TrAILCo Has Too Much Capital — FirstEnergy Wants It

What a great way to start an article:

Insisting that the move will raise no risk of “corporate officials raiding corporate coffers for their personal financial benefit,” Trans-Allegheny Interstate Line Co. asked FERC to confirm that it can pay periodic dividends out of paid-in capital to its parent, FirstEnergy Transmission LLC, without violating the Federal Power Act.

That was part of outlaw FirstEnergy’s appeal to FERC to allow it to withdraw capital from its transmission subsidiary TrAILCo.  TRAILCo is filling up so fast with its extra-high rate payer subsidies from FERC for its obsolete transmission lines that failing FirstEnergy wants to get its hands on some of the loot.  Note also that the quote about corporate raiding was written by FirstEnergy’s own lawyers in the company’s FERC filing.

Back in 2001, Dick Cheney and Enron’s Kenny Lay whined in their secret energy task force report that the US transmission infrastructure was falling apart because there weren’t enough profit incentives in place for investors.  The Republican-controlled Congress obliged them in the 2005 Energy Policy Act by creating rate payer financed giveaways to high voltage bulk transmission owners. TrAILCo’s TrAIL line through PA, WV and East VA was one of those lines guaranteed extra high profits.

A new report has been released by The Power Line’s own Cathy Kunkel and Tom Sanzillo for the Institute for Energy Economics and Financial Analysis about FirstEnergy’s desperate attempts to rescue itself from a financial death spiral.  They document how FE is grabbing for all the subsidies it can get its hands on and how it is attempting to suck capital from its profitable subsidiaries to shore up its obsolete coal-fired and nuke plants.  TrAILCo is about the only profitable part of FirstEnergy right now, and they want to loot that subsidiary too.

FirstEnergy’s financial condition has deteriorated since it merged with Allegheny, and its key financial metrics are on a downward trajectory. Over the past three years, it has experienced declining revenues, declining net income, declining stock price, declining dividends, and rising debt. It has retired 4,769 MW of merchant coal plants and has booked impairments totaling $1.1 billion against the value of its coal plants from 2011 to 2013. To shore up its balance sheet, FirstEnergy has relied heavily on “one-time resources,” including proceeds from asset sales and short-term borrowings. FirstEnergy’s poor financial performance stems from the underlying condition that the company’s business – the sale of electricity – is performing poorly and not generating sufficient revenue to cover expenses.
The original quote cited above refers to paying dividends from paid-in capital.  There is no such thing as paying dividends from paid-in capital in standard accounting practice.  When you take capital out of a company, you are simply taking capital out of a company.  This has nothing to do with dividends, which are paid as a share of annual profit or net income.  FE is raiding TrAILCo, plain and simple.

Without the Cheney/Lay-inspired rate payer subsidies, TrAILCo would just be another of FE’s failing business ventures.  Thanks to the 2005 Energy Policy Act, FE doesn’t have to liquidate TrAILCo because the subsidiary is actually an asset that is earning them money, unlike their coal and nuke plants.  Now FE wants FERC to let them milk their cash cow dry.

A Scared Dominion and Other Utilities Walk Out of East VA Solar Value Committee

East Virginia has a terrible record when it comes to renewable power.  The state legislature allows electric companies to impose punitive “stand by” charges on renewable power producers.  AEP’s Appalachian Power Company, which also controls about half of WV’s electrical system, has imposed monthly fees on solar power producers.  When it comes to renewable power, East VA is as much of a failed state as WV.

In the controversy over East VA’s extra feed in charges on renewable power, the state legislature did create a commission to determine whether solar and wind generators cost other customers money or whether renewable generators created benefits to the system for which they are not being compensated.  The East VA Senate’s Distributed Generation and Net Metering Solar Stakeholder Group has almost completed the draft of the final report of its findings.

Here is a link to a good account of what happened next.  Dominion Energy, the holding company that owns Virginia Electric Power, the state’s largest electric company, just walked away from the Stakeholders Group, hoping to sabotage the process.

David Botkins, a spokesperson for Dominion Virginia Power, said after providing “feedback” to a draft report by the Group, it determined “the group has migrated into issues that are more appropriate for the SCC (State Corporation Commission) and General Assembly to consider.”

When asked why Dominion did not assume, from the beginning, that a report from the Group was destined for the Senate, Botkins added, with “the report nearly complete (it has been through several drafts) it seemed an appropriate time to discontinue our participation.”

Susan Rubin, Vice President-Legislative Affairs of the Virginia, Maryland and Delaware Association of Electric Cooperatives informed DMME and DEQ of their withdrawal saying ”We began the process hoping, in the end, the work product would be the result of collaboration.  Following the last meeting (in August), it became clear that we must remove ourselves from the list of participating stakeholders as we cannot be associated with the final report this group will issue.”

Pitt of VCU, the Group’s meeting leader, said, “Basically the utilities all said that the report was heading in a direction that they wouldn’t be able to support.” He added, they “wouldn’t say anything specific about what parts of the report they disagreed with.”

The withdrawal is leading several solar advocates to conclude that the utilities opined the valuation methodology headed would set too high a value for solar, setting the stage for a debate, and perhaps legislation, they might have a difficult time controlling. Several long-time observers have long doubted this study would have much, if any, impact because Republicans control the House of Delegates, as well as, the Senate. Neither body has demonstrated interest in enabling markets for cleaner energy in Virginia, even as the economy needs to replace tens of thousands of jobs lost to cut backs in defense contracting.

The East VA power companies are scared of what an objective study of the net value of solar power to the grid really is, because it undermines their claims that solar producers are “free riders” on non-productive “consumers.”  As John Pierobon points out in his blog post:

The value of a rooftop solar system is drawing increasing interest from advocates and a lot scrutiny from utilities since Minnesota became the first U.S. state in March to officially set a value on solar-generated electricity.  That value, in the form of a tariff, is a kilowatt hour payment that Minnesota utilities may opt to pay as an alternative to the state’s policy for crediting excess generation of electricity on a monthly or annual basis – known as net metering – at the retail rate paid by homeowners and most businesses.

Minnesota’s valuation was the result of a lengthy process based in part on the Federal government’s calculation of the social cost of fossil-fuel sources of power and their carbon emissions.  Tariff’s are unique to each utility. Analysts estimate tariffs in Minnesota are likely to range between 12 and 14 cents per kilowatt hour. The higher the value, the higher revenue drain that such a determination poses for utilities which make money simply by selling more electricity. There is long-running debate in regulatory circles about how to “decouple” utility profits from pure sales.

Pierobon provides an account of why the power companies pulled out at the last minute:

Some of that control sought by utilities might have been provided by the Department of Environmental Quality’s coordinator of the working group, Carol Wampler. Wampler is a former lobbyist for the Virginia Manufacturers Association whom the utilities trusted to help steer the Group deliberations in a direction they could live with.

But Wampler retired at the end of August. On September 5, the utilities notified various offices of the state government of their withdrawal.  Some seasoned political observers familiar with the significant influence Dominion exerts on the General Assembly, agreed that the combination of a harmful report and Wampler’s retirement was too much for them to stomach. Wampler would not comment for this column.

“It looks like the utilities didn’t like what the study is finding, and they are hoping that walking out of the room will make it go away,” said Ivy Main, a prominent blogger about clean energy in Virginia and a participant in the Group. Main has been a vocal critic of in-state utilities’ intransigence about any policy enabling a significant market for solar energy in their service territories.

Utilities have complained that net metering amounts to an unfair subsidy for customers that own solar panels at the expense of those who don’t. Solar advocates counter that the retail rate underestimates the value of solar panels to the grid and society, taking into account the health and environmental impacts of harmful greenhouse gas emissions.

Monique Hanis, of Falls Church, VA, a member of the Group’s Steering Committee representing solar system owners who formerly was senior manager of the national Solar Energy Industries Association, said she was “excited about the possibilities of working together with utilities, companies, municipal leaders and conservation groups, not just on this report, but on expanding options for customers to ‘go solar,’ creating more jobs and driving innovation across the state.”

It’s all about power company control of the political process.  When that control is threatened, the power companies just walk away.

 

WI’s WE Energies Institutes Power Industry’s Attack on Homeowner/Business Solar Power

I recently came across this interesting discussion of Wisconsin power company WE Energies and its application to the WI PSC to heavily penalize WI solar power producers with the elimination of net metering and extra charges, based on the Edison Electric Institute’s “free rider” propaganda.

The author of the Daily Kos post makes some excellent points about WE’s factless propaganda campaign to stir up resentment against solar power producers.

So what is “fair?” Said brochure: [solar customers] “still need to use the electric grid, yet pay less than their share for their use of the grid. This leaves more of the cost of the grid to be paid by customers who do not have or cannot afford their own systems.”

Please note that there are no actual dollars and cents numbers given to support any of these statements. I think that paying $108 a year more than regular customers, in spite of the fact that we’ll be supplying the grid with energy during peak use, is actually way more than fair, verging on unfair! I therefore went on a personal quest to find out exactly what solar customers are costing WE Energies when they send those little electrical particles zooming through the existing wires.

First, I called the guy at WE Energies I’d been dealing with about our application to connect to the grid (very nice guy, by the way; tough position to be in). Him: Well, we just have to be fair. Me: I want to be fair. How much will it cost you guys to run my solar energy through your system? Him: Well, that’s hard to say: Me: Is it more than the $9/month that everyone else pays? Him: Well, that $9/month doesn’t cover all of our costs. You have to also buy energy in the form of kilowatt hours…

…INTERLUDE: Doesn’t cover ALL of their costs? Their own brochure says it “covers the fixed costs to provide services.” It doesn’t say “almost covers.”…back to our regularly scheduled diary…

Me: How much energy does a customer have to buy to make up the difference? Him: That’s hard to say.

Let me summarize: WE Energies couldn’t tell me how much it will cost them to run my solar energy through their system.

Then, I called and spoke with the Distributive Energy staffer at the PSC. I shall paraphrase our conversation. I said that certainly WE Energies must have included in its proposal the actual amount that solar customers cost them. His response: No, they didn’t. Me: You’re kidding. Him: No. Me: Well, I do want to be fair. Do you know what it costs them to run solar energy back into their system? Him: It depends on who you talk to. There’s no fixed number. Me: What do you mean “there’s no fixed number? Him: Again, it depends on who you talk to.

Let me summarize: WE Energies did not include in their rate increase proposal a dollar amount for what solar customers cost them, and the Distributive Energy expert at the PSC doesn’t know either.

So, WE Energies has issued an official publication, essentially blasting renewables customers for not paying their “fair” share to use the grid, but they have no actual real numbers to back up their claim. Why go so far as to demonize solar customers?

The answer is on the back of the brochure. Now that they have their regular customers believing that they are victims of a massive photovoltaic plot, they provide information about how to contact the PSC with comments. They encourage customers to visit their website at Wisconsin Public Service Commission to learn about the hearing schedule for, or leave comments about, docket #5-UR-107.

Having been to the PSC Public Comments section, I can tell you I haven’t seen a single comment in favor of the rate hikes. My guess is that WE Energies is trying to change that. Oh, and the brochure says that you can also contact WE Energies for more information at WE Energies email.

Windtalker, the author of the Daily Kos piece, also does a good job of running the numbers on the cost of WE Enegies’  proposed new fees.  Windtalker does not do such a good job of explaining why WE Energies is pursuing this changes that will hurt Wisconsin’s electrical reliability and overall cost to customers.

Readers of The Power Line know exactly what is behind WE Energies’ tactics – fear.  Back in January 2013, the Edison Electric Institute warned the US electrical industry that the whole system of massive investment in centralized generation and big transmission was about to be swallowed by the new wave of decentralized generation, mainly solar and wind power.  That fear is what is driving WE Energies and most other US power companies now.

For 100 years, US power companies have been able to built power plants and transmission lines with the assurance from regulators and politicians that they will be able to recover all of those costs, plus profit, from rate payers.  Now many rate payers are rebelling against this regime.  They are investing in new technologies that either allow them  to reduce electricity use, or produce their own.

WE Energies depends on selling kwh to pay for their investments that they thought would be subsidized by rate payers for decades.  That world may be gone forever.

As Scott Sklar points out in his recent article, customer based electricity investments improve the overall efficiency of our electrical system by increasing systems’ load factors.   The problem, according to Sklar, is that our current way of rewarding investment by power companies in obsolete technologies is causing high rates and stagnation in the industry.  WE Energies, following the EEI playbook, is using that destructive old subsidy system to crush new ways of doing things in the world of electricity.

This nihilistic lashing out by scared power companies is something none of can afford any longer.  And we should not stand for it.

Scott Sklar on “Free Rider” Propaganda

Scott Sklar is one of the most expert of US experts on decentralized power.  Here is a very informative article he posted recently on Renewable Energy World.  Mr. Sklar takes apart power company claims that by using modern decentralized power technologies, small scale electricity producers are getting a free ride from consumers stuck in the clutches of obsolete generation and distribution.

Or, as he puts it:

In 2012, the Virginia Governor proposed a tax for the sales of energy efficient cars because they use less gasoline, which means less money goes into the highway trust fund to repair roads. Hybrid and electric car owners, like myself, went nuts — why should those saving gasoline and significantly reducing pollution be penalized? By the end of 2013, a bipartisan coalition abolished the law.

 

FirstEnergy Solutions Implodes

FirstEnergy’s experiment in selling retail electricity below cost blew up in recent months.  Here is the story in The Cleveland Plain Dealer.  The geniuses that run FirstEnergy cooked up their new deregulated retail company, FirstEnergy Solutions, and created a business plan based on undercutting everyone else in the market, regardless of how much money it lost them.  Surprise, surprise.  This brilliant strategy succeeded in losing so much money that FirstEnergy Solutions almost blew up the FirstEnergy holding company.

The collapse of FirstEnergy Corp.’s retail marketing company is news — but not to national retail power suppliers or to local electricity brokers working with them.

For months they saw it coming, a failure signaled in the spring when FirstEnergy Solutions said it would be passing on to its customers the “polar vortex” surcharges that grid manager PJM Interconnection levied against the company.

Then a week ago during a quarterly financial conference Anthony Alexander, FirstEnergy’s CEO, confirmed the rumors.

He said the company had decided that FirstEnergy Solutions — which also owns the corporation’s power plants — would focus on selling its power into wholesale markets and stop pitching retail deals to commercial and most industrial customers, leaving only a few very large industrial customers and its long-term, less risky municipal retail contracts serving residential customers.

And

About 70 FirstEnergy Solutions sales and sales-support positions will be cut next week, leaving the company’s commercial and industrial customers scratching their heads, and competitors scrambling to grab new customers as their contracts with the Akron-based company run out.

Competitors — about 30 of them in Ohio alone — are ready for what will be a marketing bonanza. And they are not shedding tears.

“They took a strategic approach to sell their generation at retail prices that were less than the wholesale market (prices) that would support them,” said J.D. Burrows, vice president of marketing at Houston-based competitor GDF Suez Energy Resources, North America.

“It is my opinion that FirstEnergy Solutions’ behavior was irresponsible. It is almost unbelievable. They bought market share but in the long run, they short-changed their customers,” he said in an interview earlier this week.

Heckuva job, Tony.

After WV Harrison Bailout, FE looks for OH bailout of Sammis and Davis Besse

Julien Dumoulin-Smith has a new story over at the UBS site about FirstEnergy’s attempt to use a higher than market rate (where have we seen this before) power purchase agreement with its dying Sammis coal burner and is decrepit Davis Besse nuke to get OH rate payers to bailout the two loser plants.

FE seeking PPA to firm up its generation portfolio, substantially above-market

Late yesterday FE filed with for a new Electric Security Plan (ESP) before the Ohio Commission (PUCO) for a PPA-rider that would effectively enter into an above-market PPA for (3) assets: its recently scrubbed 2.2GW Sammis coal plant, its 908MW Davis-Besse nuclear plant, & its 105MW interest in the OVEC coal plant. We estimate the PPA would begin on June 1st, 2016 at approximately ~$65/MWh, rising by ~$2/MWh per year from there. The proposal appears to be approximately ~$500 Mn/yr above market accounting for a return on investment in these plants, backing into a ~$26/MWh uplift on current power and capacity prices. While both assets appear to generate limited FCF (we think Davis-Besse could be modest, see below), we believe both plants likely failed to clear the latest capacity auction (seeing substantial quantities of generation that did not do so in ATSI). Without capacity payments, Sammis is FCF negative and David-Besse is marginal (prior to any material levels of maintenance capex).

Dumoulin-Smith also refers to AEP’s similar attempt at a PPA earlier in the year, which OH’s PUC rejected. Both AEP and FE have used OH’s recent deregulation to their advantage. Both companies are attempting to recreate their vertically integrated structures, in ways beneficial to then, by having their retail companies buy electricity on long term PPAs from their unregulated generation subsidiaries.