RE: Reply Brief of the Sierra Club in Case No E-ENEC

Transcription

1 September 11,2018 Ms. Ingrid Ferrell Executive Secretary Public Service Commission of West Virginia 201 Brooks Street Charleston, WV Via Hand Delivery RE: Reply Brief of the Sierra Club in Case No E-ENEC Dear Ms. Ferrell, Please find attached the original and 12 copies of the Reply Brief of the Sierra Club in this matter. Copies have been served on all parties in accordance with the service list. If there are any questions or concerns about this filing, please do not hesitate to contact me. Sincerely, /s/ J. Michael Becher J. Michael Becher W.Va. State Bar P.O. Box Charleston, WV mbecher~,appal~ad.or~ cc: Service List Counsel for Sierra Club

2 BEFORE THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA (i ;;a :*> *- e=..- F ifn :ti"",, _ I _ *bs< ~~ i-"j APPALACHIAN POWER COMPANY and WHEELING POWER COMPANY, Petition to Initiate the Annual Review and to Update the ENEC Rates Currently in Effect Case No E-ENEC REPLY BRIEF OF SIERRA CLUB September 11,2018 0

3 Sierra Club respectfully submits this Reply to the Initial Brief of the Appalachian Power Company and Wheeling Power Company (the Companies Initial Brief ), filed in this proceeding on September 4,2018. As more fully explained in our Initial Brief, Sierra Club continues to ask that the Commission both disallow all Ohio Valley Electric Corporation ( OVEC ) costs in this proceeding and make clear to the Companies that West Virginia customers will not pay FirstEnergy Solutions ( FES ) share of ongoing OVEC costs in this or any future proceeding. Sierra Club has shown that the cost of the OVEC contract is high, and is likely to go higher as a result of the FES bankruptcy. In response, the Companies have criticized Sierra Club s evidence on the reasonableness of OVEC costs during this Expanded Net Energy Cost ( ENEC ) period, while offering no evidence of their own. Sierra Club offers three points in reply to the Companies in their Initial Brief. ->First while criticizing Sierra Club for it (see Companies Initial Brief at 7), the Companies have themselves failed to offer an apples to apples comparison of the cost of relying on Appalachian Power s OVEC contract versus alternative means of serving West Virginia customers. To provide the Commission with a rough, though reliable estimate of the value of the OVEC contract, Sierra Club has shown that OVEC provides power at approximately double the PJM market price of energy. Sierra Club has also shown that these already high costs are likely to increase further as FES seeks to exit the OVEC contract, and OVEC will potentially be required to cover FES s share of OVEC costs by incurring more debt at higher interest rates. See Sierra Club Initial Brief at 5-6. Against Sierra Club s evidence, the Companies have offered no evidence of the cost of alternatives to relying on Appalachian Power s OVEC contract to serve customers, notwithstanding the burden of proof being on them. Sierra Club s estimate is reliable if energy costs predominate over capacity costs in order to provide service to the Companies customers. 1

4 See Sierra Club Initial Brief at 4-5 (citing Appalachian Power Co., 70 P.U.R.4th 414,426 (Sept. 30, 1985).2 A true apples to apples comparison would require some consideration of alternatives to understand how much it would cost the Companies to replace the most amount of capacity that OVEC provides to Appalachian Power. There are three essential iterative steps in making this comparison: First, if Appalachian Power s share of OVEC s capacity were excluded, the Companies must determine the precise amount of capacity needed to meet their Fixed Resource Requirement ( FRR ) obligations in each planning year (which amount is not necessarily the precise amount of Appalachian Power s OVEC capacity share). Second, the Companies must explore opportunities to secure the precise amount of capacity needed, perhaps via bi-lateral contract, and receive cost estimates for such alternatives3 Last, the cost of any bi-lateral contracts or other sources of capacity should be added to an estimate of PJM energy prices (or other sources of cheap of comparatively cheap energy) to compare to total OVEC costs during the forecast year. The Companies have apparently failed to consider alternatives in this way. In addition, some of the Companies assertions about its capacity options are simply incorrect or unsupported. First, in order to replace any capacity that is actually needed from OVEC to meet their FRR obligations, contrary to their suggestion, the Companies would not have to enter into a 22-year contract that matches the OVEC term. See Companies Initial Brief at 6. The FRR approach to meeting capacity obligations requires a utility to procure capacity The Companies ask that the Commission find the OVEC costs proper and allow recovery. Companies Initial Brief at 5, 10. But as Sierra Club explained in our Initial Brief, retail recovery in an ENEC proceeding is appropriate only where the utility shows that recovery is both reasonable and fair. See Appalachian Power Co. & Wheeling Power Co., Pub. Utilities, Both Doing Bus. As Am. Elec. Power., Case No E-G1,2015 WL , at *2 (June 29,2015). The Companies could issue a request for proposals to seek offers of capacity, among other means of assessing opportunities for contracts for capacity. 2

5 five years ahead only.4 Thus, to assess the cost-effectiveness of replacing OVEC s capacity, the Companies could look for five-year contracts (or shorter depending on the capacity need) for the amount of capacity actually needed to meet its FRR obligations. Second, the Companies assertion that the reserve margin requirements in FRR and Reliable Pricing Model ( RPM ) constructs are different is unsupported. See Companies Initial Brief at 6. And while the Companies absolutely should from time-to-time assess whether switching to the FWM construct would save customers money, the Companies could also, as described above, seek alternatives to OVEC capacity while remaining within the FRR construct. Second, Sierra Club s request for a disallowance of OVEC costs in this proceeding simply does not implicate the filed-rate doctrine. Cf: Companies Initial Brief at Sierra Club is not challenging any aspect of the OVEC wholesale contract itself, including the at-cost rate that OVEC charges to Appalachian Power each year or the 15.69% cost allocation to Appalachian Power under the contract. We thus do not ask that this Commission upset or second-guess the wholesale rate that OVEC charges to Appalachian Power. That wholesale power issue is exclusively within the jurisdiction of FERC. The question here, by contrast, involves the retaie rate-setting that is exclusively within the purview of this Commissionnamely, whether it is fair and reasonable to charge West Virginia retail customers for OVEC costs through ENEC rates when other alternatives, some of which may also be FERC-approved contracts or rates, could provide cheaper service. Reliable Assurance Agreement Among Load Serving Entities in the PJM Region, Rate Schedule FERC No. 44, Schedule 8.1.C-Election and Termination of Election, available online at: m.com/directory/merged-tariffs/raa.pdf. 3

6 While the filed-rate doctrine precludes an entity from challenging an actual wholesale rate that has been approved by FERC, a state public service commission is always permitted to inquire whether a retail utility may find cheaper power elsewhere: Although Nantahala underscores that a state cannot independently pass upon the reasonableness of a wholesale rate on file with FERC, it in no way undermines the longstanding notion that a state commission may legitimately inquire into whether the retailer prudently chose to pay the FERC-approved wholesale rate of one source, as opposed to the lower rate of another source. Ky. W. Va. Gas Co. v. Penn. Pub. Util. Comm n, 837 F.2d 600,609 (3d Cir. 1988); see also id. ( FERC is called upon to pass upon the justness and reasonableness of wholesale rates and wholesale transactions, not whether a retailer acted prudently in making the purchase ). FERC has recognized this division of authority between itself and state commissions: [Wlhile the state cannot review the reasonableness of the wholesale rate set by the Commission, it may determine whether it is in the public interest for the wholesale purchaser whose retail rates it regulates to pay a particular price in light of its alternatives. * * * The Commission has consistently recognized that wholesale ratemaking does not, as a general matter, determine whether a purchaser has prudently chosen from among available supply options. Cent. Vermont Pub. Sen. Corp., 84 FERC ,61973 (Aug. 21, 1998): see F.E.R.C. v. Elec. Power Supply Ass n, 136 S. Ct. 760, 775, (2016) (the Federal Power Act limit[s] FERC s sale jurisdiction to that at wholesale, reserving regulatory authority over retail sales (as well as intrastate wholesale sales) to the States. ); see also S. Co. Servs., Inc., 26 FERC , (Mar. 23, 1984) ( the question of the prudence of a utility s power purchases is properly an issue in the buying utility s rate case where it seeks to pass the costs of its purchased power on to its Nantahala Power & Light Co. v. Thornburg, 476 US. 953 (1986) (overturning as violating the fixedrated doctrine the decision of the North Carolina utility commission to adjust a wholesale power contract in order to increase a utility s share of output from 22.5% to 24.5%). 4

7 ratepayers. ). In addition to constituting an expansion of the doctrine, application of the filedrate doctrine to the OVEC contract would have dire consequences for West Virginia customers. If the Companies extreme interpretation of the filed-rate doctrine were applied here, customers would be on the hook for Appalachian Power s share of OVEC losses for over two decades, through 2040, with no possibility of a disallowance. Because this is an at-cost contract, customers would have to pay those costs no matter what the costs end up being or what alternatives might be available over the next two decades. Such a regulatory outcome would be inconsistent with the Commission s duty to assure that customers receive low-cost, reliable power. Third, the prudence determination at issue here involves whether it is fair and reasonable to charge OVEC costs through ENEC rates today. The question before this Commission is not what alternatives to OVEC power existed before September 2010, as the Companies suggest,6 but rather whether such alternatives exist today. To the extent that the Companies are now asking for a prudence determination on their decision to enter into the OVEC contract, the Commission should decline that invitation for lack of an adequate record, among other reasons. As explained in Sierra Club s Initial Brief, the Companies declined to seek a prudence determination from this Commission regarding the installation of $2 billion worth in air pollution controls or the decision to enter into long-term OVEC contracts. See Sierra Club Initial Brief at 3-4. If the Companies wished to cloak their ongoing recovery under the OVEC contract under the protection of a prudency determination of this Commission, then they should have sought such a prudency determination around the time AEP and Appalachian Power made See Companies Initial Brief at 7. 5

8 the key decisions. Because they did not, the Companies must justify their ENEC cost recovery by other means. CONCLUSION For the reasons offered herein and in Sierra Club s Initial Brief, Sierra Club asks that the Commission disallow all OVEC costs and also protect customers from the fallout of the FES bankruptcy. Respectfully submitted, /s/ J. Michael Becher J. Michael Becher (W. Va. Bar 10588) Appalachian Mountain Advocates P.O. Box Charleston, WV mbecher@appalmad.org Tony Mendoza (admitted pro hac vice) Staff Attorney Sierra Club Environmental Law Program 2101 Webster St., 13th Floor Oakland, CA (415) tony.mendoza@sierraclub.org Counsel for Sierra Club 6

9 ~~ CERTIFICATE OF SERVICE I hereby certify that I served the foregoing Sierra Club's Reply Brief by causing hard copies to be mailed to the below addresses. William C. Porth, Esq. Counsel, Appalachian Power Company and Wheeling Power Company Robinson & McElwee PLLC PO Box 1791 Charleston, WV wcp@,ramlaw.com Tom White, Esq. Consumer Advocate Division 700 Union Building 723 Kanawha Boulevard, East Charleston, WV twhite@,cad.state.wv.us Derrick P. Williamson, Esq. Counsel, WVEUG Spilman Thomas & Battle, PLLC 1100 Bent Creek Blvd., Suite 101 Mechanicsburg, PA dwilliamson~,spilmanlaw.com James R. Bacha, Esq, Counsel, Appalachian Power Company and Wheeling Power Company American Electric Power Service Corp. PO Box Riverside Plaza Columbus, OH jrbacha@,aep.com Barry A. Naum, Esq. Counsel, WVEUG Spilman Thomas & Battle, PLLC 1100 Bent Creek Boulevard, Suite 101 Mechanicsburg, PA bnaum@,spilmanlaw.com Susan J. Riggs, Esq. Counsel, WVEUG Spilman Thomas & Battle PO Box 273 Charleston, WV Thomas E. Scarr, Esq. Counsel, SWVA, Inc. Jenkins Fenstermaker PLLC 325 8th Street, 2nd floor Huntington, WV tes@,ienkinsfenstermaker.com Charles IS.Gould, Esq. Counsel, SWVA, Inc. Jenkins Fenstermaker PLLC 325 8th Street, 2nd floor Huntington, WV &@,i enkinsfenstermakcr.com 7