Come January 1, 2013, customers of Ohio’s FirstEnergy subsidiaries Mon Power and Potomac Edison will get a rate cut totaling $65,708,846. But FirstEnergy has filed with the WV PSC to block that reduction. Ever wonder why electric rates never go down? Read on, you’ll find out. As you read, keep in mind that FirstEnergy’s CEO, Tony Alexander, is the highest paid power company executive in the US.
FirstEnergy wants to pull a switcheroo, substituting the cost of their dumping of the Harrison Power Station, their obsolete and expensive coal burner, onto Mon Power and Potomac Edison, erasing the 2013 rate cut. And FirstEnergy is giving the PSC the bum’s rush, because they are in a big hurry to complete their hustle before anyone realizes what has happened. To support their hustle, FirstEnergy filed a 600 page package with the PSC.
FirstEnergy’s hustle involves jamming together two otherwise unrelated cases.
The 2013 rate reduction is the result of the completion of cost recovery by FirstEnergy in an earlier ENEC (Expanded Net Energy Cost) case. ENEC cases deal only with variable costs, which in coal-burning FirstEnergy’s case, means mainly the rising cost of burning coal.
Because ENEC cases involve variable costs like fuel and purchased power, the PSC regularly opens cases to review the status of these costs and their impacts on rates. Last week, expert Billy Jack Gregg filed testimony on behalf of the WV Consumer Advocate opposing any attempt by FirstEnergy to block the $66 million rate cut. Here is a link to his testimony.
Gregg argues strongly that there is no reason to give up the rate cut. There are also some other juicy tidbits in his testimony.
Here is a table he presents showing the capacity factors for FirstEnergy’s WV power plants, including the obsolete, high cost coal burners the company closed in September 2012, which are designated as the subcritical plants in the table below. Note that these plants were hardly running in the year before they closed. This was not because of any pollution regulations. It was because these plants were so high cost that their electrical output was far too expensive for PJM to dispatch. Even the Harrison plant’s capacity factors are surprisingly low, indicating just how expensive coal fired power is on PJM.
Gregg goes on to point out that although FirstEnergy is claiming that they have a shortage of generating capacity since they closed their obsolete plants, they really don’t have any problem, because they can buy all the power they need in the PJM market at very cheap prices. In their filing about the sale of the Harrison Power Station to Mon Power, FirstEnergy’s lawyers claim that power prices in PJM’s market are very volatile, and dumping a large coal burner on WV rate payers will “protect” rate payers from big swings in these costs. Gregg shows that FirstEnergy’s coal costs have been, and are projected to be just as volatile. In fact, FirstEnergy lost a major long term coal purchase contract for the Harrison plant when International Coal Group reneged on a contract and FirstEnergy was forced to sue.
FirstEnergy is in a big hurry, but Gregg states that costs for reserving generating capacity on PJM’s capacity market system and costs for purchasing electricity on PJM markets will continue to fall through 2014. There is plenty of time to consider alternatives including aggressive efficiency investment to reduce power needs, expanded demand management to reduce peak load, the only real shortage on FirstEnergy’s system, and even building a new gas fired power plant which would be much smaller and more flexible than the 40 year old Harrison coal burner.
Gregg also restates the Consumer Advocate’s position on the Harrison dump:
The CAD filed comments on the Company’s proposed asset swap on October 31,2012, in WV PSC Case No. 11-1274-E-P. In those comments the CAD stated that while the Company’s plan provides a useful starting point for discussions about future capacity alternatives, the proposed asset swap had numerous flaws. The CAD comments listed the following concerns:
1. The Company doesn’t need additional capacity resources until at least mid-2014;
2. The Company failed to seek out demand and supply-side resources through a market process;
3. The net book value of the Harrison plant was grossly inflated; and
4. The Company used unrealistic assumptions in evaluating the economics of future combined-cycle natural gas generation.
I agree with all of these concerns. It is particularly outrageous that First Energy would attempt to sell back to ratepayers in West Virginia the deregulated portion of the Harrison plant at prices that are roughly double the regulated net book value of the exact same plant. It is also puzzling that the Company would not take this opportunity to add natural gas fueled generation to its capacity portfolio. Natural gas futures prices remain at a low level and the Marcellus shale natural gas field covers a large portion of FE’s West Virginia service territory.
Q. WHY DO YOU BELIEVE ENEC RATES SHOULD BE LOWERED ON JANUARY 1, 2013?
A. First and foremost, this is what the ENEC was designed to do: to track the rise and fall of specified ENEC costs. For the past six years, the Company, the Commission and ratepayers have been chasing ENEC costs ever higher. Finally, in this case ENEC revenues have caught up with ENEC costs and paid off the accumulated underrecovery balance. Simply stated, ratepayers need a break. Second, ENEC revenues should not be used to cover base rate items. If base rates need to be increased to pay for the asset swap or the acquisition of other capacity, the Company should file a base rate case, where all of the elements of the cost of service can be examined in detail under base rate procedures set forth in the Commission’s Rule 42 (150 CSR §2-19). Third, the Company has not yet filed to implement the asset swap. Moreover, even if the Company had already filed a petition for approval of the asset swap, there is no set time for decision under such a petition, and there is no guarantee that new base rates would be established in such a proceeding. Finally, as pointed out by the CAD in its comments on the asset swap in Case No. 11-1274-E-P, there is no critical need to add capacity in the short-term since PJM capacity prices remain low. The Commission should follow longstanding procedures and allow new ENEC rates to go into effect on January 1, 2013, lowering ENEC revenues by $65.7 million. If base rates and/or ENEC rates need to be adjusted in the future to account for new capacity additions, there is plenty of time for all issues to be fully examined under existing Commission rate procedures.
Gregg’s last point is a good one. ENEC rates are designed to repay the company for variable costs like fuel and purchased power. Base rates are designed to recover the costs of capital expenditures, like the purchase of power plants. To mix up these costs the way FirstEnergy is proposing would lead to rate distortions and would confuse the process of recovering very different costs in WV electric rates. In the case of these ENEC rates, the PSC already has enough information to allow the FirstEnergy rate cut. In the Harrison plant dumping case, the PSC has yet to approve or establish any base rate changes to recapture the costs of the purchase. As Gregg points out, there is plenty of time for the PSC to study the situation and make its separate decision on the Harrison plant.
But FirstEnergy doesn’t want your rates to go down, because they would have to cut their dividends to shareholders, and, horror of horrors, maybe cut Mr. Alexander’s outrageous pay.