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In This List

Mon Power generation search could trigger regulatory battle

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Mon Power generation search could trigger regulatory battle

Monongahela Power Co.'s search for 1,300 MW of generation capacity to fill an expected capacity shortfall seems routine on its face, but a long and contentious battle is likely lurking.

The FirstEnergy Corp. utility, which primarily operates in West Virginia, said in December 2016 that it is seeking proposals for the generation capacity and up to 100 MW of demand-response resources. In addition, Mon Power is soliciting bids for its ownership stake in the Bath County hydroelectric plant in Virginia.

The request for proposals, or RFP, for the additional capacity is tied to a projected shortfall that the utility initially laid out in its integrated resource plan, or IRP, filed at the end of 2015 with the Public Service Commission of West Virginia. Mon Power predicted a capacity shortfall beginning in 2016 and increasing to more than 850 MW by 2027. Mon Power has since revised these numbers and now predicts a "capacity shortfall of approximately 1,045 MW by 2020 that rises to 1,400 MW by 2027." The utility's forecast incorporates the impact of selling its stake in the Bath County hydro plant, along with an increase in load growth driven primarily by the rapid growth of Marcellus shale gas.

Weighing in

In approving Mon Power's IRP in June 2016, the commission did not rule on concerns raised by PSC staff and other parties that FirstEnergy is seeking to fill the capacity gap by transferring the 1,300-MW Pleasants coal plant to rate base. PSC staff are skeptical that such a move would benefit ratepayers. The Institute for Energy Economics and Financial Analysis, a Cleveland-based research group, warned that West Virginia's ratepayers, not company shareholders, will bear the costs if the transfer goes forward. FirstEnergy management has since confirmed that the company expects Pleasants to be bid into the RFP. The PSC, however, will have to approve any transaction initiated by the RFP.

"I'm going to guess that that's going to be a fairly lengthy and contentious proceeding," John Auville, staff attorney, said in a phone interview.

Ironically, West Virginia regulators in October 2016 denied a petition from the staff and the Consumer Advocate Division to require Mon Power and sister utility Potomac Edison Co. to issue an RFP for the additional energy and capacity needs.

The petition noted that Mon Power entered into a settlement agreement tied to its 2013 purchase of a 79.46% ownership interest in the 1,984-MW Harrison Power Station from Allegheny Energy Supply Co., another FirstEnergy subsidiary. The joint stipulation required Mon Power and Potomac Edison to develop an RFP if the companies determine that they will have a shortfall of 100 MW or more to meet their capacity obligations in any annual PJM Interconnection LLC delivery period.

Auville added that the agreement only required the RFP be submitted for comment. Mon Power's current plan, however, is not open for official debate until a bid is accepted and filed with the PSC for approval, likely in March.

"At this point, there's not really an open mechanism to [comment on the RFP] because ... there was no requirement for Mon Power to file it with the commission," Auville said.

The staff attorney said that the Harrison transaction did not initiate through an RFP process, but was mainly based on information provided by Mon Power and Potomac Edison that they needed to address a deficit in available generating capacity to serve their West Virginia customers.

Who's eligible?

To participate in the RFP process, facilities must be located inside the Allegheny Power Systems, or APS, zone in PJM.

"Mon Power prefers that the asset be located in the APS zone because of new PJM capacity performance rules," Mon Power spokesman Todd Meyers said in an email. "If a generating unit fails to perform and provide promised capacity during a PJM emergency event, it could face significant non-performance charges running in the millions of dollars unless replacement capacity is available in the same zone."

The spokesman said acquiring generation or an asset within the APS zone that could be used as replacement capacity "provides Mon Power flexibility that other generating assets outside the APS zone would not offer."

At least one asset located in the APS zone, the 700-MW Longview Power coal plant, is pursuing the request. Jeffery Keffer, president and CEO of Longview Power LLC, verified that the company's coal plant in Monongalia County, W.Va., prequalified for the RFP.

"Longview represents a great opportunity for Mon Power and the ratepayers in West Virginia because it's a new, modern, clean coal plant and it's got [the] lowest costs of any coal plant in PJM," Keffer said.

The Longview Power plant is located near Mon Power's 1,098-MW Fort Martin coal plant and is owned by Longview Intermediate Holdings C LLC, which has dozens of shareholders.

"We can sell this plant to Mon Power without any issues," Keffer said. "We also have long-term fuel supply through our affiliate mining company, [Mepco Holdings LLC], with more than enough reserves for the useful life of the facility."

Longview Power has been online since December 2011, but underwent a rebuilding process in 2015, Keffer said.

"It's effectively a new plant with a 40-year life ahead of it," the CEO added.

Still, the belief is that Mon Power will purchase the nearly 40-year-old Pleasants coal plant from AE Supply. Evercore ISI, in a Jan. 19 research report, called Pleasants "a valuable asset" and said the purchase of the plant will result in "incremental rate base growth opportunity as well as a cash flow up to the parent."

However, if Mon Power moves forward with the Pleasants purchase, the deal will also be subject to FERC approval. FERC has already blocked previous FirstEnergy attempts to add new generation that could cost ratepayers.

FERC, in late April 2016, effectively stalled plans by FirstEnergy's Ohio utilities to receive rate support for generation. FERC's decision to revoke waivers of affiliate power sales restrictions and review the controversial power purchase agreements was in response to concerns raised about customers subsidizing unprofitable generation.