Oh boy, oh boy, oh boy, power nerds will be in seventh heaven. Intervenor testimony was due last Friday in the WV PSC Harrison plant case. Here is a link to the PSC document docket so you can peruse it for yourself.
This week, I will be going through the testimony and posting about it. There’s lots of good stuff in there.
Industry expert David Schlissel presented the most comprehensive testimony that took in all of the important issues with the FE Harrison scheme.
Here is a summary of those issues that Schlissel presented at the beginning of his testimony. “GRT” refers to the transfer of the Harrison plant (generation resource transaction). It’s a long list, but there are a lot of things wrong with FE’s scheme:
My conclusions are as follows:
- The proposed GR T would lock West Virginia ratepayers into decades of paying for an expensive large central station generating facility that for at least ten years would represent, in part, excess capacity beyond the Companies’ internal capacity and energy needs.
- The proposed GRT also would provide the Companies substantially more energy than they will need to serve their forecasted energy requirements beyond 2026.
- Under the GRT ratepayers would bear the risk that the Companies would be unable to sell the excess Harrison plant capacity and energy into the PJM markets at prices that would recover all of the plant’s fixed capital costs and fixed and variable operating costs.
- The GRT represents a completely inflexible resource plan under which the Companies’ ratepayers will be required to pay the full fixed costs of the Harrison Power Station whether or not loads develop as the Companies’ now project or whether coal and natural gas prices actually are as the Companies currently forecast. With the GRT there will be no opportunity for the Companies to change their resource plans before 2026 if circumstances change over time.
- There also will be almost no fuel diversity with the GRT. Mon Power will be dependent through at least 2026 on just two forty-year-old supercritical coal plants for more than 90 percent of its internally generated power. And much of the remainder of the Companies’ energy also will be coal fired. Nothing in the Companies’ resource portfolio provides a hedge against the risks associated with this near total dependence on a single fuel source.
- The only risk that would be alleviated by the proposed GRT would be the risk to Companies’ credit ratings and profits that is posed by Allegheny Energy Supply Company’s continued ownership of its share of the Harrison Power Station.
- The proposed GRT, and the Companies’ subsequent dependence on just the Fort Martin and Harrison Power Stations for more than 90 percent of their internal generation, would expose ratepayers to the following significant risks:
- The risk that capacity market prices will continue to remain relatively low for an extended period or periods.
- The risk that energy market prices will continue to remain relatively low for an extended period or periods.
- The risk that the Harrison plant’s generation will continue to remain at reduced levels for an extended period or periods.
- The risk that generating costs will be higher than projected due to higher than forecasted coal prices.
- The risk that expensive capital expenditures will have to be made due to changing environmental regulations or as a result of the aging of plant components and equipment.
- The risk that a program for the regulation of greenhouse gas emissions soon will be adopted that will include a cost for carbon dioxide (“C02”) emissions.
- The risk that the plants will incur higher operating costs and will experience declining operating performance as they age. The proposed GRT would shift all of these economic risks from FirstEnergy’s merchant affiliate, Allegheny Energy Supply Company to the Companies’ regulated ratepayers in West Virginia.
- The Companies’ levelized cost of energy analysis (“LCOE”) is inadequate and heavily biased in favor of the proposed GRT.
- The LCOE compares a set of supply side options that would provide unequal amounts of capacity and energy. The new nuclear and new coal alternatives examined in the LCOE are not viable resources for the Companies at this time.
- The Companies failed to consider any demand-side options, such as energy efficiency and demand response as part of the LCOE even though such resources can be effective hedges against future fuel and market price uncertainty and volatility.
- The Companies failed to consider the possibility of entering into a power purchase agreement (“PP A”) in the LCOE analysis even though such a PPA could serve as an effective hedge against future fuel and market price uncertainty and volatility.
- The Companies failed to consider the possibility of purchasing part or all of any existing natural gas-fired power plants as part of the LCOE analysis.
- The Harrison plant will continue to operate in West Virginia even if the proposed GRT is denied. Therefore, there will continue to be base load facilities in Mon Power’s West Virginia service territory and the state will continue to receive the secondary benefits associated with power generation. The scope of this proceeding is to evaluate whether the proposed GRT is economical for ratepayers and is in the public interest. It is not about the future of the Harrison plant.
- The Companies assumed in the LCOE that the Harrison plant will achieve a levelized 75 percent annual capacity factor as early as 2015 even though this would represent a significant turn-around from the plant’s recent declining operating level.
- The Companies also assumed in the LCOE that a natural gas-fired plant would operate at only a levelized 25 percent annual capacity factor even though natural gas units near West Virginia have operated at significantly higher capacity factors in the last two years.
- Instead of preparing a levelized cost analysis, the Companies could have undertaken simulation modeling using anyone of a number of models that are typically used in the industry for resource planning assessments. Levelized cost analyses are usually used by utilities only for preliminary screening of resource options. This is especially true for expensive transactions like the proposed GRT. The overall $/MWh (dollar per megawatt hour) results of an LCOE analysis offer no insights whatsoever into the relative risks of resource alternatives. For example, two resource plans with the same LCOE can have very different risk profiles. One plan can have much higher costs than the other plan in the early years and lower costs in the later years. Even though it had the same overall levelized cost, this plan would be more risky for ratepayers. That is why it is important to look beyond the LCOE results and examine the year-by-year analysis that formed the basis for those results.
- The Companies assumed in their LCOE a very high range of future PJM energy market prices that is inconsistent with current energy market futures prices.
- The Companies’ low or “Status Quo” scenario has the likeliest future PJM energy market prices and should be used as the base case in resource planning analyses within a range of high and low prices that are 10 to 20 percent above and 10 percent below to allow for uncertainty.
- A comparison using the Companies’ LCOE workpapers reveals that the cost of the capacity and energy from the Harrison plant would be more expensive than buying power from the PJM markets through 2033 even accepting all of the Companies’ base case assumptions such as an annual 75 percent capacity factor, future PJM market prices and a zero CO2 price through the entire 2015-2034 period. In other words, the proposed acquisition would only produce a net benefit for ratepayer in 2033, on a cumulative Present Value (“PV”) 2015 dollar basis, or some 19 years into the 20 year analysis.
- If a 70 percent annual capacity factor is used for the Harrison plant, instead of the 75 percent used by the Companies, the plant’s cost of generation would be significantly more expensive through 2034, on a cumulative PV 2015 dollar basis, than purchasing the same amounts of capacity and energy from the PJM markets. This is true even if all of the Companies’ other assumptions (such as a zero C02 cost and very high PJM market prices) are used.
- However, the Companies should not simply do nothing and only rely on the PJM markets for needed energy and capacity. Instead, the Companies should issue (1) an RFP for energy and capacity and (2) develop new energy deficiency and demand response resources either on their own or through the issuance of an RFP as recommended by WVCAG witness Kunkel. A plan that includes significant investments in energy efficiency and demand response will be less expensive for ratepayers than the proposed acquisition of the remaining 1,576 MW of the Harrison plant, in both the near and long term, and will provide a effective hedge against market price uncertainty and volatility.
- An alternative resource plan with energy efficiency and demand response (plus purchases from PlM markets for any needed capacity and energy) would be $510 million less expensive, in PV 2015 dollars, through 2034 than the cost of providing the same capacity and energy from the Harrison plant through the proposed GRT. The alternative plan with energy efficiency and demand response also would be $390 million less expensive, in PV 2015 dollars, than purchasing the same capacity and energy from the PJM markets. Relying on the market is the plan with the next lowest cost. Obtaining needed capacity and energy from the Harrison plant through the proposed GRT is the most expensive option.
- The Companies should issue an RFP for power in order to test whether they could find an alternative to relying on the PJM markets that would have a lower cost and/or that would provide a more effective hedge against market price uncertainty and volatility.
- The Navigant valuation analysis is biased towards an unreasonably high valuation for the Harrison plant by the use of (a) unrealistically high annual capacity factors, (b) unreasonably high PJM energy market prices and (c) unreasonably low CO2 prices. Moreover, more than 42 percent of Navigant’s purported value for the Harrison plant comes from a “term” adjustment which reflects their speculation on the value that the plant will provide for ratepayers after the year 2032, some two decades in the future.
- As can be seen, even accepting all of Navigant’s assumptions, the plant would not produce any positive benefit for ratepayers (as compared to market purchases) until 2021 and would not produce a significant benefit for several years after that. In other words, even with Navigant’s assumptions, ratepayers would be paying $480 million in higher costs, in present value 2012 dollars, ($578 million in nominal dollars) in the near term in the hope that they might receive some benefit in the more distant future. And the more distant the benefits, the less certain and more speculative they are.
- The Companies are proposing to purchase 80 percent of the Harrison plant for its current value on Allegheny Energy Supply’s books, $767/kW. Currently the 20 percent share of Harrison that is already owned by Mon Power is valued at $319/kW, less than half the book value of Allegheny Energy Supply’s share of the plant.
- The Companies’ proposed purchase price under the GRT is likely substantially higher than the price that Allegheny Energy Supply would receive in a market transaction with a non-affiliated purchaser.
- Even if Harrison were offered to the Companies at $319/kW, that transaction would do nothing to alleviate the risks to ratepayers from acquiring the plant.
- There is no need for this transaction to occur immediately, if at all, except for the financial benefit to FirstEnergy.
- For these reasons, the Commission should deny the Companies’ proposed petition and reject the proposed Generation Resource Transaction.