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Electricity: Recent Trends in Electric Deregulation: Transition
or Implosion?

By Bill Malcolm*, Guest Author

Are we beginning to see states backtrack on competitive electric markets, or are we simply in a period of transition?

 

Developments in the complex 15-year history of deregulation in states like Ohio and Illinois continue to unfold.

The most recent changes have been sparked by:

  • falling or flat power demands
  • low-cost wind and natural gas power plants becoming a more viable option than traditional coal and nuclear plants
  • low wholesale power prices
  • a recognition of more stable (and lucrative) returns in the regulated sector of the electric industry

It is hoped that these new developments will help states avoid scenarios like that in Wisconsin when Dominion closed the Kewaunee nuclear plant due to economic pressures. The plant had just been re-licensed.

 

“Powering Ohio's Progress”
FirstEnergy filed a plan requiring ratepayers — even those buying from another supplier to pay for power from some of its deregulated generation plants. In Ohio in early August, FirstEnergy filed an Electric Security Plan (ESP) (Case 14-1297-EL-SSO) that would establish electric rates for customers from June 1, 2016 through May 31, 2019.  

 

As part of the filing, the company proposed its 15-year economic stability plan called “Powering Ohio's Progress.” The company said in a press release that the proposed plan will freeze distribution rates while helping keep “critical base load power plants available to serve Ohio customers.”

 

The program entails a purchased power agreement among the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio; W.H. Sammis Plant in Stratton, Ohio; and Ohio Valley Electric Corporation (OVEC) units in Gallipolis, Ohio, and Madison, Ind. 

 

FirstEnergy's Ohio utilities would purchase the output of these (deregulated) facilities and sell it into the wholesale energy and capacity markets. As power prices increase as projected over time, proceeds from the market sales that exceed costs from the purchased power agreement will be applied as credits on retail customers' electric bills to mitigate volatility and address rising retail prices.  

 

First Energy told media sources that the plan ensures reliability by keeping large coal and nuclear plants in Ohio running and will provide $1 billion in statewide economic benefits with 3,000 direct and indirect jobs.  Critics charge the company has already been compensated for the stranded cost of its generation.

 

Stated Scott Gerfen, Ohio Consumers Counsel spokesperson:

 

“1.9 million consumers paid billions of dollars to FirstEnergy for its transition to deregulated power plants, under a 1999 Ohio law. Fifteen years later, FirstEnergy is again asking consumers to pay charges related to the power plants. FirstEnergy’s requests include asking the government (the PUCO) to guarantee profits for what are deregulated power plants whose profits should instead be determined by the electricity market. Needless to say, we are concerned for consumers…”

 

The Sierra Club’s Dan Sawmiller agreed and criticized similar requests from Duke and AEP:

 

“These proposals from Ohio's utilities are nothing more than a request to have Ohio's electricity customers spend their money to bail out dirty old, obsolete power plants. These power plants are expensive and are being replaced in the market by cheaper, cleaner sources of generation, and we should not bail these corporations out now that they are unable to compete."   

 

Happenings in Illinois
Meanwhile, in Illinois, Exelon has told policy makers about issues with its six Illinois nuclear power plants and initially hinted at possible closure of at least some plants. 

 

On May 29, 2014, the Illinois General Assembly adopted House Resolution 1146. The resolution notes the benefits of nuclear power to the state, which provides over half of its electricity (and 92% of the emission and carbon-free generation and also keeps rates down) and warned that the premature closure of such plants could increase prices.

 

The resolution notes that the Illinois nuclear plants employ over 5,300 workers full time and contribute $130 million to local property taxes. It urges the Illinois EPA to prepare a report showing how the premature closing of existing nuclear power plants in Illinois will affect reliability and capacity.

 

According to a Chicago Tribune article on July 31, Exelon indicated it is seeking compensation for the reliability benefits of its deregulated nuclear plants and that legislation is being drafted in Springfield.

 

States the article:

 

“Exelon officials noted that Illinois lawmakers are currently drafting legislation that would help the state adhere to new federal rules aimed at cutting carbon dioxide emissions ... Exelon said it expects to wait until June 2015 before making any decisions about the fate of plants that are on the bubble. Previously, the company said it would make those decisions by year end.”

 

More recently, PJM proposed a new capacity performance product plan to compensate reliable generators like nuclear power plants. The Regional Transmission Organization (RTO) found that 22% of plants were unavailable during the Polar Vortex last winter. It since has worked on developing the plan to compensate generators who provide more reliable and flexible generation.

 

An August 20 PJM staff white paper explained:

 

“… PJM is proposing to add an enhanced capacity product – Capacity Performance – to its capacity market structure and to reinforce the existing definition of the Annual Capacity product to ensure that the reliability of the grid will be maintained through the current industry fuel transition and beyond.”

 

Perhaps the new PJM payment scheme will address the Exelon concerns.

 

Needless to say, the deregulation story continues to evolve, and recent developments in the Midwest are an interesting and ongoing chapter worth following.

 


References:

Midwest Energy News, August 14, 2014.


Akron Beacon Journal, August 5, 2014.


Spark Spread on Word Press, post on August 16, 2014.

 

Dayton Daily News, August 27, 2014.

Chicago Tribune, July 31, 2014.

 

PUCO First Energy Case 14-1297-EL-SSO

Illinois House Resolution 1146

 

 

About the author:

Bill Malcolm is an Indianapolis-based energy and transit analyst who has worked in the energy industry since 1977. He worked at Seattle City Light (as an intern), Pacific Power, PG&E, and ANR Pipeline. He was one of the first employees of MISO, the nation’s first FERC-approved RTO, where he helped create the state regulatory relations program. For the last two years he has written the Commission Corner column for The Cruthirds Report, a Houston-based energy newsletter. He is also the editor of All Aboard Indiana. He can be reached at billmalcolm@gmail.com.

 

 

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