Of Mergers, Shell Games and State PSCs

Once upon a time, in the early twentieth century, publicly owned companies provided electricity to people across the US.  These companies provided electricity at lower cost and with better service than their privately owned competitors.  Then, along came Samuel Insull.  Mr. Insull was the Kenny Lay of his day, and he constructed a financial house of cards to control the electricity industry, just as Mr. Lay did with Enron.

In order to crush his lower cost publicly owned competitors, Mr. Insull had to come up with a scheme that would provide privately owned electric companies shed their reputation for exploiting their customers.  So Mr. Insull, along with J.P. Morgan and other speculators, pushed the concept of publicly regulated monopolies in the electricity business.

In the 1980s and 1990s, having vanquished public ownership of electric companies (with some exceptions), Kenny Lay and Enron and the modern day speculators, including JPMorgan Chase, pushed hard to eliminate the system of state regulation that Mr. Insull had engineered.  The result has been the systematic destruction of state control, even in the states where regulation still exists in state law.

Federal laws passed in the Clinton and Cheney administrations allowed the creation of national holding companies that were not regulated by any government agency.  These holding companies, which WV PSC Commissioner Palmer compared with Samuel Insull’s fraudulent financial empire in the recent FirstEnergy Harrison power plant case, are now free to play accounting games with assets like power plants and transmission lines, while the adding of profits and costs to customers’ bills is hidden by growing layers of bureaucracy.

In this situation, state PSCs can either roll over and play dead, or they can fight for their states and their states’ citizens.  For the most part, the WV PSC has failed in its job of protecting our state.

In the TrAIL transmission line case, the WV PSC bought the bogus arguments of PJM (one of the needless bureaucracies created by the Enron deregulation program) that electricity demand was rising steadily and that the East Coast electrical system was facing imminent collapse.  In the PATH case, the PSC appeared to be again grovelling before out of state corporations and PJM’s ridiculous claims that have since proven to be groundless.

The other shell game of the modern era is unloading obsolete generating plants on captive rate payers.  This happened in California during that state’s deregulation process when CA power companies unloaded all their stranded nuclear power plant costs onto rate payers.  Most recently, in WV, we have seen two Ohio holding companies, FirstEnergy and AEP, unload obsolete coal burners onto WV rate payers, with the blessing of most of our PSC commissioners.

Mergers play a key role in all of these shell games.  As we saw in the Harrison power plant case, mergers allow companies to inflate the value of assets using bookkeeping tricks, just before those assets are “sold” in phony transactions to rate payers.  In the case of FirstEnergy, the WV PSC had the power to block the merger of Allegheny Energy and FirstEnergy in 2011 when the companies needed Commission approval for their merger.

One of the primary duties of the WV PSC is to ensure the adequacy of billing and service to WV electric customers.  This duty provides a clear criterion for approving any merger deal that comes before the Commission.  Power companies promise all of the usual BS in their merger cases: synergies, win-win situations, greater efficiency, cost savings for rate payers, blah, blah, blah.  The job of the commissioners is to cut through the crap, so to speak, and make a determination based on reality.

In the case of the FirstEnergy/Allegheny Energy merger, the WV PSC has failed miserably.  Two of the commissioners, Chairman Mike Albert and Commissioner Jon McKinney, even went so far as to negate the heart of their own merger order when they allowed FirstEnergy to pass on the cost of the merger to WV rate payers.  And FirstEnergy’s current billing mess in WV grew directly out of the companies cost cutting and scrimping on service that they executed following the Allegheny merger.  The WV PSC could have done its job and blocked the merger, but the Commission didn’t even see fit to enforce the restrictions it put in place in its own merger order less than two years ago.

To see a real PSC taking decisive action to protect its rate payers, we have only to look at the decision of the Mississippi PSC shortly before Christmas.  The MS PSC rejected a plan by multi-state holding company Entergy to sell all its MS transmission lines to a merchant transmission company, ITC, based in Michigan.  The MS PSC blocked the deal, even though two other supine PSCs in other states had approved the deal.  Why did the MS PSC stop the Entergy/ITC deal?

Brandon Presley, a member of the Mississippi Public Service Commission, said Entergy’s move to MISO should benefit consumers, but ITC was unable to demonstrate the financial advantages of the sale.

“The evidence in the MISO case showed a benefit of a minimum of $242 million over 10 years for Mississippi rate payers,” Presley said in an interview. “There was not any evidence in this case that showed any financial benefits to Mississippi rate payers, either quantitatively or qualitatively.”

Presley said testimony indicated customers would pay $348 million more over 30 years under ITC ownership because ITC can earn a higher rate of return under federal regulation compared to state regulation.

Loss of state authority to regulate transmission and set rates also goes against Mississippi law, Presley said.

“Federal regulation would lead to Mississippi rate payers paying higher rates for the same service, provided by the same people, using the same assets,” a result prohibited by state law, the commission order said.

As we often say here in WV, but for different reasons, thank goodness for Mississippi.

2 thoughts on “Of Mergers, Shell Games and State PSCs

  1. Yep, this is something Kansas learned the hard way with Clean Line Energy shoving their ridiculous Grain Belt Express down the landowners throats with every trick in the book. With well over 2000 landowner negative comments completely ignored, they ruled in favor of this investment company that has never built a transmission line in its short little 3 year life. What a travesty of justice!

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