Anya Litvak at the Pittsburgh Post Gazette provides an excellent overview of the FirstEnergy financial train wreck – and how the company is using WV rate payers and the TrAIL line to bail it out. Ms. Litvak ties together all the threads of the Harrison Power Station scheme in regulated WV, coal plant closures in unregulated PA, the TrAIL 500 kV transmission line, the failed PATH 765 kV transmission line, and mounting pressure on FirstEnergy from Wall Street ratings agencies.
Ms. Litvak sums up the situation nicely in the opening paragraphs of her story:
Since FirstEnergy Corp. announced its $4.7 billion acquisition of Greensburg-based Allegheny Energy Inc. in February 2010, the Akron, Ohio-based buyer has said it will close seven of the 10 coal-fired power plants that it picked up in the purchase.
FirstEnergy also is looking to sell two-thirds of its hydropower assets, much of which came from Allegheny Energy.
So what was the company thinking?
“I’m sure there’s some equity analysts asking the same question,” said Gimme Credit analyst Philip Adams.
Today, FirstEnergy is looking at its regulated companies to pull in the steady cash where the unregulated market is flailing. Pennsylvania, a deregulated state where the cost of generation is not recovered from ratepayers, may not be all that attractive at the moment.
But the other assets acquired from Allegheny Energy — its transmission company, utilities and its power plants in regulated states — are. [emphasis mine]
In short, FirstEnergy is playing WV’s PSC and rate payers for chumps and has exploited the Cheney high voltage transmission subsidies at FERC to line its shareholders’ (and its CEO Tony Alexander’s) pockets. There are bright spots in the story. Ms. Litvak claims “regulators” in WV have objected to the Harrison deal. That is not clear yet, but citizens certainly have objected. And citizens in MD, East Virginia and WV stopped the PATH boondoggle.
This article is a must read if you want to understand the larger context of the Harrison scheme in WV. FirstEnergy is a multi-state holding company, and the Harrison scheme is just one part of their regional monopoly game.
One quibble with Ms. Litvak – the initial FERC authorized rate of return for PATH was 14.3%, not 14.5% as Ms. Litvak claims. That initial figure was later reduced in a later FERC case to 12.4%. Ms. Litvak’s point is well taken, however. In WV, the allowable rate of return on equity that power companies can recover from rate payers on their capital investments and overhead is 10.5%. This is significantly lower than the Cheney-inspired rates of return that transmission developers like FirstEnergy subsidiary TrAILCo collects from all PJM rate payers for its power line. Ms. Litvak also fails to mention that even though PATH is dead, FirstEnergy and AEP are currently seeking to game PJM rate payers at FERC for $121 million for their abandoned capital costs – plus that 12.4% RoE.
Read the article. It’s a good one.