Dive Brief:

• Regulatory staff at the Public Utilities Commission of Ohio (PUCO) have recommended regulators reject American Electric Power's (AEP) plan to guarantee profits from its aging coal-fired plants in the state, the Columbus Dispatch reports. 
• The recommendation does find, however, that the deal could be structured in such a way as to benefit the state's electricity consumers.
• Staff last month issued a similar finding for FirstEnergy, recommending that PUCO deny a Power Purchase Agreement (PPA) proposal that would guarantee income at a coal and nuclear plant for 15 years.

Dive Insight:

The tug-of-war between environmentalists, industry groups and utilities in Ohio over two power plant subsidy proposals from the state's biggest power producers has evolved into one of the most high-profile cases in the power sector.

Increased competition from natural gas and renewables in wholesale markets have sparked worries from utilities over the longevity of their coal and nuclear fleets. Both utilities, AEP and FirstEnergy, worry grid reliability will be at risk if Ohio's power mix leans too much toward natural gas and renewable energy. 

Now PUCO staff have again recommended that regulators reject PPAs that would guarantee profits from older power plants.  While the commission often follows those recommendations, there's no mandate forcing them to. The staff's report appears to include a caveat that could open the door for the deal to be proposed again if it was restructured to benefit electrical consumers. 

If the commission adopts a similar stance, that may set a precedent that would allow regulated utilities to sign PPAs with their unregulated geeration arms if they are found to be in the public interest.

"Staff recommends that the commission deny [AEP's proposal] as it is currently proposed,” Hisham Choueiki, a senior energy specialist for PUCO, wrote in staff's testimony. “However, it is possible that the [proposal], if properly conceived, may be in the public interest.” 

Choueiki also submitted the staff decision for FirstEnergy, which incorporated a number of suggestions to improve the proposal. 

AEP Ohio President Pablo Vegas has previously said his company may be willing to compromise on the arrangement, especially on the duration of contracts. In the recommendation against FirstEnergy's similar proposal, PUCO staff said the generator's 15-year proposal was too long and instead wrote the arrangement should be shortened to three years.

Vegas responded to staff's report for FirstEnergy last month, saying he is open to altering AEP's proposal, but also said staff's proposal was too short.

“It’s not enough certainty to make investments," he told Columbus Business First. “I think the time can be compromised on but not as much as that staff suggested.”

AEP had proposed agreements at four plants, including W.H. Zimmer, J.M. Stuart, Conesville and Cardinal, and for the company's share at Ohio Valley Electric Corp, which has two plants.

Opponents of the plan, including large commercial and industrial customers and environmental groups, call the proposals "bailouts" for aging coal plants, and question their ability to operate in the state's deregulated market. The utilities argue the facilities are crucial to reliability and protect against an over-reliance on natural gas.