FirstEnergy Says Its Headquarters Is Worth $568 Million to OhioBy
Utility asks regulators for surcharge for benefits to Akron
Critics question why customers should pay for HQ’s impact
FirstEnergy Corp., Ohio’s homegrown utility with roots in the state that date to 1930, wants its customers to pay to ensure it stays there.
In the latest twist in a two-year battle for aid, the company has asked regulators to approve as much as $568 million a year for eight years in customer surcharges to compensate for the economic impact of having its headquarters in Akron.
FirstEnergy is among utilities across the U.S. struggling amid flat demand and low power prices bought on by cheap natural gas, and growing supplies of solar and wind energy. That hasn’t swayed manufacturers, consumer advocates and environmental groups who said they were left flabbergasted by the proposed hike.
"When they first told me that was in there, I thought it was a joke," said Eric Burkland, the president of the Ohio Manufacturers’ Association, which opposes the fee increase. "From a manufacturing ratepayer’s perspective, it’s just bizarre."
While governments often offer tax breaks to lure businesses, Burkland said he was unaware of another utility asking ratepayers for payments tied to the company’s headquarters. The company had initially asked the commission to approve a power-purchase agreement for its Sammis coal plant and Davis-Besse nuclear plant, which were struggling in the competitive regional power market.
In March of this year, the Public Utilities Commission of Ohio approved a settlement with FirstEnergy and American Electric Power Co., allowing them to pay above market rates for electricity from certain plants. The companies argued that allowing them to raise customer bills to keep coal and nuclear plants in operation would act as a hedge, and payoff for customers in the future once natural gas prices rebounded.
But a month later the Federal Energy Regulatory Commission announced a review of the contracts, saying it “has an independent role to ensure that wholesale sales of electric energy and capacity are just and reasonable.”
After that decision, AEP announced it was dropping its bid for state aid, but FirstEnergy came back with a modified plan it said wouldn’t require federal approval because it wasn’t tied to purchases from specific power plants. Staff at the utilities commission counter-offered with something completely different: surcharges totaling $131 million a year for three years to support the company’s credit rating and boost grid modernization.
FirstEnergy says it still prefers its plan but can live with the structure of the staff’s plan if the amounts pledged to the company are increased. Instead of a total of $393 million in aid, it should get $558 million a year for nearly eight years, or $4.5 billion. And on top of that, it wants compensation of as much as $568 million for the added impact of salaries, vendor purchases and local employee spending in Akron.
"They should weigh the value of keeping our nexus of operations" in Akron, Eileen Mikkelsen, vice president for rates and regulatory affairs at FirstEnergy, said in an interview. "If the commission thinks that is important to the state, they should recognize that in their order."
A requirement of the staff’s proposal is that FirstEnergy remain headquartered in the state, and the company would have to forfeit the benefits of the deal if it announces it’s leaving, she said.
FirstEnergy’s 1,360 employees and $245 million annual payroll provide direct benefits to Akron and the state, according to Sarah Murley, an analyst with Applied Economics LLP hired by the utility. Indirectly, the company supports 2,047 jobs, and injects $110 million a year in vendor purchases and $162 million from employee spending into the local economy.
"When all is said and done, consumers could be charged up to nearly $8.9 billion to support the financial integrity of FirstEnergy," the Ohio Consumers Office said in a brief. "The record reflects no evidence that FirstEnergy plans to relocate its headquarters away from Akron."
In fact, the company announced last year that it signed a lease extension for its 19-story headquarters building, and "will remain in this downtown Akron location through June of 2025."
Opponents including rival power producers such as Dynegy Inc., have also questioned the rationale for the aid. When it first went to regulators, FirstEnergy said it was trying to help ensure a diversity of power sources, limit transmission costs, save coal-plant jobs and provide a rate hedge for customers.
"All of these benefits would be eliminated under modified (plan), to the great detriment of ratepayers and the public interest," Environmental Defense Fund said in its brief to the state commission. "The goals of these alternatives, simply put, are to put money in the hands of the shareholders and to make up for years of bad financial bets on fossil fuels and against clean and efficient energy."
— With assistance by Jim Polson