WV PSC's PYMWYMI Harrison Transfer Conditions

FirstEnergy has been preternaturally verklempt about its "victory" in the Harrison Power Station transfer case at the West Virginia Public Service Commission.

Reporters have been hard pressed to get much more than the usual "we are reviewing the decision and will respond appropriately" line.  However, congratulations are due to the rather clueless reporters at WDTV, who inspired Toad to say something different, but equally clueless.

"Once we review this agreement will are hoping that it will lead to a decrease in rates for customers right off the bat with a reduction of about a $1.50 to the average residential customer." said Todd Meyers, First Energy Spokesman.

Right, Toad, but that "decrease" is only a temporary result of taking the entire credit for the sale of Pleasants in the first year.  Once that $25M credit has been used to reduce rates, it's gone for good, and so is the rate "decrease." 

So, what is FirstEnergy so afraid of in the PSC's favorable Order?  The PSC has allowed the sale and twisted itself in legal knots to do it.  What's not to like?

It's the "Put Your Money Where Your Mouth Is" conditions the PSC added to the transaction.  FirstEnergy's evil henchmen and their bean counting lap dogs are busy running the numbers and scheming up ways to manipulate the conditions so that they don't end up losing any money in the deal.

FirstEnergy told the PSC that the transaction would not damage the credit or financial position of Mon Power & Potomac Edison.  FirstEnergy also told the PSC that recovery of the acquisition adjustment ($589M of funny money added to the value of Harrison at the Allegheny Energy/FirstEnergy merger) was proper under FERC regulations.  They promised the PSC that Harrison would be able to sell excess generation not needed by Mon Power & Potomac Edison at a hefty profit, which would flow back to benefit the West Virginia ratepayers.

The PSC wants FirstEnergy to "Put Your Money Where Your Mouth Is," therefore, the PSC added the following conditions to its approval of the transaction:

1. First Energy and Mon Power must agree through written verified statements filed in the record in this case within ten days of the date of this Order that they understand and agree that if First Energy does not make additional equity investment in Mon Power to cover the decline in equity caused by the write-off of the $332 million (pre-tax) Acquisition Adjustment, Mon Power must agree not to pay, and First Energy must agree that it will not receive, any dividends from Mon Power until the equity to total capital ratio of Mon Power returns to forty-five percent.

FirstEnergy is going to have to cover that $332M write-off with an equity contribution to Mon Power, or else they're going to have to forgo any dividends from the company until the write-off amount is restored to Mon Power's capital ratio.  Obviously, the PSC didn't agree with FirstEnergy's contention that the transaction wouldn't damage Mon Power's credit ratings.  Poor ratings costs ratepayers money through increased credit costs.  The PSC wants FirstEnergy to Put Your Money Where Your Mouth Is.  Ut-oh!  How is FirstEnergy going to agree to this now, then plan to violate it later?  What creative bookkeeping or legal nonsense are they going to commit?

2.    First Energy, AE Supply, Mon Power and Potomac Edison must agree through written verified statements filed in the record in this case within ten days of the date of this Order that they understand and agree to allow the initial $257 million Acquisition Adjustment to be subject to adjustment through a refund from First Energy or AE Supply if the FERC determines that purchase price paid by Mon Power exceeds the fair market valuation of Harrison. If the FERC makes such a determination, the portion of the $257 million Acquisition Adjustment that exceeds fair market value will be returned to Mon Power by either First Energy or AE Supply, and the refund will be credited to the Acquisition Adjustment account.

I find this one most puzzling.  Is FERC going to come motoring into West Virginia just to evaluate the purchase price?  Is there a pending FERC case that's not mentioned in the Order?  Is there a case that needs to be filed?  By whom?  FERC does not allow the recovery of acquisition adjustments.  But, of course, that's not what the condition says.  But, obviously, the PSC was not satisfied with FirstEnergy's insistence that recovery of acquisition adjustments is allowed by FERC as part of purchase price, so the PSC wants FirstEnergy to Put Your Money Where Your Mouth Is.

3.  First Energy, Mon Power and Potomac Edison must agree through verified written statements filed in the record in this case within ten days of the date of this Order that they understand and agree that the return on, and return of, the $257 million Acquisition Adjustment will be allowed in base rates only to the extent that fifty percent of the net margins from off-system transactions from the additional Harrison capacity acquired by Mon Power will support that return. The full return requirement will be allowed each year subject to prospective adjustment based on a review of the achieved net margins from off-system sales in relation to the amount of return requirement built into the initial surcharge, and thereafter base rates. During the initial Surcharge true-up period, and thereafter when the return component on the Acquisition Adjustment is built into base rates, we will consider fifty percent of net margins on off-system sales attributable to the additional Harrison capacity as available for return on, and of, the remaining balance of the $257 million Acquisition Adjustment authorized in this case. This will not affect the ENEC calculations. If the monthly accumulation of return requirements previously built into the initial surcharge and thereafter base rates of MPPE between base rate cases exceed the allowable amount based on the achieved net margins on off-system sales, a prospective adjustment credit will be embedded in prospective base rates, If the monthly accumulation of return requirements previously built into the initial surcharge or base rate of MP/PE between base rate cases is less than the allowable amount based on the achieved net margins of off-system sales, no prospective adjustment will be made to base rates. Each base rate case will reset the balance of the net return components to allowable amount on the achieved net margins of off-system sales to zero.

This one looks really confusing, but it's not.  FirstEnergy is only allowed to recover the remaining $257M acquisition adjustment, along with interest on same, if the amount recovered is no greater than 50% of the profit margin from Harrison power sales to other utilities during the same period of time.  This means that FirstEnergy must "Put Your Money Where Your Mouth Is" and make the sale of Harrison's excess generation as profitable as possible.  This is going to be a real problem for FirstEnergy.  After all, PJM's energy market prices are depressed... that's why FirstEnergy wanted to "sell" Harrison into West Virginia's regulated system in the first place!  The evil empire is undoubtedly sitting around the poker table, wreathed in a cloud of cigar smoke, devising new and different ways to manipulate PJM's markets.

In addition, the PSC has taken exception to FirstEnergy's proposed Revised Affiliate Agreements. 

The Commission will not authorize Mon Power and Potomac Edison to enter into the Revised Agreement at this time because of concerns regarding certain aspects of the Revised Agreement, including (i) operation of public utility generation and market-regulated plants of First Energy by FE GenCo, (ii) separation of responsibilities for economic dispatch, market offers, and planned outages between utility regulated plants with captive customers and market-regulated plants, (iii) whether provision of generation services by FE GenCo will be provided at cost or at higher market-based price if that exceeds the FE GenCo costs of operating the Mon Power generation plants, and (iv) liabilities that FE GenCo may have if there are claims or damages related to the Mon Power plants resulting from operating decisions made by FE GenCo,

The agreements allow FirstEnergy's unregulated generation affiliate to "manage" Harrison.  In this way, FirstEnergy can continue to stick it to the union workers who keep the plant running, and there's not a thing the PSC can do because it does not regulate FE GenCo.  The PSC also has corporate separation concerns about FirstEnergy manipulating energy markets.  Welcome to the club, fellas! (not that we actually expect you two to DO anything about it if that occurs)  The PSC has ordered a separate proceeding to deal with these agreements.  In the meantime, Harrison will continue to operate under existing agreements.

So, now you know why Toad is huddled under his desk, sucking his thumb, and waiting to be reprogrammed.

Be careful of the lies you spin, FirstEnergy, you might just have to live with them.