POWER January 2017 - 54

INDUSTRY REVIEW & PREVIEW
U.S. Electric Markets in Transition
The U.S. market for electricity is trifurcated. More than half the country is served by
competitive generators bidding against each other in wholesale markets. Almost
half is served by conventional state-regulated, vertically integrated utilities controlling
generation and transmission. The rest, a much smaller portion, consists of government-owned
and customer-owned utilities, some of which are generators and
most of which serve retail customers. All categories are in transition.
Kennedy Maize
I
n October
2016,
the
Public
Utilities
Commission of Ohio (PUCO) offered
Akron-based FirstEnergy a five-year,
$600 million subsidy to be paid by the utility's
customers. The move was designed to
compensate for the investor-owned utility's
(IOU's) large, baseload coal and nuclear
plants' inability to compete in the PJM competitive
wholesale market against low-cost
natural gas.
Consumer groups slammed the PUCO
order as " corporate welfare. " Tony Addison
of AARP said the PUCO decision means
that " Ohioans should subsidize the failing
business model of FirstEnergy. " This,
Addison said, " creates a terrible precedent
by PUCO and others to bailout companies
54
threatening to leave the state, on the backs
of the people that work hard and pay their
bills every month. "
FirstEnergy was not satisfied. Within
weeks, the company announced it was putting
its baseload generating plants, with a
combined capacity of over 13 GW, including
coal and nuclear units, on the auction
block. President and CEO Charles E. Jones
said, " We have made our decision that over
the next 12 to 18 months we're going to exit
competitive generation and become a fully
regulated company. "
A month earlier, responding to the same
market forces, Columbus-based American
Electric Power (AEP) sold four Midwestern
gas- and coal-fired power plants, totalwww.powermag.com
ing
5.2 GW of capacity, to an independent
power joint venture of Blackstone and
ArchLight Capital Partners for over $2 billion.
(For more on the flurry of mergers and
acquisitions in 2016, see " A 2016 Roundup
of Power Sector Wheeling, Dealing, and
Repositioning " in this issue.) The company
took a $2.3 billion writedown as part of the
deal. The sale represents AEP's move-like
FirstEnergy's-to exit PJM's competitive
wholesale markets, retreating to conventional,
cost-of-service regulation that characterized
the U.S. electric markets before
the restructuring of the 1990s.
AEP was frank about its motives in selling
off major generation. President and CEO
Nick Akins said, " AEP's long-term strategy
POWER | January 2017

http://www.powermag.com

POWER January 2017

Table of Contents for the Digital Edition of POWER January 2017

Contents
POWER January 2017 - Cover1
POWER January 2017 - Cover2
POWER January 2017 - Contents
POWER January 2017 - 2
POWER January 2017 - 3
POWER January 2017 - 4
POWER January 2017 - 5
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