FirstEnergy Fuzzy Math
The little rate cut that FirstEnergy is claiming in its Harrison settlement offer is the little sweetener that makes good newspaper headlines. But let’s look a little closer.
The rate cut comes from simple arithmetic. The new rate increase from the purchase of too much generation capacity at too high a price for the Harrison plant comes to $113 million. Because Mon Power will not have to be purchasing electricity from PJM’s energy and capacity markets, FirstEnergy projects that there will be a decline in their Extended Net Energy Costs (the WV PSC designation for fuel and purchased power costs) of $129 million.
The immediate result of this new increase and new reduction in ENEC rates will result in a little less than $16 million in rate reduction for Mon Power and Potomac Edison customers in WV. But back in 2012, the Consumer Advocate, who now supports this math, pointed out that comparing the surcharge, which is a base rate charge, which pays for long term fixed costs, is very different from an ENEC rate cut, which is based on changes in the company’s variable, short term costs.
This rate cut points to exactly what Sierra Club expert witness David Schlissel pointed to in his testimony in this case. WV rate payers are being saddled with a permanent bill for more power plant capacity than we need, while our variable costs will now be even more dependent on trends in the coal markets and health protection costs on coal plant emissions. The ENEC reduction that sweetens the Harrison deal is a one time adjustment, while the Harrison plant will be burning only coal for the next 27 years.
Keep in mind also how ENEC rates work. The company makes a projection of the trend in those costs for the coming year and the PSC allows a rate increase based on that projection. At the end of the year, the company submits a report to the PSC of what its actual costs were, compared with its projection. Depending on how accurate the projection was, the company will then be allowed to raise rates again to make up for projections that were too low or will be required to cut rates for projections that were too high. FirstEnergy customers in WV just got a rate cut in January, because FirstEnergy’s ENEC projections for 2012 were too high.
So in 2014, when all the hoopla about the Harrison case has died down, when this ENEC rate adjustment is itself adjusted based on actual changes in FirstEnergy’s variable costs, this one time adjustment could disappear completely.
FirstEnergy wants all reporters to be focused on their projected rate cut right now. But it might end up being an increase by the time it is finally accounted for in 2014. So I can’t celebrate FirstEnergy’s fuzzy math just yet. Until the numbers become real in 2014, we don’t really know.
We do know that we will feel the impact of the inflated Harrison plant price and the excess generating capacity for the next 27 years, FirstEnergy’s estimation of the remaining life of the plant. That rate increase is certain and permanent. The ENEC rate cut is neither.