FirstEnergy Seeks Legislation to Lift Profit Limit

May 10, 2019

The Ohio Senate is now looking over the $69 billion two year state budget bill. Among the many proposals in it, is a change to electric companies and how their profits from ratepayers are regulated.  

The version of the budget bill that passed out of the Ohio House is 3,514 pages. Among the more than 107,000 lines is a sentence that has the ability to potentially change the bottom line of your electric bill.

The provision changes what’s known as the Significantly Excessive Earnings Test, or SEET, which is applied to utility companies.

Here’s how Dan Shields, director of analytical services with the Office of the Ohio Consumers’ Counsel,  explains it. “It was intended to be a consumer protection where and when the utility, the local distribution company over earned money would be refunded to customers.”

The SEET was passed as part of the 2008 energy bill that created other sweeping changes such as renewable energy and energy efficiency requirements for utilities. 

The test creates a threshold monitored by the Public Utilities Commission of Ohio. If the commission deems that the electric company made too much off of the rates they set earlier, then the money is credited back to customers.

But the budget bill makes a change. It states that affiliated utilities that operate under a larger electric security plan can total their earned return on equity for the purposes of the SEET.

In other words, according to Shields and other opponents, distribution companies with FirstEnergy get to hold on to more of their profits. “Specifically Ohio Edison would be able to hide or shelter refunds from significantly excess profits that were owed to customers and we believe should be returned to customers they could be able to hide these profits by being able to move them to other affiliate companies,” Shields said. 

FirstEnergy Corp. is a utility holding company with three distribution companies under its tent; Ohio Edison, Toledo Edison, and Cleveland Electric Illuminating Company.

Shields uses Ohio Edison as an example because it has gotten close to surpassing the SEET. He said the change means one of FirstEnergy’s companies can exceed what’s seen as significant earnings, but wouldn’t have to return that money because that profit would be offset by the intake of the other two companies.

But FirstEnergy Corp. said there’s more to this issue. Eileen Mikkelsen is FirstEnergy’s vice president of rates and regulatory affairs. As she explained, FirstEnergy’s three utilities operate under a single rate plan.

“This change would really put us on par with the other electric utilities who also have a single-earnings test for each PUCO-approved rate plan. What this change wouldn’t do is increase our customers rates or limit the ability of the PUCO or any other interested parties to look at our earnings and the underlying financial data.” Mikkelsen said this change is important since inside of FirstEnergy’s overall rate plan is, as she puts it, one commitment.

“The commitments aren’t broken down by individual utility companies. And because that plan has those common commitments we then implement that plan across all three service territories in a manner that best serves our customers,” Mikkelson said. 

But other opponents, such as the Ohio Manufacturers’ Association, don’t see it that way. Kim Bojko is energy counsel for the group. She said FirstEnergy stands to greatly benefit from the change, which she sees as a hit to accountability for utilities with ratepayers.

“The law intended it to flow back to customers so that there would be a check and balances of the electric security plan and the charges that the PUCO approved and put on customer bills. These are above market charges being charged to customers.”

Bojko adds that energy is among the top three costs for manufacturers every month. “Any increase in their cost or any money that’s not returned to them that’s supposed to be returned to them will affect their operating costs.”

The Ohio Consumers’ Counsel said it's already against the current law that specifies significant earnings, rather than just excessive. They said in 2017, Ohio Edison saw a more than 17% return on equity without surpassing the significantly excessive earnings test.