It's a risk hot potato. While some states have deregulated electricity generation, others have not. This makes for two different economic schemes for power plants. In the deregulated scenario, plants compete with each other to sell power in electric markets. A deregulated plant's income is derived from what it earns. Earnings minus the cost of producing power equals profit. But a regulated plant comes with a guaranteed profit. Regulation takes the place of a competitive market to guarantee a generator a fair return (but no more). A regulated plant is guaranteed to collect its cost of producing power, plus a fair return, to generate a set amount of profit.
When power market prices are high, deregulated plants earn more, because there is no regulated cap on the amount they can earn. However, when power market prices are low, regulated plants earn more, because they are guaranteed to earn a certain amount over their cost of service.
A deregulated plant must cover its own operation costs, everything it earns above its cost to produce power is profit. The owner of the plant shoulders all the risk of operating a plant that doesn't produce adequate profit. If a plant cannot produce adequate profit, it fails economically and will likely close.
A regulated plant's operation costs are covered by ratepayers. If the plant fails to produce an adequate profit margin, it can continue to operate because it is guaranteed to collect its operating costs and a small profit from ratepayers. The ratepayers shoulder all risk of operating a plant that doesn't produce adequate profit. It cannot fail economically because the ratepayers are there to make up any shortfalls between the cost to produce power, and the market price of that power.
It's all about who shoulders the economic risk.
FirstEnergy used to love deregulated plants when power prices were high. FirstEnergy made huge profits. But then power prices started falling because generators that were cheaper to operate entered the market. FirstEnergy's plants use coal for fuel. New plants use cheaper natural gas for fuel. Suddenly, FirstEnergy's deregulated coal-fired plants weren't economic any longer and couldn't cover their operating costs and still generate a profit. In a pure market situation, these plants would close. However, FirstEnergy has been looking for ways to transfer their deregulated plants into a regulated system, so they can continue to operate at a loss, courtesy of electric ratepayers. FirstEnergy wants to transfer its risk from the company to ratepayers.
When power market prices are high, deregulated plants earn more, because there is no regulated cap on the amount they can earn. However, when power market prices are low, regulated plants earn more, because they are guaranteed to earn a certain amount over their cost of service.
A deregulated plant must cover its own operation costs, everything it earns above its cost to produce power is profit. The owner of the plant shoulders all the risk of operating a plant that doesn't produce adequate profit. If a plant cannot produce adequate profit, it fails economically and will likely close.
A regulated plant's operation costs are covered by ratepayers. If the plant fails to produce an adequate profit margin, it can continue to operate because it is guaranteed to collect its operating costs and a small profit from ratepayers. The ratepayers shoulder all risk of operating a plant that doesn't produce adequate profit. It cannot fail economically because the ratepayers are there to make up any shortfalls between the cost to produce power, and the market price of that power.
It's all about who shoulders the economic risk.
FirstEnergy used to love deregulated plants when power prices were high. FirstEnergy made huge profits. But then power prices started falling because generators that were cheaper to operate entered the market. FirstEnergy's plants use coal for fuel. New plants use cheaper natural gas for fuel. Suddenly, FirstEnergy's deregulated coal-fired plants weren't economic any longer and couldn't cover their operating costs and still generate a profit. In a pure market situation, these plants would close. However, FirstEnergy has been looking for ways to transfer their deregulated plants into a regulated system, so they can continue to operate at a loss, courtesy of electric ratepayers. FirstEnergy wants to transfer its risk from the company to ratepayers.
“We cannot put investors and our company at risk.”
So said FirstEnergy CEO Chatty Chuck Jones during a conference with the company's stockholders. The company is planning to transfer its unprofitable Pleasants coal-fired plant into West Virginia's regulated system so that the company no longer has any risk associated with owning it.
If it's too risky for FirstEnergy's shareholders, it's too risky for West Virginia consumers. We simply cannot afford to shoulder more risk for the Ohio power conglomerate. Several years ago, FirstEnergy was successful in transferring its failing Harrison Power Station into West Virginia's regulated system. West Virginians are now paying above-market prices to operate it, and sell excess power into the regional market. Electric bills increased to cover the cost of owning and operating the plant (and paying for a whole bunch of maintenance on the plant that FirstEnergy deferred because the plant was losing money), plus a guaranteed profit for FirstEnergy.
Late last year, FirstEnergy filed its Integrated Resource Plan with the WV Public Service Commission. The IRP is a long-range plan by the company detailing how it plans to acquire the generation resources necessary to meet the needs of West Virginia customers. In its plan, it contended that buying another coal-fired power plant from its parent company was the best option for the customers. Other parties intervened to argue against it, but the Commission ultimately approved the plan, noting that actually buying the coal-fired plant would necessitate another filing and review by the Commission and parties could argue against it at that time.
However, during the last coal-fired power plant purchase case for Harrison, the company contended that there wasn't time to issue a request for proposals to solicit power supply contracts from other generators that may compete with Harrison to produce the lowest cost for West Virginia ratepayers. Therefore, Harrison stood alone as the only "solution."
Since the PSC neglected to require the company to solicit competitive bids for supply as part of its IRP, when is an RFP supposed to happen? It can't happen during the IRP, because it's too early in the process. But yet it can't happen when supply is needed, because it's too late in the process.
The Staff of the PSC and the West Virginia Consumer Advocate say the time is now. They have jointly filed a request that the company be required to file RFPs for all future capacity and energy requirements above a certain threshold. If West Virginians deserve to pay the cheapest prices for the power they need, then the company should be required to solicit competitive bids.
But the company doesn't want to. FirstEnergy wants to sell its Pleasants power station to West Virginians without any competition. That's not fair, or in the best interests of West Virginia ratepayers. FirstEnergy is whining that it shouldn't have to bear the risk of its unprofitable Pleasants plant, because it still has "life left in it."
If it's too risky for FirstEnergy's shareholders, it's too risky for West Virginia consumers. We simply cannot afford to shoulder more risk for the Ohio power conglomerate. Several years ago, FirstEnergy was successful in transferring its failing Harrison Power Station into West Virginia's regulated system. West Virginians are now paying above-market prices to operate it, and sell excess power into the regional market. Electric bills increased to cover the cost of owning and operating the plant (and paying for a whole bunch of maintenance on the plant that FirstEnergy deferred because the plant was losing money), plus a guaranteed profit for FirstEnergy.
Late last year, FirstEnergy filed its Integrated Resource Plan with the WV Public Service Commission. The IRP is a long-range plan by the company detailing how it plans to acquire the generation resources necessary to meet the needs of West Virginia customers. In its plan, it contended that buying another coal-fired power plant from its parent company was the best option for the customers. Other parties intervened to argue against it, but the Commission ultimately approved the plan, noting that actually buying the coal-fired plant would necessitate another filing and review by the Commission and parties could argue against it at that time.
However, during the last coal-fired power plant purchase case for Harrison, the company contended that there wasn't time to issue a request for proposals to solicit power supply contracts from other generators that may compete with Harrison to produce the lowest cost for West Virginia ratepayers. Therefore, Harrison stood alone as the only "solution."
Since the PSC neglected to require the company to solicit competitive bids for supply as part of its IRP, when is an RFP supposed to happen? It can't happen during the IRP, because it's too early in the process. But yet it can't happen when supply is needed, because it's too late in the process.
The Staff of the PSC and the West Virginia Consumer Advocate say the time is now. They have jointly filed a request that the company be required to file RFPs for all future capacity and energy requirements above a certain threshold. If West Virginians deserve to pay the cheapest prices for the power they need, then the company should be required to solicit competitive bids.
But the company doesn't want to. FirstEnergy wants to sell its Pleasants power station to West Virginians without any competition. That's not fair, or in the best interests of West Virginia ratepayers. FirstEnergy is whining that it shouldn't have to bear the risk of its unprofitable Pleasants plant, because it still has "life left in it."
“Is it frustrating that we’re shutting down tens of thousands of megawatts of generation in our country that’s got life left in it because of the way this market is working?” Jones said. “That is very frustrating to me.”
While the plant may still have physical "life" in it, it doesn't have any economic "life" left.
West Virginia can't afford to bail FirstEnergy out of its bad economic decisions any longer. Subsidizing FirstEnergy is "frustrating" to West Virginians, too, who sometimes have to make a choice between paying their electric bill and buying food. Go peddle your lemon somewhere else, FirstEnergy.
West Virginia can't afford to bail FirstEnergy out of its bad economic decisions any longer. Subsidizing FirstEnergy is "frustrating" to West Virginians, too, who sometimes have to make a choice between paying their electric bill and buying food. Go peddle your lemon somewhere else, FirstEnergy.
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