And FirstEnergy Shows Its Hand on HB2201

Today, The State Journal published energy reporter Sarah Tincher’s story on the differing views of HB2201.

In her story, she quoted FirstEnergy PR guy, and our old friend, as follows:

“FirstEnergy is concerned about the way we credit customer generators because we credit them back at a rate that is equal to the retail cost they pay for electricity,” said Todd Meyers, a spokesman for FirstEnergy’s West Virginia subsidiaries, Mon Power and Potomac Edison.

“Those smaller generators get the benefit of using our electrical infrastructure to sell back the electricity they generate without paying to use that infrastructure,” Meyers said. “In principle, we don’t believe it is fair for the rest of our Mon Power and Potomac Edison customers in West Virginia to subsidize small generators.”

So, now FirstEnergy’s PR guy is directly contradicting FirstEnergy’s chief lobbyist Sammy Gray’s statements to the WV House Energy Committee and the WV Senate Judiciary Committee that FirstEnergy interpreted the “cross-subsidization” language in HB2201 as applying only to direct costs of connecting individual net metered customers to a power company.

Has FirstEnergy changed their minds?  Or was Sammy hiding something from WV legislators?

Ms. Tincher does a great job of blowing Toddy’s argument out of the water, by pointing to studies done by PSCs in Missouri and Mississippi:

Among such reports is a Missouri Energy Initiative study, released in winter 2015, which evaluated the benefits and costs of net metering in Missouri, which has a similar fuel mix and retail electricity pricing to West Virginia.

The study quantified the benefits of load reduction and reduced greenhouse gas emissions, in addition to the costs associated with cross-subsidization among consumer groups, and increased administrative costs in managing a new customer class between 2008 and 2012. According to the report, the net effect was positive for the state each year.

The MEI study also suggested benefits of a decentralized energy system, reduced energy prices, local economic boost from manufacturing and installation of net metering systems.

Another study, conducted by Synapse Energy Economics Inc. for the Public Service Commission of Mississippi in September 2014, modeled the costs and benefits of net metering to the state of Mississippi, which doesn’t currently employ a net metering program. The agency’s Total Resource Cost assessment, which included costs of solar panel installation and administrative costs, as well as benefits of avoided costs to the utility, suggested net metered solar rooftop would result in $27 per MWh of net benefits to the state of Mississippi.

FirstEnergy and AEP had better watch out.  If similar studies are done for the WV PSC, they may have to end up paying net metered customers more for their electricity, not less, to pay us for the benefits we give to all customers.  By the way, that is called a feed-in tariff.

WV PSC Files IRP Order

The WV PSC filed an order laying out very modest guidelines pursuant to the toothless, voluntary Integrated Resource Planning law that AEP and FirstEnergy slipped through the WV Legislature back in 2014.

The WV IRP law, and the PSC’s minimal approach, is a far cry from the kind of law supported by WVU Law School professor James Van Nostrand and Energy Efficient WV in the 2012 and 2013 legislative sessions.

 

NY Moving Ahead to Stop Wasteful Infrastructure Spending

NY is now leading the nation in promoting the development of microgrid technology.  The result has been a lot of new projects, including ConEd’s demand management project in Brooklyn and Queens that will eliminate the need for a new $1 billion (yup, that’s a “b”) substation.  Here’s what a recent story on Bloomberg said about the project:

Consolidated Edison Inc. can move ahead with a plan to give users in New York City’s two fastest growing boroughs incentives to boost energy savings and reduce reliance on the grid, the state Public Service Commission said.

The commission in a webcast meeting today approved the utility’s demand-management program for Brooklyn and Queens, where power consumption has jumped as gentrification spurred growth. The plan includes investments by consumers in more efficient lighting, batteries, rooftop solar panels and other strategies to cut demand.

Con Ed said in June that the plan would delay the need to build a $1 billion substation for the two boroughs until at least 2024.

“We are not going to change the landscape in one fell swoop,” Commissioner Gregg C. Sayre said. “That requires us to take small steps.”

Also at the meeting, commissioners discussed a broader energy vision for the state that includes proposals to give power companies more incentives to build new, cleaner generation and consumers incentives to cut use.

The Brooklyn/Queens plan for reducing demand will include energy efficiency, such as replacing refrigerators and painting roofs white, battery storage, distributed generation and microgrids, the company has said.

Con Ed envisions customer demand reductions totaling 41 megawatts. The company expects plan costs to be about $200 million, including expenses associated with the customer cuts and another 11 megawatts of reductions by the utility. Customer savings from the plan will be $400 million to $600 million, Robert Schimmenti, vice president of engineering and planning at the utility, said in a June 27 interview.

This is how you do electrical system investment – quality, not quantity.  And it’s cheaper for everyone.

Here is a link to ConEd’s request for proposals, so you can see the details of the proposed project.

The NY PSC is far ahead of WV PSC Chairman Albert’s ignorant “steel in the ground” fetish.  While the WV PSC sticks WV rate payers with over-capacity obsolete power plants, the NY PSC is serious about building a resilient electrical grid that actually saves rate payers and power companies money.

Mon Power Down Again

I’m sitting here in my office pondering a conundrum.  Back in 2013, the WV PSC granted Ohio-based power company holding companies AEP and FirstEnergy the right to add significant new charges to WV electric bills to cover the costs of a new right-of-way maintenance program that would reduce the regular blackouts that hit West Virginians.

The PSC just granted FirstEnergy’s Mon Power and Potomac Edison a new base rate increase which includes the cost of this program that was supposed to increase system reliability in WV.  Mon Power and Potomac Edison rate payers are now paying a surcharge that will bring in $50 million a year to the power companies for supposedly enhanced right-of-way maintenance.

Yesterday morning, with Mon Power’s electricity still coming in through my meter, I thought that maybe WV rate payers might actually be getting their money’s worth.  FirstEnergy has made a big right-of-way clearing push in Calhoun County in the last two years.  They have even illegally sprayed my neighbors with herbicides.

Well, I was wrong.  Yesterday (Friday), just after noon, Mon Power’s power went down.  We have 15 solar panels, 8 six-volt batteries and lots of sunshine today, so we have plenty of power.

Back in 2013, the PSC and the power companies told us everything would be fine if West Virginians just forked over more money.  Guess what?  This recent storm has knocked out power to over 100,000 customers.  How have things changed?

If you want to see a history of my posts on this subject, click here.

Where Did the Term “Cross-Subsidization” Come From?

Here is a key amendment that AEP and FirstEnergy, with help from Del. Folk of Berkeley County, inserted into HB2201:

The [Public Service] commission shall assure that any net metering tariff does not create a cross-subsidization between customers within one class of service.
Before we tackle “cross-subsidization,” we need to clarify this sentence a little bit.  The word “tariff” refers to the rules and terms that the PSC approves for adjusting or crediting the electric rates of net metered customers.  The term “class of service” refers to the three classes into which electric customers are divided in West Virginia: residential, commercial and industrial.  The Folk amendment does not address “cross-subsidization” across rate classes, just within each class.  In other words, this sentence seems to say that all customers in a specific class must be treated the same.
But, is that true in any other situations besides net metered customers?  The answer is a definite “no.”  While claiming to treat all customers the same, Del. Folk’s amendment in fact singles out net metered solar power system owners for punishment.
“Cross-subsidization” among rate payers is baked into our regulated monopoly system in West Virginia.  FirstEnergy’s two WV subsidiaries just settled a base rate case with an 8.8% rate increase for residential customers.
A big part of that increase comes from new charges the PSC allowed FirstEnergy to recover from rate payers.  Those charges are for costs that FirstEnergy has, and will be, incurring for expanded clearing of power line rights-of-way.
FirstEnergy has to do a lot of right-of-way clearing for rural customers here in Calhoun County.  We get a lot of this kind of benefit, yet we pay exactly the same electric rates as someone who lives in the middle of Morgantown, where there are hardly any trees.  That is “cross-subsidization,” yet the Legislature has passed no law that prevents this kind of “cross-subsidization” which is arguably much less fair than the balance of benefits and costs that net metered customers create on FirstEnergy’s system.
This is just one example of the “cross-subsidization” that has been part of rate making in WV for decades.  East Virginia electricity blogger Ivy Main wrote extensively about this issue when AEP and Dominion Energy succeeded in undermining net metering in East Virginia by imposing “stand by” charges on their retail customers.
Want to see the worst form of “cross-subsidization between customers within one class of service” that has been around for decades in WV?  Take a look at Appalachian Power’s residential rate schedule.  Go to this link and go to page 43 of the .pdf file.
MONTHLY RATE (Schedule Codes 011, 015, 018, 038, 039, 051) Customer Charge. . . . . . . . . . . . . . . . . . .. $ 5.00/month Energy Charge: First 500 KWH ………………………….. .8.057¢/KWH All Over 500 KWH .. . ……………………… .6.847¢/KWH
Yes, you read that right.  APCo customers who use less than 500 kwh per month provide a heavy subsidy, in the form of higher electric rates, to th0se people who use more electricity.
If “cross-subsidies” are already a way of life in WV electric rate making, why did Del. Folk, as well as the new leadership of the WV Legislature, think that net metered solar power producers deserved to be punished?  Keep in mind that the words “cross-subsidization” do not appear anywhere in current net metering laws or in the PSC’s rules on net metering.
Two documents tell the tale.  Here is a recent article from Molly Jackson at the Brookings Institution that shows that more “model legislation” created by the American Legislative Exchange Council is introduced in the WV Legislature than in all other US state legislatures.  ALEC is an industry lobbying organization backed by AEP and the Edison Electric Institute, the electric industry’s trade association, and is dedicated to radically altering state government to serve industry interests.  ALEC has clearly targeted legislators like Del. Folk.
Here’s the graph from Ms. Jackson’s article (using data from 2011-2012 legislative sessions) that tells the tale :
ALEC graph
Gutting net metering is high on ALEC’s hit list, as you can see from this report, published by ALEC in March 2014.  Note in particular that ALEC’s main strategy for eliminating net metering revolves around labeling net metering a “subsidy.”
As it pertains specifically to distributed generation (DG) and net metering policies, ALEC opposes instances where DG customers are able to utilize the services associated with the electric grid without paying for its construction and maintenance. Such policies amount to a subsidy that benefits one source of energy and one class of ratepayers at the expense of everyone else who must pay for these services. [emphasis mine]
Isn’t it interesting that the language of Del. Folk’s “cross-subsidization” amendment so closely mirrors the language in this paragraph from the introduction to ALEC’s report?
Also note the false assumptions in the paragraph’s first sentence.  When net metered customers need electricity, they use and pay for it just like all other customers in their rate class.
When solar power producers generate more electricity than they need, their electricity passes out through their meter and into the houses of their nearest neighbors.  Try as they might, ALEC can’t change the laws of physics.  At most, this transfer uses a few hundred yards of a single distribution circuit, a cost easily offset by the fact that power sharing through net metering reduces the need for future grid expansion or centralized power plants.
Like Del. Folk’s “cross-subsidization” amendment, ALEC’s claim that net metering penalties are based on “fairness” is in fact a windfall subsidy to power companies forced on net metered customers.
West Virginians need to ask their legislators why they are doing the dirty work of out-of-state corporations to penalize one of the most innovative and dynamic sectors of the WV economy.

Does the “Compact” Between Regulators and Utilities Really Exist?

Utility lawyer Scott Hempling always has something well informed and original to say about electricity in the US.  This month’s essay is no exception:

I recently came across this quote:

There is … a long-standing, but unwritten, rule that governs cost recovery and lies at the heart of establishing regulated prices. This rule is known as the regulatory compact. Under the regulatory compact, the regulator grants the company a protected monopoly, essentially a franchise, for the sale and distribution of electricity or natural gas to customers in its defined service territory. In return, the company commits to supply the full quantities demanded by those customers at a price calculated to cover all operating costs plus a “reasonable” return on the capital invested in the enterprise.1

This is the formula fed to regulatory newcomers:  smooth, sweet and easily digested.  But it lacks the essential nutrients. As commonly misused, the phrase “regulatory compact” refers to the regulatory treatment of shareholder investment under the statutory “just and reasonable” standard and the Fifth Amendment’s Takings Clause in the U.S. Constitution.2 There is a legal relationship between utility and regulator, and between utility investment and regulator-set rates.  But that legal relationship is not “long-standing,” it is not “unwritten,” and it is not a “rule.”  To call a “compact” what the Supreme Court has described as “essentially … ad hoc and factual” is artificially narrow, incumbent-protective, and legally wrong.

Mr. Hempling takes apart the “ad hoc and factual” relationship between electric companies and regulators, masquerading as some kind of regulated utility compact, and blows away much of what we are taught about electric utility monopolies.

The next paragraph is particularly relevant to AEP’s and FirstEnergy’s grab to control the regulation process in HB2201:

Those who cite the “regulatory compact” talk only of an exchange of service for money.  The real relationship is richer.  It requires the utility to satisfy the regulator’s standards for performance at “lowest feasible cost,”3 to use “all available cost savings opportunities”4; and to pursue its customers’ legitimate interests free of conflicting business objectives.  In return, the regulator must establish compensation that is commensurate with the utility’s performance.  But there is more.  To set standards for performance and ensure compliance, the regulator must have the resources, expertise and political support that is at least the equal of the utility’s.  And for this relationship to work to each party’s benefit, it must include a mutual commitment not to use the political process to undermine either the utility’s or the regulator’s ability to do their jobs.  Those who talk of a “regulatory compact” leave most of these factors out. [emphasis mine]

And

Utilities often cite the “compact” self-referentially, as if it is their compact, created solely to support their specific revenue needs and their specific business success.  (As in, “Utility of the Future” rather than “Customer Needs of the Future.”)  But the legal relationship just described transcends any particular utility.  Its foundation is a franchise, of which the incumbent utility is but a temporary grantee, one whose rights depend on performance.  The utility has no lifetime lock on the franchise (see “Regulatory Capture I:  Is It Real?“); nor is it like a New York City taxi medallion—bought from government, resold  for profit.  The franchise is a right to be earned, not demanded.

This describes perfectly the entitled attitude of both AEP and FirstEnergy in West Virginia, as well as that of our supposed regulators, the supine WV PSC.

Read Mr. Hempling’s entire piece.  It will open your eyes about what utility regulation really is.

PUCO Dumps AEP’s Ohio Coal Bail Out

The Public Utility Commission of Ohio has told AEP that is will not allow the company to lock Ohio rate payers into power purchase agreements with AEP’s uncompetitive coal burners.  FirstEnergy also has a similar bail out plan pending before PUCO.

The Public Utilities Commission of Ohio made history Wednesday in a ruling refusing to allow AEP Ohio to saddle ratepayers with extra charges to subsidize the continued operation of a 1950s-era coal-fired power plant that it owns along with FirstEnergy and other state utilities.

The decision to reject AEP’s request for a subsidy — immediately applauded by some consumer and environmental groups — sends a shot over the bow of FirstEnergy’s similar proposal and could jeopardize the continued operation of the Davis-Besse nuclear power plant and the W.H. Sammis coal-fired power plant on the Ohio River.

The Cleveland Plain Dealer goes on to explain:

The Ohio Consumers’ Counsel has opposed the PPA proposals offered by both utilities. And it lost no time Wednesday arguing that the real issue in the case is the impact on home electric bills.

“AEP’s customers already pay the highest electric rates in the state.  Ohioans pay higher rates on average than consumers in 31 other states,” said OCC spokesman Scott Gerfen.

“Ohio’s electric utilities want the protection of more government regulation but consumers need the protection of more competition to lower their electric bills in this era of historically low energy prices.

“It’s time to end the electric utilities’ slow march to competition and adopt the competitive markets that Ohio lawmakers envisioned in 1999.”

Still, Wednesday’s ruling is not absolutely a death knell for power purchase agreements, despite the hosannas issued by other consumer groups and some environmental organizations soon after the ruling.

In fact the PUCO order declares that the concept of a PPA in a marketplace that is supposed to be free of state regulation is legal under Ohio law.

What the order says is that the commission could find no benefit to customers in allowing the PPA as it was proposed by AEP Ohio.

“Although the magnitude of the impact of the proposed PPA rider cannot be known to any degree of certainty, the Commission agrees with the Ohio Consumers’ Counsel, the Industrial Energy Users-Ohio and other intervenors that the evidence of record reflects that the rider may result in a net cost to customers, with little offsetting benefit from the rider’s intended purpose as a hedge against market volatility,” the ruling asserts.

Unlike the WV PSC, PUCO is interested in protecting electric customers.  As time goes on, the WV Harrison (FirstEnergy) and Mitchell (AEP) deals will look worse and worse, compared with PUCO’s wise decision.

 

WV PSC Orders 8.8% Rate Increase for FirstEnergy Customers

Today, the WV PSC issued its final order in the pending FirstEnergy base rate case.

If you are a residential customer and pay your electric bill to Mon Power or Potomac Edison, your electric rate is going up 8.1% 8.8%* according to the settlement agreement between FirstEnergy and the other parties in the case.

This increase includes new separate charge, or surcharge, for vegetation management costs.  (And you thought they were already doing vegetation management.  Silly you.)  The rate increase also includes the costs for repair of distribution and transmission systems after the 2012 Derecho and Hurricane Sandy.  Many of these costs could have been avoided if FirstEnergy had been doing proper maintenance of its equipment and rights of way before PSC granted them a new surcharge.

And don’t forget the Harrison plant.  The former surcharge for the Harrison boondoggle goes away, but that cost is incorporated directly into the overall rate base.  This increase is also included in the 8.1% rise in rates.

Because the WV PSC will not require WV’s Ohio-based power companies to implement real energy efficiency programs that will reduce West Virginians’ electric bills, monthly electric bills will continue to rise as a result of these new rate increases.

For West Virginians with solar power systems, these increases in electric rates shorten the recovery period for their initial investments by increasing the value of the electric rates they avoid paying.

*I must have missed a charge when I calculated the rate increase from the PSC order.  FirstEnergy says the rate increase is 8.8% in their press release.

Incorporating both rate changes, typical Mon Power and Potomac Edison residential customers using 1,000 kilowatt hours per month can expect their bill to increase from $92.38 to $100.49.  The new rates will take effect February 25, 2015.

That increase is 8.8%.

Is WV’s ARPS Law “Cap and Trade”? Definitely not.

Both Republicans and Democrats have displayed stunning ignorance in recent debates about WV’s Alternative and Renewable Energy Portfolio Standard law.  Democrats claim that the law promotes renewable power, which it doesn’t, and Republicans claim that the law is some kind of “cap and trade” scheme, which it isn’t.

In the last couple of election cycles, WV Republicans have launched an attack on the ARPS law as part of their “war on coal” fantasies.  This attack uses the claim that the ARPS is a “cap and trade” scheme, because “cap and trade” is associated with purported Obama administration attempts to limit carbon emissions in 2009.

Take a look at the ARPS law at this link.  Are there any limits placed on carbon emissions in this law?  Is there any scheme to trade carbon emission credits?  The answer is no to these questions.

What “caps” there are in the bill are set so high that power companies can meet them from their existing generation portfolios, until the law sunsets in 2025.  These “caps” aren’t caps at all if they don’t push power companies to do anything different.

In fact, the bill sets standards designed to encourage specific kinds of electricity generation, among them advanced coal-fired electricity, electricity from natural gas, as well as from renewable sources.

As we know from reports filed with the WV PSC by the two Ohio holding companies that control almost all of WV’s electricity, there is no need to trade any credits of any kind to meet the law’s targets, because AEP and FirstEnergy can meet all of the law’s targets from their own sources of generation, from the passage of the bill in 2009 until 2025 when the law expires.

So, there is no “cap” and there is no “trade.”

In the past, Democrats have tried to defend the ARPS law as somehow promoting renewable power.  WV’s law, unlike real renewable portfolio standards in other states, includes credits for coal-fired and natural gas fired generation.  As noted above, AEP and FirstEnergy do not need to buy any electricity or credits to meet WV’s fraudulent “standard” for the duration of the law’s life.

As I have argued numerous times, the WV ARPS law was designed by former Gov. Manchin and the WV Legislature specifically to arrest, “cap” if you will, WV citizens from pursuing innovative renewable power independent of the two Ohio monopolies that control our electrical system.  The confusion that the law has created in the political debate is just one more feature of the law designed to stifle factual discussion of the issue.

As the new Republican leadership, with help from coal industry Democrats, moves forward with its attempt to repeal WV’s ARPS law, don’t be taken in by claims that the law has anything to do with “cap and trade.” As I have noted in the past, there are lots of reasons to repeal the ARPS law, but it should be done for the right reasons, not out of ignorance inspired by false propaganda.

The one feature of the law that is vital to WV’s future is the continuation of the legal authority granted to the WV PSC to require WV’s Ohio-based electric monopolies to provide net metering options for WV’s solar power producers.  The net metering provision of the law, found in §24 – 2 F- 8 of the WV Code, allows homeowners and businesses to get one for one credit against their electric bills for every kilowatt hour they feed back into the power companies.

Expired WV PSC Commissioner Resigns

Expired Commissioner Jon McKinney announced his resignation from the WV PSC last week.  Mr. McKinney’s resignation will be effective at the end of December, exactly 2 1/2 years after his term expired in June 2011.  So, once again, Gov. Tomblin has an opportunity to appoint a real leader to the Commission, who will stand up for West Virginia against the interests of corporate utility holding companies based in Ohio (AEP and FirstEnergy) and American Water Company (New Jersey).

Mr. McKinney’s resignation leaves Chairman Mike Albert in a dominating position on the Commission.  The former Jackson Kelly lawyer, who long represented American Water Company’s West Virginia American Water and Allegheny Energy (swallowed by FirstEnergy in 2012), will be the only Commissioner with experience and personal familiarity with the issues currently facing the PSC.

The conflicts of interest Mr. Albert brings with him from Jackson Kelly continue to hinder the work of the Commission.  Shortly after he was appointed in 2007, Mr. Albert had to recuse himself from the TrAIL transmission line case, because he had personally worked on preparing Allegheny Energy’s application to the PSC.  There was at least the appearance of a similar problem with his presiding over the PATH case, which was filed in May 2009, because the two transmission projects were closely linked.

Mr. Albert’s conflicts of interest continue to haunt the PSC’s work, as Mr. Albert abruptly recused himself from the West Virginia American Water general investigation into the company’s failed response to the Freedom Industries chemical disaster.  This recusal was a real blow to the investigation, because, following the resignation of Commissioner Palmer in September, only Commissioner McKinney was left available to hear the case.  WV law requires that no less than two commissioners are needed to issue orders or make decisions at the PSC.  So, the water company case came to a grinding halt.

As Ken Ward points out in his article on the McKinney resignation, WV American Water Company investigation has a number of issues piling up.  Newly appointed Commissioner Brooks McCabe may be able to catch up on the six month old case, but the commissioner to be appointed to replace McKinney will be even more behind.  The whole situation seriously hampers the effectiveness of the investigation.

The PSC also has two major electric company base rate cases before it.  There is a tentative settlement in the FirstEnergy case, but the AEP case is only just getting going.  Base rate cases, which determine how much of a company’s fixed costs can be recovered from rate payers, only come along once every three to five years, so both of these cases will have lasting impacts.  Commissioner Albert is still presiding over both these cases, so he will have a major impact on their outcome.

Gov. Tomblin needs to replace Commissioner McKinney with a knowledgeable lawyer with extensive experience in utility regulation.  This is the only way to provide a counterweight on the Commission to Mr. Albert’s Jackson Kelly career.  Lawyers such as past Consumer Advocate Billy Jack Gregg or current Consumer Advocate Jacqueline Roberts would be excellent choices.

The PSC Commissioner job is a hard one, that requires knowledge and experience.  Much as we would like more citizen representation, utility regulation is a specialized field and the work load is heavy.  Above all, we need a new commissioner who is not captured by the corporations he/she is regulating and a commissioner who will stand up for West Virginians.

Brooks McCabe Named WV PSC Commissioner

Last Friday, Gov. Tomblin announced that he had chosen former Kanawha County Sen. Brooks McCabe to replace Ryan Palmer on the WV PSC.  The Charleston Gazette’s Ken Ward offered a look at the appointment and a bit of McCabe’s record.

As Ward points out, McCabe has historically supported WV’s almost total dependence on fossil fuels for its electricity, while also muttering about diversifying our generation mix and keeping electricity costs lower.  Unfortunately for Mr. McCabe, these goals are contradictory.  Here is an example of the new commissioner’s confused thinking from a 2011 story in the Beckley Register-Herald:

McCabe sees the nuclear industry shifting gears into smaller facilities that are cheaper, less invasive and more readily able to gain permits.

“Even with that, I don’t expect to see nuclear power in West Virginia in my lifetime,” the senator said.

“But the reason to eliminate the ban on it is, assuming there is a viable alternative out there, if we are an energy state, we ought to say we’re an energy state and not exclude anyone. In reality, we’re going to be focusing on coal, natural gas, geo-thermal and wind. And a little bit of biomass, maybe. That’s West Virginia’s future, and it primarily, in the near term, is coal and natural gas, and then, over time, it will move over into renewables.” From his own view of the energy situation, McCabe said the nation must devise a means of making the country self-sufficient, sooner rather than later.

“Nuclear will have some part of that equation,” he said.

In formulating his confused ideas about “making the country self-sufficient,”Mr. McCabe apparently missed this information from the US Department of Energy:

Owners and operators of U.S. commercial nuclear power reactors buy uranium in various forms as well as enrichment services from other countries. U.S. nuclear plants purchased 58 million pounds of uranium in 2012 from both domestic and foreign suppliers; 83% of this total was of foreign origin. About 38% of the enriched uranium needed to fabricate fuel for U.S. reactors was supplied by foreign enrichers.

Since 2009, former Sen. McCabe pushed for reducing WV’s restrictions on the construction of nuclear power plants in the state.  These restrictions are often referred to as a “ban” by Mr. McCabe, but they are actually pretty commonsense requirements.  The Martinsburg Journal provided this explanation in a 2009 article:

While not forbidding nuclear power plants, the 1996 law sets several hurdles for one. They include a requirement that the country have a dumping site for radioactive waste that has operated safely and effectively for at least two years.

The US has never had a repository for still highly radioactive “spent” nuclear power plant fuel and is not likely to have one for the foreseeable future.  The current Fukushima disaster (it won’t be over for a few thousand years) included a partial meltdown in a storage pool for waste nuclear fuel rods which were stored on site, as with most US nuclear reactors.  Because there is no permanent, safe repository for radioactive nuclear fuel once it is removed from reactors, nuclear power in the US is still an ongoing experiment.

I attended the 2013 WV Building Conference in Morgantown and listened as then-Sen. McCabe stated from the podium that “the free market” should decide WV’s electrical generation mix.  As with his nuclear power claims, Mr. McCabe appeared to be particularly uninformed about the situation he was describing.  There is no “free market” in electricity in WV.  WV law grants monopoly power to electric utilities regulated by the WV PSC.  The wholesale transactions for regional electricity, as well as transmission management which also imposes costs on WV electric customers, are all controlled by PJM Interconnection’s artificial and bureaucratic “markets” which mainly operate to serve the interests of large, non-WV holding companies.

I am also somewhat concerned that Gov. Tomblin failed to choose another lawyer for the PSC.  The PSC operates primarily in a legal environment.  Any decision that the Commissioners make can be appealed to the WV Supreme Court.  Of course, there is little threat of appeal from citizens or even the PSC’s own Consumer Advocate Division, because they have little or no money to pursue appeals.  Utilities, particularly the two Ohi0-based holding companies that control WV’s electric companies, have lots of money and have no qualms about appealing any PSC decision that hurts their bottom line.

If the WV PSC is going to support innovation and lower utility costs, instead of the interests of utilities and their shareholders, we need commissioners who are skilled lawyers who can write orders that will stand up to utility appeals to the WV Supreme Court.  Mr. Palmer demonstrated this kind of skill and confidence when he took the rare step of filing a dissenting opinion on the FirstEnergy Harrison case.

Mr. McCabe is not a lawyer and will likely defer to the legal opinions offered by PSC Chairman Mike Albert.  Mr. Albert spent decades representing corporate utility holding companies in WV when he was an attorney at Jackson Kelly.  Mr. McCabe simply will not have the skills to develop his own legal analysis independent of Chairman Albert.

I hope I am wrong about Mr. McCabe.  I was wrong about Mr. Palmer when Gov. Manchin appointed him back in 2009.  And the McCabe appointment certainly could have been worse.  There were rumors that the Governor had been considering another Jackson Kelly attorney for the position.

Scott Hempling on Holding Company Mergers

Maryland utility attorney Scott Hempling has entered testimony at the DC PSC opposing the swallowing of regional distribution company PEPCo (owned by regional holding company PEPCo Holdings, Inc.) by multi-state holding company Exelon.  Here is a link to his testimony.

Note the list of conditions in the summary of Hempling’s conclusions starting on page 10.  The conditions detail exactly why it is not a good idea for PSCs to allow holding companies to swallow local utilities.  Keep in mind that PEPCo is itself a holding company.  Here is how the game of monopoly is played.  Either way, risk or cost is dumped on rate payers, just as both were dumped on WV rate payers in the FirstEnergy Harrison plant scheme.

PHI [PEPCo’s parent holding company] treated its franchise like a New York City taxi medallion—created by the government as a public good, converted by its owner to a private good and sold to the highest bidder.  But a utility franchise is not like a taxi medallion; it is not a private commodity. A utility franchise is an obligation to serve at “lowest feasible cost.”  Seeking the highest possible purchase price was inconsistent with that obligation. Nor did it produce the Commission-required “balancing” of shareholder and customer interests.  Worse, Exelon now must recover that acquisition premium, somehow: if not from Pepco’s customers (indirectly, by withholding merger savings), then from someone else’s customers—or by having its shareholders absorb it.  To the extent unrecovered, the premium increases Exelon’s financial risk—to Pepco’s detriment.
Hempling also sees the danger in subordinating local service to the business needs of multi-state holding companies:
By owning multiple types of businesses throughout the U.S., and by telling its share holders to expect “growth,” Exelon has put itself on a path of acquisitions and risk that is (a) unlimited by geographic or type-of-business, and (b) beyond this Commission’s control. As Pepco’s

role in Exelon diminishes (by a factor of five, compared to its role in PHI), the top-level attention given to its operations, its obligation to innovate, and its relationship with the Commission risks diminution as well. With (a) Pepco’s decision makers being subordinated to Exelon’s Board of Directors, (b) capital being scarce by definition, (c) Exelon’s decisionmakers seeking ventures with higher returns and higher risks,
(d) Pepco depending entirely on Exelon for equity investment, and (e) lenders taking Exelon’s risks into account when setting loan terms for Pepco, Pepco will be subject to conflicts it does not currently face with PHI.
In another recent essay, Hempling also demonstrates that the takeover of local utilities by multi-state holding companies is also a threat to the development of new decentralized power structures.  This essay is a must read for anyone who is interested in innovation and building local renewable power into the US electrical system.  Here is his conclusion:

To achieve cost-effective consumption, we need cost-effective supply.  Cost-effective supply necessarily includes distributed energy resources, because they empower consumers to manage both their consumption and their supply.  And for distributed energy resources to be cost-effective, they must be subjected to distribution-level competition.  But helping consumers control their own supply does not come naturally to companies that historically have controlled their customers’ supply.  And distribution-level competition is unlikely to be welcomed by companies that historically have been protected from competition.

Mergers of distribution monopolies—especially of adjacent companies poised to become each other’s worst competitive nightmare—head in the opposite direction.  Commissions have approved dozens of these transactions, paying no attention to their effects on distribution-level competition.  Today, the potential for distributed energy resources, provided competitively and cost-effectively, makes such study vital.

New Report Shows Change Is Possible, But WV PSC Has Made It Very Expensive

Ken Ward had a story in yesterday’s Charleston Gazette titled “West Virginia could meet EPA plant standards, report says.”

West Virginia could meet proposed federal standards to reduce greenhouse gas emissions with a smart mix of energy efficiency programs, ramped up solar- and wind-power generation and moderate improvements at existing coal-fired power plants, according to a new report.

The U.S. Environmental Protection Agency proposal presents “a number of challenges” for West Virginia but also provides states with the ability to design their own plans for meeting the Obama administration’s objective of curbing heat-trapping carbon dioxide pollution.

“Given this flexibility, West Virginia can develop a state plan that puts the state on track to meet its emission limits while at the same time enhancing the social, economic, and environmental benefits of further integrating its energy efficiency, renewable energy, and natural gas resources into the state’s electricity sector,” says the report.

Here is a link to the report, published by the WVU Law School’s Center for Energy and Sustainable Development and Downstream Strategies.  The report is a good one.  It quantifies the impacts of implementing all of the strategies we have covered on The Power Line for years: energy efficiency, combined heat and power, turning WV’s fake standards into a real renewable portfolio standard, creating an energy efficiency standard and requiring real integrated resource planning (not the fake IRP that FirstEnergy pushed through the Legislature last year).  Keep in mind that none of these changes have even gotten out of committee in the WV Legislature over the last six years.

There’s another big problem.  This report (or, better yet, its implementation) is about three years too late for WV.

The WV PSC and the two Ohio-based holding companies that control the WV electric power industry have closed the door to these solutions, because the WV PSC has just made it much more expensive to make the changes we need to make.  In 2013, the PSC approved the dumping of FirstEnergy’s Harrison Power Station on WV rate payers.  In this deal, the PSC locked FirstEnergy customers into paying for much more electric capacity than they need for the next thirty years.

In the more recent AEP case, the parties have reached a settlement involving the same kind of transfer of units of the obsolete coal-fired Amos and Mitchell plants to WV rate payers.  In this case as well, the generating capacity for which AEP’s WV customers are stuck paying is also more than projected demand in our state for the next thirty years.  The PSC has not approved this AEP settlement yet, but Commissioners Albert and McKinney will no doubt approve the essential features of the transfer.  They have already approved the Amos transfer.  If the PSC approves the Mitchell deal, WV rate payers will also be paying for much more capacity than they will need for the next thirty years.

A number of us, including the Gazette’s Ken Ward and the State Journal’s Pam Kasey, warned that the Harrison and Mitchell deals would close the door for real energy change in WV for decades.  WV Citizens Action Group fought the Harrison settlement tooth and nail to block the Harrison boondoggle.  The Sierra Club, however, settled for a few crumbs on energy efficiency, and seemed to overlook the real impact of these power plant deals.

This situation illustrates clearly how many environmentalists miss the real issue.  Too often they isolate themselves on the fringes of the main argument and settle for small, short term victories that leave them powerless to effect real change.  Both AEP and FirstEnergy are masters at publicizing window dressing about renewable power and energy efficiency while operating behind the scenes at state legislatures and PSCs to lock in their corporate control.  FirstEnergy has even gone on the offensive in Ohio to roll back existing renewable power and energy efficiency standards.

Superficial company-run energy efficiency programs are valuable tools for power companies to ghettoize “environmentalists.”  These programs channel activism into advocating for energy efficiency as a painless panacea for carbon emissions and all the other problems associated with coal burning power plants.

Power companies in WV see energy efficiency programs only as a way to sidetrack public discussion.  The companies’ primary goal is PR.  They will never agree to so much reduction in demand that threatens to significantly displace their coal-fired generating plants.  AEP and FirstEnergy will have to be forced to make those kinds of efficiency investments, and, in the recent coal plant cases, the PSC has demonstrated that it is not willing to do that.  Chairman Albert seems to have a serious fetish about “steel in the ground.”

Improvements in energy efficiency have an important place in transforming our electrical system.  They have already proven that.  But there are limits to that impact.  The rebound effect plays some role in reducing efficiency improvements as people use some cost savings to use more electricity.  Also, as the cheap and easy efficiency investments are made, the marginal return of each succeeding improvement becomes a little more expensive to generate.  Some demand reductions attributed to energy efficiency improvements are actually the result of de-industrialization and the transfer of less efficient manufacturing to other countries, reducing the net effect on worldwide impacts.  The US is woefully behind other industrial countries when it comes to building energy efficiency into all of our generation and manufacturing processes, but energy efficiency advocates need to recognize that energy efficiency alone will not get us where we need to go.

That is why we need to go to the heart of the matter – how West Virginia regulates electrical generation capacity.  Unfortunately, that matter is now largely settled for a generation.  The WV PSC has made, or will soon make, in the case of AEP, a legal commitment to WV’s electrical holding companies that WV rate payers will bail out the companies’ obsolete coal burners.  If any alternatives to that generation are implemented, the WV PSC will likely require West Virginians to pay them for the Harrison, Amos and Mitchell plants if those plants are closed.  In its current 17.2% residential rate increase request, FirstEnergy wants rate payers to pay for the stranded capital costs of the Albright, Rivesville and Willow Island plants that it closed in 2012.  What happens in that case will be a good indication of what the PSC would do with stranded costs in the future.

So if, by some miracle, WV implemented a lot of new renewable generation or cut electricity demand further through CHP plants and energy efficiency investments, AEP and FirstEnergy would demand that we pay them for the idling of one or more of their existing coal plants.  It’s a zero sum game now.  Any new generation would have to displace those plants.  WV rate payers would likely be obligated to pay for them if they close.

Any new shift in generation away from coal in WV, as suggested in the new report, could result in WV rate payers paying twice for the same generation capacity: once for the new renewable sources and efficiency investments, and twice because the PSC will probably force them to pay back the Ohio power companies for the Harrison and Mitchell/Amos plants if they are forced to close.  You can bet FirstEnergy and AEP will be quick to blame “environmentalists” and the EPA for any rate increases that end up on West Virginians’ electric bills as a result.

With the recent power plant cases, FirstEnergy, AEP, Chairman Albert and Commissioner McKinney have doubled the costs of WV’s path to renewable power, and most of the state’s media and politicians didn’t even notice.  And now, it’s too late.

 

Commissioner McKinney Parrots Power Company Propaganda at Shepherdstown Public Hearing

On October 6, WV PSC Commissioner Jon McKinney traveled to Shepherdstown to preside over the public hearing about FirstEnergy’s 17.2% rate increase for WV’s residential customers.  A friend of mine, John Christensen, testified at the hearing and asked me to forward him the transcript of the hearing.

When I read John’s testimony, I was astounded to see Commissioner McKinney offering his own testimony on the record on behalf of the holding companies that control WV’s electrical system.  Mr. McKinney acts in the capacity of a judge in PSC cases and should never be testifying on the record pushing the power company agenda.  But push he did.

John Christensen has included in his testimony a description of his home solar power system.  Here is what Mr. McKinney said following John’s testimony:

COMMISSIONER MCKINNEY:
Just a quick comment about your — one of the things. Obviously one of the things we’re very interested in is how the renewable resources come into the system. A big debate obviously occurs to how the distribution system is used and what the fair charge for a distribution system is. And what we don’t want to do is leave the ratepayers paying for distribution system charges that should be paid through other people.  So please put that in your comments the next time you talk, that concept. Thank you.
So here is an commissioner of the WV PSC interjecting his own recommendation that a witness testifying at a public hearing revise his testimony to reflect someone else’s opinion.  Can this really be true?  But it is right there in the transcript.
And the revision Mr. McKinney advocates is straight from the Edison Electric Institute/ALEC playbook.  It is the fake argument about solar power “free riders” that are costing other rate payers money.
Mr. McKinney has just presented evidence that he should disqualify himself from ruling on any cases that involve solar power in WV.  Shame on you, Commissioner.

FirstEnergy Customers in Eastern Panhandle Give Commissioner McKinney an Earful

Keryn has a great account of the PSC’s public hearing on FirstEnergy’s 17.2% rate increase.  Poor Commissioner McKinney had to handle the hoi polloi all by himself.  He didn’t do such a great job.  Despite the fact that all the people testifying against the rate increase were residential customers, and the residential rate increase they face is 17.2%, Commissioner McKinney kept interrupting people to insist that they should be using the 14.3% figure that is the average of all classes of customers, residential, industrial and commercial.

Chairman Albert appears to be hiding from the public and hasn’t been attending these public hearings.  He claims that several irate AEP customers threatened him at hearings back in 2011, and he can’t stand the heat.

I have been following the written comments that the WV PSC has received about the FirstEnergy rate increases.  Most people submitting comments don’t have a clear idea of what is behind this huge increase request.  About half of the rate increase is stranded costs for the three obsolete and expensive coal-fired power plants that FirstEnergy has had to close in WV.  These plants simply could not compete in the marketplace for electricity.  FirstEnergy wants its WV rate payers to pay the costs of closing these plants as well as any other capital costs that they would otherwise have to write off from their balance sheet.  This is just another rate payer subsidy to the coal industry and coal-fired power companies.

This rate increase request also converts an existing surcharge for the Harrison boondoggle into a permanent part of FirstEnergy’s rate base.  The surcharge even included a guaranteed return on equity, this conversion will not actually raise rates.

The Harrison boondoggle does contribute to the increase, however, because it includes the costs of the 50 employees that FirstEnergy agreed to hire to get the PSC staff and the Utility Workers Union of America Local 304 to support the Harrison settlement.

And, of course, the rate increase includes all the costs associated with fixing FirstEnergy’s billing disaster.  In its general investigation, the WV PSC decided to force the same customers who were scammed by FirstEnergy to pay for fixing a mess that FirstEnergy created.  In its general investigation of FirstEnergy’s failed distribution system maintenance, the PSC also decided to force rate payers to pay for right-of-way maintenance that FirstEnergy had neglected for years, if not decades.

So about half of FirstEnergy’s 17.2% residential rate increase (except for the closed coal plant charges) is directly the result of WV PSC gifts to FirstEnergy.

No wonder FirstEnergy’s customers are angry whenever they see Commissioners at public hearings.