The utilities said the plant was necessary to meet a capacity shortfall identified in their 2015 Integrated Resource Plan. But critics of the proposed plant transfer, including the West Virginia consumer advocate and PJM Independent Market Monitor, argued the plan was designed to make power customers shoulder the costs of an uncompetitive coal plant. 

FirstEnergy, they argued, tailored the requirements of its resource solicitation so that they unfairly benefited the Pleasants Power Station, making the nearly 40-year-old coal plant seem more competitive than alternatives. 

"AE Supply offered the Pleasants Facility for $195 million, while [FirstEnergy utilities] state that the next closest offer was for $1.66 billion," the decision reads. "PJM Market Monitor maintains that such a significant cost disparity suggests that the products were not comparable, and that no comparable offers means that the application of proper evaluation criteria cannot be demonstrated."

FERC sided with the critics, ruling that the solicitation "excessively favors existing, older generation resources with low upfront costs but potentially high maintenance costs in subsequent years."

"While we appreciate and recognize Mon Power’s legitimate need to address a potential capacity shortfall and to provide for its future capacity and energy needs," FERC wrote, "it should do so in a way that provides non-affiliate competing suppliers with the same opportunity as an affiliate to meet the utility’s needs."

This is not the first time FERC dinged FirstEnergy for cross-subsidization — using regulated businesses to subsidize or shield unregulated assets from market forces.

In 2016, FERC blocked power purchase agreements that would have supported aging FirstEnergy and AEP coal plants in Ohio, ruling they could violate federal market rules on affiliate abuse. FirstEnergy appealed to Ohio regulators for financial assistance and won more than $200 million, later upheld by the state Supreme Court after challenges from environmental groups. 

Earlier last week, FERC also rejected a Department of Energy proposal to provide cost recovery to plants with 90 days of fuel supply onsite. FirstEnergy was a main backer of the proposal, meeting with White House and FERC officials to shape the subsidy plan, and said the decision leaves its merchant plants vulnerable.  

FirstEnergy expressed its disappointment in FERC's decision in an email to Utility Dive.

"We are disappointed by FERC’s order, and believe the decision does not recognize the benefits this vital transaction would bring to our West Virginia customers, including reliable electricity and reduced electric rates, along with creating additional benefits for West Virginia’s economy," Todd Meyers, a spokesman, wrote in an email. "We will thoroughly review FERC’s order, and carefully evaluate our next options."