Testimony is moving forward on a rate plan by the Public Utilities Commission of Ohio that would have customers pay FirstEnergy Corp. $393 million, and maybe more, to shore up the utility’s credit rating.
The plan is the third proposal in a rate case that began nearly two years ago and started as a way for the Akron-based utility to subsidize a pair of unprofitable power plants.
Under the third plan, submitted and recommended June 29 by the PUCO staff, a new “distribution modernization rider, ” or surcharge, would be created to allow FirstEnergy to collect $131 million annually for three years from its ratepayers. The utility would be able to request another two-year extension if the $393 million it collects proves to be insufficient.
The staff said the commission should reject a plan filed in May by FirstEnergy and accept the staff’s plan. FirstEnergy owns Toledo Edison, a primary electricity provider in northwest Ohio.
In testimony submitted by PUCO staff member Joseph Buckley, the money would allow FirstEnergy to maintain its investment grade ratings by Moody’s Investors Services and Standard & Poor’s Financial Services LLC.
Mr. Buckley said the move was necessary because on Moody’s issued an opinion in January that the utility was in danger of receiving a negative credit rating if it doesn’t receive a new rate plan that would allow it to maintain certain financial metrics, specifically, a pre-working capital-to-debt ratio of 14 to 15 percent.
The PUCO staff believes giving the utility $393 million over three years would result in a ratio of 14.5 percent and create a “bridge” to provide FirstEnergy time to implement a long-term solution to fix its financial situation.
Mr. Buckley noted that FirstEnergy’s current bond rating is Baa3 at Moody’s and BBB- at S&P, which is the “final notch” above speculative grade at each credit agency.
In return for the rider-based money, under the staff plan, the PUCO would require FirstEnergy to keep its corporate headquarters and nexus of operations in Akron for the three-year period or return the money if it relocates. Also, if the utility or its subsidiaries undergo a change in ownership, the rider would end immediately.
The plan by the PUCO is a departure in the case which started with a proposal to help subsidize the utility’s coal-fired W.H. Sammis plant south of Youngstown, and the Davis-Besse nuclear plant near Oak Harbor.
Opponents claimed that plan would have cost FirstEnergy ratepayers between $3 billion to $4 billion by 2024. The utility said it would have cost customers $363 million initially but then save them $560 million over eight years. The money would help prop up the two power plants.
But that was halted by the Federal Energy Regulatory Commission, which said the plan was to charge fees to everyone, even those who didn’t buy their power from FirstEnergy but had it delivered through FirstEnergy’s grid.
The Akron utility revised its plan by May. The amount of the charge on customers’ bills, through 2024, was not listed in the new plan and the money was not to be used to subsidize the plants. The charge, that plan said, would be based on estimated power production costs that the company included in its original proposal filed in 2014.
FirstEnergy spokesman Doug Colafella said the $393 million proposed by the PUCO staff would be insufficient to meet the company’s needs and FirstEnergy wants the commission to approve its May plan. He said the regulatory agency approved “a similar plan” in March.
“We believe we have a better proposal that will meet our needs as well as our customers’ [needs] down the road,” Mr. Colafella said.
The Office of the Ohio Consumers’ Counsel also is against the staff proposal. In filed testimony Matthew Kahal, an independent consultant retained by the Consumers’ Counsel, said the staff proposal will inappropriately provide FirstEnergy with excessive monopoly profits.
“While the intent of the staff proposal is one of protecting the FE corporate credit rating, it does so by increasing shareholder profits,” he testified. “This proposal also has the effect of utility customers subsidizing FE unregulated operations as those operations share in the benefit of improved or protected credit ratings.”
Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.
First Published July 26, 2016, 4:00 a.m.
