The latest resource plan of Monongahela Power has a lot of problems with it, including a grossly over-inflated value for the coal-fired Harrison power plant and no plan by the utility to seek firm power from the outside market, said the West Virginia Consumer Advocate Division.
On Aug. 31, Mon Power, a unit of FirstEnergy (NYSE: FE), filed a Resource Plan with the West Virginia Public Service Commission in a closed Expanded Net Energy Cost (ENEC) case from 2011. On the same day, it filed this year’s version of the ENEC with the commission, with those cases now being pursued on separate tracks.
On Oct. 31, the Consumer Advocate Division (CAD) filed its reaction to the Resource Plan, which was not a particularly positive one. Notable is that FirstEnergy’s Potomac Edison unit was part of the filings, but it controls no generation so isn’t generally referred to by name in either filing.
The companies have stated that they propose to meet the future needs of their customers through several transactions with their affiliates, which the companies describe as the “Transaction”:
- The purchase from Allegheny Energy Supply Co. (Allegheny Supply) of 1,567 MW of Harrison coal plant capacity;
- The sale of 100 MW of capacity in the Pleasants coal plant to Allegheny Supply; and
- The transfer from of 177 MW of purchase power rights for generation produced by Ohio Valley Electric Corp. (OVEC) from Allegheny Supply and FirstEnergy Generation Corp. OVEC is owned by several utilities and runs the Clifty Creek and Kyger Creek coal plants.
CAD, which also refers to the Resource Plan as an integrated resource plan (IRP), didn’t like much of this proposal. “Even though the Companies’ IRP provides the Commission with a ‘heads-up’ about its future plans, the document submitted by the Companies fall well short of being an objective analysis of the panoply of resources available to the Companies,” it said. “In a nutshell, the analysis contained in the Plan relies upon questionable assumptions and omissions, all with the apparent purpose of tilting the analysis in favor of the Companies’ proposed Transaction.”
PJM market looks better right now than Harrison, CAD says
If the companies obtain 1,653 MW of generating capacity in 2013 at Harrison as proposed, customers will not enjoy the benefits of the current extraordinarily low price of capacity available through PJM through at least June 2014, the division said. PJM capacity prices have steadily declined from $174.29/MW-Day in 2010/2011 to $16.46/MW-Day for the current delivery year (2012/13). For the 2013/14 delivery year, capacity prices only increase to $27.73/MW-Day, approximately one-sixth of the 2010/2011 price.
“The CAD will not represent to the Commission that it has engaged in any modeling of all of the various supply and demand side resources discussed in the Companies’ Plan,” it wrote. “However, just as it ‘doesn’t take a weatherman to know which way the wind blows’ it doesn’t take any modeling to assert that the Companies cannot obtain capacity resources at lower cost than the PJM capacity price from now through May 2014.”
It appears that the FirstEnergy companies have limited their review of resource alternatives to only those resources available from their affiliates or generating resources they can build on their own, CAD said.
“Companies failed to explore the availability of supply-side and demand-side resources through bilateral contracts or a market-bidding process. … The CAD believes Companies must explore all options for satisfying their energy and capacity requirements, not just through the narrow view of affiliate transactions. For decades, it has been a common utility practice to publish Requests For Proposals (RFPs) in order to determine the quantity and price of demand-side and supply-side resources. In this context it is important to remember that the PJM capacity auction is a base residual auction. It provides no information whatsoever about the energy/capacity available in the bilateral market or what the costs of acquiring such energy capacity would be in a bilateral market. Neither the CAD nor the Companies will be able to provide the Commission with evidence of the amount and cost of capacity and energy resources available in the bilateral marketplace. Such evidence will be essential to the Commission for it to evaluate the prudency of the Companies’ proposed Transaction. The CAD cannot issue an RFP, and even if it could, no one would respond to it. The RFP must be issued by the Companies, and if they do not voluntarily issue an RFP, this Commission should require it. The Commission should also permit comments on the terms of the RFP to ensure the RFP is designed to produce the most salient results.”
The companies have written-up the net book value of the Harrison plant by more than $500m, which they propose will be paid by ratepayers, CAD also stated. This will result in a windfall profit to FirstEnergy at the expense of ratepayers, it added. The company has placed the net book value of Harrison as of June 30 at nearly $1.2bn.
“This is more than twice the book value for the Harrison Plant at December 31, 2010, just prior to the merger of Allegheny Energy and FirstEnergy (February 25, 2011),” CAD wrote. “The dramatic increase in the net book value is not due to major investments in the plant since it was acquired by FirstEnergy. Rather, as the Companies note in response to IRP-12 that the primary reason for the dramatic increase in the book value for the Harrison Plant is ‘primarily the result of a purchase accounting fair value measurement related to the completion of the FirstEnergy/Allegheny Energy merger in February 2011.’”
One way in which the companies have “skewed” their analysis in favor of the proposed affiliate transactions is to assume unrealistically low capacity factors for natural-gas fired combined cycle generators, CAD said. The companies’ baseline analysis assumes that a combined-cycle generator will only have a capacity factor of 25%.
“The assumption of a low capacity factor increases the cost of meeting future needs through combined cycle generators in two ways,” CAD wrote. “First, the low amount of energy assumed to be produced by the generator increase the cost of energy produced by the generator because capital costs are spread over a low amount of production. Second, the low capacity factor means that the Companies must build (or acquire) much more capacity from combined-cycle plants than from the Harrison Plant to produce the same amount of energy. The Companies have assumed that the Harrison Plant will have a capacity factor of 75% compared to only 25% for combined-cycle generators. As the Companies note on page 59 of the Plan, the difference in assumed capacity factors between a gas combined cycle plant and Harrison would require the construction of 7.5 combined cycle plants in order to produce the same amount of energy as in the proposed Transaction. The Companies’ assumed capacity factor for combined cycle gas plants is unrealistically low.”
Mon Power, Potomac Edison say this is a good plan
Said the Aug. 31 utility plan filing: “The Transaction will provide Mon Power with the ability to meet its energy and capacity obligations with owned and controlled assets primarily through the use of West Virginia based assets. The Transaction will greatly reduce the associated market volatility risk for the Companies, but will not prevent Mon Power from taking advantage of low energy market prices when they occur. The Transaction would also enable Mon Power to respond to changes in market conditions, environmental regulations, and customer demand, and demonstrates the Companies’ commitment to provide cost effective and reliable service, while operating in an environmentally responsible manner. Mon Power is and will continue to be committed to providing the resources that best match the needs of its customers in a cost effective and reliable manner.”
Mon Power’s current generation portfolio is comprised of over 2,900 MW of installed capacity. Over 1,600 MW of that capacity comes from three supercritical coal plants; Fort Martin (100% ownership), Pleasants (7.69%) and Harrison (20.54%). Mon Power’s three wholly-owned subcritical plants (Albright, Willow Island and Rivesville), accounting for 660 MW, were deactivated in September.
Mon Power has partial ownership of Bath (16.25%), which is a Pumped Storage Hydro Plant accounting for 488 MW. Mon Power also has Purchase Power Agreements (PPAs) with three Public Utility Regulatory Policy Act (PURPA) facilities; the Morgantown Energy Associates’ WVU Project, American Bituminous Power Partners LP’s Grant Town Project, and the City of New Martinsville’s Hannibal Project. These PURPA projects make up the remainder of Mon Power capacity (about 160 MW). Mon Power also has power participation rights to OVEC’s generation (0.49%), accounting for 11 MW.
Harrison is a supercritical coal power plant located in Haywood, W.Va., and was built in 1972. Harrison has a generating capacity of 1,984 MW. Only 20.54% of this capacity is currently owned by Mon Power. Unit 1 came on line in 1972 and has a capacity of 662 MW. Unit 2 came on line in 1973 and has a capacity of 661 MW. Unit 3 came on line in 1974 and has a capacity of 661 MW. Coal for the units is delivered by truck from nearby mines. All three units have selective catalytic reduction (SCR) NOx controls and wet flue gas desulfurization (WFGD) SO2 controls. Each of the units also uses electrostatic precipitators (ESP) to control particulates.
Before the Rivesville, Willow Island and Albright plant deactivations, Mon Power was 480 MW short on capacity, which increased by another 458 MW with the deactivations. The resulting 2013 shortfall will total 938 MW, increasing to over 1,400 MW by 2026 as load continues to grow.
The utilities said gas-fired generation was found to be the best new-build option, but that acquiring existing sources of generation can offer advantages over constructing new generation. Opportunities to acquire existing generating facilities are scarce since they require the intersection of a willing seller and an asset that meets the requirements of the prospective buyer, they added.
“Mon Power is fortunate to have uncovered such an opportunity,” the utilities said. “After numerous internal discussions, FirstEnergy’s unregulated affiliate, FirstEnergy Solutions Corp. (‘FE Solutions’), has made a package proposal that has the attributes necessary to satisfy Mon Power’s capacity and energy needs. After thoroughly considering this option in relation to all other alternatives, FE Solutions’ proposal is the preferred approach.”