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Playing a Shell Game with a Power Plant: Ratepayers Lose

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Ever wonder how your utility company sets your electricity price? Most of us don’t think much about our electric bills; we just pay them and figure there isn’t much we can do about it if the rates increase. However, once in a while there’s an opportunity for ordinary citizens to speak up and make their voices heard. At the moment, that’s especially true if you get electricity from Mon Power or Potomac Edison, which together serve a large part of West Virginia.

Utility companies can’t just charge whatever they want to provide power; in most states, they must have their rates approved by state regulators. The state agency responsible for these decisions is usually called a public service commission or public utilities commission. When a power company wants to make a change that could affect the services it provides or the amount it charges its customers for power, it must win approval from the commission. The commission’s job is to protect consumers.

In West Virginia these decisions are handled by the West Virginia Public Service Commission (PSC). The WV PSC is tasked with making sure that utilities are keeping customers’ interests at heart, or in its words “ensuring that reasonably priced and reliable utility services are available to all customers.” An eyebrow-raising case is currently pending before the WV PSC, and it is one that Mon Power and Potomac Edison customers should be concerned about.

The case concerns a coal-fired power plant called the Harrison Power Station, near Haywood, WV (just north of Clarksburg). Mon Power already owns 20 percent of Harrison, and the other 80 percent is owned by Allegheny Energy Supply Company. The proposal would transfer full ownership of the power plant to Mon Power.

Sounds like a simple transfer of assets, so no big deal, right? The problem is the fact that a larger company called FirstEnergy owns both Mon Power and Allegheny Energy Supply, as well as Potomac Edison. That’s right, all these companies are owned by a single company. You might ask yourself, why is FirstEnergy trying to transfer ownership of a power plant to itself?

Harrison Power Station

Harrison Power Station, Photo: Courtesy of FirstEnergy

The answer has to do with how electricity markets work. Some states, like Ohio, are “deregulated,” meaning that utilities must compete in an open market to sell the power they produce. Others, like West Virginia, are “regulated,” meaning that the PSC essentially sets electricity prices. FirstEnergy, which is headquartered in Ohio, is proposing to transfer the power plant from a deregulated market to a regulated market.

The bottom line is that the shale gas boom and resulting low natural gas prices, along with renewable energy standards like Ohio’s, have made the 40-year-old Harrison coal plant less profitable for the company. It is proposing that Mon Power pay over double the actual value of the plant, as calculated by the PSC’s own analysts, and is clearly grossly overpriced compared to similar recent power plant transactions.

This misguided deal amounts to a bailout of FirstEnergy — paid for directly by Mon Power’s customers, and by extension, Potomac Edison customers, who are subject to the same rate decisions applied to Mon Power by the WV PSC. WVU’s James van Nostrand, director of the Center for Energy and Sustainable Development, explains in detail why this proposal is a bad deal for ratepayers.

Estimates suggest this deal would raise electricity rates for Mon Power and Potomac Edison customers by 6 percent. For its part, FirstEnergy recently responded to these criticisms, suggesting the plant is needed to meet projected capacity needs; but simply put, the company has not made any attempt to consider other options for meeting those needs. Instead of rushing this deal through, the WV PSC should insist that the company instead issue a request for proposals (RFP) to find the least costly alternative.

The WV PSC will hold public hearings on this case starting tomorrow, May 29. To find out more details on the case, you can go to the WV PSC’s database and look up Docket number 12-1571.

Make your opinions known! Submit comments to the WV PSC and share this information with your friends and family.

Posted in: Energy Tags: , , , , ,

About the author: Jeremy Richardson is a senior energy analyst in the Climate and Energy program, conducting analytical work on the Environmental Protection Agency’s carbon regulations. Prior to this position, Dr. Richardson was a Kendall Science Fellow and researched the fundamental cultural and economic drivers of coal production in West Virginia. He has a Ph.D. and M.S. in physics from the University of Colorado at Boulder. Subscribe to Jeremy's posts

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3 Responses

  1. And unfortunately, this is not the only rate case currently pending:

    http://www.kftc.org/blog/%E2%80%9Caepky-power-should-be-forward-looking

  2. James Kotcon says:

    This story identifies some issues, but misses some key elements. First, if the Harrison plant stays with Allegheny Energy Supply (the Ohio affiliate), it will have to compete on the open market, and if it can’t, First Energy’s shareholders absorb the loss. But if it is transferred to the West Virginia affiliate, ratepayers must absorb all costs, and give a guaranteed profit to First Energy shareholders. When natural gas prices are low, the Harrison plant (coal-fired) can’t compete. And a little noticed bit of testimony from First Energy includes their assertion that they expect some form of carbon tax by 2020, which would make the plant even less competitive more or less permanently. So ducking into the protection of a regulated monopoly makes sense for stockholders, but not for shareholders. Since Mon Power is clearly looking out for their stockholders and not their ratepayers, we need the PSC to stand up for West Virginia ratepayers.

    But the biggest problem with this transfer is that it undercuts any incentive for energy efficiency. Since that plant is so huge, and the ratepayers are paying for it anyway, there will be a strong disincentive to anything that reduces electricity consumption. The focus on the cost of the plant (whether it is worth $1.1 billion, or only half that amount) is the wrong issue. Regardless of the cost of the plant, if the transfer is approved, ratepayers lose. Even if the plant were transferred for free, energy efficiency programs would cost ratepayers less in the long run. Even if the plant were transferred for free, energy efficiency programs would create more jobs, immediately. Even if the plant were transferred for free, the environment would be better with energy efficiency programs instead.

    UCS produced an excellent report in 2006, Gambling with Coal, available at:
    http://www.garfieldfoundation.org/resources/Gambling%20with%20Coal.pdf
    In this report, it was suggested that stockholders needed the “discipline of the marketplace” before they would take responsibility for risks from greenhouse gas emissions. As long as they can make profits by dumping environmental compliance costs on ratepayers, the stockholders will never make corporate managers accountable for retaining facilities with high climate risks. No clearer example of that can be found than the proposed Harrison power plant transfer.