Two experts who testified against both FirstEnergy and AEP in the WV PSC’s recent power plant transfer cases have authored a new report titled Mountain State Maneuver: AEP and FirstEnergy Try to Stick Ratepayers with Risky Coal Plants. That title says it all.
I have covered both cases pretty thoroughly on The Power Line, and the report includes concise summaries of everything I have written about in the past.
The authors make a very important point about both Ohio companies’ projections that seem to support their plans. In both the AEP and FirstEnergy cases, the companies’ projections don’t really show any significant benefit to WV rate payers until far in the future. Here is a graph of how much money rate payers would pour into the Harrison plant as opposed to buying electricity from PJM’s wholesale markets until the plant “purchase” began to benefit them very slightly in 2033:
The report explains the situation this way:
Mon Power and Potomac Edison compared the cost of Harrison to the cost of continuing to rely on purchases from the regional PJM electricity market, the cost of building a new natural gas plant, the cost of retrofitting an existing coal plant to gas, and other new-build options. While the average (“levelized”) cost of Harrison came out as the least-cost option, this analysis masks the actual year-to-year cash flows – which show negative cash flows for the first ten years of the analysis amounting to a cumulative net present value deficit of $725 million by 2022. The company is betting that the Harrison plant will start making money in 2023 and eventually dig itself out of its financial hole by 2033. In other words, the company is preparing to bet $725 million of ratepayers’ money in the hopes of making an extremely small 1.3% overall benefit relative to the market scenario at the end of 20 years.
The authors also find that AEP practiced a similar deception in their attempt to justify their Amos/Mitchell scheme.
The analysis presented by Appalachian Power to justify its coal plant purchase uses an unrealistically high forecast of PJM market prices through 2040 and an unrealistically high gas price forecast that make the coal plant transfer look economically competitive. The company’s energy market price forecast was about 30% higher than actual market prices in 2012. For 2013-2019, the company’s energy market price forecast averages nearly 40% higher than current energy market futures; the company’s gas price forecast is also more than 10% higher than current futures. Figure 2 shows the relative price of the two alternative scenarios evaluated by the company (a “market” purchase scenario and a new-build, or “optimization”, scenario) under energy and capacity market price and natural gas price assumptions that more accurately reflect current market conditions and futures prices. The company’s customers would save more than $500 million by 2024 if the company relied on market purchases rather than purchasing these coal plants.
Here is the Figure 2 referred to in the quote above:
This report is particularly useful if you want to sort out what is different and what is the same about the two Ohio holding companies’ schemes to dump more coal-fired generation costs on WV rate payers. This is from the report’s conclusion:
In short, two heavily coal-dependent, multi-state utilities are seeking to transfer existing coal plants from deregulated markets into regulated jurisdictions. This will have the effect of shifting all of the risks facing merchant coal generation onto captive ratepayers. These risks include:
- Risks of future environmental regulations, particularly greenhouse gas emissions regulations
- Risks of continued low energy and capacity market prices on the PJM market, driven by a combination of low natural gas prices, increased exports from outside the PJM region, and flat demand
- Risks of increasing coal prices, as well as increased coal price volatility
- Risks that the plants will incur higher operating costs and will experience declining operating performance as they age