The following article originally appeared in Gongwer Ohio, an independent news service that covers issues in and around state government and politics.
Opponents of FirstEnergy's (FE) bid to reenter the competitive market under a newly named subsidiary after shedding bankrupt FirstEnergy Solutions say allowing FE's president and chief financial officer to double as FE Advisors' management team without full vetting by the Public Utilities Commission of Ohio (PUCO) runs afoul of due process and corporate separation laws on regulated utilities that own unregulated suppliers. Northeast Ohio Public Energy Council (NOPEC), Ohio Consumers' Counsel (OCC) and others urge commissioners to deny staff's recommended approval of FE Advisors and schedule full hearings and discovery as part of PUCO's larger corporate separation audit of FirstEnergy.
FirstEnergy Advisors, aka Suvon LLC, acknowledges that it will employ "shared services" with FirstEnergy Corp. for various management functions while requiring officers to track and bill their time separately for "proper cost allocation among regulated and non-regulated functions." FE Advisors amended its application on April 1 after PUCO's administrative law judge had held it for further review in February.
"To ensure that [FirstEnergy Advisors] does not have access to any information about the transmission or distribution systems that is not available to non-affiliated competitors, employee access to information and information systems is restricted based on Federal Energy Regulatory Commission (FERC) employee classification," the FirstEnergy subsidiary tells PUCO.
"The company does not and will not have control over what access is provided to any competitive provider -- including the company itself. Therefore, the company will not be able to obtain any preferential treatment ...," it continues. "To ensure that anti-competitive subsidies are not flowing from a non-competitive retail electric service to a competitive retail product or service, no financial mechanism exists by which subsidies can flow from the Ohio operating companies to [FE Advisors]."
The FirstEnergy subsidiary notes that its top executives, including Chuck Jones, who wears a second hat as president of FirstEnergy Utilities and director of each of its regional electric distribution utilities (EDU), Steve Strah, who in his other life is senior vice president/CFO of FirstEnergy Corp. and director of its EDUs, and Dennis Chack, who does double duty as president of FirstEnergy Ohio Utilities, collectively provide over 40 years of experience serving residential, commercial and industrial customers.
The company acknowledges at the same time that Suvon "has no experience providing aggregation services" but will "work alongside communities on every aspect of the governmental aggregation process" with help from Jones, Strah and Chack.
NOPEC, which serves nearly one million customers, responded to FirstEnergy assurances Tuesday by slamming its corporate separation plan.
"Suvon LLC d/b/a FirstEnergy Advisors will be managed and controlled by the same senior officer management team that controls the FirstEnergy Ohio electric distribution utilities and housed in the same offices as the EDUs," the state's largest aggregator says.
"The shared management and EDU control structure also will result in an abuse of market power, because FirstEnergy Advisors will receive a preferential benefit by its managers' instantaneous knowledge of the EDUs' business plans and the EDUs' market information," NOPEC states, calling it a violation of R.C. 4928.02(I) and a "per se" violation of R.C.
4928.17(A) and its requirement that competitive retail electric service (CRES) providers be "fully separated" from regulated utilities.
"How can the same individuals who control the regulated EDUs and their non-regulated affiliate located in the same offices separate their knowledge of the EDUs' business plans and market information from the business plans and operations of the affiliate? The answer is clear. They cannot."
NOPEC reminds commissioners that PUCO's consultant audit of the utility's corporate separation has "roundly criticized the FirstEnergy EDUs' co-mingling senior officers of regulated and non-regulated affiliates as violating the EDUs' corporate separation plan."
The government aggregator says PUCO commissioners and staff are well aware of "intense interest" in the FirstEnergy proceeding "from nearly all facets of the Ohio retail electric industry" and the unanimous opposition to FE Advisors' application by all eight intervenors in this case, which along with NOPEC and OCC include Northwest Ohio Aggregation Coalition (NOAC), Interstate Gas Supply (IGS), Retail Energy Supply Association (RESA), Energy Professionals of Ohio, Vistra Energy, and Palmer Energy.
"These central corporate separate issues have been festering for a number of years before the PUCO, culminating in the first independent audit of the FirstEnergy EDUs' corporate separation plan in the 17 years since Ohio electric markets were opened," NOPEC says.
It criticizes PUCO staff for abandoning the agency's previous concerns and recommending commission approval in its two-paragraph filing.
"FE Advisors has stated that it intends to comply with all commission rules ...," PUCO analysts said last week. "Staff is required to evaluate an applicant based on its managerial, technical and financial capabilities to provide the service it intends to offer and its ability to comply with commission rules or orders adopted pursuant to Chap. 4928 of the Ohio Revised Code. ... Staff has thoroughly reviewed and evaluated this application" and all attachments and "recommends that this application be approved."
NOPEC accuses staff of punting on state oversight and notes the regulated FirstEnergy could easily meet with community representatives in a "government relations context" and pitch aggregation with the unregulated FE Advisors.
"The common management, wearing their EDU hats, represents the monopoly provider of distribution and transmission services. New customers must come to them to establish service, and existing EDU customers and communities all have EDU service or government relations representatives assigned to them. It's an abuse of that monopoly market power when the same EDU management team, wearing their FE Advisors' CRES hats, can be the first to learn of the prospective new EDU customers or of the needs of existing EDU customers and the first to solicit them to arrange their power supply," the aggregator states, citing further violations of R.C. 4928.02(I)(11) and 4928.17(A)(1).
"FirstEnergy Advisors will have instantaneous knowledge of the EDUs' plans to extend distribution and/or transmission plant to serve a major new development, or community elected officials' intentions to establish or change governmental aggregation in their communities. ... Because of this common management and control, it is impossible for the EDUs to share this information contemporaneously with the FE Advisors and its nonaffiliated CRES competitors," NOPEC says. "FE Advisors' management structure ab initio violates Ohio Administrative Code 4901:1-37-04(D)(3)."
The northeast Ohio aggregator dismisses FirstEnergy's corporate separation model as failing to explain how FE Advisors' managers can avoid "sharing regulated information with themselves."
"Without such transparency and a public hearing process in this case, there can be no assurance or confidence that the FirstEnergy family will not again abuse its immense market power in Ohio, hurting Ohio consumers and threatening a healthy competitive retail electric market in this state," NOPEC concludes.
In a separate filing, OCC notes that commissioners are currently reviewing FirstEnergy's corporate separation plan and have yet to rule.
"Corporate separation between electric monopolies and their unregulated affiliates provides protection for captive monopoly consumers against (among other things) subsidizing the unregulated activities of utility affiliates. And corporate separation protects the competitive electric markets that benefit Ohio consumers," OCC says. "In this regard, the Ohio General Assembly set forth this policy that protects consumers:
"Ensure effective competition in the provision of retail electric service by avoiding anticompetitive subsidies flowing from a non-competitive retail electric service to a competitive retail electric service or to a product or service other than retail electric service, and vice versa, including by prohibiting the recovery of any generation-related costs through distribution or transmission rates," energy omnibus 127-SB221 states in R.C. 4928.02(H).
