West Virginia OKs Coal Plant Transfer

Although the Federal Energy Regulatory Commission (FERC) had rejected the proposed transaction just two weeks earlier, the West Virginia Public Service Commission nevertheless has authorized Monongahela Power Company (Mon Power) to proceed with its planned purchase of a coal-fired power plant. The deal revolves around the Pleasants Power Station, a 1300-megawatt (MW) unit located near Belmont, West Virginia.

Mon Power and its sister utility, Potomac Edison Company, had asked the state commission for authority to pursue a plan under which Mon Power would acquire a 100% ownership interest in the Pleasants plant from another affiliate, Allegheny Energy Supply Company. Mon Power said it had identified a growing capacity deficit approaching 1,500 MW by 2027 and that the Pleasants generation was needed in order to blunt that shortfall. The purchase price for the unit was set at $195 million.

The acquisition proposal was opposed by numerous parties, however, many of whom pointed out that Mon Power had not shown any short-term need for additional capacity. They also protested that the utility would need the Pleasants power only if the company ended up selling its existing interest in other generating facilities located in Bath County, Virginia.

Challengers likewise took issue with the fact that Mon Power had premised its determination of need on the basis of a winter peak usage measurement. However, they argued, upon the advent of federally approved capacity rules by PJM Interconnection, the regional transmission organization (RTO) overseeing the grid in West Virginia, the capacity “need” of a load-serving entity is to be based on its load during PJM’s peak summer months.

Opponents related that under the RTO’s rules, no matter how much higher a utility’s peak demand is in the winter months, it is not required by PJM rules to either own or purchase capacity to meet that winter demand. And, they contended, because PJM has lower winter peaks, the capacity it has acquired for purposes of meeting the summer peak is more than sufficient to serve the winter peaks of all of its members, including Mon Power and Potomac Edison.

Notwithstanding record evidence showing that PJM rules allow for lower capacity requirements, the state commission approved the transaction, saying that although Mon Power may have overstated its need to own additional capacity at any level, let alone at the level of 1,300 MW, the utility nevertheless had demonstrated that ownership of that much capacity could benefit West Virginia ratepayers in several ways. For one, the commission noted that eventually there is likely to be a summer capacity shortfall of PJM requirements in the absence of the Pleasants transaction, which would have to be met by some other capacity acquisition.

For another, the commission stated that any excess energy resulting from the additional owned capacity, which energy is not needed to serve internal load, can, at the right price, be sold in the PJM energy market at a net margin that will benefit West Virginia customers. At the same time, though, the commission said it was cognizant that the Pleasants purchase is not without its risks.

The commission ruled that in light of the lack of an immediate need for capacity to meet PJM summer requirements as well as the uncertainties surrounding ensuing sales in the PJM market, the proposed transaction can be viewed as in the public interest only to the extent that the two utilities and their parent company, FirstEnergy Corporation, agree to absorb those costs of the acquisition that surpass prevailing market prices. To that end, the commission attached a number of conditions to its order approving the plan.

The commission deemed such conditions necessary to protect customers from paying excessive costs. The commission said the terms also would help limit ratepayer liability for transaction closing costs should the Pleasants plant end up being retired early. Re Monongahela Power Co. and Potomac Edison Co., Case No. 17-0296-E-PC, Jan. 26, 2018 (W.Va.P.S.C.).

For its part, the FERC had denied Mon Power’s request to acquire the Pleasants station after finding that the proposal carried too great a risk of improper cross-subsidization as between the two utilities and the First- Energy affiliate from whom they would be buying the plant. However, FERC’s rejection was without prejudice, such that Mon Power would be able to return to the agency with an amended purchase plan that addresses the concerns raised by the FERC. Re Monongahela Power Co. and Allegheny Energy Supply Co., LLC, Docket Nos. EC17-88-000, ES 18-4-000, 162 FERC ¶ 61,015, Jan. 12, 2018 (F.E.R.C.).