And FirstEnergy Shows Its Hand on HB2201

Today, The State Journal published energy reporter Sarah Tincher’s story on the differing views of HB2201.

In her story, she quoted FirstEnergy PR guy, and our old friend, as follows:

“FirstEnergy is concerned about the way we credit customer generators because we credit them back at a rate that is equal to the retail cost they pay for electricity,” said Todd Meyers, a spokesman for FirstEnergy’s West Virginia subsidiaries, Mon Power and Potomac Edison.

“Those smaller generators get the benefit of using our electrical infrastructure to sell back the electricity they generate without paying to use that infrastructure,” Meyers said. “In principle, we don’t believe it is fair for the rest of our Mon Power and Potomac Edison customers in West Virginia to subsidize small generators.”

So, now FirstEnergy’s PR guy is directly contradicting FirstEnergy’s chief lobbyist Sammy Gray’s statements to the WV House Energy Committee and the WV Senate Judiciary Committee that FirstEnergy interpreted the “cross-subsidization” language in HB2201 as applying only to direct costs of connecting individual net metered customers to a power company.

Has FirstEnergy changed their minds?  Or was Sammy hiding something from WV legislators?

Ms. Tincher does a great job of blowing Toddy’s argument out of the water, by pointing to studies done by PSCs in Missouri and Mississippi:

Among such reports is a Missouri Energy Initiative study, released in winter 2015, which evaluated the benefits and costs of net metering in Missouri, which has a similar fuel mix and retail electricity pricing to West Virginia.

The study quantified the benefits of load reduction and reduced greenhouse gas emissions, in addition to the costs associated with cross-subsidization among consumer groups, and increased administrative costs in managing a new customer class between 2008 and 2012. According to the report, the net effect was positive for the state each year.

The MEI study also suggested benefits of a decentralized energy system, reduced energy prices, local economic boost from manufacturing and installation of net metering systems.

Another study, conducted by Synapse Energy Economics Inc. for the Public Service Commission of Mississippi in September 2014, modeled the costs and benefits of net metering to the state of Mississippi, which doesn’t currently employ a net metering program. The agency’s Total Resource Cost assessment, which included costs of solar panel installation and administrative costs, as well as benefits of avoided costs to the utility, suggested net metered solar rooftop would result in $27 per MWh of net benefits to the state of Mississippi.

FirstEnergy and AEP had better watch out.  If similar studies are done for the WV PSC, they may have to end up paying net metered customers more for their electricity, not less, to pay us for the benefits we give to all customers.  By the way, that is called a feed-in tariff.

WV PSC Files IRP Order

The WV PSC filed an order laying out very modest guidelines pursuant to the toothless, voluntary Integrated Resource Planning law that AEP and FirstEnergy slipped through the WV Legislature back in 2014.

The WV IRP law, and the PSC’s minimal approach, is a far cry from the kind of law supported by WVU Law School professor James Van Nostrand and Energy Efficient WV in the 2012 and 2013 legislative sessions.

 

NY Moving Ahead to Stop Wasteful Infrastructure Spending

NY is now leading the nation in promoting the development of microgrid technology.  The result has been a lot of new projects, including ConEd’s demand management project in Brooklyn and Queens that will eliminate the need for a new $1 billion (yup, that’s a “b”) substation.  Here’s what a recent story on Bloomberg said about the project:

Consolidated Edison Inc. can move ahead with a plan to give users in New York City’s two fastest growing boroughs incentives to boost energy savings and reduce reliance on the grid, the state Public Service Commission said.

The commission in a webcast meeting today approved the utility’s demand-management program for Brooklyn and Queens, where power consumption has jumped as gentrification spurred growth. The plan includes investments by consumers in more efficient lighting, batteries, rooftop solar panels and other strategies to cut demand.

Con Ed said in June that the plan would delay the need to build a $1 billion substation for the two boroughs until at least 2024.

“We are not going to change the landscape in one fell swoop,” Commissioner Gregg C. Sayre said. “That requires us to take small steps.”

Also at the meeting, commissioners discussed a broader energy vision for the state that includes proposals to give power companies more incentives to build new, cleaner generation and consumers incentives to cut use.

The Brooklyn/Queens plan for reducing demand will include energy efficiency, such as replacing refrigerators and painting roofs white, battery storage, distributed generation and microgrids, the company has said.

Con Ed envisions customer demand reductions totaling 41 megawatts. The company expects plan costs to be about $200 million, including expenses associated with the customer cuts and another 11 megawatts of reductions by the utility. Customer savings from the plan will be $400 million to $600 million, Robert Schimmenti, vice president of engineering and planning at the utility, said in a June 27 interview.

This is how you do electrical system investment – quality, not quantity.  And it’s cheaper for everyone.

Here is a link to ConEd’s request for proposals, so you can see the details of the proposed project.

The NY PSC is far ahead of WV PSC Chairman Albert’s ignorant “steel in the ground” fetish.  While the WV PSC sticks WV rate payers with over-capacity obsolete power plants, the NY PSC is serious about building a resilient electrical grid that actually saves rate payers and power companies money.

Mon Power Down Again

I’m sitting here in my office pondering a conundrum.  Back in 2013, the WV PSC granted Ohio-based power company holding companies AEP and FirstEnergy the right to add significant new charges to WV electric bills to cover the costs of a new right-of-way maintenance program that would reduce the regular blackouts that hit West Virginians.

The PSC just granted FirstEnergy’s Mon Power and Potomac Edison a new base rate increase which includes the cost of this program that was supposed to increase system reliability in WV.  Mon Power and Potomac Edison rate payers are now paying a surcharge that will bring in $50 million a year to the power companies for supposedly enhanced right-of-way maintenance.

Yesterday morning, with Mon Power’s electricity still coming in through my meter, I thought that maybe WV rate payers might actually be getting their money’s worth.  FirstEnergy has made a big right-of-way clearing push in Calhoun County in the last two years.  They have even illegally sprayed my neighbors with herbicides.

Well, I was wrong.  Yesterday (Friday), just after noon, Mon Power’s power went down.  We have 15 solar panels, 8 six-volt batteries and lots of sunshine today, so we have plenty of power.

Back in 2013, the PSC and the power companies told us everything would be fine if West Virginians just forked over more money.  Guess what?  This recent storm has knocked out power to over 100,000 customers.  How have things changed?

If you want to see a history of my posts on this subject, click here.

Where Did the Term “Cross-Subsidization” Come From?

Here is a key amendment that AEP and FirstEnergy, with help from Del. Folk of Berkeley County, inserted into HB2201:

The [Public Service] commission shall assure that any net metering tariff does not create a cross-subsidization between customers within one class of service.
Before we tackle “cross-subsidization,” we need to clarify this sentence a little bit.  The word “tariff” refers to the rules and terms that the PSC approves for adjusting or crediting the electric rates of net metered customers.  The term “class of service” refers to the three classes into which electric customers are divided in West Virginia: residential, commercial and industrial.  The Folk amendment does not address “cross-subsidization” across rate classes, just within each class.  In other words, this sentence seems to say that all customers in a specific class must be treated the same.
But, is that true in any other situations besides net metered customers?  The answer is a definite “no.”  While claiming to treat all customers the same, Del. Folk’s amendment in fact singles out net metered solar power system owners for punishment.
“Cross-subsidization” among rate payers is baked into our regulated monopoly system in West Virginia.  FirstEnergy’s two WV subsidiaries just settled a base rate case with an 8.8% rate increase for residential customers.
A big part of that increase comes from new charges the PSC allowed FirstEnergy to recover from rate payers.  Those charges are for costs that FirstEnergy has, and will be, incurring for expanded clearing of power line rights-of-way.
FirstEnergy has to do a lot of right-of-way clearing for rural customers here in Calhoun County.  We get a lot of this kind of benefit, yet we pay exactly the same electric rates as someone who lives in the middle of Morgantown, where there are hardly any trees.  That is “cross-subsidization,” yet the Legislature has passed no law that prevents this kind of “cross-subsidization” which is arguably much less fair than the balance of benefits and costs that net metered customers create on FirstEnergy’s system.
This is just one example of the “cross-subsidization” that has been part of rate making in WV for decades.  East Virginia electricity blogger Ivy Main wrote extensively about this issue when AEP and Dominion Energy succeeded in undermining net metering in East Virginia by imposing “stand by” charges on their retail customers.
Want to see the worst form of “cross-subsidization between customers within one class of service” that has been around for decades in WV?  Take a look at Appalachian Power’s residential rate schedule.  Go to this link and go to page 43 of the .pdf file.
MONTHLY RATE (Schedule Codes 011, 015, 018, 038, 039, 051) Customer Charge. . . . . . . . . . . . . . . . . . .. $ 5.00/month Energy Charge: First 500 KWH ………………………….. .8.057¢/KWH All Over 500 KWH .. . ……………………… .6.847¢/KWH
Yes, you read that right.  APCo customers who use less than 500 kwh per month provide a heavy subsidy, in the form of higher electric rates, to th0se people who use more electricity.
If “cross-subsidies” are already a way of life in WV electric rate making, why did Del. Folk, as well as the new leadership of the WV Legislature, think that net metered solar power producers deserved to be punished?  Keep in mind that the words “cross-subsidization” do not appear anywhere in current net metering laws or in the PSC’s rules on net metering.
Two documents tell the tale.  Here is a recent article from Molly Jackson at the Brookings Institution that shows that more “model legislation” created by the American Legislative Exchange Council is introduced in the WV Legislature than in all other US state legislatures.  ALEC is an industry lobbying organization backed by AEP and the Edison Electric Institute, the electric industry’s trade association, and is dedicated to radically altering state government to serve industry interests.  ALEC has clearly targeted legislators like Del. Folk.
Here’s the graph from Ms. Jackson’s article (using data from 2011-2012 legislative sessions) that tells the tale :
ALEC graph
Gutting net metering is high on ALEC’s hit list, as you can see from this report, published by ALEC in March 2014.  Note in particular that ALEC’s main strategy for eliminating net metering revolves around labeling net metering a “subsidy.”
As it pertains specifically to distributed generation (DG) and net metering policies, ALEC opposes instances where DG customers are able to utilize the services associated with the electric grid without paying for its construction and maintenance. Such policies amount to a subsidy that benefits one source of energy and one class of ratepayers at the expense of everyone else who must pay for these services. [emphasis mine]
Isn’t it interesting that the language of Del. Folk’s “cross-subsidization” amendment so closely mirrors the language in this paragraph from the introduction to ALEC’s report?
Also note the false assumptions in the paragraph’s first sentence.  When net metered customers need electricity, they use and pay for it just like all other customers in their rate class.
When solar power producers generate more electricity than they need, their electricity passes out through their meter and into the houses of their nearest neighbors.  Try as they might, ALEC can’t change the laws of physics.  At most, this transfer uses a few hundred yards of a single distribution circuit, a cost easily offset by the fact that power sharing through net metering reduces the need for future grid expansion or centralized power plants.
Like Del. Folk’s “cross-subsidization” amendment, ALEC’s claim that net metering penalties are based on “fairness” is in fact a windfall subsidy to power companies forced on net metered customers.
West Virginians need to ask their legislators why they are doing the dirty work of out-of-state corporations to penalize one of the most innovative and dynamic sectors of the WV economy.

Does the “Compact” Between Regulators and Utilities Really Exist?

Utility lawyer Scott Hempling always has something well informed and original to say about electricity in the US.  This month’s essay is no exception:

I recently came across this quote:

There is … a long-standing, but unwritten, rule that governs cost recovery and lies at the heart of establishing regulated prices. This rule is known as the regulatory compact. Under the regulatory compact, the regulator grants the company a protected monopoly, essentially a franchise, for the sale and distribution of electricity or natural gas to customers in its defined service territory. In return, the company commits to supply the full quantities demanded by those customers at a price calculated to cover all operating costs plus a “reasonable” return on the capital invested in the enterprise.1

This is the formula fed to regulatory newcomers:  smooth, sweet and easily digested.  But it lacks the essential nutrients. As commonly misused, the phrase “regulatory compact” refers to the regulatory treatment of shareholder investment under the statutory “just and reasonable” standard and the Fifth Amendment’s Takings Clause in the U.S. Constitution.2 There is a legal relationship between utility and regulator, and between utility investment and regulator-set rates.  But that legal relationship is not “long-standing,” it is not “unwritten,” and it is not a “rule.”  To call a “compact” what the Supreme Court has described as “essentially … ad hoc and factual” is artificially narrow, incumbent-protective, and legally wrong.

Mr. Hempling takes apart the “ad hoc and factual” relationship between electric companies and regulators, masquerading as some kind of regulated utility compact, and blows away much of what we are taught about electric utility monopolies.

The next paragraph is particularly relevant to AEP’s and FirstEnergy’s grab to control the regulation process in HB2201:

Those who cite the “regulatory compact” talk only of an exchange of service for money.  The real relationship is richer.  It requires the utility to satisfy the regulator’s standards for performance at “lowest feasible cost,”3 to use “all available cost savings opportunities”4; and to pursue its customers’ legitimate interests free of conflicting business objectives.  In return, the regulator must establish compensation that is commensurate with the utility’s performance.  But there is more.  To set standards for performance and ensure compliance, the regulator must have the resources, expertise and political support that is at least the equal of the utility’s.  And for this relationship to work to each party’s benefit, it must include a mutual commitment not to use the political process to undermine either the utility’s or the regulator’s ability to do their jobs.  Those who talk of a “regulatory compact” leave most of these factors out. [emphasis mine]

And

Utilities often cite the “compact” self-referentially, as if it is their compact, created solely to support their specific revenue needs and their specific business success.  (As in, “Utility of the Future” rather than “Customer Needs of the Future.”)  But the legal relationship just described transcends any particular utility.  Its foundation is a franchise, of which the incumbent utility is but a temporary grantee, one whose rights depend on performance.  The utility has no lifetime lock on the franchise (see “Regulatory Capture I:  Is It Real?“); nor is it like a New York City taxi medallion—bought from government, resold  for profit.  The franchise is a right to be earned, not demanded.

This describes perfectly the entitled attitude of both AEP and FirstEnergy in West Virginia, as well as that of our supposed regulators, the supine WV PSC.

Read Mr. Hempling’s entire piece.  It will open your eyes about what utility regulation really is.

PUCO Dumps AEP’s Ohio Coal Bail Out

The Public Utility Commission of Ohio has told AEP that is will not allow the company to lock Ohio rate payers into power purchase agreements with AEP’s uncompetitive coal burners.  FirstEnergy also has a similar bail out plan pending before PUCO.

The Public Utilities Commission of Ohio made history Wednesday in a ruling refusing to allow AEP Ohio to saddle ratepayers with extra charges to subsidize the continued operation of a 1950s-era coal-fired power plant that it owns along with FirstEnergy and other state utilities.

The decision to reject AEP’s request for a subsidy — immediately applauded by some consumer and environmental groups — sends a shot over the bow of FirstEnergy’s similar proposal and could jeopardize the continued operation of the Davis-Besse nuclear power plant and the W.H. Sammis coal-fired power plant on the Ohio River.

The Cleveland Plain Dealer goes on to explain:

The Ohio Consumers’ Counsel has opposed the PPA proposals offered by both utilities. And it lost no time Wednesday arguing that the real issue in the case is the impact on home electric bills.

“AEP’s customers already pay the highest electric rates in the state.  Ohioans pay higher rates on average than consumers in 31 other states,” said OCC spokesman Scott Gerfen.

“Ohio’s electric utilities want the protection of more government regulation but consumers need the protection of more competition to lower their electric bills in this era of historically low energy prices.

“It’s time to end the electric utilities’ slow march to competition and adopt the competitive markets that Ohio lawmakers envisioned in 1999.”

Still, Wednesday’s ruling is not absolutely a death knell for power purchase agreements, despite the hosannas issued by other consumer groups and some environmental organizations soon after the ruling.

In fact the PUCO order declares that the concept of a PPA in a marketplace that is supposed to be free of state regulation is legal under Ohio law.

What the order says is that the commission could find no benefit to customers in allowing the PPA as it was proposed by AEP Ohio.

“Although the magnitude of the impact of the proposed PPA rider cannot be known to any degree of certainty, the Commission agrees with the Ohio Consumers’ Counsel, the Industrial Energy Users-Ohio and other intervenors that the evidence of record reflects that the rider may result in a net cost to customers, with little offsetting benefit from the rider’s intended purpose as a hedge against market volatility,” the ruling asserts.

Unlike the WV PSC, PUCO is interested in protecting electric customers.  As time goes on, the WV Harrison (FirstEnergy) and Mitchell (AEP) deals will look worse and worse, compared with PUCO’s wise decision.