Julien Dumoulin-Smith has a new story over at the UBS site about FirstEnergy’s attempt to use a higher than market rate (where have we seen this before) power purchase agreement with its dying Sammis coal burner and is decrepit Davis Besse nuke to get OH rate payers to bailout the two loser plants.
FE seeking PPA to firm up its generation portfolio, substantially above-market
Late yesterday FE filed with for a new Electric Security Plan (ESP) before the Ohio Commission (PUCO) for a PPA-rider that would effectively enter into an above-market PPA for (3) assets: its recently scrubbed 2.2GW Sammis coal plant, its 908MW Davis-Besse nuclear plant, & its 105MW interest in the OVEC coal plant. We estimate the PPA would begin on June 1st, 2016 at approximately ~$65/MWh, rising by ~$2/MWh per year from there. The proposal appears to be approximately ~$500 Mn/yr above market accounting for a return on investment in these plants, backing into a ~$26/MWh uplift on current power and capacity prices. While both assets appear to generate limited FCF (we think Davis-Besse could be modest, see below), we believe both plants likely failed to clear the latest capacity auction (seeing substantial quantities of generation that did not do so in ATSI). Without capacity payments, Sammis is FCF negative and David-Besse is marginal (prior to any material levels of maintenance capex).
Dumoulin-Smith also refers to AEP’s similar attempt at a PPA earlier in the year, which OH’s PUC rejected. Both AEP and FE have used OH’s recent deregulation to their advantage. Both companies are attempting to recreate their vertically integrated structures, in ways beneficial to then, by having their retail companies buy electricity on long term PPAs from their unregulated generation subsidiaries.