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FERC revokes affiliate waivers; Ohio PPAs must be submitted for approval

FERClate on April 27 revoked waivers of affiliate power sales restrictions thatwere granted to FirstEnergyCorp.'s and AmericanElectric Power Co. Inc.'s Ohio utilities. As a result, thecontroversial affiliate power purchase agreements that are the centerpiece ofan Ohio generation subsidy plan will have to be filed with FERC, and the agencywill have to approve them before they can be implemented.

The PPAsare designed to provide income guarantees to FirstEnergy's and AEP's Ohioutilities for their share of the output from certain "vital" powerplants that face economic challenges. The cost of the eight-year subsidy planswill be recovered through a nonbypassable "rider charge" assessed toall end-use customers in FirstEnergy's and AEP's Ohio service territories,regardless of whether they take retail service from those utilities.

Essentially,the plans require FirstEnergy and AEP to bid the subsidized units into thePJM InterconnectionLLC's markets and then recover any difference between the marketprice and the PPA price from retail customers through the nonbypassable ridercharge.

to the PPAs has beenfierce and vocal, but the Public Utilities Commission of Ohio neverthelessapproved the subsidyplans March 31. However, the PUCO decision did not end the controversy as thePPAs were the targets of two complaints filed at FERC in January by a group ofstakeholders led by the Electric Power Supply Association.

Inthose complaints, EPSA asked that FERC rescind waivers of its affiliate powersales restrictions, which were previously granted to the AEP and FirstEnergyutilities pursuant to their blanket market-based rate authorization, so thecommission can review the PPAs to determine whether they are just andreasonable.

FERCgranted the waivers assuming the utilities had no ability to pass the costs ofaffiliate agreements through to captive customers, but the establishment of thenonbypassable rider charge — which would be applicable even to those takingretail service from competitive retail suppliers — changes that, EPSA said.More generally, EPSA expressed concern about the price distortion that couldresult from the subsidized plants' output being bid into PJM's markets.

Thefederal agency has now agreed with EPSA. In granting the two complaints, FERC that the nonbypassablecharges associated with the PPAs is a reportable change in circumstances fromthe conditions under which the commission agreed to waive the affiliaterestrictions.

FERCacknowledged that Ohio ratepayers have the ability to choose one retail supplierover another, but said AEP's and FirstEnergy's Ohio retail ratepayers arenonetheless captive because they have no choice but to pay the nonbypassablegeneration-related charges incurred under the PPAs irrespective of their retailprovider.

Assuch, the commission said the nonbypassable charges could result in theinappropriate transfer of benefits from captive customers to the utilities'shareholders "and, thus, could undermine the goal of the commission'saffiliate restrictions."

"Retailchoice protects customers from affiliate abuse only to the extent they have achoice to undertake generation costs. Where, as here, circumstances demonstratethat a retail customer has no choice but to pay the costs of an affiliatetransaction, they effectively are captive with respect to thetransaction," FERC stated.

Thecommission therefore directed AEP's and FirstEnergy's Ohio subsidiaries torevise their market-based rate tariffs within 30 days to clarify that affiliatesales restrictions will apply to the PPAs, and to file a "notice of changein status" to address whether the change in circumstances affects anyother waivers that FERC has granted.

Ifthe utilities want to proceed to make sales under the PPAs, they will have tobe filed at FERC, which would then review them under its so-called Edgar andAllegheny standards in a process that will take many months to complete.

Indoing so, FERC said that its decisions "do not frustrate or usurp the Ohiocommission's role in protecting retail customers." But it also stressedthat it has an independent duty to ensure that wholesale sales of electricenergy and capacity are just and reasonable and to protect against affiliateabuse.

Finally,FERC dismissed as beyond the scope of the proceedings any claims that the PPAscould have potential adverse effects on PJM's markets. "The sole questionbefore us … is whether respondents' waiver of the affiliate sales restrictionsshould be rescinded in light of changed circumstances," the commissionstated. (EL16-33; EL16-34)