"First they ignore you, then they ridicule you,
then they fight you, then you win."
-- Mohandas Gandhi
Pam Kasey interviewed a FirstEnergy employee about the Buckhannon-Weston transmission line that popped up in PJM’s latest transmission wish list. Here is her story, for those of you who are following the progress of this line.
FirstEnergy Riding the PJM Gravy Train
FirstEnergy is now publicly bragging about how much gravy they pulled in from PJM’s recently announced transmission construction plans. They have even branded it with their own marketing slogan. Most of these new projects will be piecemeal “improvements” that include rebuilding transmission lines, replacing and adding transformers and static VAR compensators and some new transmission segments, most relatively short and lower capacity lines.
Following up on its attack on PJM’s “postage stamp” rate recovery system in FERC’s attempt to fight off the federal 7th Circuit Court, the Illinois Commerce Commission has filed a new case at FERC challenging PJM’s attempt to have it Illinois rate payers pay for PJM projects that don’t benefit Illinois. The ICC is on the warpath, and they are taking no prisoners.
What a difference a year and a half makes. Since FirstEnergy, one of Ohio’s power giants, swallowed Allegheny Energy, FirstEnergy has become a major player and rival to AEP in the PJM cartel. FirstEnergy’s power and strategic acumen was shown clearly in their gaming of the PJM capacity auctions in the last couple of weeks. Last fall, FirstEnergy announced the closure of relatively large numbers of coal-fired plants in OH and WV. Their timing was perfect.
The impacts of the closures resulted in PJM’s Transmission Expansion Advisory Committee (TEAC) proposing the transmission changes that put FirstEnergy on the transmission construction gravy train. The plant closures also created an artificial shortage of capacity in FirstEnergy’s home region in northern OH, which will result in PJM ordering the company to keep at least a few of its plants open.
Remember when Allegheny Energy was AEP’s lil’ buddy and was serving as AEP’s connection to East Coast power markets for Big Brother AEP and the PATH project? Well, those days are gone forever. The FirstEnergy is now the rising star in the PJM cartel, and AEP is struggling. Remember all that Project Mountaineer claptrap about congestion and high capacity prices in eastern PJM? Now congestion prices are highest in western PJM and FirstEnergy is in the catbird seat.
Daily Mail Couldn’t Get It Any Wronger
I’ve just read the Charleston Daily Mail’s editorial this morning on APCo’s plans to buy out Ohio Power’s shares in the Amos and Mitchell plants. I am astounded by how wrong the Daily Mail’s editorial board got this one.
First, they try to blame everything on “the government” (read “war on coal”) for forcing AEP to switch from coal to …. “wind turbines.” What??? Here in the real world, electric companies are switching from coal to natural gas fuel and electric rates in many areas of the US are falling as a result. Of course, because they never mention natural gas, the Daily Mail editors also miss the important fact that natural gas power generation is much more compatible with the rapid growth of clean, but intermittent, wind power, because gas plants can be ramped up or scaled back much more quickly than coal-fired plants. But the Daily Mail editors are much more interested in pushing their “government” bashing agenda than looking at reality.
The editorial board spends the rest of the editorial wringing their hands about how West Virginia has to knuckle under to AEP’s plans and West Virginia’s rate payers will have to grin and bear the new rate increases that are sure to come.
There does not seem to be much that West Virginia state government can do to help the company that provides electricity to so much of the state. It is galling that West Virginians apparently have no say over the chunk of the John Amos plant that Ohio Power owns.
I hate whiners. Especially when they are wrong.
First of all, the WV PSC will have to approve what amounts to the purchase of new power plants from Ohio Power that will go straight into the WV rate base. That’s something that state government can do.
The Daily Mail wants to blame the Ohio Public Utilities Commission, and not AEP’s poor management, for this mess. What is the PUCO doing wrong in the editors’ opinion? Protecting Ohio rate payers. That’s their job. The job of the PUC of Ohio is not to protect WV rate payers. That’s the job of the WV PSC.
I don’t know how the Daily Mail editorial board could have interpreted this mess any wronger. Their point seems to be to portray an Ohio-run company, Appalachian Power Company, off the hook and blame everything on “government,” all the while whining about how there is nothing that anyone can do to stop it. I stand amazed.
Grounded, The State Journal’s new energy blog, written by Pam Kasey and Taylor Kuykendall, has a link to an interesting story about a new coal-fired power plant in Illinois. The news is not good.
The 1,600-megawatt Prairie State Energy Campus clean-coal plant is about to go online in Illinois, months late and at far higher cost than originally anticipate. The Toledo Blade solicited comments from some of the Ohio cities that have contracted for its power. It will cost more than originally thought:
Last year the Chicago Tribune reported that the Illinois Municipal Electric Agency, an association of 33 cities that owns a 15 percent stake in the plant, predicted that its electric delivery rates to member communities would increase to $63.40 a megawatt hour in 2013, up 30 percent from 2007, largely because of their investment in the Prairie State project and a smaller coal-fired plant in Kentucky.
A megawatt of power on the spot market is currently $20 to $25, reporter Jon Chavez found. But the Ohio cities contacted say the Prairie State generation represents a small part of their portfolios and that it’s a good investment in the long run. The plant is scheduled to go online soon.
So this is what happens with brand new “clean” coal “campuses” these days. (I love the “campus” thing, by the way. Soon that’s what they’ll be calling mountaintop removal sites.) The coal plant took longer than expected to build and will produce power that is much more expensive than alternatives. The coal-fired power industry still spouts the line about coal being the cheapest, most abundant energy resource, even though that one stopped being true a few years ago. Want to see WV’s most abundant energy resource? Check this out.
As regular readers of The Power Line well know, Pam Kasey has been doing great reporting on WV’s electrical system, even if her editors are clueless about writing headlines. Pam is a crack PATH Kremlinologist and got PJM’s Steve Herling to state publicly that PJM may make a final decision on PATH this summer, after the RPM auctions that just concluded last week.
We wish Pam and Taylor well on their new venture. It’s great to have even more solid coverage of energy issues in WV. I love the blog’s name, too. Grounded. It’s great.
More AEP Spin in Charleston Daily Mail
George Hohmann covered some different angles in APCo’s spin campaign yesterday at Charleston Newspapers. Hohmann’s story fleshes out the details of APCo CEO Patton’s account of the dissolution of the AEP power pool and AEP’s public spin. Patton portrays the dumping of coal-fired generation on WV as a way of increasing WV’s generating capacity.
Because the WV PSC has no least cost planning process, APCo is not required to provide a comprehensive analysis of all options for meeting any future problems it identifies. Because APCo and Wheeling Power, AEP’s WV subsidiaries, have never had to file a least cost plan, also called an integrated resource plan, in WV, the WV PSC has no prior knowledge of various strategies for resolving APCo or Wheeling Power generation deficits that may result from the dissolution of the AEP power pool.
Instead, Mr. Patton simply presents AEP’s plan and the WV PSC is stuck with a “take it or leave it” situation. Instead of having comprehensive information on which to base its decision, the PSC is completely dependent on AEP’s analysis.
Mr. Hohmann concludes his story with a quote from Mr. Patton that reflects exactly what I have been saying here on The Power Line for the last three years:
“There’s a certain level of risk where 71 percent of your generation is from coal and a significant portion of your operation is dictated by fuel cost,” Patton said. “There’s an inescapable amount of uncertainty that’s going to be there.”
Therefore, even if Ohio agrees with Appalachian’s plan, “I think we and our commissions and stakeholders will have to look at how to manage risk going forward,” he said.
The problem in WV is that the WV PSC lacks an important tool for managing that risk: Least Cost Planning.
According to today’s story in the Charleston Gazette, Appalachian Power’s CEO Charles Patton met with the Gazette editorial board yesterday to discuss APCo’s decision to increase its coal-fired power generation in WV and increase APCo’s electric rates. Except that’s not what Mr. Patton told the Gazette.
Instead, Patton went on and on about natural gas’s increasing share of power generation and plant closures. Ken Ward, the Gazette reporter on the scene, neatly nailed the fact that none of APCo’s coal plant closures have anything to do with EPA’s new enforcement activity on air pollution.
Here is the main point of the story:
Appalachian Power officials said Wednesday they hope to avoid further rate increases amid a long-term national energy transition that includes a continued — but perhaps significantly reduced — role for the coal industry.
Part of Appalachian’s plan is the proposed acquisition of additional coal-fired generation from a sister American Electric Power unit and the conversion of other plants to natural gas.
AEP hopes to transfer more than 2,000 megawatts of generation capacity from the coal-fired John Amos and Mitchell plants in West Virginia to Appalachian, as part of a plan that includes converting the Clinch River plant in Virginia and the Dresden plant in Ohio to burn natural gas instead of coal.
The proposal, pending before regulators, has been previously discussed by AEP and Appalachian Power, but company officials this week met with Gazette editors as part of an effort to make their intentions clear to the public and to power customers.
Historically, Appalachian has purchased power from those facilities, currently owned by sister AEP unit Ohio Power. The proposed transfer would allow Appalachian to generate for its customers directly from those plants.
“Our plan to replace and increase Appalachian’s generating capacity is a cost-effective solution that will have little or no effect on customer rates,” the company said in a flier describing its proposals.
Buried in all the flim-flam about retiring coal plants and natural gas, Patton told the Gazette that APCo is buying 2000 megawatts of coal-fired generating capacity. He tried to connect this with some vague connection to AEP’s new gas-fired plant at Dresden, OH. But that isn’t what is really going on.
Right now, AEP’s OH subsidiary Ohio Power owns one third of the John Amos plant near Nitro, WV and about 80% of the Mitchell plant near Moundsville, WV. Both plants are part of a “power pool” that AEP operates among many of its plants in the region that share electric power among AEP companies. AEP is dissolving this power pool and reorganizing how its subsidiaries purchase wholesale electricity. So the change in AEP’s power pool is one factor in the change, and Patton apparently never mentioned it to the Gazette yesterday. [see accompanying post here]
The main thing driving AEP’s changes, however, is the deregulation of how electricity is sold in OH, AEP’s base of operations. AEP’s Ohio Power now have to compete with other power companies. AEP has to keep OH rates as low as possible, so Ohio Power can no longer afford to get their power from expensive coal-fired plants. AEP is dumping its Ohio Power shares in WV coal plants because electricity from those plants is too expensive to sell in the newly deregulated OH markets.
So who ends up with those expensive-to-run obsolete coal plants? APCo’s WV rate payers. Yes, AEP is playing its WV rate payers for chumps. Again.
Does Mr. Patton tell us any of this? No. He goes on and on about Amos’s and Mitchell’s scrubbers, blah, blah, blah — and, look over here, the Dresden gas-fired plant.
AEP is dumping its coal-fired generation capacity on WV because WV is a regulated market where APCo can recover all its expensive fuel costs, as well as its capital costs, from consumers without having to face the rate competition the company faces in OH.
In the quote above that Mr. Patton says that the purchasing of 2000 megawatts of new coal-fired generation capacity is “a cost-effective solution that will have little or no effect on customer rates.” Note that he hedges his statement about rate impacts. This is pure spin. Remember Mr. Patton’s statements only a few months ago minimizing the effects of his bond bailout plan, all the while he was preparing to add $50 million to the amount APCo wanted to “securitize.”
In fact, acquiring 2000 megawatts of new capacity will have a direct rate increase impact. APCo will be buying Ohio Power’s shares of the Amos and Mitchell plants. That money will come from APCo’s WV rate payers and will be included in the base rate portion of their electric bills. Base rate cases at the WV PSC allow recovery by utilities of all their capital expenditures and overhead. All of these costs will go up with the purchase of Ohio Power’s WV operations.
Plus, APCo rate payers will be stuck with paying rising coal costs through ENEC cases at the WV PSC which cover short term operating cost like fuel and power purchases.
WV Consumer Advocate Byron Harris has also pointed out to the WV PSC that AEP’s shell game could well lead to a shortage of power capacity for Wheeling Power, AEP’s other WV subsidiary. Here is a link to Mr. Harris’s PSC filing last March.
At a time when WV should be diversifying its power mix AWAY FROM coal, like the rest of the US, AEP wants to increase the proportion of coal-generated electricity in our state as part of its deregulated chess game in OH.
Why didn’t Mr. Patton discuss these topics with the Gazette yesterday?
Update: I did another post this morning on Patton’s spin in the Charleston Daily Mail here.
PJM has been fighting NJ’s efforts to become self-sufficient in electrical generation. PJM officials have been claiming that state subsidies were distorting electrical markets, while PJM executives have been pushing their own subsidized transmission projects. Now NJ has been vindicated. All three of their proposed gas-fired plants cleared last week’s PJM capacity auction and have been admitted to the cartel’s generation sources in three years.
PJM officials, of course, were gracious in apologizing for their past mistakes:
The results, however, were a victory for New Jersey officials, who have pressed for more aggressive efforts to develop new power generation in the state.
In a press release issued late in the afternoon, the Christie administration said it was happy to see that three natural gas-fired plants cleared the capacity auction. “This is fantastic news for ratepayers as it advances the Christie administration’s goals of increasing grid reliability, reducing energy costs, cleaning the environment and enhancing the economic competitiveness of New Jersey.”
Andy Ott, a senior vice president of PJM, told reporters yesterday in a morning conference call the surge of new generation is driven by the expected retirement of 14,000 megawatts of existing power plants, largely because of tougher environmental regulations.
In the call, Ott declined to comment on specific plants that cleared and failed to clear in the auction, even though some companies, such as FirstEnergy Corp., had announced in filings with the Securities and Exchange Commission on Friday that 400 megawatts of peaking plants — those that provide capacity at times of highest electricity demand — failed to clear the auction.
The secrecy reflects the opaque nature of the system designed to procure needed capacity to provide reliability, known as the Reliability Pricing Model auction. The process has come under intense criticism from state regulators in New Jersey and elsewhere for needlessly spiking consumers’ electric bills. In New Jersey, ratepayers absorb an extra $1 billion each year because of the system.
Oops. Sorry. No apology from PJM.
Even though the plants cleared the auction, the two with state-sponsored subsidies still need to clear additional hurdles. The state’s pilot program to use ratepayer payments to make the projects viable is under challenge in the federal courts.
And who is challenging them in the federal courts? PJM, of course.
Throughout the TrAIL power line case at the WV PSC back in 2007, citizens and expert witnesses testified that TrAIL would not be needed if more generation capacity were built on the East Coast. PJM engineers whined that they only controlled transmission lines, and couldn’t do anything about increasing generation in the PJM region – that was a matter for the “free” market. Except that it wasn’t. As part of the deregulation of the electricity industry, FERC put regional transmission organizations like PJM in charge of auctions that controlled investment in generation. PJM designed auction systems that favored power companies that already operated plants in its regions. These power companies also happened to be the dominant members of PJM.
So the disingenuous testimony from PJM witnesses in the WV TrAIL case were just a smokescreen for PJM’s Project Mountaineer agenda. Although the Christie administration worked hard to promote the Susquehanna-Roseland Project Mountaineer project, NJ’s push to build new power plants will crush any AEP/FE plans to revive the PATH zombie.
