In his recent dissenting opinion, PSC Commissioner Ryan Palmer stated the following:
At its best, the Companies’ attempt to burden ratepayers with the entire $1.2 billion purchase price for the Harrison plant, including the Acquisition Adjustment, is another example of “corporate enthusiasm.’’ At its worst, the originally proposed transaction is a text book write-up of which JP Morgan and Samuel Insull would be proud.
Most of my readers have heard of JP Morgan, the banker/robber baron who controlled most of the US financial and industrial system in the early twentieth century. But who was Samuel Insull?
Samuel Insull was the English-born organizer of a web of holding companies that controlled many different kind of privately owned utilities, including Commonwealth Edison in Chicago, the largest power company in the US in the early 1900s. Insull, with help from his main financial backer, Morgan, extracted profits from electric utilities by creating layers of shell corporations which Morgan and Insull used to soak rate payers for vast profits. Insull presided over the Enron of his day when his holding companies crashed and burned in the 1930s and he fled to England.
So why does Commissioner Palmer raise the specter of Insull in the Harrison case?
Because FirstEnergy, the Ohio holding company, has used this transaction to dump an obsolete coal-fired power plant that had to compete in an open market onto captive rate payers in WV’s regulated utility market at a price ($1.2 billion) that was more than twice the actual value ($550 million) of the plant. The FirstEnergy subsidiary (Allegheny Energy Supply) got the benefit of the full $1.2 billion price. But the final order in the Harrison case, filed by Commissioners McKinney and Albert, requires Mon Power to take a loss of $332 million so that rate payers in WV can be stuck with “only” $257 million of FirstEnegy’s inflated price. The conditions placed on the transaction by Mr. McKinney and Mr. Albert create the probability of even more losses for Mon Power as that $257 million will be reduced even further.
As Mr. Palmer points out, financial analysts are predicting that Mon Power will be financially crippled by these losses and that the company’s credit rating will suffer:
The text at the end of the announcement [from Moody’s Investors Service] analyzes Mon Power’s expected financial condition if the Joint Stipulation is approved a filed and states, “Mon Power’s proposed funding for the transaction will weaken its positioning within its current credit rating category.” It continues, “we expect Mon Power’s key financial metrics . . . to decline . . . these metrics continue to suggest a Baa3 rating for Mon Power.” A Baa3 rating is a two-step downgrade from Baal, and only one rating above Bal, classified as Non-investment grade speculative or high yield junk).
If Mon Power has to sell bonds to borrow money in the future, WV rate payers will be stuck paying for Mon Power’s higher interest rates due to its near junk ratings.
Mr. McKinney and Mr. Albert try to stop FirstEnergy’s vampire orgy on the corpse of Mon Power by placing a condition on the extraction of dividends from Mon Power until Mon Power’s equity to total capital ratio returns to 45%. But the damage to Mon Power’s bond rating will have already been done.
The final section of Mr. McKinney’s and Mr. Albert’s final order discussion provides another interesting look into the empty corpse that is Mon Power:
The Petition in this case describes FE GenCo [a wholly owned subsidiary of FirstEnergy] as having special expertise in operating fossil fuel-fired generating plants. FE GenCo currently provides staffing for and operates Harrison under an agreement with AE Supply. Mr. Delmar [a FirstEnergy employee] testified that FEGenCo will provide all staffing for and operation of the Harrison plant for Mon Power.
Yes, you read that right. The same FirstEnergy subsidiary that runs all of FirstEnergy’s unregulated power plants will continue to operate the Harrison Power Station, just as it always has. Mon Power will control none of the operation of the plant. FE GenCo is not a registered WV utility and will not be under the direct control of the WV PSC.
Instead of turning this charade down flat, Mr. McKinney and Mr. Albert want to open a new case to consider the matter.
So, as Mr. Palmer pointed out, the new PSC order on the Harrison plant has allowed FirstEnergy to suck $1.2 billion dollars from WV rate payers through the shell of Mon Power, which exists only to give FirstEnergy access to WV’s monopoly utility market where FirstEnergy enjoys guaranteed profits that it can’t earn from its coal fired power plants on the open power market.
Commissioners McKinney and Albert attempted to mitigate some of the damage done to Mon Power by FirstEnergy’s vampiric transaction, but their mitigation only facilitates the destruction of what was once a healthy WV company.