CHARLESTON, W.Va. -- Pending before the Public Service Commission is a decision on whether to accept a settlement in the case filed by FirstEnergy subsidiaries Monongahela Power Company and Potomac Edison Power Company ("the Companies") requesting Commission approval of the purchase of the Harrison Power Station, a coal-fired power plant, by Mon Power, from another FirstEnergy subsidiary, Allegheny Energy Supply Company, a non-regulated entity.
Additionally, the Companies are seeking approval of the purchase by Allegheny Energy of a small share in the Pleasants Power Station from Mon Power. FirstEnergy proposes to implement a temporary transaction surcharge to be effective the date the "transaction is closed", and to remain in effect until new rates for the two regulated subsidiaries, Mon Power and Potomac Edison, are established by the PSC.
The Companies asserted that they identified a significant deficit in generating capacity that they contend will be resolved by the proposed transactions. Negotiations among the numerous parties to the case resulted in the proposed settlement. The text of the settlement is available on the Commission's web site, psc.state.wv.us. The case number is 12-1571-E-PC.
Rates are set to allow a utility to recover its operating expenses, depreciation of its infrastructure, taxes, plus a rate of return (profit) on its investment in power plants, power lines and associated equipment. The investment in power plants, lines and equipment is referred to as the utility's rate base.
I will attempt to briefly summarize the settlement. The companies commit to hiring 50 new employees within 18 months. The expense will be recovered in the companies' next rate case. Additionally, under the heading of economic development, low income support and education, the Companies commit to providing funding over a period of five years totaling, by my calculation, about $3.9 million, none of which is to be recovered from ratepayers. In return, the Companies request Commission approval to begin to recover the increase to rate base resulting from the proposed transaction through a "temporary transaction surcharge" that would remain in effect for about 16 months until new rates are established by the Commission.
In the present case the proposed transactions effectively double the rate base for the companies. The calculation of the proposed surcharge shows an addition to rate base of $795,851,333 and a blended rate of return of 7.201 percent with a resulting annual revenue requirement of $113,444,210. The proposed surcharge to recover the annual revenue requirement would remain in effect until new rates are established by the PSC for the companies. The $796 million price to be recovered from ratepayers is higher than the depreciated original cost ("booked") of the Harrison plant, the typical way of valuing a power plant for a regulated utility.
The issues to be decided by the PSC include whether the proposed transactions are prudent and whether the 40-year-old Harrison plant will be used and useful in meeting the service needs of the ratepayers of the companies.
While a Rubik's cube can be solved, the present case is not susceptible of a final solution. The issue of prudency includes a determination as to whether these transactions were at "arms length" as they involve transfers between affiliated entities. Is the capacity of Harrison needed? What are the alternatives, and did the companies appropriately evaluate them? As the cost of Harrison to be recovered is higher than the "booked" value, is it a fair market price?
All of this is complicated by the fact that electric generation in our area is "dispatched" by the PJM Interconnection regional transmission organization. PJM is regulated by the Federal Energy Regulatory Commission, not the PSC. Coal fired power plants are not favored by the federal EPA.
While the companies commit to hiring 50 new employees within 18 months, and to commit some $3.9 million in credits and contributions over one to five years, they are also seeking to recover from ratepayers an annual surcharge of $113 million. All in all, because of the many variables, this is a difficult decision for the PSC.
Nemec is retired and lives in Jefferson County. He worked for 28 years as an administrative law judge at the Pennsylvania Public Utilities Commission.