The Harrison power plant of FirstEnergy (NYSE: FE) is a “critical” to the future of the coal industry in northern West Virginia at a time when the industry is facing “unprecedented” regulatory pressure from the federal government, said James Laurita Jr., chairman of the board of the West Virginia Coal Association.
Testimony from Laurita, who heads a series of northern West Virginia and southwest Pennsylvania coal companies loosely known as Mepco, was filed April 26 by the coal association at the West Virginia Public Service Commission. The commission is reviewing an application by Monongahela Power, a unit of FirstEnergy, to buy the share of the Harrison plant from another FirstEnergy company that Mon Power doesn’t already own. This deal would give Mon Power full control of Harrison, a scrubber-equipped power plant located in Harrison County, in the heart of the northern West Virginia coalfield.
Laurita noted that Mepco markets its coal to several coal-fired generators in Northern Appalachia, with a majority of its sales directed to new Longview Power coal plant near Morgantown, W.Va., and to several FirstEnergy stations, though not currently to Harrison.
While FirstEnergy has not suggested that Harrison would have to be shut if this deal doesn’t go through, environmental groups, including the Sierra Club, are trying to argue in this case that Mon Power’s ratepayers would be better off with cleaner alternatives, like energy efficiency, rather than acquiring a major piece of Harrison.
“The Harrison Power Station is of critical importance to many coal producers in Northern West Virginia,” Laurita wrote. “Many mines in the region which cumulatively employ nearly one thousand people, plus several thousand additional indirect jobs depend upon the continued operation of this facility.”
Laurita said he does not believe that energy efficiency can provide more than a very small amount of capacity savings, and would be many years in the making. Renewable energy, although it is getting to be lower in cost, is still significantly higher in cost and is heavily subsidized, said Laurita in arguing against that alternative to the Harrison capacity. “Ultimately someone has to pay for that subsidization,” he wrote. “As to capacity, renewables are not base load power supply. That is, they cannot supply the power needs 24/7, and are intermittent in nature. The capacity factors of renewable energy are generally less than 30% in this region. A capacity shortfall means we need the capacity to call on energy when we need it.”
Coal industry already under pressure due to federal regulators
The coal industry in general and northern West Virginia in particular is definitely under significant pressure these days, Laurita wrote. “I have been in this business for over 35 years and have never experienced the number of pressure points we are seeing today,” he added.
Most of the pressure is coming from the U.S. Environmental Protection Agency, the U.S. Office of Surface Mining and the U.S. Mine Safety and Health Administration, he said. “I have a staff of over twenty engineers and environmental professionals today, and twenty years ago I had one,” he noted. “These fast paced and frequent regulatory changes do two things: they raise the costs of our production, and they push the less sophisticated and capitalized companies out of the market. The coal industry has met these challenges and will meet them in the future. Coal is and will continue to be a reliable, low cost source of energy. Many say that low cost natural gas is our biggest challenge, however we have competed with low cost gas before, and we have always survived and we will again.
The natural gas prices seen in 2012 were unsustainably low and must rise, Laurita argued. “Coal prices tend to be more steady and reliable because we have to keep our people employed and our mines pumped, ventilated, and maintained, and therefore our industry tends to require long term sales agreements to justify investment,” he said. “Long term agreements tend to bring both parties, the supplier and consumer to the table to work out equitable arrangements. Gas on the other hand, once the well is drilled, can be easily be shut in by the producer if the prices are not attractive. Gas wells do not in of themselves require hundreds of people like a mine, pumping, ventilating, and maintaining the well whether it is producing or not. Gas is a liquid commodity from the stand point that it is traded daily or under short term arrangements relative to coal, and therefore the prices tend to be more volatile.”
Long-time West Virginia Coal Association President Bill Raney provided companion testimony that largely tracked that of Laurita.
Mon Power would swap a little Pleasants capacity for a lot of Harrison
Mon Power currently owns a 20.54% interest in Harrison, a 1,984-MW pulverized coal facility located in Haywood, W.Va., along the West Fork River. It also owns a 7.69% interest in Pleasants, a 1,300-MW pulverized coal facility located in Willow Island, W.Va., along the Ohio River. Under the proposed deal, Mon Power will purchase Allegheny Energy Supply’s (AE Supply) 79.46% ownership interest in Harrison and become the sole owner of the plant. Also, Mon Power will sell its 7.69% interest in Pleasants to AE Supply and AE Supply will become the sole owner of the Pleasants plant.
The companies said that the Harrison acquisition is the most cost-effective way for Mon Power to prudently and reliably serve its growing West Virginia load and meet its full requirements service obligation to sister utility Potomac Edison.
The FirstEnergy companies also said this deal will result in a 1,189 MW net increase in unforced capacity for Mon Power, which will offset the 408 MW decrease it experienced in September 2012 as the result of the deactivation of three older subcritical coal plants (Willow Island, Albright and Rivesville) in northern West Virginia.