FirstEnergy, AEP seek regulatory relief from falling sales, rising costs

Dive Brief:

FirstEnergy has asked the Federal Energy Regulatory Commission (FERC) to void the demand response portion of May’s capacity auction by grid operator PJM Interconnection because demand response drives down the price and volume of utility electricity sales, reducing its revenues.
American Electric Power (AEP) has asked the Public Utilities Commission of Ohio (PUCO) for power purchase agreement riders that would allow it to pass the extra costs of operating antiquated and expensive coal plants to consumers.
Both cases raise the question of corporate separation because owners of generation facilities like FirstEnergy and AEP have an interest in covering their costs and making a profit while Ohio law requires them, as regulated monopoly utilities, to procure and sell energy services to their customers as cheaply as possible without sacrificing reliability.

Dive Insight:

PJM’s annual May auction put the 2017/2018 price for capacity, which is guaranteed-available generation held ready by power producers for utilities, in Ohio and most of its territory at $120 per megawatt-day (MW-day).

Demand response, like energy efficiency, can help meet projected energy needs at very little cost because customers are rewarded with lower rates for peak power cutbacks. Because nuclear and other higher priced generation is less likely to be purchased in an auction than demand response, some grid operators limit the amount of it. First Energy’s appeal to FERC was that demand response should not be in capacity auctions because its impact on the electricity price makes operation of hard assets like nuclear and coal uneconomic.

Instead of contesting the auction that drove prices down, AEP wants Ohio regulators to let it pass on the resulting high price of operating old coal plants to ratepayers. The proposed Power Purchase Agreement Rider would apply initially to plants owned by the Ohio Valley Electric Corporation but AEP is expected to eventually seek an expanded rider covering other plants. PUCO staff, the Office of the Ohio Consumers’ Counsel, and consumer and environmental groups oppose the rider.