When Half Truth = No Truth

I just got a copy of the “information sheet” that Appalachian Power has been passing out to WV legislators concerning its new bubble bond bailout bill, HB4530/SB584.  You can see this sheet yourself here.

This is really some pretty audacious work.  The boldest misrepresentation on this sheet is a big box at the top of page 1 titled “2012 Fuel (ENEC) Rate Increases”.  The box includes two figures as follows:

  • Without securitization: 30-40%
  • With securitization: 0

Well, this is the truth.  But it is only a half truth.  Like the magician who pulls a rabbit out of his hat, APCo appears to have performed a miracle.  Voila!  Ze rate increase disappears!

But let’s look behind the magic curtain.  Where does the rate increase go?

Why, into the new debt retirement bonds that WV ratepayers will be paying in their electric rates for years to come.  And how much will that new bond debt be?  Why, more than $350 million.

So here is the other half of the truth about APCo’s ENEC debt:

2012 ENEC Retirement Bond Debt:

  • Without securitization: 0
  • With securitization: more than $350 million

That’s the whole truth.  No more magic.  Just reality.

Securitization of APCo’s ENEC debt is just a way of arbitraging interest rate spreads for what APCo is currently paying on its commercial paper to postpone forcing rate payers to pay their debt as a rate increase.  APCo claims that through a PSC sponsored bond process, it can get lower interest rates for carrying this debt into the future, which would “save” rate payers money.  That is unclear, because if the terms of the bonds are very long, the total interest and principal paid on the bonds by rate payers might well exceed the current value of just paying the rate increase now.

There is nothing in APCo’s “information sheet” that shows us the actual math on rate payer costs for all of the available alternatives.  APCo is saying “trust us and trust Wall Street’s bankers.”  Well, we know how that one turned out in the housing loan securitization a few years ago.  APCo didn’t even bother to feed us a half truth on the actual math of the bond issue.

What happens the next time APCo makes a big mistake with its coal purchases?  If HB4530/SB584 passes in its current form, they can come back again to float another bond issue at WV rate payers’ expense to cover up their future mistakes.  Soon, our WV PSC would become not a regulator of electric rates, but just another state bond authorizing agency designed to allow power companies to commit West Virginians to decades of future bond payments to cover APCo’s bad management decisions.

There is a chart on page 2 of APCo’s sheet that is another half truth.  APCo’s fuel costs have risen dramatically in the last five years.  APCo portrays this as a fact of life for coal-fired electric companies.  If this is true, why haven’t FirstEnergy’s WV subsidiaries Mon Power and Potomac Edison generated APCo’s big run up in fuel cost debt?  FirstEnergy’s WV companies are just as dependent on coal for fuel as APCo.  Shouldn’t APCo have to answer this question before they dump a load of new bond debt on WV rate payers?

For the whole picture about APCo’s situation and their debt retirement bonds take a look at this post over at Coalition for Reliable Power.  The post is called “HB4530: We Need A Real Solution, Not a Band-Aid.”

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