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FirstEnergy defends $1 billion plant deal as PSC continues hearing

CHARLESTON, W.Va. -- FirstEnergy officials on Thursday continued to defend their proposal to transfer ownership of a Harrison County coal-fired power plant to a West Virginia subsidiary, in the face of widespread opposition to the $1.1 billion deal.

Witnesses for the Akron, Ohio-based company told the state Public Service Commission that selling its Harrison Power Station near Shinnston to subsidiary Monongahela Power was the best option to deal with deficits in electricity needed to serve Mon Power customers in West Virginia.

Michael Delmar, FirstEnergy's director of regulated generation and dispatch, rejected a proposal from PSC consumer advocates, agency staff and others that his company should have used a "request for proposals" to seek competitive bids for the needed generation.

"We don't believe an RFP would produce anything comparable," Delmar told commissioners. "We're very concerned that an RFP would just spend time."

Delmar continued to testify Thursday in the second day of the PSC's formal evidentiary hearing in the case. Commission Chairman Mike Albert and Commissioners Jon McKinney and Ryan Palmer will decide if FirstEnergy can transfer to Mon Power the 80 percent of the Harrison plant that Mon Power doesn't already own.

The FirstEnergy case is one of two such proposals pending at the PSC.

Columbus, Ohio-based American Electric Power wants to transfer its John Amos plant near St. Albans and its Mitchell facility near Moundsville to its Charleston-based Appalachian Power subsidiary.

A hearing on the AEP case is set for mid-July, and FirstEnergy is hoping for a commission ruling on its request by Sept. 1.

In PSC cases, most of the evidence comes through prepared testimony that is filed prior to the in-person hearing. At the hearings themselves, lawyers for various sides focus on cross-examining other parties' witnesses.

The power companies say their proposals will help them deal with upcoming deficits in electricity needed to serve Mon Power customers in Northern West Virginia and Appalachian Power customers in the southern part of the state.

Critics say FirstEnergy is proposing excessive rate increases to fund an overvalued transaction, ignoring the potential gains from better demand-side energy efficiency programs, and locking the Mon Power subsidiary into a generation mix that is too narrowly focused on coal.

Among the critics are advocates for West Virginia seniors and children, who worry about the impact of FirstEnergy's proposal to fund the deal through an annual "surcharge" on Mon Power customers of $63.4 million. That amount translates into a 6 percent rate hike for residential and commercial customers.

Delmar repeated a common argument about coal's importance to West Virginia, telling commissioners that the coal-fired Harrison plant provides state residents and businesses with low-cost electricity.

"It's low cost," Delmar said. "I really don't have to say much more than that. I think what's best for West Virginia is low energy costs. We could diversify, but it's going to cost."

But James Van Nostrand, a West Virginia University law professor who specializes in utility law, has pointed out that the state's dependence on coal-generated power has not recently served the state well, with rates for AEP increasing by 68 percent between 2000 and 2011 and for FirstEnergy by 39 percent over the same period.

In a report about state utility policies, Van Nostrand has argued that the FirstEnergy and AEP proposals would further tie state utilities to coal "without a thorough evaluation of alternatives that may indeed be cheaper for West Virginians."

During this week's hearing, FirstEnergy officials have defended valuing the deal at $590 million, a price that includes a $590 million "acquisition adjustment" for the Harrison plant related to FirstEnergy's 2011 merger with Allegheny Energy.

FirstEnergy's assistant treasurer, Steven Staub, testified that the deal would not work if the PSC cut the $590 million out of the $1.1 billion his company set as a value for the transaction.

"Mon Power can't sustain that," Staub said. "It wouldn't work for Mon Power. Five hundred and ninety million dollars is something we have to have recovery for."

PSC consumer advocate Byron Harris has argued that including the $590 million in this proposal violates a commission order that the figure would not be included in future rate hike proposals from FirstEnergy.

FirstEnergy has tried to suggest that if the PSC doesn't approve the deal, the result might be less use of West Virginia coal -- mostly from CONSOL Energy's nearby Robinson Run Mine -- to fuel the Harrison plant.

During Wednesday's PSC session, Commissioner Palmer questioned West Virginia Coal Association Chairman James L. Laurita Jr. at length about what the industry calls the Obama administration's "war on coal." In prepared testimony, Laurita had said that, "combined, locally produced coal and the Harrison station produce a reliable, sustainable and low-cost energy source, and have a huge positive economic impact to the region."

But when cross-examined by Jackie Roberts, a lawyer for the PSC Consumer Advocate Division, Laurita said no one from FirstEnergy has told him that rejection of the plant transfer would mean the Harrison facility would close or cut back on operations.

"They've not said anything like that to me," Laurita said.

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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