OH Really? Answers a Powerful Question
State lawmakers have been debating a change to Ohio’s energy policy that could save two nuclear plants. Both are owned by First Energy Solutions, once a subsidiary of First Energy. But First Energy has shed the entity and become a fully-regulated utility, which sparked a listener’s curiosity. She sent in a question to our OH Really? team.
Understanding the grid
When you turn on the lights, power up the coffeemaker, or turn on the radio every morning you may not give much thought to the power grid that supplies your electricity. Listener Marcia Adair does. She’s a retired physicist who’s lived in Akron for three decades. “[I] started at Goodrich designing aircraft tires.”
She’s watched as FirstEnergy has grown. “They were running everything and now we’ve got two entities and it’s not making sense to me.”
Before we get to her question, let’s understand some basics about the power grid.
It operates on three distinct levels. The first is generation—starting at the power plants where electricity is created. The second is transmission. The high voltage lines that carry power from plants to delivery areas. That system is regulated by the federal government. The third is distribution, overseen by the Public Utilities Commission of Ohio. “The distribution system is operated by a regulated utility, and they own and operate the poles and wires and substations, the meters on homes or businesses that really take that power the last mile," said PUCO spokesperson Matt Schilling.
The major distributor of power in northern Ohio is FirstEnergy. When you get your bill from Ohio Edison or The Illuminating Company, it’s from FirstEnergy.
Companies like FirstEnergy used to own the power plants too. But back in 1999, Ohio lawmakers decided to create a more competitive market for power generation. So they passed a law requiring distribution utilities like FirstEnergy to sell their power generation plants or spin them off into affiliate companies. “The motivation there at the time was that when power plants compete, it can bring prices down," Schilling said.
A changing market
Prices did come down, in part due to fracking that produced plentiful natural gas. “The energy markets have changed dramatically so that it is true that natural gas plants have become more economic to run, it’s also true that wind and solar have become much more economic to run, and that coal and nuclear are having a tough time competing," said Sandy Buchanan, director of the Institute for Energy Economics and Financial Analysis, a nonprofit global energy research organization based in Cleveland.
FirstEnergy’s power generating subsidiary, FirstEnergy Solutions, struggled under the costs of expensive-to-run coal and nuclear plants and sought bankruptcy protection last year. The parent, FirstEnergy, sought a return to the safer confines of being a regulated distributor.
“The shareholders that invest in a company like ours, are shareholders that are looking for stable long term earnings and growth,” said Chuck Jones, FirstEnergy CEO. “This separation that we’re going through is creating a company that’s very predictable, very stable,” Jones told reporters after the company’s annual shareholders meeting in May.
What's the difference?
Now to Marcia’s question. She wonders what the difference is between First Energy and First Energy Solutions. "The latter is called an unregulated generation arm, while the parent is a fully regulated company. What do those two terms mean?”
The PUCO’s Matt Schilling explains why distributors, like FirstEnergy, are regulated. "We really don’t want 4 different companies all running power lines and operating substations in same area, so they are granted more or less a monopoly there but in exchange for that they are regulated by the government." Schilling said FirstEnergy tells the PUCO what it costs to do business.The PUCO set rates you pay for safe, reliable, and adequate power service. “We want to ensure that customers have access to that, but they’re not paying exorbitant prices for it.”
First Energy Solutions now operates in the unregulated and unpredictable marketplace and competes against all the other companies you see when you comparison shop for your electricity generation provider on Energy Choice Ohio, which Matt Schilling said more than half of Ohioans do. "The competitive power companies that you as an end use customer can go select from, they can be buying power from the regional marketplace. Ohio participates in a marketplace that’s 13 states wide in fact. It’s called PJM Interconnection, and they manage this wholesale power market."
Whatever power is purchased, First Energy, the distributor, will keep delivering that power to you and providing reliable results for shareholders as a regulated utility.
And Marcia Adair feels better knowing a bit more about how this all works. “I guess I had no idea that that whole system was as complicated [as it is],” she said.
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