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Regulators have yet to rule on the reasonableness and prudence of old coal plant charges, despite consumers paying roughly $400 million in subsidies so far.
Ohio ratepayers will again shell out money for two 1950s-era coal plants next month, following a year of cents-per-month credits. Meanwhile, regulators have yet to rule on years-old challenges to millions of dollars of spending for the plants.
Critics have called the charges a bailout and have tried multiple times to repeal the coal plant provisions of House Bill 6, the 2019 law at the heart of Ohio’s ongoing corruption scandal.
The provision, in the form of a bill rider, has generated a credit for customers over the past year because of a short-term shift in economic conditions as global prices rose for natural gas and coal. Utilities say that shows the rider provides a hedge against high energy prices.
But new filings show utilities intend to start collecting money from customers again in July. And their estimates show the plants will likely lose as much as $38 million over the next six months.
Meanwhile, an analysis conducted earlier this year for the Ohio Manufacturers’ Association shows the plants have consistently lost money, and their costs could climb to roughly $800 million by 2030.
“Under the status quo, these plants were losing money for years and years and years, to the point where the utilities tried to fundamentally change the regulatory regime in the state to get to the point where they could just break even from their bad investments,” said Neil Waggoner, the Sierra Club’s federal deputy director for energy campaigns.
‘The basic fundamentals haven’t changed’
The bill rider applies to the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, known colloquially as the “OVEC plants” after the Ohio Valley Electric Corporation that operates them. Multiple utilities — including American Electric Power, Duke Energy and AES — own stakes in OVEC, along with other companies.
Sally Thelen, spokesperson for Duke Energy, said the rider “is not a subsidy” and “functions as a hedge against volatile wholesale market conditions.” The fact that there were credits “reflects the fact that the mechanism is working as intended,” she said.
But the cents-per-month credits for roughly the past year happened largely because of the war in Ukraine and worldwide increases in wholesale gas and coal prices while the OVEC plants had contracts for some coal supplies at lower prices, according to the report by RunnerStone for the Ohio Manufacturers’ Association. The higher energy prices meant utilities had collected more from ratepayers than they needed, the report said. Hence, the credits.
“The basic fundamentals haven’t changed,” Waggoner said. If anything, stricter environmental rules will drive the coal plants’ costs even higher, he added.
Filings by Duke Energy Ohio, AEP Ohio and AES Ohio at the end of May show they plan to collect charges again from customers starting in July. Depending on the utility, the charge will be 15 or 16 cents monthly for those three companies’ residential ratepayers, with lower rates for commercial and industrial customers. FirstEnergy’s residential Ohio customers will pay 4 cents per month.
“By the utilities’ own estimates, they are set to lose $38 million from July to December on OVEC — losses they’ll charge to regular working people and businesses,” RunnerStone CEO John Seryak said, noting that this year’s charge “is being muted by the utilities truing up from past over-collections. Once that true-up is done, the rate customers pay will likely increase.”
“Ohioans have already paid for $400 million in losses for OVEC,” due to the HB 6 subsidies and prior regulatory rulings, Seryak said. “And I expect that to double by 2030.”
Delayed regulatory review
Both HB 6 and the prior regulatory rulings call for a regulatory review of the reasonableness and prudence of the OVEC plant charges. Yet the Public Utilities Commission of Ohio still hasn’t ruled on challenges to charges before HB 6 took effect, with the oldest case dealing with costs incurred in 2018. And HB 6 called for regulatory reviews every three years, starting with 2020’s expenses.
“The companies are free to run the plants however they please — even uneconomically,” said Trent Dougherty, a lawyer representing the Citizens Utility Board of Ohio and the Union of Concerned Scientists. “But when the ratepayers have to foot the bill for losses of revenue, the commission cannot just take the self-serving claims of the companies at face value.”
The audit for 2020 is the first one of the post-HB 6 coal bailout, Dougherty added. So, “its result will determine how all future analyses will occur.”
London Economics International completed its audit reports on the 2020 costs in late 2021. More than a year passed before the commission set a schedule for accepting comments in the case.
The comment period closed last month, but the commission still hasn’t set dates for an evidentiary hearing or pre-hearing fact-finding, called discovery.
The Energy News Network asked a commission spokesperson if and when the hearing would take place.
“I do not know for sure, but it’s worth pointing out that evidentiary hearings were held in previous similar cases, and many of the commenters are asking for one here,” responded Matt Schilling at the PUCO. “We’ll be on the lookout for an entry from the administrative law judge.”
Intervening parties say they are tired of waiting. “Unless there’s some timely oversight, there is no consumer protection that’s of much value,” said Tom Bullock, executive director for the Citizens Utility Board of Ohio.
Just as importantly, the utilities bear the burden of proof to show that the OVEC charges were prudent and in consumers’ best interests, the Office of the Ohio Consumers’ Counsel said in its comments on the audit report. Due process and Ohio law also require a hearing with full discovery, the consumers’ counsel argued.
AEP, which holds the largest ownership interest in OVEC, only wants a hearing if the commission plans to disallow non-trivial amounts. “There’s no need for a lengthy hearing process to accept a report which provides a thorough audit and has already been issued to the PUCO,” said Scott Blake, who acts as a spokesperson for both AEP Ohio and OVEC.
Yet the Office of the Ohio Consumers’ Counsel, the Ohio Manufacturers’ Association Energy Group and multiple advocacy groups contest the reasonableness and prudence of multiple charges.
Some charges, for example, appear to be a nonrecoverable return on utilities’ equity interests in OVEC, said lawyer Karin Nordstrom at the Ohio Environmental Council. “This does not appear to be an expense that has anything to do with keeping the lights on.”
Challengers also contest costs from the plants’ “must-run” operations strategy, oversupplies of coal, and other issues.
‘Scandal-ridden’
The HB 6 coal plant charges resulted after years of Ohio utilities seeking bailouts for their share of the costs for the two coal plants. Ohio utilities owning interests in OVEC had agreed with other owners in 2011 to keep the plants open through 2040.
Blake said that decision was made when “Ohio’s energy market was not fully deregulated. The owners believed that customers would continue to benefit as power prices were predicted to increase.”
However, a 1999 law already called for deregulation and competition in the electricity market. And the United States’ fracked gas boom had already begun. That meant coal-fired power plants could have expected stiffer competition from natural gas. Ohio started widespread fracking of horizontal wells in 2012.
By 2013 and 2014, Ohio utilities wanted bailouts for older coal plants. The Public Utilities Commission initially denied two requests in 2015. Then it did an about-face in later rulings, despite arguments that the plants’ precarious financial status hadn’t changed.
Faced with the prospect of appeals by the Office of the Ohio Consumers’ Counsel, Ohio utilities pushed lawmakers to codify the coal plant subsidies. They failed during the 2017-18 legislative session.
Then the coal subsidies were added to HB 6. AEP paid $900,000 to dark money groups to help pass the law and protect it from a voter referendum. AEP also made multiple payments directly to lobbyist Matt Borges. He and former Ohio House Speaker Larry Householder are due to be sentenced later this month after a jury found them guilty of federal criminal charges in March. Lawmakers have rejected multiple efforts to repeal the coal subsidies.
The backdrop of the HB 6 corruption scandal makes critics particularly eager to have full and fair discovery and an evidentiary hearing in the regulatory case challenging the plants’ costs.
“Without a robust discovery and evidentiary process, the Ohio public is forced to take the utilities at their word for several components of the audits,” Nordstrom said. “That is not acceptable when it comes to the scandal-ridden OVEC plants.”
Similarly, “consumer and environmental groups must in turn have the opportunity to present their own evidence that those decisions were not reasonable and not in the public’s interest,” Daugherty said. “Being able to get documents to review and have all sides’ experts opine on the facts is the tried-and-true method that the commission has used to answer the prudence question, and this case should be no different.”
