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Group to appeal PSC decision on Harrison plant

CHARLESTON, W.Va. -- The West Virginia-Citizen Action Group said Tuesday it will appeal a state Public Service Commission ruling that paved the way for FirstEnergy to transfer ownership of a Harrison County power plant to its West Virginia subsidiary, Monongahela Power.

Citing a strongly worded dissent by Public Service Commissioner Ryan Palmer, WV-CAG said it would try to convince the state Supreme Court that the PSC decision allows FirstEnergy to greatly overvalue the transaction and wrongly pass the increased costs on to West Virginia ratepayers.

"The only winner in this deal is FirstEnergy," said Gary Zuckett, executive director of WV-CAG, which broke from the Sierra Club and the PSC Consumer Advocate Division in opposing a settlement aimed at allowing the FirstEnergy transaction.

FirstEnergy spokesman Todd Meyers said the company is still reviewing the PSC ruling, a 2-1 decision in which Chairman Michael Albert and Commissioner Jon McKinney approved the $1.1 billion deal.

The case is one of two such proposals that have been under consideration by the PSC. In the other, 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. The PSC has not ruled in that case.

The power companies have argued 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.

But critics argued that both proposals ignored the potential gains from better demand-side energy efficiency programs, and would lock the utilities into generation mixes that are too narrowly focused on coal.

"Moving forward with a portfolio of over 90 percent coal-dependent generation for the foreseeable future, despite the tangible risks, will leave the utility with no ability to shift generation between fuel sources in response to market signals, and is unreasonable," Palmer wrote in his 10-page dissent in the FirstEnergy case.

In Monday's 50-page decision, the PSC majority ruled to approve an August settlement proposal that FirstEnergy reached with the commission staff, the agency's consumer advocate, and the Sierra Club, all of which had originally proposed the Harrison plant deal.

The immediate result for Mon Power customers -- as the PSC highlighted in a press release -- is a $16 million rate reduction. But that savings comes from the company's plan to distribute to customers over a short, 19-month period the $25 million cost of Mon Power selling to a sister FirstEnergy company a small share of the Pleasants Power Plant near Willow Island.

And more broadly, the PSC approval would allow Mon Power to pass on to customers about $858 million of the $1.1 billion cost of the Harrison plant transaction.

The cost of the deal has been a major sticking point for opponents. WV-CAG and others noted that FirstEnergy was trying to put a price of $1.1 billion on the plant, when its book value was actually listed as $554 million.

Commissioners Albert and McKinney actually concluded in their ruling that FirstEnergy had not met the legal requirements of showing that a $257 million portion of the transaction listed as an "acquisition adjustment" to the company's rate base "is reasonable and will not adversely affect the public." Albert and McKinney noted, among other things, the potential risks to ratepayers associated with potential future greenhouse gas limits for coal-fired power plants, and uncertainties about future electricity market prices.

So, Albert and McKinney came up with several "conditions" they tacked onto the deal, saying the steps would "protect the interest of ratepayers." Those included providing for a refund to ratepayers if federal authorities conclude the transaction was overvalued, limiting rate recovery if wholesale power sales from Harrison aren't as lucrative as the company expects, and limiting future dividends that Mon Power may pay under certain conditions.

James Van Nostrand, a West Virginia University energy law professor and critic of the FirstEnergy proposal, said Tuesday that the conditions set up by Albert and McKinney are the only bright spot in the commission majority's decision.

"I think this is a decent resolution by the commission," Van Nostrand said, noting that what commissioners should have done was reject the inflated transaction price and force FirstEnergy to go with the plant's true book value.

"But if the commission decides to accept the nonsense that the plant is actually worth that much more than net book value, this condition puts the risk on FirstEnergy that the profits from the sale of excess capacity from Harrison into the wholesale markets will be sufficient to cover recovery of the $257 acquisition adjustment," Van Nostrand said.

Writing on his blog, The Power Line, Calhoun County resident and energy activist Bill Howley said that McKinney and Albert "could not skate around ... the fact that buying the Harrison plant" is going to cost company customers "much more money, for many years, than simply buying lower cost electricity" from the wholesale market.

In his dissent, Palmer said the attempt by Albert and McKinney to "shield ratepayers is commendable, but somewhat ineffective," noting that the wholesale market sales margins being used in the majority's conditions would have already been used to lower the other portions of the rates Mon Power customers pay.

"The companies characterize the Harrison acquisition as a financial hedge against the wholesale market," Palmer wrote. "The majority supports its decision that the transaction as modified is in the public interest by describing [their additional conditions] as a hedge against Mon Power owning a large cosl-fired plant.

"Either hedge, however, comes at a time when capacity prices on the wholesale market are at historically low levels," Palmer wrote. "Rushing into the expensive, long-term commitment ... without a more thorough evaluation of other options, including the potential construction of a new natural gas combined cycle plant or the acquisition of part or all of an existing natural gas-fired power plant, is unreasonable."

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


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