By Cassandra Sweet
What should electric companies do with money-losing power plants
when there is more than enough electricity available to satisfy
day-to-day demand?
The answer isn't to close the unprofitable plants, say two of
the nation's biggest electricity producers, but rather to shift the
financial burden to consumers.
American Electric Power Co. and FirstEnergy Corp. say they don't
make enough money selling the power from seven old, coal-fired
generating stations and one nuclear plant in their home state of
Ohio. They have set off a firestorm of criticism by proposing that
consumers and businesses in the state should cover the cost of
operating the plants.
The power companies argue they need to keep the surplus
production capacity to make sure there is enough electricity when
consumption spikes--such as during heat waves and blasts of Arctic
cold.
But consumer advocates, environmental groups, industry rivals
and some of Ohio's big electricity users, including Wal-Mart Stores
Inc., don't buy it, and the staff of the state's Public Utilities
Commission has recommended rejecting the companies' request.
Critics say the proposal could add as much as $600 million a year
to customers' utility bills over 15 years and give AEP and
FirstEnergy an unfair competitive advantage.
Ohio regulators are expected to make a decision by March.
The Ohio battle is the latest chapter in a nationwide debate
over who should foot the bill for power plants that could provide
an extra margin of security during periods of extreme weather. It
also shows how newer plants that burn cheap natural gas are
reshaping the economics of producing electricity in many markets,
putting a squeeze on aging coal and nuclear plants.
That is particularly true in Ohio and roughly a dozen other
states where power plants compete against one another to offer the
lowest-price electricity to the grid and utilities aren't locked
into buying power from a particular producer. In many other states,
power markets are regulated, with producers selling electricity to
their customers at prices monitored by regulators.
Columbus-based AEP has shut down two Ohio coal plants and plans
to switch to natural gas to generate power. But the company's older
coal units will be necessary for several years to prevent power
outages, said Nick Akins, the company's chief executive.
"You're looking for state backup to support these units running
for a period of time until you can make the transition" he
said.
The company, which delivers electricity to households and
businesses in the state though its Ohio Power utility unit, wants
those customers to pay its share of the costs of operating and
upgrading six coal plants it co-owns.
In return, the utility would get AEP's share of the power from
the plants, which it would sell in the wholesale market. That would
be a money-losing proposition under current conditions, but AEP
says wholesale power prices are bound to rise in the future, and
utility customers would recoup the costs.
AEP's plan would cost its customers $3 billion to $4 billion
over the first decade, according to the Sierra Club, which opposes
the plan because of concerns about pollution from the coal
plants.
If regulators don't go along, AEP says it might sell its shares
in the plant. The company, which owns utilities in 11 states,
reported a 5.2% increase in third-quarter profit to $519 million,
but its revenue from selling power on the open market fell 7% from
a year earlier.
Akron-based FirstEnergy says it would probably have to shut down
a large coal plant south of Youngstown and a nuclear plant near
Toledo if it can't get the financial help it is seeking from
utility customers.
"We wouldn't have proposed something like this if they weren't
at some degree of risk," said Bill Ridmann, a vice president at
FirstEnergy.
FirstEnergy's plan would cost its customers $3 billion over 15
years, according to Bruce Weston, the state Consumers' Counsel, who
represents residential utility customers in regulatory and court
proceedings.
Last month, FirstEnergy reported third-quarter profit of $395
million, up 19% from a year earlier, but revenue at its unregulated
power-plant business fell 6% to $1.3 billion.
The Ohio Energy Group, which includes large industrial energy
users such as Ford Motor Co., support FirstEnergy's plan, saying
customers will benefit in the long term. The group's lawyer,
Michael Kurtz, said it doesn't support AEP's proposal because the
plan would allow AEP to earn a profit of as much as 16% on
investments in the plants, even if they lose money.
Ohio residents currently pay about 12.6 cents a kilowatt-hour
for electricity, up 3% from a year ago, but slightly below the
national average, according to federal data.
Meanwhile, the amount of power generated has slipped 8% this
year through August, compared with a year earlier, according to
data from the Department of Energy.
Wholesale power prices in Ohio have averaged $46.44 a
megawatt-hour this year, down 27% from 2014. But AEP and
FirstEnergy predict that prices will jump as early as 2019,
allowing their utilities to make money from power sales, profits
which they can pass on to customers.
AEP estimates higher prices in the future will bring its Ohio
utility about $675 million over the first nine years, plus
additional profit through 2050, while FirstEnergy estimates its
utility customers will gain $2 billion over 15 years.
Write to Cassandra Sweet at cassandra.sweet@wsj.com
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(END) Dow Jones Newswires
November 16, 2015 14:27 ET (19:27 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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