Akron Beacon Journal
FirstEnergy landed in a vulnerable financial position, the result of its own decision-making and a changing marketplace in which the Akron-based power company struggled to adjust. The Public Utilities Commission of Ohio wants to see upgrades in the electricity transmission grid, as part of serving customers better. The commission worried that a financially strapped FirstEnergy would have problems investing adequately and cost-effectively in the necessary modernization.
So, in 2016, the commission supported something called a distribution modernization rider, a fee, in effect, charged to ratepayers, amounting to roughly $3 per month. The revenue, ranging as high as $204 million a year, would improve FirstEnergy’s credit rating, the company avoiding junk-bond status and thus in a stronger position to invest.
Did the rider work as an incentive for FirstEnergy to upgrade transmission?
On Wednesday, the Ohio Supreme Court said no, holding in a 4-3 decision that the rider did not function the way an incentive should. Writing for the majority, Justice Michael Donnelly argued that the commission failed to establish how, precisely, the infusion of money would operate as an inducement to get the company to make grid improvements. The court is right that the commission did not construct “real requirements, restrictions or conditions.”
So was this a matter of “wishful thinking” by the commission, as the ruling put it, or worse, a big bailout? The court ordered an end to the rider. Yet the matter is more complicated, as indicated by the three other opinions, one concurring and two in dissent. For example, Justice Patrick Fischer, in a dissent joined by Chief Justice Maureen O’Connor, noted the law at issue does not define what is meant by “incentive.” Neither does it set conditions or otherwise lay out a course for the commission to follow, except “to examine the reliability of the utility and ensure aligned expectations and sufficient resources.”
In that way, the commission did implement a monitoring mechanism. A third party, Oxford Advisors, reported on Friday that FirstEnergy has taken steps toward transmission upgrades as a result of the rider and that its improved financial position has contributed. More, the company has pending before the commission a comprehensive settlement plan that includes investing more than $500 million during the next three years in grid modernization.
In part, the argument among the justices serves as an invitation to the legislature to recast the law. Legislators could make more clear the workings of an incentive. It is worth exploring, too, the proposal of state Rep. Mark Romanchuk, a Mansfield Republican. He wants ratepayers to get a refund when the courts overturn riders approved by the commission, this FirstEnergy rider not the first.
As it is, ratepayers are not in position to receive repayment of the roughly $400 million generated by the distribution modernization rider. There is no provision in the law for a refund. One belongs there as a measure of accountability.
FirstEnergy made trouble for itself in moving so aggressively in the deregulated market. When the energy landscape shifted, the company scrambled, even for survival, and it still faces challenges. It also is telling the company has launched down a path to becoming, again, a fully regulated utility. The rider was a financial lifeline, and if, in the view of the court majority, the commission overreached, it also took practical aim at avoiding a messy outcome.
The rider was due to expire at the end of the year, anyway, though FirstEnergy had applied for another two years. Now the legislature would do well to weigh the shortcomings in the law identified by the court, doing more to ensure that ratepayer money goes to a good and defined purpose.