West Virginia Citizen Action Group To Appeal PSC Order

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Contact: Cathy Kunkel, 304-237-3802

West Virginia Citizen Action Group To Appeal PSC Order Approving Quarter Billion Dollar “Mark up”in Mon Power’s Purchase of Harrison Power Plant from Affiliated Company

Charleston, W.Va. – The West Virginia Citizen Action Group (WVCAG) announced today that it would appeal to the West Virginia Supreme Court of Appeals the order of the Public Service Commission approving Mon Power and Potomac Edison’s proposal to purchase – at a $257 million markup – 80% of the Harrison Power Plant from their affiliated company, Allegheny Energy Supply.

The Public Service Commission issued its final order in the case yesterday; in a rare move, Commissioner Palmer dissented from the majority opinion and issued an opinion arguing that the terms of the transaction are “not reasonable and would adversely affect the ratepayers of Mon Power and Potomac Edison.” Many of the arguments in Commissioner Palmer’s dissent reflect arguments made in the case by WVCAG and the Public Service Commission’s Consumer Advocate Division.

Mon Power and Potomac Edison ratepayers will pay nearly $800 million over the next 27 years to purchase the Harrison plant – a price that includes a $257 million mark-up of the cost Harrison incurred at the time of the merger of Allegheny Power and FirstEnergy in 2011. The Public Service Commission’s order in the merger case explicitly prohibited markups on subsequent asset transfers between the merger partners. In his dissent, Commission Palmer argued that the “purchase price of the Harrison Plant is unreasonable because it violates the Merger Stipulation and contradicts Commission policy.”

WVCAG and the Consumer Advocate Division had argued in the case that the mark-up in the price of Harrison was a transparent effort to bail out FirstEnergy Corporation. FirstEnergy – the owner of both Allegheny Energy Supply and Mon Power – announced earlier this year its need to reduce debt by $1.5 billion, and FirstEnergy CEO Anthony Alexander noted in a quarterly earnings call earlier this year that the Harrison transaction was “critical” to the company’s debt reduction plans at the time it was proposed. The effect of the PSC order is to move more than half of that $1.5 billion debt off of FirstEnergy’s balance sheet and onto the electric rates of Mon Power and Potomac Edison customers.

WVCAG’s testimony in the case showed that Mon Power’s own financial projections demonstrated conclusively that purchasing Harrison would be more expensive through 2029 for ratepayers than simply purchasing an equivalent amount of electricity from PJM, the regional electricity market. In his dissent, Commissioner Palmer similarly argued that, “the evidence presented in this case is more convincing that the Companies and their customers are better protected if the Companies continue to use wholesale market purchases as a hedge against the significant risks associated with acquisition of the Harrison plant.”

“The only winner in this deal is FirstEnergy,” said Gary Zuckett, Executive Director of WVCAG. “Their gain comes directly out of the pocket of every customer of Mon Power and Potomac Edison. Spread over the 515,100 customers of the utility, the illegal $257 million ‘mark up’ in the inter-affiliate transaction costs every Mon Power and Potomac Edison customer $500 – just to bail out FirstEnergy’s stockholders for the incompetent decisions of its managers,” Zuckett added.

Background: In Case No. 12-1571 before the West Virginia Public Service Commission, Mon Power and Potomac Edison proposed to purchase 80% of the Harrison Power Plant from Allegheny Energy Supply, and to sell a small share (100 MW) of the Pleasants Power Plant to Allegheny Energy Supply, at a net cost to ratepayers of $1.1 billion. Mon Power, Potomac Edison, and Allegheny Energy Supply are all subsidiaries of Ohio-based FirstEnergy Corporation. In a proposed settlement filed with the Commission on August 21st, the parties to the case (excluding WVCAG) agreed to a settlement that would reduce the price to about $800 million, but still include a $257 million mark up over the original depreciated cost of Harrison. The Commission adopted this settlement, with modification, in its final order issued yesterday. Commissioner Ryan Palmer issued a dissenting opinion.