FirstEnergy Paid Way Too Much to Comply With Ohio's Renewable Mandate

When states enact renewable energy mandates, it's good for the renewable energy sector. However, allowing energy companies to purchase renewable energy certificates (RECs) can create problems, as a recent expose of an Ohio-based energy company by the Cleveland, Ohio newspaper, The Plain Dealer, showed. The newspaper reported that two independent audits found that FirstEnergy Corp.spent "billions of dollars more than it should have" since 2009 in order to comply with Ohio's renewable energy mandate.

The Ohio law requires a percentage of an electric company's power be generated by renewable energy, but allows companies to purchase RECs instead, or pay an "alternative compliance payment." The Public Utilities Commission of Ohio (PUCO) allowed FirstEnergy to pass on the costs of compliance to its customers via a seven percent interest fee, or about $5 a month, from 2009 to this year.

Three companies owned by FirstEnergy (Illuminating Co., Ohio Edison and Toledo Edison) used FirstEnergy Solutions (FES), which is not regulated, to purchase RECs, the audits found. FES paid up to 15 times more for RECs than it would have cost the companies to pay the alternative compliance payments, Exeter Associates of Columbia, Maryland found in its audit. The audit also found that the cost of the RECs were the highest anywhere in the U.S.

FirstEnergy is an energy company based in Akron, Ohio, operating in six states, and includes one of the largest investor-owned electric systems in the U.S. It has a generating fleet with a total capacity of almost 23,000 megawatts (MW). Serving six million customers in the Midwest and Mid-Atlantic regions, it has 194,000 miles of distribution lines.

The Plain Dealer reported that the auditors called FirstEnergy's decisions "seriously flawed" and recommended that PUCO not allow companies to pass on the "excessive costs" of complying with the state law to customers. An audit by Goldenberg Schneider LPA of Cincinnati found that the companies spent almost $126 million on RECs between 2009 and 2011.

"We bought the credits to comply with the law," FirstEnergy spokesman Todd Schneider said. "If the credits are available, you have to buy them. The alternative compliance payments are available only if there is a shortfall, if you can't buy the credits."

An analyst with the Sierra Club, Daniel Sawmiller, criticized FirstEnergy for passing on the costs of the RECs to its customers. "Renewable energy is a cost-competitive option, and yet FirstEnergy chose to over-charge their customers," said Sawmiller.

"The Sierra Club will be looking to the PUCO to ensure that these excessive payments make their way back into customers' wallets and that FirstEnergy's other companies, like FirstEnergy Solutions, are no longer able to benefit at the public's expense," Sawmiller added.

Photo: Flickr user, mcdlttx

Related story: Renewable Energy Credits Explained