By Rory D. Sweeney

FERC last week denied FirstEnergy’s request to transfer ownership of a struggling coal-fired merchant generator to a regulated affiliate, saying the deal isn’t in the public interest because it resulted from an “overly narrow” solicitation (EC17-88).

The affiliates argued that the transaction was ostensibly exempt from meeting a rule prohibiting cross-subsidization because it must also be approved by the West Virginia Public Service Commission, but FERC said that didn’t satisfy necessary standards.

“Applicants have provided no evidence that any ratepayer protections regarding cross subsidies are proposed in the proceeding before the West Virginia commission,” FERC wrote.

RFP

The issue dates to March 2017, when FirstEnergy merchant affiliate Allegheny Energy Supply requested permission to transfer ownership of the 1,159-MW Pleasants Power Station to Monongahela Power, with the latter assuming a $142 million obligation for pollution controls Allegheny installed at the plant.

Mon Power is a regulated utility in northern West Virginia, where Pleasants is located. The utility issued a request for proposals to acquire approximately 1,300 MW of unforced capacity and up to 100 MW of demand response in PJM’s Allegheny Power Systems zone after its 2015 integrated resource plan indicated it would begin having a capacity shortfall in 2016. Charles River Associates, which managed the RFP, identified 28 suitable prospects and recommended acquiring the Pleasants facility, located in Willow Island, W.Va.

Restrictive Requirements

FERC said the RFP was “overly narrow … because the stated objective could have been achieved if the RFP considered [power purchase agreements] and resources that were outside of the APS zone.”

Mon Power’s requirement that it acquire facilities — because of the “increased control and flexibility asset ownership affords,” it said — could instead have been an evaluation factor, “rather than eliminating from consideration an entire class of offers that could have been used.” The commission said two bids for PPAs that weren’t evaluated showed “the desire of bidders to offer PPAs.”

The utility had argued that getting a resource in the APS zone “eliminated” the risk of incurring Capacity Performance penalties because PJM allows resource performance to be netted within zones. But FERC called that risk “rare,” making the limitation “overly restrictive.”

FERC also criticized the RFP’s evaluation method for lacking transparent scoring criteria; announcing a preference for facilities that “can be cost-effectively and efficiently incorporated” into Mon Power’s existing “operating and corporate frameworks;” and using a 15-year net present value metric.

“While we acknowledge that the estimates of future expenses and revenues become more uncertain the further into the future that they are projected, and that the NPV contribution of the years beyond 15 is less important than those within the evaluation period due to discounting, ignoring those future years nevertheless would give advantage to a facility with a low purchase price and higher future costs, such as the affiliated Pleasants facility,” the commission found. “An NPV calculation that calculates the total value of the proposal, including a terminal value, would more closely capture the comparable economics of each proposal.”

Guidance

The commissioners also provided guidance for how Mon Power should have conducted the solicitation.

“While we appreciate and recognize Mon Power’s legitimate need to address a potential capacity shortfall and to provide for its future capacity and energy needs, it should do so in a way that provides non-affiliate competing suppliers with the same opportunity as an affiliate to meet the utility’s needs,” the commission said.

It disagreed with arguments questioning the need for generation or the accuracy of the load forecasts in Mon Power’s IRP, which it said is the role of the state PSC. FERC also dismissed concerns about Charles River’s independence and the restrictiveness of submission timelines.

Consumer advocates and environmental activists had opposed the proposal.

The West Virginia Consumer Advocate said the deal was an attempt to relieve Allegheny of “an aging coal plant that is no longer economic in the PJM” markets.

“In this decision, the FERC commissioners — four of whom were appointed by the current president — unanimously rejected a brazen attempt to force Mon Power … customers to guarantee profits for FirstEnergy and its shareholders,” said Earthjustice attorney Michael Soules. “This is a major victory for West Virginia customers, who would have likely paid hundreds of millions of dollars if FirstEnergy’s scheme had succeeded.”

FirstEnergy spokesman Todd Meyers said the company believes “the decision does not recognize the benefits this vital transaction would bring to our West Virginia customers, including reliable electricity and reduced electric rates, along with creating additional benefits for West Virginia’s economy.”

“We will thoroughly review FERC’s order and carefully evaluate our next options,” Meyers added.