by Bill


Charleston Daily Mail reporter Ry Rivard has done us all a great service in his article this morning.  Rivard has done what every good reporter should do.  He went to APCo and asked the right questions to find out exactly what caused their push for their bond bill, and what the alternatives might be.

From his good work, we have learned exactly what has caused APCo's desperation to cover their 2008 coal mistake.

Appalachian is asking for the plan after a scheme to avoid a dramatic rate hike in 2009 failed. That year, Appalachian and its sister company, Wheeling Power Co., asked for a 43 percent rate to recover $442 million in fuel, purchased power and pollution control equipment costs.

The company primarily blames a spike in coal prices starting in 2008 for causing the problem.

The companies and the state Public Service Commission avoided a one-year increase - which would have been the largest in state history - by agreeing to spread it out over four years.

That plan didn't work out.

Appalachian spokeswoman Jeri Matheney said the company is still in the hole by about $300 million after three years. Now customer rates are still too low to recover those costs or to pay for still-elevated coal prices. A drop in sales - including curbed demand from large industrial customers like the now-idled Century Aluminum facility in Ravenswood - has not helped, either. [emphasis added]

So, the three year pay off plan designed by the PSC and APCo failed to significantly retire APCo's 2008 coal mistake because APCo's electricity sales continued to fall, reducing the amount of money they collected from rate payers.

So the solution APCo's lobbyists are providing, and the WV PSC's Consumer Advocate supports, is to spread that debt out over ten years using the proposed bond plan.  I have read the bond bill, HB4530, closely.  The bill locks WV rate payers in to a fixed annual bond payment and requires the PSC to adjust electric rates upward in years when electricity sales don't generate enough money to make the payment.  This requirement would be fixed in state law, which provides APCo with the low interest rates they are seeking.

So, what if HB4530 passes, the bonds are issued, and electricity sales in WV continue to fall?  You guessed it.  Rates will rise because the bond payments must be met every year for the life of the bond.

Rivard also does a good job of describing APCo's reasoning:

Under the plan, utility companies could ask the PSC to allow them to sell bonds. The bonds would be guaranteed by PSC-mandated utility rates. Because the bond would be backed by law, Appalachian believes the bond would be repaid at the same low-interest rate that governments receive.

The company contends it could get a AAA-rated bond with the lowest possible interest rates if the bill passes. Appalachian's own bond rating from Moody's is Baa2, which is considered medium grade.

"The legislation is necessary so these bonds have a AAA rating," Matheney said.

Without the bill, the company said rate increases are unavoidable. With the bill, the company thinks it can deal with previous coal costs without raising rates at all.

"Spreading it out that way means we can pay for the bonds in the rates we already have; we wouldn't have to raise rates at all - that's the goal to keep rates where they are," said Steve Ferguson, Appalachian's director of regulatory affairs.

It's not clear how much money the company would save if it simply entered another multi-year deal with the PSC to spread the costs out like it did back in 2009.

APCo claims that the PSC-forced bond payment is required to give the bonds a AAA rating and therefore lower interest rates than APCo can get on its own.  So if it is just about the interest rate, then the life of the bonds could be shortened to the life of the previous PSC deal, that is, three years, to minimize total interest rate payers would have to pay and minimize risks of forced rate increases.  A problem here is that APCo can't predict what the rating will be on these bonds.  Ratings are only issued by ratings companies after the bond is created, and we won't know that until after HB4530 is passed.  What if these bonds do not get AAA ratings?

APCo's Ferguson also claims that APCo's "goal is to keep rates where they are."  This is another bet placed on some uncertain assumptions.  It is quite likely that this "we wouldn't have to raise rates at all" is not based on the bond situation at all.  APCo has gotten a number of coal price adjustments over the years, including the 2009 deal with the PSC, which would be expiring in the next few years.  If coal prices stabilize, and electricity sales don't continue to fall, (both assumptions in themselves) then WV rate payers would actually see some reduction in rates, as natural gas rate payers have seen in the last year.  It appears that APCo may be depending on this sleight of hand, the substitution of new bond payments for expiring past rate increases, to "keep rates where they are."

So the alternative to the proposed bond scheme would be to adjust rates somewhat higher to keep the original 2009 payoff plan on track.  In that case, APCo's 2008 coal mistake would be paid off in a couple more years.  Instead, APCo wants to "spread out" the debt over a longer period of time, and lock in the risk that further declines in electricity sales will result in rate increases for as much as ten years in the future.

Which is it APCo?  Do you need the bonds to get lower interest rates?  Or are you using the "spreading out" of the risk you have shifted to rate payers to give you more flexibility to raise rates for other purposes in the future?  Is this about interest rates, or is it really about your public relations problem?  As Rivard points out in his story:

Even if the bond bill passes and the PSC approves a bond sale for Appalachian, the company may still have to ask for a 3 to 4 percent increase this year because of new costs associated with a construction surcharge for a natural gas-fired power plant coming online in Ohio.

Rivard does not note an additional source of future rate increases, as well as further exposure to the risk of coal price increases.  APCo's parent company, AEP, is forcing APCo to buy out Ohio Power's interests in two WV coal-fired power plants.  This new "investment" in coal-fired generating capacity will also likely lead to further rate increases for WV rate payers.

Thank you, Ry Rivard, for helping WV rate payers find some more of the pieces to the APCo bond bailout puzzle.

by Keryn

This bill proposes granting authorization for the Public Service Commission to issue “financing orders” to electric utilities to recover increased Expanded Net Energy Costs from their ratepayers through the issuance of consumer debt bonds.

In the instance that caused this legislation to be proposed, AEP affiliate Appalachian Power has already incurred the expense of purchasing fuel that has already been burned and turned into electricity that it has already supplied to its customers.  Now ApCo finds that it will have to request another rate increase in the neighborhood of 40% to recover its expenses from customers. 

Fuel is a recurring expense that should be paid for at, or as close as possible to, the time it is used.  If not, the recurring liability of deferred expenses not recovered through current rates will merely snowball until the debt reaches a point where it can never be repaid through rates that consumers can afford.  “Pay as you go” makes financial sense.

Expanded Net Energy Costs (ENEC) represent a utility’s operating expenses that will vary from year to year.  Capital expense and fixed costs are covered under a different ratemaking process at the PSC.  In an ENEC case, a utility presents its projected cost of service for an upcoming year.  It also presents its actual cost of service for the prior year and compares, or trues up, its actual costs to the previous estimate that has been collected from ratepayers.  Any resulting rate increases are completely dependent upon the accuracy of the utility’s planning when presenting an ENEC case.  The “true-up” determines whether an over recovery or under recovery of rates from customers has occurred.  In the case of an over recovery, a refund is due to ratepayers.  In the case of an under recovery, the unpaid rate balance is charged to ratepayers over the next year.  This balances rates, when properly planned, so that large increases are unlikely to occur.

Appalachian Power’s planning process is broken.  The traditional ratemaking process works for other utilities.  In FirstEnergy affiliates Mon Power and Potomac Edison’s ENEC case last year, a projected 2012 over recovery was balanced against outstanding fuel-related under recovery to result in a smaller rate increase than would have otherwise been required.

The issuance of consumer debt bonds will reward AEP by allowing them to recover their expenses, while their customers incur the liability of the company’s poor planning over a longer period of time.  Instead of fixing the problem, this merely shifts it onto the backs of our children and grandchildren.

Tim Manchin’s “least cost planning” bill will be introduced in the House.  That bill will require utilities to file Integrated Resource Plans with the Public Service Commission every two years that will demonstrate how the utility plans to provide electric service to its customers in the most cost-effective manner over the next 20 years.  In its plan, the utility must evaluate costs and benefits of choices for power purchase contracts, the cost of new and existing generation facilities, investments in demand-side resources, including energy efficiency, and to create and effectively manage a diverse generation portfolio in order to protect ratepayers from unmanageable rate increases caused by over-dependence on any one source of fuel.  This approach works to solve the underlying planning problem that has continued to cause huge rate increases.

A sensible approach to this problem must include long-term solutions, not just a temporary “band-aid” approach that sweeps the issue under the rug for consumers to deal with in the future, such as HB4540 proposes.  The current under recovered fuel expense balance must be dealt with in a manner that Appalachian Power’s customers can afford.

We propose the following:

1. Bond issuance is limited to this one-time specific event.
2. Any bond issuance is limited to a 5-year re-payment period.
3. Least-cost planning must be instituted.
4. The outstanding fuel cost debt was directly caused by Appalachian Power’s poor planning, therefore some responsibility for the expense should remain with the utility, instead of the entire cost becoming the burden of customers.
5. Several provisions in the bill need amendment to ensure :

• That debt is repaid proportionally by customer classes who caused it;
• That the utility cannot sell the debt bond to their affiliates or absorb it internally, which defeats the purpose of the bond;
• That costs to administrate and set up financing of the bond, including costs of the Public Service Commission, become the responsibility of the utility, not to be recovered from ratepayers;
• That review of the utility’s books and records relating to the financing be transparent and open to review by affected customers;
• That the PSC’s financing order be subject to public hearing and review, including proper publication/notice to all affected consumers.

The increasing cost of electricity for West Virginians, at a time when they can least afford it, is a serious problem that deserves thoughtful consideration by all stakeholders, not a last-minute, quick fix that will allow all utilities to shirk future responsibility for their actions and create consumer debt outside of the traditional just and reasonable regulatory ratemaking process.

by Bill

As I re-read the AP's story by Larry Messina in this morning's Charleston Gazette, I noticed that he referred to the Coalition for Reliable Power as "[a] group that advocates for West Virginia consumers."  Mr. Messina has clearly failed to read anything on the Coalition's Web site.  C4RP "advocates for" WV electricity producers, specifically those producers that produce electricity at or near where they use it.  That is why it is called the Coalition for Reliable Power, because the laws of physics prove that this is the most reliable way to run an electrical system.  Go to the C4RP site yourself and see what I mean.

In fact, if Mr. Messina had done much reading at all about C4RP, he would have come across our admonition for West Virginians to "stop thinking like consumers, start thinking like producers."

This is hardly "advocating for WV consumers."

This correction goes to the point of what is wrong with the discussion of rising electrical rates in WV.  Producers invest in new equipment to produce electricity realizing that high up front costs can lead to lower long term rates.  Consumers are only interested in the short term price that they have to pay.

To have a truly affordable and reliable electrical system, West Virginia needs far more people who think like producers, not consumers.  Our state also needs leadership that recognizes that the somewhat higher initial costs of installing small scale solar generating systems across our state is an investment that will pay dividends in reducing and eliminating skyrocketing fuel costs.

by Bill

Sen. Dan Foster (D-Kanawha) introduced Senate Bill 162 on January 12.  Senate Judiciary Committee chairman Sen. Corey Palumbo has yet to put the bill on his committee's agenda for a vote.  You can read Sen. Foster's original version of SB162 here.

SB162 would require the WV PSC to require all WV electric companies to submit least cost plans, also known as integrated resource plans, every two years.  The 1992 federal energy policy act states that the purpose of least cost planning is to provide "adequate and reliable service to its electric customers at the lowest system cost."  Here is a good explanation of how this system works and why it is needed here in WV to keep our electric rates from rising as rapidly as they have in the last five years.

Currently, the WV PSC has no mechanism for analyzing or comparing alternatives when a power company requests a rate increase.  The power company comes in, tells the PSC what its costs were and how much it wants in rate increases.  In 27 other states, PSCs can compare the power companies' costs with the cost/benefit analysis they provided in their least cost plans and use that comparison in making rate decisions.

The power companies prepare the least cost plans which are used only for informational purposes.  They are not required to follow the plan, but the plans are used by the PSC as guidance or comparison in rate cases.

Well, the power company lobbyists have freaked out over this bill.  They wanted to drop most of the important elements of the original bill.  They wanted to cut any public involvement in development or approval of the plan.  They wanted to drop the requirement that the PSC approve the power companies' plans.  They wanted to eliminate all reference to the requirement that power companies had to identify the combination of resources with "the lowest system cost" as defined in the federal law.  In other words, they wanted to gut the bill and make it entirely meaningless.  That was no surprise.

Sen. Palumbo has not yet put any version of SB162 before his committee, despite the fact that Energy Efficient WV has made a number of concessions and the power companies have made NONE.

Compare the over one month delay in moving SB162 and the well lubricated HB4350 referred to in the previous post.  AEP's bubble bond bill has the skids greased with sponsors from the House leadership.  It appears that a companion bill in the Senate is also sponsored by the full Senate leadership.

If any aspect of the deeply flawed bubble bond bill passes, WV rate payers will need SB162 more than ever as the PSC's only tool for holding down electric rates.  The bubble bond bill will hide power company rate increases behind a complicated borrowing process that will insulate the power companies' outrageous fuel costs from public scrutiny.  Power companies bad decisions will pass rapidly into the bubble bond black box with its hidden fees and "adjustments."  Only least cost planning will force power companies to show the PSC and rate payers what goes into that black box.

cross posted from The Power Line

by Bill

The whole "securitized" real estate bubble collapsed less than five years ago.  Now securitization has come to WV power companies and the WV PSC.

Power company lobbyists have fast-tracked a bill, HB 4530, that would allow power companies to sell bonds and charge interest to rate payers to cover the rapidly rising costs of generating electricity from coal.  In the coded world of the WV Legislature, this bill is well-lubricated to pass.  Two of the bill's sponsors are leaders in the House, the Majority Leader and the chairman of the Finance Committee.  These sponsors send a signal to all House members that this is a special bill.  The same bill has also been introduced in the Senate as SB584 and is loaded with sponsors from the Senate leadership.

You can read the bill here.  You can also read a discussion of the bill's impacts here.

AP's Larry Messina, in the story linked above, makes the following statement:

Other states have provided such financing alternatives to utilities. Lawmakers in Texas, for instance, approved a similar proposal in 2009 as electric utilities struggled with costs from restoring power systems in the wake of Hurricane Ike. West Virginia's PSC also allowed Allegheny Energy that year to sell $105 million in bonds so it could install a scrubber to remove sulfur dioxide and mercury from emissions at a Monongalia County power station.

Messina also quotes AEP spokeswoman Jeri Matheney:

Matheney said the company hopes to sell low-interest bonds that would allow the utility to recover the energy costs immediately. The existing rate structure should provide enough revenues to repay those investors over the life of the bonds, she said.

"We have already bought the coal, we have already made the power and customers have already used that power," Matheney said. "We're facing this large amount of money that has already been spent."

And

The utility estimates that its yearly per-ton coal costs jumped 70 percent between 2007 and this year. Matheney said the normal process has proved unable to cope with such circumstances.

"When it doesn't work well is when those expenses accumulate much faster and grow to become much larger than you anticipated," Matheney said. "We feel that's where we are right now."

Now read the actual wording of HB 4530.  The new WV bill is not an authorization of borrowing to pay for the coal purchases AEP has already made.  The bill is a general authorization that can be used by any power company in any similar situation.  Messina's examples from Texas and WV were borrowing to meet costs from one-time events, not ongoing rate increases.

Just like the liar loans and bogus mortgages of the recent real estate bubble, HB 4530 also contains new fees and "adjustments" that will allow power companies to change the terms of the bonds with little or no input from rate payers.

Right now, WV has a pay as you go PSC system that requires power companies to justify their rate increases in a pretty transparent process.  With the additional layer of complexity that the new "financing orders" would bring to the PSC process, the WV rate system becomes more complex and opaque.

The changes proposed in HB 4530 will do nothing to control rising rates.  The bill will only postpone the day of reckoning and push power companies' past bad decisions off onto our children and grandchildren.

cross posted from The Power Line

by Keryn

While West Virginia Governor Earl Ray Tomblin is focusing on West Virginia's energy past with comments like these:

More than once he lit into the Environmental Protection Agency, under constant fire from the coal industry over regulations it feels are too stringent and that are smothering production.

“This is West Virginia, where we appreciate the need for reasonable, open environmental regulations but understand the fundamental need for jobs and for low cost, reliable energy developed right here in the United States of America,” Tomblin said.

Calling it “a war on coal” by the Obama administration, Tomblin vowed to personally take on the EPA until it understands that a key to America’s future lies in the use of natural resources.

“It is a fight from which I will not shrink, and one that I fully expect to win,” he promised, evoking thunderous applause.

“Coal is, and always will be, a part of our future.”

And while West Virginia's Joe Manchin, Nick Rahall and Shelley Capito also focus on West Virginia's energy past with similar comments, there's one group that's actually taking action to support West Virginia's energy future.

The West Virginia Sierra Club is doing something about West Virginia's energy future.  At a community meeting in Preston County last weekend, Sierra Club representatives brought together residents, legislators and environmentalists to work together with utilities to craft coal-fired electric generation plant closure plans that take local needs into account.  Unfortunately, the utility was a no-show.  Perhaps they were holed up somewhere cozy with Tomblin, Manchin, Rahall and Capito crafting more crazy, coal-fired comments.

The Sierra Club has been successfully negotiating with energy companies in other states to give something back to their employees and the community when old, polluting plants close.  "Last year, for example, workers and local governments in Centralia, Wash., assisted by the Sierra Club, negotiated a 15-year plant closure plan with TransAlta. The plan sets aside $50 million for energy efficiency and clean energy projects — initiatives that will keep electricity bills down and offset the jobs impact of the closure."

FirstEnergy would prefer that their employees who will lose their jobs if plants close place the blame on environmentalists, however, the responsibility is clearly the utility's.  FirstEnergy has been aware that these plant closures were coming for years and should have been doing something to prepare for them that would protect jobs.  However the only thing employees are getting in exchange for years of loyal service is a trip to the unemployment office because that is the solution that makes money for FirstEnergy.  Money is the only thing that matters in the board rooms where decisions that affect "the little people" are made.  Even now, with plant closures imminent, FirstEnergy is a no-show.

"I think one of the challenges is to get the message across that, no matter how much you love it, the status quo is not one of the options," said Sconyers of this first meeting, aimed an  introducing the idea of entering a dialog with FirstEnergy.

Kotcon expressed frustration that little information has been forthcoming from the company.

"It is clear that economic forces are going to drive some very dramatic changes, but no one knows those data like FirstEnergy does," he said. "To get to a win-win scenario, FirstEnergy has to come forward with some discussion of what the market will dictate for the Albright plant and for plants like Rivesville and Willow Island."

And local residents will have to come together if they want a say in how this plays out, he said.

When push comes to shove is when you find out who your real friends are.

Here's the link, but it will go dead in a week.  So here is the meat of the piece:

"Byron Harris, consumer advocate of the Public Service Commission, says federal figures rank West Virginia home power usage as 12th-highest in America.

The reason, apparently, is that more Mountain State homes are aging, with poor insulation and drafty windows -- letting costly heat escape in winter and failing to block muggy warmth in summer. Many lack cost-cutting heat pumps. Older appliances and incandescent lightbulbs also waste power.

In California, where energy-efficiency efforts are intense, the average home uses a mere 562 kwh per month, according to the U.S. Energy Information Administration.

Two Kanawha Valley activists, Mike Harman and Cathy Kunkel, told a Charleston church group this week that preventing energy waste could save West Virginians millions in utility bills and reduce the need to build more power plants."

And:

"A crusading group named Energy Efficient West Virginia has created a website to push the war on waste. It can be found at www.eewv.org.

A couple of years ago, the federal stimulus program gave West Virginia $37 million to weatherize low-income homes. In the coming 60-day session, the Legislature should expand the struggle by passing stronger energy codes and prodding utilities to increase efforts against loss.

Wasting money is senseless. Saving is wise. Energy is too valuable to be squandered needlessly."

by Keryn

On December 21, the Maryland Public Service Commission fined Pepco in the amount of $1M as punishment for their unreliable electric service.  They were also voted by consumers as the most hated company in America last June.  In response, Pepco mucks their public relations barn and the b.s. starts to fly.

Does Pepco think that they can buy a semblance of "reliability" and consumer approval, instead of actually earning one, with the purchase of the PATH Project's hand-me-down astroturf front group?  Bad plan, Pepco, don't do it!!  The "Marylanders for Reliable Power" is nothing but a flaming bag of headaches that will cause their next corporate benefactor to end up with even more egg on its face.

This fraudulent "grassroots" group was created by a public relations firm to build advocacy for FirstEnergy's (formerly Allegheny Energy) and American Electric Power's ill-fated PATH transmission project.  It was not a spontaneous effort by anxious consumers to join together to improve electric reliability.  Allegheny Energy's purchase orders and contracts with The Artemis Group were made public last year at FERC as part of the Formal Challenge to PATH's 2009 ATRR.  In addition, the "coalition" and its expenses (which were wrongly recovered from ratepayers) is mentioned again in the recently filed Formal Challenge to PATH's 2010 ATRR.  This "coalition" has long since been exposed to the public as the fraud it is and the public relations firm that was its Dr. Frankenstein lost a big chunk of monthly income when the PATH Project was suspended by PJM (just like they did with Pepco's MAPP Project several months later).  Of course they would like to try to squeeze a little more blood out of this particular turnip by selling the pieces to some corporate stooge like Pepco as the solution to their reliability and reputation problems, but the Marylanders for Reliable Power are POISON!  Run, Pepco, runnnnnnnnnn!

Here's a novel (and free!) idea for Pepco that will go much further to assist them in rebuilding their reputation -- actually earning the respect of its customers through honest effort and sweat equity that will provide a reliable product for the public that Pepco is supposed to serve.  You cannot purchase respect!

by Bill

Here’s the story

As it turns out, most media estimates of the cost of installing solar panels on your home or business are wrong, because they are using out of date figures.  Read how in this latest peer-reviewed study.

Falling demand for grid power has paralyzed additions and innovations to the obsolete centralized grid just as reduced prices and increased solar panel efficiency are putting real reliable power within our grasp.

Think grid power will stay cheap?  Not in WV (This Charleston Gazette link will die in a week.)  Here’s the latest in a long line of WV electric rate increases:

"Nearly $20 million of the hikes aim to allow Monongahela Power and Potomac Edison to recoup spending on fuel, transmission and purchased power costs. The two utilities provide electricity in 37 of West Virginia’s 55 counties. The typical monthly residential bill will increase by an estimated $3.36 per 1,000 kilowatt hours consumed."

Rising rates and falling demand have killed investment in the obsolete centralized grid.  Now is the time for homeowners and small business owners to take control of their energy destinies.  Return on investment for small investors is at its lowest point in decades.  If you have some cash to invest, your future returns will be much higher if you invest in a solar power system.  If you don’t have money to invest, consider that interest rates for home loans are also at historic lows.

As always, the message for the new year, as I always say over at The Power Line is — Stop thinking like a consumer.

by Bill


The propaganda line is WV is that coal is our state’s most abundant electricity resource.  That statement, which we see repeated in the state media year after year, is simply not true.

Our state’s most abundant electricity resource is the resourcefulness and ingenuity of West Virginians.  The second most abundant resource is solar energy, which includes the power potential of the wind, as well as direct photovoltaic conversion.  So coal might be the third most abundant electric resource, but gas, at least temporarily, might be catching up fast.

Mike Harman, of Energy Efficient West Virginia, had an op ed piece in the Charleston Daily Mail the other day that illustrates how we can leverage our most abundant resource to lower electric bills in WV.  Increasing the wisdom of our electricity use, by using it more efficiently, or simply using it less, is the key to reducing electrical bills in WV.  Until we fully exploit this resource, we can’t even begin to assess how much new generating capacity we might need for the future.

Mike focuses on what power companies and regulators can do, but every West Virginian has the ability to reduce his or her electric bills right now, without government or corporate “help.”

As I have said many times before on The Power Line — stop thinking like a consumer.  Start thinking like an energy producer.  If you have electric heat, do you really need any incentives to install a programmable thermostat that will cost you $200 and pay for itself in one winter?  Do you really need a power company discount, that will be charged to your electric bill through the rate making process, to get you to replace your incandescent light bulbs with florescent bulbs that will reduce you lighting bill by over one half?  Do you really want to spend thousands of extra dollars on a home solar power system to cover your entire current 1000 kwh per month electrical use without trying to cut that use first to its bare minimum?

As Mike says, we need power companies to start investing now in efficiency and demand management, but there are lots of things you can do right now to save money, reduce your electric bills and build a more reliable and healthy electrical system in our state.  Why wait?  Do it now.