In my last post, I pointed out that FirstEnergy’s claim to be valuing its Harrison plant at “market value” is way out of line when compared with an actual recent transaction. But there is another way that FirstEnergy is cheating rate payers in their proposed coal plant dump.
It seems that back before the 2010 merger between Allegheny Energy and FirstEnergy, Allegheny valued the Harrison Power Station at about $550 million, which was the plant’s book value. Book value is calculated by adding the original cost of the plant to any improvements made to it, and then deducting depreciation as the plant aged. This is the standard way of valuing an asset like a power plant.
For the purposes of the merger with FirstEnergy, Allegheny and FirstEnergy used a value of $1.1 billion for the plant, which was not based on its book value. Now, FirstEnergy is claiming that the plant is worth $1.68 billion based on its “market value” claim. The problem with this is that the WV PSC requires any power plant whose cost is recovered from rate payers to be valued at book value, which was the $550 million figure, less depreciation since that 2010 valuation.
Consumer Advocate Byron Harris explains this deception in a recent article in the Beckley Herald:
Cathy Kunkel, with EEWV, said the plant will be sold to Mon Power ratepayers for $1.16 billion, but the depreciated original cost of the plant is only about $500 million.
Director of the Consumer Advocate Division of the PSC, Byron Harris, said that is the biggest problem in the case so far.
“They want customers to pay twice the value of Harrison. They want to buy Harrison at more than twice the value it had just two years ago. I hope the Public Service Commission won’t allow that.”
He explained that the plant was valued at about $550 million in 2010, prior to the merger with First Energy.
“That was based upon the original cost of the plant, plus any additions to the plant, minus depreciation. That’s what we call the net book value. When First Energy merged, they engaged in what’s called fair market accounting, which looks not to the original cost of the plant plus depreciation, but what their estimate of the value of the plant is,” Harris said.
“What they did then, they marked up the value of the Harrison plant from $550 million to $1.1 billion. It’s magic. Literally.”