Consumer advocate: Utilities should seek bids for power needs - Business, Government Legal News from throughout WV

Consumer advocate: Utilities should seek bids for power needs

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We comparison shop for sub sandwiches, for electronics, for cars — why not for power generation?

That's what Byron Harris thinks West Virginia's electric utilities should do.

"Nobody makes a bid on a house without looking at comparables," said Harris, director of the Consumer Advocate Division of the Public Service Commission of West Virginia. "Why should you do that with a power plant?"

As FirstEnergy and AEP prepare to make formal filings proposing that their West Virginia utilities buy coal-fired power plants from other subsidiaries, Harris thinks they should show the commission, and their customers, what the alternatives are.

Plans revised before filing

The basic idea is to have plans in place for how future customer demand will be met by FirstEnergy's Mon Power, which also supplies Potomac Edison customers, and AEP's Appalachian Power, which also supplies Wheeling Power customers.

Mon Power is about 900 megawatts short of its ability to meet peak demand, and Appalachian Power is going to be something like 2,300 megawatts short at the beginning of 2014, following some restructuring within AEP.

Both utility companies floated their plans in preliminary form earlier this year.

FirstEnergy earlier proposed to have Mon Power buy the 80 percent it does not own of the Harrison Power Station, to sell 8 percent it owns in the Pleasants Power Station and to acquire 177 megawatts of "participation rights" to capacity in Ohio, for a net gain of more than 1,600 megawatts of coal-fired capacity.

In a briefing before the commission on Nov. 8, the company said it was strongly considering leaving the 177 megawatts out of the plan for now, according to its slides. The revised plan would result in a net transfer of 1,477 megawatts to Mon Power.

The company presents the $1.1 billion plan as a commitment to West Virginia coal. A review of the Harrison plant's coal reports to the PSC shows that it sources its coal from West Virginia mines.

As for AEP, it previously proposed that Appalachian Power would purchase from Ohio Power the 867 megawatts of capacity it owns of the John Amos plant near Charleston as well as 80 percent, or 1,248 MW, of the Mitchell Power Station at Moundsville — about 2,100 MW of coal-fired capacity in all.

The current plan, presented to the commission on Nov. 7, comes in a little lower, at 1,647 MW: The Amos 867 megawatts plus 780 megawatts of Mitchell.

Total cost: about $1.2 billion.

The costs, of course, have to be compared with alternatives — it's not as though not buying these assets will avoid the cost entirely, because power has to be obtained in some way.

Cost effectiveness

The question isn't only whether the transactions would meet future demand; it's also whether they are the most cost-effective means of meeting demand.

Harris thinks they may not be.

He and others have hypothesized that these transfers are motivated by the fact that Ohio is moving toward a deregulated, or competitive, power market.

As coal becomes more expensive to burn — relative right now to abundant natural gas and also due in part to mining out and to regulations that could at some point include restrictions on carbon emissions — it becomes harder for generation assets to compete in Ohio.

But they can receive an assured rate of return in West Virginia's regulated market.

Possible alternatives to buying existing coal-fired plants include meeting some of the generation shortfall by promoting customer energy efficiency, as these utilities and others have found effective in other states; building new generation — likely natural gas-fired generation, in this price environment, but possibly something else; or purchasing power on the market.

It's for this that Harris suggests the companies issue Requests for Proposal, or RFPs, to invite alternative plans for how the capacity shortfalls could be met.

"It's commonly done elsewhere," he said. "And it's been done for decades."

The utilities could issue RFPs as part of their processes with the commission, he said.

"If they get their bids in and all the bids are higher priced than what they propose to do, then that gives their proposals great evidentiary weight, I would say," he said. "What they're of course afraid about is that if they do RFPs and the bids come in lower, then the grand plans of the parent companies won't go through. "

Asked FirstEnergy's response to the idea of putting its proposal to the test of an RFP, spokesman Todd Meyers said it will be addressed in the filing.

Appalachian Power believes it has generated comparable data on its own, according to spokesperson Jeri Matheney.

"We have done a comparison of different options," Matheney said.

"If the commission orders us to do RFPs, that's the path we'll follow," she said. "But we think we've got just as good quality data as an RFP would give us."

Timeline

FirstEnergy wants to get this done quickly. It hopes to have a final order from the commission by April 15, 2013, in order to close the transaction by May 1.

"That's a schedule that ensures that Mon Power would have additional capacity in time for hotter summer weather," Meyers said. "Higher energy prices in the summer months will boost income by a forecasted $50 -$65 million, with those benefits flowing back to ratepayers."

Owning that generation capacity by May 1 also would allow Mon Power to participate in the regular May auction of future power generation held by regional grid manager PJM Interconnection, he said.

It's an unreasonably short timeline, according to Harris.

"You've got to look at the forecast of peak demand and energy needs, look at how much power plants generate, how much they go offline — it's a very complicated analysis," he said. "This wouldn't give us time to hire experts and prepare before testimony would have to be filed."

AEP has a longer timeline, Harris said.

"They're looking for a commission decision by the third quarter of 2013, so it's a much longer, an appropriately longer time period," he said.

FirstEnergy plans to file with the commission on Nov. 16; AEP has said it will file in December.

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