On February 2, 2018, FERC conditionally granted FirstEnergy Service Company (“FirstEnergy”) a limited waiver of certain market-based rate affiliate restrictions to allow for the establishment of a centralized regional transmission organization (“RTO”) interface group.  The affiliate restrictions protect captive customers from potential harm if a franchised public utility interacts with its affiliates in ways that would transfer benefits to the affiliate to the detriment of the captive customer.  FERC granted the waiver to FirstEnergy, with the condition that it must keep sufficient records to permit the Commission to audit whether FirstEnergy’s representations that it would not harm captive customers are true.

FirstEnergy explained in its waiver request that its subsidiaries (collectively referred to as the “FE Franchised Public Utilities”) dispatch their generation resources through two distinct groups.  Employees in the first group make decisions related to developing offers and scheduling generation, while employees in the second group communicate those decisions to PJM Interconnection, L.L.C. (“PJM”) and follow PJM’s instructions.  The FE Franchised Public Utilities have two affiliates, FirstEnergy Solutions Corporation (“Solutions”) and Allegheny Energy Supply Company, LLC (“AE Supply”), which are both power marketers authorized by the Commission to sell electricity at market-based rates.  Solutions dispatches all the generation output of both itself and AE Supply through two groups, similar to the two groups of the FE Franchise Public Utilities.  In its waiver request, FirstEnergy sought to consolidate the FE Franchised Public Utilities and Solutions groups, each performing the RTO interface function, into a single support group that would support that function for both the FE Franchised Public Utilities and its market-regulated power sales affiliates.

In its order conditionally granting waiver, FERC explained that its affiliate restrictions would continue to apply and protect captive customers.  FERC stated that these restrictions govern the separation of functions, the sharing of market information, sales of non-power goods or services, and power-brokering.  In addition, FERC explained that a franchise public utility and its power sales affiliate may not share employees that make economic dispatch decisions or perform market functions.  FirstEnergy represented that employees of the proposed centralized RTO interface services group would not make dispatch decisions or perform market functions.  Further, FirstEnergy contended that it would put in place its own restrictions, which would prevent the sharing of marketing-related information regarding one business unit with the marketing personnel of the other business unit.

In granting the waiver, FERC agreed with FirstEnergy’s position that “the limited and specific responsibilities of the centralized RTO interface services group…can be classified as ministerial in nature” and, therefore, were not related to market functions.  FERC also reasoned that “FirstEnergy’s commitment to put in place structural measures to prevent the improper sharing of non-public, marketing-related information further reduces the potential for affiliate abuse.”  Therefore, FERC granted FirstEnergy a limited waiver of its affiliate restrictions, with the condition that FirstEnergy keep diligent records to enable FERC to audit its RTO interface group to ensure FirstEnergy’s representations regarding holding captive customers harmless are accurate.  FERC also directed the FE Franchised Public Utilities, AE Supply, and Solutions to submit a compliance filing within 30 days of the date of its order to revise the “limitations and exemptions” sections of their respective market-based rate tariffs, including a citation to FERC’s order.

FERC’s order can be found here.