Power Companies Want WV Legislature to Allow Bubble Loans at PSC

The whole “securitized” real estate bubble collapsed less than five years ago.  Now securitization has come to WV power companies and the WV PSC.

Power company lobbyists have fast-tracked a bill, HB 4530, that would allow power companies to sell bonds and charge interest to rate payers to cover the rapidly rising costs of generating electricity from coal.  In the coded world of the WV Legislature, this bill is well-lubricated to pass.  Two of the bill’s sponsors are leaders in the House, the Majority Leader and the chairman of the Finance Committee.  These sponsors send a signal to all House members that this is a special bill.  The same bill has also been introduced in the Senate as SB584 and is loaded with sponsors from the Senate leadership.

You can read the bill here.  You can also read a discussion of the bill’s impacts here.

AP’s Larry Messina, in the story linked above, makes the following statement:

Other states have provided such financing alternatives to utilities. Lawmakers in Texas, for instance, approved a similar proposal in 2009 as electric utilities struggled with costs from restoring power systems in the wake of Hurricane Ike. West Virginia’s PSC also allowed Allegheny Energy that year to sell $105 million in bonds so it could install a scrubber to remove sulfur dioxide and mercury from emissions at a Monongalia County power station.

Messina also quotes AEP spokeswoman Jeri Matheney:

Matheney said the company hopes to sell low-interest bonds that would allow the utility to recover the energy costs immediately. The existing rate structure should provide enough revenues to repay those investors over the life of the bonds, she said.

“We have already bought the coal, we have already made the power and customers have already used that power,” Matheney said. “We’re facing this large amount of money that has already been spent.”

And

The utility estimates that its yearly per-ton coal costs jumped 70 percent between 2007 and this year. Matheney said the normal process has proved unable to cope with such circumstances.

“When it doesn’t work well is when those expenses accumulate much faster and grow to become much larger than you anticipated,” Matheney said. “We feel that’s where we are right now.”

Now read the actual wording of HB 4530.  The new WV bill is not an authorization of borrowing to pay for the coal purchases AEP has already made.  The bill is a general authorization that can be used by any power company in any similar situation.  Messina’s examples from Texas and WV were borrowing to meet costs from one-time events, not ongoing rate increases.

Just like the liar loans and bogus mortgages of the recent real estate bubble, HB 4530 also contains new fees and “adjustments” that will allow power companies to change the terms of the bonds with little or no input from rate payers.

Right now, WV has a pay as you go PSC system that requires power companies to justify their rate increases in a pretty transparent process.  With the additional layer of complexity that the new “financing orders” would bring to the PSC process, the WV rate system becomes more complex and opaque.

The changes proposed in HB 4530 will do nothing to control rising rates.  The bill will only postpone the day of reckoning and push power companies’ past bad decisions off onto our children and grandchildren.

4 thoughts on “Power Companies Want WV Legislature to Allow Bubble Loans at PSC

  1. The power company’s comparison of these bonds to others that were issued to rebuild infrastructure and finance scrubbers is not apt. Power lines and scrubbers are fixed assets that have an expected useful life that will extend throughout the financing period of the bond. The consumers financing the assets will enjoy their use. What ApCo is trying to do is finance the cost of fuel already consumed that may provide no benefit to the ratepayers who must finance its cost in the future. This does not meet the just & reasonable rate standard. I should not be forced to pay, through a regulatory process, for someone else’s past electricity costs. A good lawyer could have a field day with this in the courts…. because we know all the power company attorneys come from the bottom of the barrel.

    Where does AEP think the snowballing of deferred rate increases due to their coal addiction is all going to end? They need to attend a Coal Anonymous meeting and get off the black, stinky sauce.

    This is not a solution. It’s lipstick on a pig.

  2. Is part of the reason the power companies are justifying this bill is to pay for the transition to cleaner energy as required by the 2015 EPA rules?

    Does this bill assume that the cost of fuel for generating electricity will be cheaper in the future?

    The bill says this will save rate payers money. Maybe in the short run. How much extra expense does the interest add to pay for bonds like this?

    Does this bonding authority take into consideration that the Marcellus gas wells seem to be lowering the price of gas which probably will be used in future electricity generation?

    Is there any realistic way to oppose the power of the power companies?

    • Here are the answers to your questions:

      This bill has nothing to do with pollution control or cleaner energy or EPA compliance. APCo says that this bill is designed so they can create high rated bonds that will let them pay off a more than $350 million they incurred in 2008 when they entered into very expensive coal purchase contracts. Because they have already had massive rate increases over the past 5 years, they have been holding off requesting another rate increase, because it would be a PR nightmare. However, that means they have to keep borrowing money on the short term credit markets which is getting very expensive. By creating this bond scheme, they can create bonds with lower interest rates that will allow them to borrow money at lower interest rates. What this means, though, is that they have to get the Legislature and the WV PSC to create a legal obligation for these bonds to be paid off using rate increases over the life of the bonds, maybe 10 or 20 years. The other problem with this bill is that it is not limited to just this current APCo problem. Any power company could do this at any time in the future. It would create a way for power companies to hide their coal-fired rate increases from rate payers and citizens and allow them to avoid the need to diversify their generation into more renewable sources.

      There is no assumption in this bill concerning future fuel costs. It is just a mechanism to remove transparency and democratic participation in the rate setting process by turning it over to Wall Street bankers.

      Your point about the bond interest is a good one. We have been pushing for the term of these bonds to be limited to five years. You are exactly right, if they extend the terms of these bonds to 10 or 20 years, we lose any advantage from the nominally lower interest rates because the total interest paid will be very high. Frankly, I see nothing wrong with APCo putting their 30-40% rate increase in front of the PSC right now and let them make the decision. APCo doesn’t want to do that, because it is likely that the PSC could cut that increase significantly. They much prefer to try to sneak the whole amount into a bond issue to hide the increase from rate payers.

      As stated above, the bubble bond bill is not based on any projection of future fuel costs.

      We are pushing for two main changes to the bill: adding conditions to the bill so that it can only apply to the current situation with retiring APCo’s $350 million coal debt and amending our SB162 bill into the bond bill, HB4530/SB584 to insure that least cost planning in the PSC rate process will avoid this kind of fuel resource blunder in the future.

      Thanks for your questions, Robin. They are good ones.

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