AEP V. FirstEnergy Coal Plant Dumps on WV Rate Payers

Within months of each other, Ohio-based holding companies FirstEnergy and AEP applied to the WV PSC to dump their money losing coal-fired power plants on WV rate payers.  The essential mechanisms were the same for each company.  They both owned coal-fired power plants in WV that were not owned by utilities entitled to recover their costs and profits from WV rate payers.

Both companies also faced situations in which their coal-fired power plants were no longer producing the cheapest electricity in the market.  Gas-fired plants were now setting a lower price for electricity in the markets AEP and FirstEnergy were trying to sell their coal-fired power.  The coal-fired plants were not going out of business, but they weren’t producing the high profits that the shareholders of the Ohio-based power companies were used to.

So, what were they to do?  Each company cooked up a fancy looking analysis that (surprise, surprise) claimed to show that selling their coal-fired power plants to their WV subsidiaries, that just happened to be regulated utilities, that could force WV rate payers to guarantee a set price for their electricity, including a nice rate of profit.  Gosh, what a nice “win-win” situation.

Except it isn’t.

These proposed transactions, which have to be approved by the WV PSC before they can be implemented, are complex.  I have described the situation with the FirstEnergy power plants pretty extensively already.  Before I go any further with the AEP transfers, I thought it might be useful to look at differences and similarities between the two companies’ approaches to the task of dumping their old coal-fired power plants onto our electric bills.

Here are the main similarities:

  • In both situations, the Ohi0-based holding companies own significant portions of WV coal-fired generating plants that are not part of WV’s regulated utilities funded by WV rate payers.  FirstEnergy’s plants are partly owned by Allegheny Energy Supply, a company that sells wholesale electricity into the PJM markets.  AEP’s plants are partly owned by Ohio Power, a company that AEP operated in Ohio as a regulated utility.
  • Both AEP and FirstEnergy have been losing profits as their coal-fired plants have been forced to compete with less expensive electricity being produced by expanding gas-fired generators and wind power in the electric markets where their subsidiaries do business.  As a result of this unprofitability, both Ohio-based companies just happen to have coal-fired power plants lying around that they can sell to WV rate payers.
  • Both AEP and FirstEnergy have submitted goofy “analyses” to the WV PSC to support their claims that their coal plants are the best solutions to the future capacity needs of their WV subsidiaries.  In both cases, the companies have rigged their assumptions to get the results they want.  Both companies excluded any serious comparison with energy efficiency investment, and both companies wildly exaggerated the future costs of wholesale electricity and price projections for natural gas.
  • Both AEP and FirstEnergy have pointed to an inability of their WV utilities to meet future electricity demand in WV.  Both companies have, or will soon, be closing coal-fired power plants that were seriously obsolete and produced electricity at costs so high that the plants were hardly running at all then they closed.  The “shortfall” that the companies predict is also based on projections of future electricity consumer demand over the next 20 years that may be too high, based on an “economic recovery” that may not add significantly to increased electricity use.
  • Both Ohio-based holding companies are proposing to “sell” power plants from one subsidiary to another within their overall company.  None of the proposed transactions are real arms length transactions at real market prices.  Real market prices, at which coal plants have actually sold on the real market, are far below the fictitious prices both AEP and FirstEnergy have concocted for their WV transactions.  This is very important for the profitability of these deals for both companies, because the phony prices will set the electric rates for WV rate payers for the next 25 years in the PSC’s base rate process.

Here are some of the main differences:

  • The FirstEnergy’s WV’s utilities, Mon Power and Potomac Edison, regularly do business on PJM’s electricity and capacity markets.  As a result, these companies always have the option of simply buying lower priced resources off the competitive market instead of generating their own electricity from higher cost coal plants.  AEP’s WV subsidiaries, APCo and Wheeling Power, chose to remove themselves from PJM’s markets under PJM’s FRR (Fixed Resource Requirement) designation.  AEP voluntarily chose to cut off its best option for securing low cost electricity for at least the next three years, when the cost of those resources is predicted to be at its lowest point, well below the cost of AEP’s own coal-fired power.
  • While FirstEnergy’s coal-fired power plants are being beaten by the competition in PJM’s wholesale markets, Ohio-based AEP is facing a different competitive challenge.  Ohio is completing the final stages of its state deregulation process.  As a result, AEP has been forced to create a new company that only owns generating plants.  The old regulated utility, Ohio Power, must sell all its power plants to either its new generation-only company or to WV utilities.  Or, AEP could sell their power plants another company altogether, but they would receive much less money than they are trying to get with their internal fake sales.
  • FirstEnergy’s proposed transaction involves only its WV subsidiaries and depends only on decisions by the WV PSC.  AEP’s situation, however, depends on decisions by other states’ public utility commissions.  AEP is selling half of its WV Mitchell plant to Kentucky Power.  Kentucky Power recently reached a settlement at the KY PSC which includes some aspects that could be applied directly to the WV situation.  But the other big question mark remains in East VA.  East VA’s PSC is called the State Corporation Commission or SCC.  Part of AEP’s plan involves the merger of its WV utilities Wheeling Power and APCo.  APCo also does business in East VA.  So the East VA SCC must approve the Wheeling Power/APCo merger.  As I will show in my discussion of recent testimony in the WV PSC case, it appears that the staff of the East VA SCC has filed testimony opposing the Wheeling Power/APCo merger.  The prevention or delay of the merger would force a complete overhaul of AEP’s plans in WV.

In the near future, I will be posting a more in depth look at testimony filed by intervenors in the WV PSC case concerning the AEP transfers.  I wanted to write this post first, so that my readers can place the AEP case in the proper context to distinguish it clearly from the earlier FirstEnergy case.

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