Why We Don’t Need the McKinney/Albert Conditions in the Harrison Deal

One of the things I have learned, as an average citizen studying the US electrical system, is that the people who run that system, most of whom come from the corporations that control it, love to increase the complexity of the system’s operation.  They love complexity because they can hide behind it.

PJM Interconnection is a great example.  The advocates of deregulation back in the 1980s crowed about how we needed to remove “complex regulations” from our power companies and let “the market” provide our electricity.  This, of course, was fairies and unicorns.  The deregulated system is now far more complex than the old system which operated completely at the state level, where almost all information was publicly available.

The recent majority order in the Harrison case is a great example of unneeded complexity designed to remove decision making ever further from average people.

The basic choice in the Harrison case is between forcing WV rate payers to pay the costs of an expensive and obsolete coal-fired generating plant or allowing Mon Power to continue buying low cost electricity directly from PJM’s wholesale markets.  FirstEnergy has said that the coal-fired plant is a better choice because natural gas prices (the main reason for low cost wholesale electricity) are going to skyrocket (Yeah, I know, what are they smoking?) and owning the plant will prove cheaper in the long run (Remember the great quote from the economist John Maynard Keynes: “In the long run, we are all dead.”)

By approving the sale of Harrison to Mon Power, Commissioners McKinney and Albert have accepted FirstEnergy’s fairies and unicorns claim.  But they are not quite ready to accept that unicorns really do exist.  So they put a little kicker into the deal (Condition 3) designed to reduce the cost to rate payers of the Harrison plant if prices remain low. (Check out Keryn’s detailed explanation of all three of the McKinney/Albert conditions here.)

Let’s look at how Commissioner Palmer (who doesn’t believe in fairies and unicorns at all) characterized Condition 3:

The Majority has attempted to mitigate the rate impact of the proposed transaction through a mechanism tied to net margins from off-system sales (the Acquisition Adjustment Condition), This attempt to shield ratepayers is commendable but somewhat ineffective because it will offset the rate impact of the transaction with off-system sales margins that would otherwise have been used to lower the ENEC costs charged to ratepayers.

The reference to ENEC costs is a little technical, but it refers to the fact that purchased wholesale electricity is one of the electric rate components of Extended Net Energy Costs which power companies are allowed to charge in their rates.

In other words, Commissioner Palmer is saying the same thing I have said in previous posts about Condition 3 (what he calls “the Acquisition Adjustment Condition”).  If the Commission didn’t approve the deal at all, WV rate payers would simply enjoy lower rates from the lower cost wholesale electricity directly instead of having to create Rube Goldberg mechanism for recapture just a little of those lower costs under the McKinney/Albert plan.

For those of you too young to understand my Rube Goldberg reference, here is a Goldberg cartoon of a mechanism for putting toothpaste on your toothbrush:

See what I mean?  Instead of just enjoying lower electric rates, Commissioners Albert and McKinney want to turn every PSC rate making case into this kind of complicated mess.

And thanks to the wonderful Mr. Goldberg for his great cartoons, I’ve been wanting to use one for a long time.

The only people who benefit from this kind of complexity are the power companies because (1) it hides their activity even further from public scrutiny and (2) they can play more angles to make sure that rate payers always pay the real costs.

The fact is that the Harrison plant is too expensive when compared with the alternatives, even at its real $550 million value.

I agree with Mr. Palmer.  I’d rather just squeeze the tube and brush my teeth.

3 thoughts on “Why We Don’t Need the McKinney/Albert Conditions in the Harrison Deal

  1. Bill: I am not a lawyer, so I do not know the answer to this question. In a conversation with Senator Herb Snyder, 16th Sen District, I was informed that in the upcoming interim session of the legislature, the re-appointment of Albert to the PUBLIC SERVICE COMMISSION must have action. I am informed that Tomblin has not changed the status of McKinney from “day to day,” to requested re-appointment. Can the Public Service Commission act on such as the Harrison Power Plant Transfer with two seats standing vacant on the PUBLIC SERVICE COMMISSION? I am inclined to think NOT, but I do not know. We plan to circulate a petition to request that the Senate Committee so tasked RETURN THE NOMINATION OF ALBERT TO GOVERNOR TOMBLIN with a request for another more appropriate nominee. Danny Lutz

    On Wed, Oct 9, 2013 at 7:30 AM, The Power Line

    • Chairman Albert’s seat is not “vacant.” He has been reappointed and is awaiting confirmation. This is the normal course of a normal reappointment.

      Commissioner McKinney remains in his seat, although his term has expired and he has not been reappointed. The problem is not with the PSC. The problem is with the Governor. He is the one who has failed to perform the duties of his office by either replacing or reappointing Commissioner McKinney.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s