United States: FERC Grants Requests To Rescind Waivers Of Its Affiliate Power Sales Restrictions That It Previously Granted To AEP And FirstEnergy

On April 27, 2016, the Federal Energy Regulatory Commission ("FERC") granted two concurrent complaints requesting FERC rescind waivers of its affiliate power sales restrictions that it previously granted to two Ohio franchised public utilities, as those waivers relate to particular power sales contracts ("Affiliate PPAs"). The utilities in question are AEP Generation Resources, Inc. ("AEP Generation") and Ohio Power Company ("AEP Ohio," and together with AEP Generation, the "AEP Respondents") in Docket No. EL16-33; and FirstEnergy Solutions Corporation ("FE Solutions") and FirstEnergy Corporation's Ohio regulated utilities ("FE Ohio," and together with FE Solutions, the "FE Respondents") in Docket No. EL16-34. Going forward, FERC will evaluate the transactions contemplated in the Affiliate PPAs under the standards set forth in Boston Edison Co. Re: Edgar Electric Energy Co. and Allegheny Energy Supply Co. 

Under the Commission's affiliate power sales restrictions, no wholesale sale of electric energy or capacity may be made between a franchised public utility with captive customers and a market-regulated power sales affiliate without first receiving Commission authorization under section 205 of the Federal Power Act. Regulated utilities may seek waiver of the affiliate power sales restrictions by requesting a FERC determination that the Order No. 697 requirement to obtain prior approval for affiliate sales of energy or capacity does not apply. FERC has previously granted waivers of its affiliate power sales restrictions to the AEP Respondents and the FE Respondents (collectively, the "Respondents") based on the representation that Ohio is a retail choice state and that neither AEP Ohio nor FE Ohio has captive retail customers needing the protections afforded by those restrictions.

The complaints were filed by a group of stakeholders in the Ohio wholesale and retail energy markets that includes Electric Power Supply Association; Retail Energy Supply Association; Dynegy Inc.; Eastern Generation, LLC; NRG Power Marketing, LLC; and GenOn Energy Management, LLC (collectively, the "Complainants"). According to the Complainants, under the Affiliate PPAs, AEP Ohio and FE Ohio would purchase the output of certain generation facilities owned by their respective power sales affiliates. Complainants stated further that the power purchased under the Affiliate PPAs would not be used to serve retail consumers in Ohio, but would instead be resold into the markets administered by PJM Interconnection, LLC ("PJM"). Complainants also alleged that any losses from the PJM sales under the Affiliate PPAs would be recoverable through non-bypassable generation-related distribution rate riders ("PPA Riders") that were approved by the Public Utilities Commission of Ohio ("PUCO") on March 31, 2016.

In requesting that FERC rescind the waivers of its affiliate power sales restrictions, the Complainants alleged that the Affiliate PPAs would impose "hundreds of millions or even billions of dollars in above-market costs" on Ohio customers and would artificially distort prices in PJM by subsidizing the continued operation of generation that would otherwise retire. The Respondents countered that FERC's affiliate rules are not needed to protect Ohio retail customers because Ohio has retail choice. The Respondents argued further that FERC should reject the Complainants' requests to rescind the waivers in deference to PUCO's determination in state proceedings that the Affiliate PPAs will provide net benefits to Ohio consumers.

In granting the requests to rescind the waivers of its affiliate restrictions, FERC agreed with the Complainants that the potential costs associated with the Affiliate PPAs and the PPA Riders represent reportable changes in circumstances from the conditions under which the Commission granted the waivers of the affiliate restrictions to AEP Ohio and FE Ohio. FERC concluded that, in light of PUCO's approval of the PPA riders, Ohio retail ratepayers are captive in that they have no choice with respect to the non-bypassable generation-related charges incurred under the Affiliate PPAs. AEP Ohio and FE Ohio will now be required to submit the Affiliate PPAs for evaluation under the Edgar and Allegheny Standards. Accordingly, AEP Ohio and FE Ohio must show that the Affiliate PPAs were selected through a competitive solicitation process which was transparent, standardized, and overseen by an independent third party.

The AEP Ohio order is available here.

The FE Ohio order is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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