Thewar of words over generation subsidy plans for units of and isheating up now that the Public Utilities Commission of Ohio has signed off onthose plans and the start of the PJM Interconnection LLC's next base residual auction forcapacity is drawing near.

Agroup of stakeholders headed by the Electric Power Supply Association continueto insist that affiliate power purchase agreements and retail rate ridersdesigned to allow for the recovery of the PPAs' costs represent a"customer-funded bailout" of the two companies' generationaffiliates. They also are concerned that PJM's wholesale energy, capacity andancillary services markets will be negatively impacted because the utilitieswill be able to submit below-cost offers for the subsidized units' output.

PUCO'sapproval "makes clear that FERC must now step in to protect consumers andthe PJM markets," EPSA said in one of two substantially similar April 6 filings."Indeed, the commission has a statutory duty to ensure that the rates,terms and conditions of the affiliate [PPAs] are just and reasonable, andwithout federal protection, Ohio consumers will be saddled with billions ofdollars in above-market costs under this abusive affiliate contract."

ButFirstEnergy urged FERC "not to second-guess the PUCO's legitimate statedetermination regarding how to protect retail customers." AEP said thestate regulators' ruling in its case "is dispositive with respect to thearguments made by the complainants" and the FERC proceeding thereforeshould be summarily dismissed.

ThePPAs at issue are designed to provide income guarantees to FirstEnergy's andAEP's Ohio utilities for their share of the output from certain"vital"power plants that face economic challenges. The cost of the eight-year subsidyplans will be recovered through a non-bypassable "rider charge"assessed to all end-use customers in FirstEnergy's and AEP's Ohio serviceterritories, regardless of whether they take retail service from thoseutilities or from alternative suppliers.

Togetherwith the Retail Energy Supply Association, Dynegy Inc., two subsidiaries of and others, EPSAfiled two complaintsat FERC in January asking that the agency rescind waivers of its affiliatepower sales restrictions previously granted to the AEP and FirstEnergyutilities pursuant to their market-based rate authorization. Those waivers weregranted based on the assumption that the utilities had no ability to pass thecosts of affiliate agreements through to captive customers, EPSA said, but thatno longer is the case because the rider charge cannot be avoided by switchingto an alternative power provider.

PUCO'sMarch 31 unanimous approval of the FirstEnergy and AEP subsidy plansappears to have given those two companies renewed confidence in theirpositions, however, judging from their most recent filings at FERC. In itsmotion to lodge the PUCO ruling in the FERC proceeding (EL16-33) record, AEPsaid"controlling precedent" requires the commission to defer to PUCO'sjudgment regarding whether retail choice exists for customers in Ohio.

"Followingthat precedent, the PUCO's order has resolved the key question in thiscomplaint and has rendered the complaint meritless," AEP said. "ThePUCO's order made clear: '[AEP Ohio's] shopping and [standard service offer]customers are not captive customers.'"

Moreover,PUCO explained in detail how it reached the conclusion that the plan is in thebest interest of retail customers in Ohio while still balancing the diverseinterests of other stakeholders, according to AEP. "For example, the PUCOstated that the joint stipulation contains measures 'that will protectconsumers against rate volatility and price fluctuations by promoting retailrate stability for all ratepayers in this state, modernize grid through thedevelopment of advanced technology and procurement of renewable energyresources, and promote retail competition by enabling competitive providers tooffer innovative products to serve customers' needs.'"

Forits part, FirstEnergy in its "notice of issuance" filing (EL16-34) FERC should"let the PUCO order speak for itself."

"Asthe order reveals, the PUCO went to great lengths to adopt a full slate ofretail consumer protection provisions that are within its well-established andhistoric retail ratemaking authority," FirstEnergy said. "The PUCOstressed that it has carefully balanced the costs and benefits of the entire'package' … and concluded that it is 'in the public interest.'"

WhileEPSA agreed with both AEP and FirstEnergy that the two PUCO orders should bemade a part of the record in the federal proceedings, it challenged anysuggestion that the state regulators' determinations resolve concerns aboutaffiliate abuse and instead said the PUCO order actually "underscores theurgent need" for FERC to quickly grant the complaints.

"Tobe clear, the PUCO's decision under Ohio state law to endorse thecustomer-funded bailout of [the utilities] in no way relieves this commissionof its statutory duty to protect wholesale markets for the sake of Ohioans andconsumers in the 12 other states and the District of Columbia that make up thePJM region," EPSA said. "Only the commission has the legal authorityto ensure that Ohio consumers and the PJM markets are protected from unjust andunreasonable wholesale rates like those in the affiliate PPA, and it has a dutyto exercise that authority, regardless of what the PUCO says or does."

"The bottom line is that it is imperative that thecommission act expeditiously to grant the complaint," EPSA added.

PJM'sbase residual auction for the 2019/2020 delivery year is scheduled to begin May11. Although some, including Morgan Stanley Research, FERC will ultimately review andreject the PPAs, it almost certainly will not have time to do so before theauction is held. The commission also is considering a request (EL16-49) toprotect PJM's markets from subsidy-related price distortion by extending thegrid operator's minimum offer price rule to existing resources, but FERC isstill accepting comments on that proposal.