Until recently, FirstEnergy, a utility in Akron, favored rate deregulation. FirstEnergy, which serves 6 million customers from western Ohio to the Jersey shore, relies on coal-fired power plants that once offered some of the cheapest electricity in the region. The company benefited from wholesale competition among generators. Today, with cheap natural gas undercutting coal, FirstEnergy has decided government price supports may not be so bad after all. Its coal plants “just aren’t making money in the open market,” says chief spokesman Todd Schneider. “What we’re talking about is reregulation to preserve stable prices and reliable service for our customers.”
FirstEnergy’s predicament offers a window on nationwide turmoil in the energy industry. In addition to competition from natural gas and increasingly cost-efficient wind and solar power, coal-fired plants face proliferating climate rules reducing carbon dioxide emissions—most notably the plan President Obama unveiled on Aug. 3 requiring states to cut emissions by almost a third by 2030. Some utilities are meeting challenges with innovation. Goaded by a New York state program, Consolidated Edison is overhauling its business model to accommodate rooftop solar arrays and neighborhood “micro grids” that allow individuals, apartment buildings, and businesses to share the electricity they generate and even sell some of it back to the utility.
FirstEnergy, by contrast, has doubled down on coal. Its latest proposed rate plan would ensure the purchase of particular plants’ output, no matter how high the cost. This would save its W.H. Sammis coal-fired plant north of Steubenville, as well as the company’s share of coal power from the Kyger Creek plant in southeast Ohio and the Clifty Creek plant in Indiana. Customers also would underwrite the purchase of what’s generated by FirstEnergy’s Davis-Besse nuclear plant on Lake Erie.
FirstEnergy concedes that the 15-year “power purchase agreement” would cost customers in its first three years but argues that over the next dozen it would save them $2 billion. That’s based on an assumption that natural gas prices will rise steeply. The Office of the Ohio Consumers’ Counsel, a state agency, has done its own projections and estimates that rather than enjoy savings, customers would pay $3 billion over a decade and a half. “What they’re talking about is a $3 billion consumer subsidy for unprofitable plants,” says Dick Munson, the Environmental Defense Fund’s Midwest clean-energy expert.
The Public Utilities Commission of Ohio will begin hearings on FirstEnergy’s proposal on Aug. 31. The company’s chief executive officer, Chuck Jones, has presented his case in the Cleveland Plain Dealer. “Ohio is losing its energy independence,” he wrote in an Aug. 2 op-ed. “New environmental rules recently forced the closure of several of FirstEnergy Corp.’s Lake Erie power plants.”
Indeed, in April, the company completed the shuttering of coal-fired plants in Ashtabula, Eastlake, and Cleveland, the oldest of which began generating electricity in 1911. FirstEnergy chose to pull the plug on the plants rather than meet U.S. Environmental Protection Agency pollution standards for mercury and other toxic metals. Shutdowns aren’t unique to Ohio. Nationwide, since 2011, almost 200 coal-fired plants have closed or been slated for closure, according to the Sierra Club. (Michael Bloomberg, founder of Bloomberg LP, owner of this magazine, works with the Sierra Club through his philanthropy to support the retirement of coal plants.)
Corporate electricity users have split over FirstEnergy’s rate plan. Alcoa, DuPont, and some of the largest industrial power buyers, which enjoy special discounts, back the utility. The Ohio Manufacturers’ Association Energy Group opposes the plan, calling it a wasted subsidy. Another coalition—including retailers Lowe’s, Macy’s, and Staples—argued in an Aug. 10 blog post that “plant subsidies would serve as a disincentive for burgeoning investment in new, more efficient, and cleaner natural gas-fired generation.” Price supports likewise discourage investment in wind and solar power.
In his Plain Dealer op-ed, Jones countered that natural gas, wind, and solar are all fine by him. “But,” he added, “these resources alone are not currently capable of replacing plants that can operate 24/7 under the most extreme circumstances.”
Part of the reason lower-emission and no-emission alternatives aren’t as prolific as they might be in Ohio is that FirstEnergy has tried to stifle them by other means. Last year, the company backed a successful state Senate bill that froze a 2008 Ohio mandate forcing utilities to cut power usage via efficiency improvements and get a quarter of their power from renewable sources. “We’re not against energy efficiency or renewables, but we do not believe it’s in the best interests of our customers to mandate higher costs in this way,” says FirstEnergy regulatory spokesman Doug Colafella.
In 2014, FirstEnergy filed a complaint with the Federal Energy Regulatory Commission (FERC) seeking to stop grid operator PJM Interconnection from including in its wholesale capacity auctions a program called demand response, which allows power users to be paid to consume less electricity during peak periods. FirstEnergy fears that trying to control power demand, rather than meeting it with extra supply, will cause “premature closing of even more power plants,” Colafella says.
FirstEnergy also belongs to an industry group that has challenged FERC’s authority to encourage demand response; the Supreme Court is expected to decide that case next year. In its brief supporting FERC, the Obama administration argued that the program would safeguard the reliability of electricity running through the power grid: “Besides reducing rates, demand response, by decreasing the amount of power necessary to balance supply and demand, reduces the risk of system failures like blackouts and curbs the market power of generators.”
Keeping the lights on and factories running is a vital goal for utilities and the rest of society. FirstEnergy seeks to get there by preserving uneconomic, pollution-prone coal burners—a risky bet on the past.
The bottom line: Ohio regulators are considering a utility’s request to prop up coal, which is being undercut by natural gas.