Update: The PUCO modified and approved the settlement on FirstEnergy’s ESP IV, which included a modified and approved Rider RRS. FirstEnergy’s Rider RRS is analogous to AEP’s PPA Rider. In spite of OCC’s forecasted cost of $3.6 billion over the eight-year life of Rider RRS, the PUCO explained that Rider RRS should be expected to generate $256 million in customer credits. Against the strenuous objection of OMA Energy Group and others, the PUCO credited the assertions of FirstEnergy that Rider RRS will protect against rate volatility and promote reliability. The PUCO modified the rate design of Rider RRS to ensure that for June 1, 2016 to May 31, 2017, average customer bills do not increase as compared to June 1, 2015 to May 31, 2016. Likewise, the PUCO directed that for June 1, 2017 to May 31, 2018, average customer bills do not increase as compared with bills for June 1, 2015 to May 31, 2016. FirstEnergy is authorized to defer expenses for future recovery in an amount equivalent to the revenue reduction resulting from the implementation of the mechanism for the period of June 1, 2017 to May 31, 2018. As for these bill-impact limits, costs recovered from smart grid deployment are excluded from consideration, as are costs associated with renewable energy procurement and First Energy’s Alternative Energy Rider (Rider AER). The PUCO modified the settlement so that Rider RRS will be subject to quarterly rather than annual updates. It also clarified that no plant retirement costs can be recovered through Rider RRS. FirstEnergy, rather than ratepayers, bear the risk of Capacity Performance penalties; however, FirstEnergy is entitled to retain Capacity Performance bonus payments. The PUCO altered the settlement so that it retains the right to prohibit recovery of costs related to any unit for any period exceeding 90 days for any unforced outage during the term of the ESP IV. The PUCO modified the severability provision to add that the PUCO retains the right to reevaluate and modify the settlement if there is a change to PJM’s tariff which prohibits the plants from bidding into the PJM auctions.

In addition to adoption of Rider RRS with the preceding modifications, the PUCO authorized approval of other settlement provisions, which the PUCO found to be in ratepayers’ interests. The PUCO found that the extension of the distribution rate freeze would promote stable rates. Additionally, given the distribution rate freeze, the PUCO found it necessary to continue the Delivery Capital Recovery Rider (Rider DCR) and incrementally increase the revenue caps for each year of the ESP. The PUCO also authorized implementation of the Government Directives Rider, which will initially be set at zero, subject to FirstEnergy requesting cost recovery in a future filing. The PUCO approved the continuation and expansion of the Economic Load Response Program Rider (Rider ELR) and an experimental time-of-use rate for high-load factor customers (HLF/TOU). The PUCO approved an opt-out pilot program for the Non-Market Based Rider (Rider NMB), which enables select customers to pay for transmission and other services through the open access transmission tariff and other PJM documents. Further, the PUCO approved increasing the cap on shared savings from $10 million to $25 million. In terms of smart-grid deployment, the PUCO stated it would not prejudge the issue, but then directed FirstEnergy to file a business case supporting full deployment across the service territory, and noted smart grid programs are consistent with state policy.

The PUCO expressed concerns about certain funding provisions directed towards low-income groups, thus it ordered that compliance reports be filed to show that payments are being used properly. The PUCO expressed support for construction of renewables and directed FirstEnergy to use a competitive process to source and determine the ownership of any project. The PUCO modified the stipulation and rejected FirstEnergy’s request to include MTEP legacy costs against their legacy RTEP non-collection commitment of $360 million. Specific to the Generation Cost Reconciliation Rider (Rider GCR), the PUCO required FirstEnergy to file an application in a separate proceeding to modify the rider from bypassable to nonbypassable. Much like AEP, FirstEnergy agreed to maintain its headquarters in Akron for the duration of Rider RRS; however, the PUCO amended this clause to provide that it has the right to terminate Rider RRS if FirstEnergy leaves Akron during the term of Rider RRS. The PUCO struck a provision, regarding Rider AER, limiting refunds associated with out-of-period adjustments. The PUCO agreed that a mitigation mechanism should be used to offset cost impacts associated with certain commercial and industrial rate schedules. To address this, the PUCO directed FirstEnergy to collaborate with Staff on a plan for resolution and to phase-in the plan over the term of ESP IV.

As a package, the PUCO found that the ESP IV was more favorable in the aggregate than the expected results of a market rate offer (MRO). Quantitatively, the PUCO monetized the benefits at $307 million. FirstEnergy is directed to file tariffs by May 1, 2016.

Just like it did in the AEP proceeding, the PUCO declined to address the arguments of OMA Energy Group and others that the implementation of Rider RRS interfered with FERC’s authority to oversee the wholesale markets. Additionally, like in AEP, the PUCO reiterated its opinion that customers are not captive because of retail choice.

One of the next steps for opponents is to begin the process of preparing briefs asking the PUCO to reconsider its decision.