"First they ignore you, then they ridicule you,
then they fight you, then you win."
-- Mohandas Gandhi
While a lot of what I write on The Power Line is very critical of power company behavior, I also will give them credit where credit is due. Back in early May, I posted this about the 50 new positions that FirstEnergy said they would create in WV if the PSC gave them the settlement they wanted in the Harrison case. I made the point that the settlement, which the PSC approved, did not specify what kinds of jobs would actually be created, despite the claims of the Utility Workers Union of America testimony in the case that many of these jobs would be workforce additions at the Harrison Power Station, where they are clearly needed after cutbacks and reductions since FirstEnergy took over the plant from Allegheny Energy.
I have read the testimony filed by FirstEnergy’s Director of Rates and Regulatory Affairs Kevin Wise in the pending base rate case that FirstEnergy has filed. Part of the 17% rate increase that FirstEnergy wants will go to paying for all of these 50 new positions. Here is the testimony presented by Mr. Wise:
The thirty-two new ED positions are anticipated 1 to be strategically located throughout the Companies’ West Virginia service territory in order to support this goal. Lineworkers (18) are the most obvious position needed and thus makes up the majority of
the hires. Substations workers (5), engineering (2) and meter equipment technicians (1) are all positions that are involved in connecting new customers. Supervisors (3) will be added to help manage the additional lineworkers and the workflow. Garage mechanics (3) are required due to the necessary increase in fleet. Twenty-four of the positions are expected to be at Mon Power locations while the remaining eight are expected to be at Potomac Edison.
For the generation segment, the fifteen new positions at Harrison Power Station and the three new positions at Fort Martin Power Station were identified after a review of the staffing models at other FirstEnergy power stations. Specifically at Harrison in the Production department, five additional Control Room Operators (“CRO”) were added, one to each production crew to enhance continuity of the power generation process. These five CROs came from promotions of existing plant floor operators. Subsequently, five new plant floor operators were hired to fill the five vacancies resulting from the promotions. Five additional plant floor operators were added to each of the five Production crews to increase the frequency of equipment checks. Additionally, three SO2/solid waste processing operators were added to ensure adequate coverage for absences. A plant production supervisor position was added as a result of the additional operators and, through the staffing review, it was also determined that a position for drafting and document control was needed to support the engineering staff. Specifically Monongahela Power Company and The Potomac Edison Company
at Fort Martin, three additional plant floor operators 1 were added to crews in the Production department to increase the frequency of equipment checks, to allow time for additional staff training, and to ensure adequate coverage for absences.
So 15 of the 50 new hires will be at the Harrison Power Station. It appears that my fears concerning the added positions turned out to be groundless. Good for FirstEnergy.
But here is another part of Mr. Wise’s testimony that confirms my earlier points. Remember my post about “the old switcheroo”? At the time, FirstEnergy was putting out a lot of smoke about how the Harrison dump was lowering our rates. Turns out, I was right about the flimflam. Here is what Mr. Wise said in the current base rate case:
The temporary surcharge approved in the Harrison Transfer Case was designed to return the entire gain on the sale of Pleasants Power Station to customers over the life of the surcharge. When the surcharge expires on the first day of new rates from this case, so will the approximate $19 million annual credit to rates reflecting the return to customers of the gain on the sale of Pleasants. The resulting increase in rates is approximately $3 million more than the $16 million annual reduction in rates that resulted from the Harrison Transfer Case effective October 9, 2013.
The credit for the Pleasants plant is gone and the full cost of the Harrison mess is on our electric bills for the next 25 years or so.
Analysts at UBS, a major investment bank, downgraded FirstEnergy’s stock to a “sell” recommendation. I have seen the 25 page analysis by UBS’s Julien Dumoulin-Smith who follows FirstEnergy, but it is behind a pay wall, so I won’t link to it. Dumoulin-Smith points to very high debt levels at FirstEnergy, as well as threats to the company’s highly leveraged unregulated business, FirstEnergy Solutions, posed by stagnant or falling electricity demand as the main reasons for the downgrade. Dumoulin-Smith revised his stock price projection from $31 per share to $26 per share. FirstEnergy is currently trading at around $33 per share.
A “sell” recommendation is a warning to investors to sell now because the share price is only going to fall. Dumoulin-Smith points directly to FirstEnergy as a merger target, but he doesn’t think anyone wants the company.
Furthermore, it appears unlikely that FE will participate in M&A, either as a buyer or a seller, given that the most logical acquirer (Exelon, the only other large remaining integrated utility) is already pursuing the $7Bn acquisition of PEPCO Holdings, and given FE’s weak currency rather any deal would need to be done for cash. For these reasons we see FE testing its ~$30/sh low and heading lower.
Dumoulin-Smith also sees continued low gas prices and FirstEnergy’s heavy reliance on coal-fired generation as another major threat to the company’s cash flow.
Among the most important takeaways from the latest downturn in gas is the surprising resilience of production in both the Marcellus and Utica regions. We sense that expectations around structural discounts to both these regions remain exceptionally depressed with upwards of $0.75/MMBtu spreads vs. Henry Hub as likely sustainable through the near term. This is likely to drive a continued build of new gas generation in subsequent PJM capacity auctions, enabling further heat rate backwardation – and driving further market share erosion from coal.
You gotta love analystspeak. Dumoulin-Smith loves to throw around words like “backwardation.” Heaven help us.
Dumoulin-Smith points out that FirstEnergy’s strategy has been to cram as many coal-fired power plants into its regulated utilities (Harrison) and to then file base rate cases to jack up the base rate return on equity that gets passed on to rate payers (the WV base rate case filed in April). But given all of FirstEnergy’s other problems, this strategy is too little too late.
Stay tuned. Something big is going to have to happen if FirstEnergy is going to save itself.
This graph shows clearly how much money is available from each WV rate payer to invest in reductions of electricity use in our state. Compare WV’s point in the upper left hand corner, with a residential rate just below 10¢/kwh and about 1100 kwh use/month, with NY in the lower right hand corner, at a residential rate of about 17.5¢/kwh and monthly use of about 600 kwh.
Here’s the rough math on what a WV residential customer would pay monthly if that customer used 600 kwh, as in NY, compared with WV’s current average monthly 1100 kwh. If the average WV customer used 600 kwh/month, he/she would pay an electric bill of about $60 monthly (10¢ X 600), as opposed to the $110 per month (10¢ X 1100) that the average WV customer pays. So WV electricity customers could invest, through their electric rates as they must in a regulated state, up to $50 per month and still end up with lower electric bills than they are paying now.
And those are 2012 figures. Both of the Ohio-based holding companies that control WV’s electric utilities have filed for residential rate increases of up to 22% in recent months. Over the last few years, the WV PSC has ignored evidence supporting aggressive increases in use reduction in WV and has chosen instead to put rate payers’ rate increases into obsolete, centralized coal generators, dependent on expensive to maintain distribution systems.
As I have noted before, the WV PSC and the WV Division of Energy are focused on the wrong number. People don’t pay electric rates. They pay electric bills. Right now, WV rate payers could be investing their electric rates in lowering their electric bills, but WV regulators and policy makers are too busy catering to the needs of the power companies to notice.
Here is an interesting blog post from the Rocky Mountain Institute which contrasts the German phase out of nuclear power with the Japanese failure to get control of its electrical system following the beginning of the Fukushima nuclear reactor disaster. (I say “beginning” of the disaster, because this disaster will last for hundreds of years.)
Here is the gist of the post:
Japan thinks of itself as famously poor in energy, but this national identity rests on a semantic confusion. Japan is indeed poor in fossil fuels—but among all major industrial countries, it’s the richest in renewable energy like sun, wind, and geothermal. For example, Japan has nine times Germany’s renewable energy resources. Yet Japan makes about nine times less of its electricity from renewables (excluding hydropower) than Germany does.
That’s not because Japan has inferior engineers or weaker industries, but only because Japan’s government allows its powerful allies—regional utility monopolies—to protect their profits by blocking competitors. Since there’s no mandatory wholesale power market, only about 1% of power is traded, and utilities own almost all the wires and power plants and hence can decide whom they will allow to compete against their own assets, the vibrant independent power sector has only a 2.3% market share; under real competition it would take most of the rest. These conditions have caused an extraordinary divergence between Japan’s and Germany’s electricity outcomes. [emphasis mine]
There are a lot of parallels between the iron grip that Japanese electric companies have over the Japanese economy and the WV electricity industry controlled by two Ohio-based holding companies and a complicit WV political and regulatory culture.
The RMI post focuses on the way Germany and Japan have dealt with decisions to reduce or eliminate their dependence on dangerous nuclear power:
Before the March 2011 Fukushima disaster, both Germany and Japan were nearly 30% nuclear-powered. In the next four months, Germany restored, and sped up by a year, the nuclear phaseout schedule originally agreed with industry in 2001–02. With the concurrence of all political parties, 41% of Germany’s nuclear power capacity—eight units of 17, including five similar to those at Fukushima and seven from the 1970s—got promptly shut down, with the rest to follow during 2015–22.
In 2010, those eight units produced 22.8% of Germany’s electricity. Yet a comprehensive package of seven other laws passed at the same time coordinated efficiency, renewable, and other initiatives to ensure reliable and low-carbon energy supplies throughout and long after the phaseout. The German nuclear shutdown, though executed decisively, built on a longstanding deliberative policy evolution consistent with the nuclear construction halts or operating phaseouts adopted in seven other nearby countries both before and after Fukushima.
Moreover, the Energiewende term and concept began before 1980, and Germany’s formal shift to renewables—now well over 70 billion watts installed—began in 1991, 20 years before Fukushima, then was reinforced in 2000 by feed-in tariffs. Those aren’t a subsidy but a way for customers to buy, and hence developers to finance and build, the renewables society chose, with a reasonable chance for sellers to earn a fair return on their investments. FITs’ values have plummeted in step with renewable costs, so developers now commonly opt to earn higher market prices instead.
This integrated policy framework and the solid analysis behind it meant that the output lost when those eight reactors closed in 2011 was entirely replaced in the same year—59% by the 2011 growth of renewables, 6% by more-efficient use, and 36% by temporarily reduced electricity exports. Through 2012, Germany’s loss of 2010 nuclear output was 94% offset by renewable growth; through 2013, 108%. At this rate, renewable growth would replace Germany’s entire pre-Fukushima nuclear output by 2016. [emphasis mine]
Remember that stupid story in The State Journal last week? While WV’s Jeff Herholdt and AEP’s Charles Patton whine that renewable power is just too hard, Germany replaced the capacity of 8 nuclear reactors in one year and will entirely make up for all nuke closures in a five year period, mainly with reductions in electricity use and new renewable generation capacity.
And remember the false statement by the WV Coal Association’s Bill Raney about coal generation in Germany? Here’s the truth:
Contrary to widespread misreportage, closing those eight reactors did not cause more fossil fuel to be burned. Whenever renewable sources run in Germany, both law and economics require them to displace costlier sources, so renewables always make fossil-fueled plants run less, though often in more complex patterns. The data confirm this: from 2010 through 2013, German nuclear output fell by 43.3 TWh, renewable output rose by 46.9 TWh, and the power sector burned almost exactly as much more coal and lignite as it burned less of the costlier gas and oil. German utilities bet against the energy transition and lost. Now they gripe that the renewables in which most of them long underinvested have made their thermal plants too costly to run.
Despite those big utilities’ self-inflicted woes, Germany adopted a coherent and effective strategy of boosting efficiency and renewables and ensuring their full and fair competition. In contrast, Japan replaced its own, larger lost nuclear generation almost entirely by increasing its imports of costly fossil fuels. These opposite policies produced opposite results.
Note the statement above that Germany’s energiewende began in 1980. The Germans created their energy transformation with a consistent and long term commitment and a lot of hard work and innovation — and by breaking corporate control of the country’s electrical system. It’s not rocket science. You just have to make the decision and do it. Both WV and Japan have far more renewable resources than Germany. The only difference is that the Germans are committed to innovation and democratizing its energy economy, and Japan and WV are not.
The Washington Post has a neat little map comparing electric rates, electric bills and electric use across all the states in the US. It perfectly illustrates the point I have made many times on The Power Line – having low rates doesn’t matter, if your electric bills are high because people are using much more electricity than they need.
Look at CA and NY and VT on the map. Both states have much higher electric rates, but NY is in the same category as WV in electric bill amounts and VT has significantly lower electric bills than WV. The secret in CA, VT and NY is strong investment in energy efficiency along with incentives to builders and customers to make that investment.
Power companies whine a lot about the “problems” that solar power causes for grid management. That is one of the reasons power companies want to impose penalties on solar generators.
One of the “problems” that power companies whine about is the fact that solar generation on the grid peaks (in the middle of the day) just before major demand peaks between 5 and 8 in the evening. Here is a chart of California’s system presented in this article in Renewable Energy World about the whiners:
This graph is known as the duck chart, for obvious reasons. Note that the only actual data is shown for the lines labelled 2012 and 2013, although the 2014 projection is probably pretty close.
Here’s the whine:
The duck is the perfect vehicle for utility complaints because it casts the growth of distributed solar as a major technical problem (an area where most policy makers defer to utilities) rather than an economic one, where utility complaints can be contrasted with their customer’s desires for more local control over their energy use and costs.
The utility companies crying “fowl” highlight a particular part of the duck chart: the dramatic ramp up in power generation on the light-green 2020 curve that happens in the late afternoon, as energy produced from solar wanes but energy demand rises. In the traditional grid operating model, accommodating this ramp-up in energy use requires a lot of standby power from expensive to operate, rapid-response power plants.
Whiners whine, but are they right? No.
Evidence suggests utilities are crying “wolf,” with several experts poking large holes in the utility argument. The Clean Coalition and Regulatory Assistance Project have both offered numerous strategies utilities can use to “flatten the duck” or “teach it to fly:”
- Target energy efficiency measures for the “ramp up” period
- Orient solar panels to the west to catch more late evening sun
- Substitute some solar thermal with storage for solar PV [I'd suggest adding storage to PV also works]
- Allow the grid operator more demand management via electric water heating [already done extensively by rural cooperatives in Minnesota]
- Require large new air conditioners to have two hours of thermal storage accessible to the utility
- Retire inflexible generating plants (read: coal and nuclear) that need to run constantly in off-peak periods
- Concentrate utility demand charges on the ramp up period.
- Deploy electricity storage into targeted areas, including electric vehicle-to-grid
- Implement aggressive demand response programs (subscribing more businesses and homes into programs to shed their energy demand at key periods)
- Use inter-regional power transactions
- Selectively curtail a small portion of solar power generation
In other words, the technical challenges of the duck are manageable, largely with existing technology.
The economic problems for utilities — stemming from an outdated business model — may not be so manageable.
So the problem isn’t with solar power generation. The problem is that big base load generators are clinging to their obsolete investments and want the rest of us to pay for it.
Most people in the US pay a relatively small flat fee as part of their electric bills. In WV it’s called a “customer service fee.” No one can really explain what this fee pays for, and why it couldn’t be included as part of the company’s base rate, which in WV covers normal overhead plus capital investment costs. I demonstrated here how this flat fee raises your effective electric rate as you purchase less and less electricity from your power company. If you improve the efficiency of your electricity use, just use less or produce your own electricity with a photovoltaic system, your rates go up.
In the past, I have also written about how power companies, faced with the threat of decentralized power to their obsolete business model, (along with some dark money and influence from the Koch brothers) have been pressuring public utilities commissions across the US to add extra fees to the bills of residential customers who produce their own electricity. This effort succeeded in Arizona, ironically, the state with the most solar power potential in the US.
My friends up in Wisconsin sent me a link to this story about a Madison, WI power company that is jacking up its customer service fee from an already pretty high $10.50 per month to $19 per month (!). Here in WV, FirstEnergy included an increase of its $5 monthly service fee to $6 in its pending base rate case. AEP followed suit a month later in its own base rate case.
So it seems that electric companies aren’t interested in jacking up special fees just for solar power producers. They want to make everyone to pay higher effective rates because they want to penalize anyone who it trying to reduce his/her electricity use. I don’t know if anyone tracks trends in these customer service fees across the US, but it would be interesting to know if raising fees on everyone is increasing in frequency.