FirstEnergy Applies for Base Rate Increase at the WV PSC

WV electric rates consist of two different rates: enhanced net energy cost rates (ENEC) and base rates.  ENEC rates are put on our electric bills to recover variable costs such as coal costs and the cost of purchased power.  Base rates include all other capital costs and overhead.  Lately, the WV PSC has gotten into the habit of adding surcharges to our bills which are added onto the two main components of rates.

After the Harrison debacle, the PSC added a temporary surcharge to our electric bills so that Ohio-based FirstEnergy could start collecting its inflated Harrison price right away.  The PSC also required that FirstEnergy file a base rate case within a year to replace the temporary surcharge with a permanent rate increase.  On Wednesday, FirstEnergy filed that case to raise rates for Mon Power and Potomac Edison customers by $96 million.

Here is the best short summary of the situation from SNL, but you would need a subscription to read it:

On April 30, FirstEnergy subsidiaries Monongahela Power (MonPower) and Potomac Edison (PotEd) jointly filed forWest Virginia Public Service Commission (PSC) approval of a $205 million electric base rate increase (Case No. 14-0702-E-42T) premised upon an 11% return on equity (46.47% of capital) and a 7.87% return on a year-end rate base valued at $2.512 billion for a 2013 test-year. (As per a 2007 rate case decision [Case No. 06-0960-E-42T], MonPower and PotEd consolidated their rate structures and now file consolidated rate cases.) The companies have indicated that the request is designed to recognize in base rates: the costs associated with MonPower’s acquisition of 79.46% of the Harrison coal plant from affiliate Allegheny Energy Supply; storm costs incurred in 2012 due to the “derecho” and Hurricane Sandy; increased operating costs at its power stations; vegetation management program costs; and, workforce increases designed to enhance service reliability. It appears that the rate payer impact from this rate change is $96 million. A final PSC decision is expected in February 2015.

So according to this summary, and the Ohio holding company’s press release, Mon Power and Potomac Edison customers are facing a rate increase based entirely on rising costs for running an obsolete centralized electrical system:

  • Inflated costs from having an obsolete and uncompetitive technology dumped on our electric bills,
  • Increased costs from operating a centralized and obsolete distribution system becoming more and more vulnerable to physical deterioration and storm damage,
  • The cost of 50 new employees that FirstEnergy used to hoodwink the PSC engineering staff and the Utility Workers union and the Sierra Club into approving the company’s Harrison scheme.

Regular readers of The Power Line should not be surprised by any of this, because I have covered all these issues over the past two years in posts such as this one, this one, and this one.

The real laugher in this rate increase is FirstEnergy’s claim that “… the rate request includes hiring 50 new company employees to help enhance service reliability” as if the company just decided to hire 50 new people just to help us all out.  Here is the language from the PSC Harrison order that created these 50 “new” employees:

(a.) Employment Commitment. No later than eighteen months following the Closing of the Transaction, the Companies will increase their employment levels in West Virginia by an additional 50 generation. transmission, and distribution employees, including any associated supervisory personnel (as compared. with employment levels as of June 30,2013), either through direct employment by the Companies or employment by an affiliate of the Companies to work on behalf of the Companies. Legal, accounting, finance and rate employees will not be used to satisfy this commitment. The majority of the 50 jobs will be in the distribution sector. This commitment shall not include any additional employees who may be added as a result of the general investigation currently pending before the Commission in Case No. 13-0830-E-OI. The cost of these 50 employees shall be reflected in the next base rate case. With respect to the commitment to add 50 employees, the Companies agree to work with Staff to determine which areas of the Companies maybe in need of additional personnel. [emphasis mine]

The first thing you should note about the 50 employees is that they are not all “new.”  Note that the Harrison settlement backdates the calculation of the 50 employees to June 30, 2013, a full three months before the PSC order was issued.  So no, not all of the 50 employees rate payers will be paying for are “new”.

I attended the September 13, 2013 hearing at which the agreed settlement, including the paragraph above, was discussed.  Here is a link to the transcript of that hearing.  In her testimony, director of the PSC’s Utility Division, described FirstEnergy’s past record of poor service and understaffing, including the company’s billing disaster.  Note that while Ms. Ranson implies that she envisions that some of the 50 settlement employees will go toward improving billing services, the settlement agreement she is touting specifically excludes any employees hired to remedy FirstEnergy’s billing problems (the reference to the general investigation case 13-0830-E-OI.

Scott Pedigo, president of Utility Workers Union of America Local 304 also testified that day.  His testimony is also in the transcript linked above.  Mr. Pedigo testified to FirstEnergy’s deliberate policies of layoffs at the Harrison plant that jeopardized plant reliability and safety.  Mr. Pedigo stated that Local 304 “absolutely” supported the settlement because, as the union’s lawyer put it in questioning Mr. Pedigo, “there [is] a need for some of the 50 additional people that Mon Power has agreed to hire [sic] to be hired at the Harrison Station.”

But look again at the language of the settlement.  The settlement says “[t]he majority of the 50 jobs will be in the distribution sector.  The distribution sector does not include the Harrison Power Station, which is in the generation sector.  In theory, under the language of the settlement, FirstEnergy could meet its obligation without hiring a single employee at the Harrison Power station, because the language of the settlement says  that the employees will be in any of the three sectors of the company’s operations, generation, distribution or transmission.  So Local 304 essentially got nothing from the Harrison settlement.

And all WV Mon Power and Potomac Edison customers will be paying for FE’s bogus deal sweetener, in addition to the inflated price of the plant itself.  In fact, customers have already paid once for these employees in the bad service they have received in the past from FE’s understaffing.  Now, customers will pay again in real money.

By the way, if you read the transcript of the September 13 hearing, you will see WV Citizen Action Group attorney Bill DePaulo question every witness about all of the deceptions included in the 50 employee deal.  The WV PSC was fully informed at the hearing about the fraud inherent in the settlement deal approved by Local 304, the PSC staff, the Consumer Advocate and the Sierra Club.

I have not read through the voluminous evidence that FE presented to support its new rate increase, but I have heard some comments from people who have.  It appears that $77 million of the total rate increase comes from a claim by FE that WV rate payers need to pay for all of its stranded capital costs from the obsolete Albright, Rivesville and Willow Island coal plants that it closed in recent years.  FE is also asking for an increase in the return on equity it is allowed in this base rate case from its current 10.5% to 11%.  FE has the nerve to ask for this increase despite the fact that the US economy continues to fight off depression and interest rates are at historic lows.  Look for some fireworks here, because back in 2011 the PSC allowed AEP a return on equity of 10% in its last base rate case.

To add insult to injury, FE is also requesting an increase in its $5 monthly customer service charge, which results in incentives for wasteful electricity use and irrational energy policies, to $6.

So get ready Mon Power and Potomac Edison customers, FirstEnergy predicts its base rate increase would raise your electric bills by almost 15%.

UPDATE: FirstEnergy has amended this rate increase application to include costs of the new PSC-ordered meter reading system.  The new base rate increase is now up to 17.2%!

6 thoughts on “FirstEnergy Applies for Base Rate Increase at the WV PSC

  1. I would like to know the number of company employees at allegheny power before first energy and the number of employees at the present time. I believe the fifty they are supposedly going to hire wouldnt come close to replacing the ones that have retired to get away from first energy.

    • Andrew,

      I don’t know how you would get those numbers, but I’m sure you are correct. FE spread around a lot of blather about “synergies” and cost savings throughout the merger process. That usually translates into job cuts. But don’t let Allegheny off the hook. Their CEO loved to brag to shareholders about how he was cutting costs. The fact is that Allegheny and now FirstEnergy are in huge debt holes as a result of decades of bad management.

  2. Bill, your post is spot on as always and shows the lack of regard for the 99% if us who are trying to move into the future of energy production, namely renewables and energy efficiency, not necessarily in that order. FE’s wanton disregard to negotiate on any meaningful settlement has left us scratching our heads in disbelief. Keep up the good work for someday soon it will be paying dividends with new awareness by the public at large for these important issues you raise. A bunch of us are ready for the new energy mix, politician’s pay lip service to it but the utilities are still lagging behind….probably since they are beholden to their shareholders and they don’t want to scare them with talk of using more and more renewables.

  3. Pingback: First Energy’s Mon Power Files For A Rate Increase « UWUA Local 304

    • In its new rate case, FE wants the right of way clearing costs treated as a surcharge, with a return on equity included. In FE’s latest investor call (http://seekingalpha.com/article/2195533-firstenergys-fe-ceo-anthony-alexander-on-q1-2014-results-earnings-call-transcript?page=4) FE’s VP Leila Vespoli said “Recently, the West Virginia PSC approved the company’s vegetation management plan filed last year, but postponed consideration of the method of cost recovery to the rate case. In the meantime, as authorized by the PSC, the companies are implementing the plan and deferring the cost with a 4% annual carry charge. If the requested surcharge is not approved in the rate case, these costs would be incorporated into the company’s base rate request.” So the clearing surcharge may not happen and may just be rolled into the new rate increase.

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