FirstEnergy wants to transfer coal-fired generation to Mon Power - Business, Government Legal News from throughout WV

FirstEnergy wants to transfer coal-fired generation to Mon Power

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Photo Courtesy of FirstEnergy Photo Courtesy of FirstEnergy

FirstEnergy wants to transfer the ownership of about 1,600 megawatts of coal-fired generation capacity to Mon Power.

This major generation resource transfer was presented by the company to the Public Service Commission of West Virginia on Aug. 20 as a courtesy or a "heads up" about a future filing.

The transfer is a way to meet a generation capacity shortfall for the needs of customers of Mon Power in the northern part of the state and of Potomac Edison in the Eastern Panhandle, which Mon Power also serves.

But coming as it does months behind a similar idea floated by American Electric Power, it begins to seem that the electric utilities are moving decisively to place coal-fired generation assets out of competitive markets and into West Virginia's regulated market where they are assured a return on investment.

The concept

Currently, Mon Power generates some power and buys some of its power on the 13-state region's PJM Interconnection market, explained FirstEnergy spokesman Todd Meyers. When the small, old Albright, Rivesville and Willow Island plants retire on Sept. 1, it will have to buy a little more on the market.

That's fine now, Meyers said, because prices are low. But when prices rise, it will be "a whole different kettle of fish."

The PSC had the same idea and, a while back, asked FirstEnergy to let it know how it's going to handle its capacity shortfall.

The company reviewed "everything from do nothing and purchase more power from the market to build or buy additional generation," Meyers said. "We believe this generation transfer is the low-cost, reliable solution to backfill the capacity shortfall and ensure an ample supply of energy going forward."

In the transfer, Mon Power would buy the 80 percent or so of the coal-fired Harrison Power Station capacity it does not own from FirstEnergy generation subsidiary Allegheny Energy Supply, he said.

Along with the sale of about 8 percent it owns of the Pleasants Power Station and a transfer of about 186 megawatts of "participation rights" to power generation capacity in Ohio, the total generation resource transfer would amount to a net gain of coal-fired capacity to Mon Power of around 1,600 megawatts, he said.

Questions

The proposal raises a couple of important questions for PSC Consumer Advocate Byron Harris and for policy analyst and Energy Efficient West Virginia Coordinator Cathy Kunkel, both of whom attended the meeting.

One question is about the way this would be built into rates.

The transfer would more than double Mon Power's capital investment, according to Harris, but FirstEnergy doesn't want to charge customers the cost of the new capacity in the usual way, through a base rate case, which would entail a lengthy review of all costs and revenues.

In a large departure from convention, they want to do it more quickly, through a surcharge — a suggestion he called "audacious."

"That's a $1 billion surcharge," he said. "It's not even in the ballpark of anything else the commission's done before."

Why hurry, Kunkel asks, when the reason given for the generation resource transfer is protection against price volatility, but cheap natural gas has created a relatively stable low-price environment in PJM for now?

Meyers said that Mon Power will need a base rate case, but that proceeding can take more than a year. The surcharge would be temporary, he said, although he could not say how soon a base rate case would be filed if the transfer were approved.

A second question is about the potential for future coal price volatility and for the possibility of significant costs associated with rules reducing emissions from coal-fired plants, including greenhouse gases.

Those topics were not part of the presentation, Kunkel said.

What are those risks, she asked. Were those potential costs figured into the analysis of whether this is a good idea for Mon Power customers?

Meyers said he doesn't know if that was part of the analysis.

Coal-fired … assets? Liabilities?

FirstEnergy's presentation follows by a just a couple months AEP's stated similar intention to have subsidiary Appalachian Power buy about 2,100 megawatts of coal-fired generation capacity at the John Amos plant and the Mitchell Power Station from sister company Ohio Power.

The two utilities' plans come as economic forces move against coal and as price competition in Ohio's deregulated power market becomes more intense.

In a deregulated power market like the one Ohio is increasingly moving into, utilities bear the outcomes of their investment decisions in rate competition with other utilities — while in West Virginia's regulated market, the PSC reviews each utility's accounting of its costs and approves rates accordingly, with guaranteed rates of return on investments.

"Clearly both FirstEnergy and AEP want to put the risk of future environmental costs associated with coal into states where they can recover those costs from captive ratepayers," Harris said.

As evidence beyond some 15,000 megawatts of coal-fired power plant retirements in PJM of the coal-fired power's struggle, Meyers said Harrison is a good asset.

"It's a supercritical (efficient) station and it has your latest pollution controls on there so it's a good plant," he said.

Kunkel noted that FirstEnergy said last week that, for economic reasons, it will reduce generation at its huge, 2,233-megawatt coal-fired W.H. Sammis plant — a good enough asset that the company recently spent $1.5 billion to clean up its emissions.

Least cost?

At a time of persistently low natural gas prices and potential regulation of coal-fired emissions, it's "counterintuitive, to say the least," that coal-fired assets would be the best solution to a capacity shortfall, Harris said.

He suggests that utilities should, in addition to conducting their own internal analyses, seek bids.

"I think the best way that any utility should procure capacity or procure resources necessary to serve its customers is do an open request for proposal and get bids from all sorts of providers and whoever's the cheapest wins," he said, "rather than … West Virginia just taking what they propose for us."

The analysis will be detailed in an Aug. 31 filing with the commission, Meyers said. That filing will not be seeking approval of the proposal, but will lay out the company's resource plan.

At that time, Harris said, his office will do its own least cost analysis.

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