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FirstEnergy expects FERC to deny complaint tied to Ohio subsidies

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FirstEnergy expects FERC to deny complaint tied to Ohio subsidies

executivescontinue to stand by their belief that FERC will a complaint tied to theirrecently approved planto have customers subsidize "key" economically challenged powerplants.

ThePublic Utilities Commission of Ohio votedunanimously March 31 to approve modified subsidies for nearly 6,000MW of primarily coal-fired generation owned by subsidiaries of FirstEnergy andAmerican Electric Power Co. Inc.

Powersuppliers, however, argue the agreements will force captive customers "tofund a massive bailout"of AEP and FirstEnergy's competitive subsidiaries andFirstEnergy Solutions Corp.They want FERC to rescind certain waivers it previously granted to AEP andFirstEnergy's subsidiaries tied to affiliate power sales restrictions. (EL16-33and EL16-34)

"Webelieve FERC should affirm the waiver that is already in place,"FirstEnergy President and CEO Charles Jones Jr. said April 27 on the company'sfirst-quarter 2016 earningscall. "FES was granted authorization from FERC to conduct certaintransactions with our Ohio utilities in 2008. Our is one of thosetransactions. It was carefully constructed from the beginning to comply withexisting FERC rules that promote customer shopping for retail energy supply andit will not hinder the PJM market's ability to function and foster competition."

Suppliersalso have filed a complainturging FERC to protect PJMInterconnection LLC capacity markets from by extending PJM'sminimum offer price rule, or MOPR, to existing resources to ensure they aren'treceiving above-market revenues. (EL16-49)

"Wedon't believe there's any reason for our PPA units to be treated differentlythan any of the other regulated generation in PJM," Jones said. "It'sno secret that a significant amount of generation, both regulated and merchant,has been offered into prior PJM options with price-taking behavior. Some ofthese complainants are likely in that group of suppliers. What they are askingFERC to do is essentially have FirstEnergy protect them from themselves."

Jonessaid FirstEnergy does not expect FERC to impose a "price floor" onthe PPA units for the upcoming PJM capacity auction, set to begin May 11.

Inresponse to an analyst's question about the company's bidding behavior, Jonessaid FERC can look at how the company has bid its regulated West Virginiaplants as an example of how it will likely treat the PPA units.

"Ithink there's a lot of rhetoric going on about how these PPAs might affect thecapacity market. It's nothing but rhetoric," Jones said. "This PPAhas no impact on the PJM market whatsoever."

FirstEnergyExecutive Vice President of Markets and Chief Legal Officer Leila Vespoli addedthat she believes if FERC granted the waiver complaint, it would go againstlegal precedent established with the 2008 waiver in which the commissiondecided "not to look behind the screen" to what states are doing anddid not find customers to be captive.

"Andif you look at the MOPR complaint, there are a lot of parties that weighed inwith a lot of different potential remedies and I don't think they're going tofall prey to the hyperbole, especially out there by , that there's a burningplatform, that there's imminentdanger. But they're going to want to act to give clarity and taketheir time and look at this," Vespoli said.

"Frommy standpoint, I think they're going to want to act on the waiver. I think they'regoing to deny the complaint because I think to do otherwise would beinconsistent with past precedent," she added, noting FERC can address theMOPR complaint through the stakeholder process before the 2017 BRA auction.

Inaddition, FirstEnergy expects the PPA to survive "subsequent challenges"that could be filed at PUCO and the Ohio Supreme Court.

FirstEnergyitself plans to file an application for rehearing with PUCO before May 2 toseek "clarification" on the ruling, Jones said. AEP also has signaledits intent to file a motion for rehearing to address modifications to itssettlement agreement.

Ready for auction, guidanceon hold

FirstEnergy'sregulated Ohio utilities are moving forward with from the2,210-MW W.H. Sammiscoal plant and 908-MW Davis-Bessenuclear plant into PJM as of June 1 under their eight-year agreement with FES,according to Jones. Customers will receive rate credits or charges to offsetpower purchase costs. Jones added that FirstEnergy is "holdingoff" on issuing guidance for second-quarter operating earnings pending theoutcome of FERC's decision on the subsidies.

"There'sa lot of speculation out there that they'll make a decision before the May[Reliability Pricing Model auction]," Jones said in response to an analyst'squestion about a FERC delay impacting guidance. "That doesn't bother me somuch, if they don't, because a lot of the opponents' cases [are] suggestingthat we're going to do something inappropriate in how we bid these units. Andonce they see how we bid these units, then I think that will diffuse a lot ofthat argument. So, if [FERC] waits until after the RPM, that wouldn't bother metoo much."

TheCEO, however, said the company would issue earnings guidance if FERCproceedings drag on.