MARTINSBURG ‚ According to multiple sources, including West Virginians For Energy Freedom Coalition and the Institute for Energy Economic and Financial Analysis, Ohio-based FirstEnergy, owner of Potomac Edison and Mon Power, has applied to purchase a plant based upon a model purchase in 2013 that has cost consumers over $160 million.
FirstEnergy has filed its application with the West Virginia Public Service Commission to sell their Pleasants power plant to its subsidiaries Potomac Edison and Mon Power. This $195 million purchase is a pre-emptive reaction to a perceived shortage in power capacity in 2027 that will allegedly leave 1.4 million homes out of power, according to Todd Meyers, a spokesperson for FirstEnergy.
Organizations like West Virginians for Energy Freedom and the Institute for Energy Economic and Financial Analysis (IEEFA) state that this deal is very similar to the 2013 acquisition of the Harrison plant from Allegheny Energy Supply, another subsidiary of FirstEnergy, to Mon Power and Potomac Edison that cost rate payers over $160 million.
According to Karen Ireland, director of West Virginia Sun and the coalition, FirstEnergy operates out of Ohio, a deregulated state, and owns plants that cannot compete in Ohio, therefore the corporation is selling its plants to their own subsidiaries in West Virginia, a regulated state, in order to prevent losses for shareholders at the expense of rate payers.
In fact, according to the IEEFA analyst Cathy Kunkel, a report in September 2013 by Fitch Ratings showed that FirstEnergy’s deregulated coal power plants lost 63 percent of their value from 2008 to 2013. The report cited the depreciation was due to unfavorable market conditions. In addition, the deregulated subsidiary FirstEnergy Solutions was placed at “zero equity value” according to a report by UBS Investment Research.
In a 2013 testimony in a Public Utilities Commission of Ohio case concerning FirstEnergy Solutions by FirstEnergy witness Donald Maul, Maul stated that the subsidiary was not viable in a deregulated market.
“The economic viability of the plants is in doubt,” Maul said. “Market-based revenues for energy and capacity have been at historic lows and are insufficient to permit (deregulated subsidiary) FES to continue operating the plants and to make necessary investments.”
Because of FirstEnergy’s struggle in the deregulated market of Ohio, the management implemented a strategy of “re-regulation” where the company will seek out its regulated subsidiaries to counteract losses for shareholders in uncompetitive plants, according to the IEEFA.
FirstEnergy reportedly had the same proposal in 2013 as it does now – acquire the plant to offset a perceived shortage and save consumers roughly a dollar on rates.
IEEFA states in their report of the acquisition that Mon Power was essentially betting rate payer’s money that their costs of owning and operating an additional plant would generate a revenue great enough to avoid raising consumer rates.
According to the organization, that bet did not pay off.
According to Meyers, the Harrison power plant’s goal was to lower consumer rates by the end of the plant’s life, one that could span up to 30 years.
Although it is possible that rates can still improve, the damage to energy rates has been done, according to the IEEFA’s “dark spread” of the Harrison plant’s net costs.
The spread shows that since April of 2015, the plant has averaged less than $10 million per month and is on a downward trend. IEEFA provides the case where the plant could be beneficial to rate payers –only if that depreciating value of money were enough to cover the non-fuel costs from owning the plant, like non-fuel operation, maintenance costs, and a return on investment.
The IEEFA based the spread off of the monthly net benefit/cost to FirstEnergy’s West Virginia customers.
In fact, not only has the rate not improved in the four years the plant has been a part of the regulated state, but it has cost rate payers approximately $164 million from October 2013 to June 2016. A further estimate by the IEEFA shows that the acquisition, on average, has cost each Mon Power and Potomac Edison West Virginia customer approximately $130 and $600 for commercial customers.
According to Meyers, because the bid for the plant is $195 million, significantly cheaper than the Harrison acquisition, it will not cost rate payers anything but will lower their rates from $112.48 to $111.52.
According to Ireland and Kunkel, the deal will not cost consumers the $160 million that the Harrison acquisition did, but will still result in a rate increase.
Meyers also stated that this plant is a necessary purchase due to their perceived shortage.
“We have determined that we will have a shortage in energy capacity that will begin in the coming year and by 2027, will result in a loss of 1,400 Megawatts, the equivalent of the energy to power 1.4 million homes,” Meyers said.
According to Kunkel there is no sign of a shortage.
“Instead, wholesale electricity prices have remained low, driven by low wholesale natural gas prices and relatively flat electricity demand,” Kunkel said in her report of the Harrison acquisition. “These market conditions are expected to continue for the foreseeable future.”
The PJM 2016 Load Forecast also projects that summer peak demand will not regain its highest levels until after 2030.
“This is a bad deal for the customers,” Kunkel said. “It’s all about FirstEnergy pushing costs and risks for a plant and its shareholders onto West Virginia rate payers.”
There will be three public hearings with the Public Service Commission from Sept. 26-28 in Charleston, one in Morgantown and one on Sept. 11 at the Martinsburg City Building at 7 p.m. There will also be a Solar Congress meeting today where experts will present on why the deal will hurt West Virginia rate payers.