Bacon's Rebellion

Democracy Thrives in Sunlight

Looming Disaster in Allegheny Power Territory?

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by

James A. Bacon
in

The millions of Virginians living in Dominion Virginia Power service territory aren’t the only ones facing onerous rate increases in the near future. Potomac Edison, a subsidiary of Allegheny Power, which supplies electricity to Winchester and several nearby counties, has asked the State Corporation Commission to raise rates to stave off an impending financial disaster.

At one point Allegheny was losing $100,000 a day and stands to lose up to $100 million, reports Garren Shipley with the Northern Virginia Daily. Those losses are unsustainable for a company that generates only $187 million a year in revenues in Virginia. If the SCC grants Allegheny the rate relief it requests, the average retail electric bill could increase from $70 to $90 monthly.

Allegheny’s financial crisis traces its roots to the re-regulation of electric power in Virginia. Potomac Edison had a power purchase agreement with another Allegheny subsidiary to meet its obligations at capped rates through July 1, 2007. After that date, Potomac Edison was planning to buy power at market prices, which it expected to be able to pass through to customers. But the General Assembly re-regulated the power industry that year, extending the caps on electric rates through December 31, 2008. That left Potomac Edison in a position where it had to buy expensive electricity on the open market but continue to supply it to customers at the old, capped rate.

Anticipating the problem, Potomac Edison filed with the SCC to raise rates by 20 percent to recover the estimated costs for power it purchased after July 1. The SCC rejected the request on the grounds that Allegheny had voluntarily transferred its electric generating units to a different subsidiary back in 2000 and had agreed to roll its purchased power costs into its base rates. Potomac Edison is appealing that decision to the Virginia Supreme Court.

Allegheny then filed an application for a smaller increase, contending that it was entitled to recover $42.3 million on grounds too technical to explain here. The SCC granted $9.5 million a year in relief, but rejected the rest of the request.

Meanwhile, Potomac Edison is hemorrhaging cash, and the company is issuing dire warnings. States the annual report:

At this time, there can be no assurance that Potomac Edison will be able to recover most of the cost of power purchases in excess of the capped generation rates. … The inability to recover such costs is expected to have a significantly negative effect on Potomac Edison’s income and cash flows … which in turn may have an adverse effect on its overall business, results of operations and financial condition.

Potomac Edison’s management is currently reevaluating planned capital and other expenditures and may postpone or eliminate all or a portion of those expenditures or take other measures in response to the expected negative impact of these regulatory decisions.

Consumers in Potomac Edison territory no doubt appreciate the lower electric rates. But they may not be terribly happy if the company curtails its ability to respond to ice storms, wind storms or other power outages, or if it lacks the capacity to upgrade sub-stations to serve new subdivisions. Things could get ugly.

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  1. Larry Gross Avatar
    Larry Gross

    Virginia’s current rate structure encourages consumption because even though those that use more, pay more – they don’t come close to what it actually costs to provide them with “more” and instead all ratepayers essentially subsidize higher consumption of others.

    The costs are recovered by charging all ratepayer for “more” – more power plants, “more” natural gas peaking plant operation and “more” purchasing of power on the “spot” market where it can and does cost 10 times as much as base power electricity.

    Everyone pays for the 10 times cost -no matter whether they conserve or not.

    There will be no sympathy for the potential (eventual?) demise of Potomac Edison; their assets will be readily gobbled up to add to some other company’s bottom line.

    We need to:

    1. – decouple electricity and make power plants the responsibility of investors – not ratepayers.

    2. – charge peak-power users at least what it costs to provide them with that power

    3. – allow each consumer to, at their option, to have smart meters installed in their homes so that they can make informed decisions about how and what to conserve.

    4. – fixed base rates for minimum allocation/use for all ratepayers so that those that keep their usage to levels – that limit the need for new plants – are rewarded for doing so.

    What we have in Virginia feels like government-sponsored predatory business activity to maximize consumption/profits at the expense of ratepayers and the environment.

    People in California and New York and throughout virtually all industrialized countries use 1/3 less electricity than Virginians… and that includes regions that are much warmer and much colder than Virginia’s climate.

    When will the folks in Va – hold their elected officials responsible for paying at least as much attention to their interests as the power providers interests?

  2. Anonymous Avatar
    Anonymous

    I don’t suppose you think a bigger wind power grid will lower the costs of renewable power, then.

    RH

  3. Larry Gross Avatar
    Larry Gross

    would it matter how you produced power if the way you priced it ..encouraged consumption?

    you’d just need even more wind turbines.. to meet demand..

    right?

    you can bet that if you had that turbine (or solar) on your property and you paid for it that you’d be extremely motivated NOT to have to buy additional units unless you absolutely needed them…

    and that’s the problem with the way we do it now…

    for $20 more a month.. you can get $100 more power.. and all the folks who don’t use $20 more a month.. still have to may more (rate increases) to help you pay for your $100 worth.

  4. Anonymous Avatar
    Anonymous

    Larry:

    At first glance, I like your agenda!

    Interested in a PSC seat?

  5. Anonymous Avatar
    Anonymous

    You didn’t answer the question: will a bigger wind power grid lower the costs per unit of electicity sold?

    RH

  6. Anonymous Avatar
    Anonymous

    Goodbye and good riddance.

    Allegheny is my power provider and the customer service is terrible!

    Try calling 1-800-Allegheny and getting a live person on the line…..good luck. God forbid there was a real emergency.

    My monthly bill is based on a moving “average” of my previous power usage….so all this talk of smart meters, peak power usage rates, etc., is a moot point…..I don’t pay for what I actually used, I pay whatever they feel like charging me and there is basically no way to fight it….it’s worse than fighting City Hall and sadly, the law is on their side.

    Economists have a word for companies like this….it’s called a Cartel.

  7. Groveton Avatar
    Groveton

    Let me see if I have this right –

    Once upon a time, the electric companies were regulated. That was when electricity was considered a critical product that could not be turned over to the free market.

    Then, the electric companies were de-regulated. That was done in order to foster competition.

    Then, the electric companies were re-regulated. That was done, as far as I can tell, because “de-regulation didn’t work”.

    Now, re-regulation is failing because the regulators are out of synch with the generators.

    And you wonder why I have no faith in the General Assembly?

    Where is our erstwhile blogger and SCC candidate Barnie Day on this topic?

  8. Larry Gross Avatar
    Larry Gross

    We need one simple law and that law is that every provider of electricity in Virginia MUST offer each consumer a smart meter – at cost – paid off in their bill over 5 years which ought to account to about a buck or two per bill – which will be easily recovered.

    or even better.. full rebates on smart meters to those that reduce their peak power usage by at least the cost of the meter…

    where are the danged pachyderms on these issues????

    Where is Mr. anti-sprawl Howell?

  9. Groveton Avatar
    Groveton

    Larry:

    I am quite serious when I say that you should take you proposal to Del. Margi Vanderhye. She kept one campaign promise by pushing legislation that will require power companies to explain to their customers how to buy alternative energy for their homes. Nobody is obligated to buy electricity generated from low carbon sources. Nobody claims that the energy offered from alternate fuel will be cheaper. All Del. Vanderhye got was a mandate for some electric companies to explain how to buy alternate energy on their bills.

    You want optional smart meters.

    Give Ms. Vanderhye a call or send her an e-mail. She seems to be one of the few state politicians who cares about this stuff.

    My initial reservations about Margi Vanderhye are being reduced day-by-day.

    At least she’s doing something!

  10. Larry Gross Avatar
    Larry Gross

    Groveton.. I cannot imagine that this is an original idea.. surely one or more of the environmental or public interests groups has proposed this…

    JB covered it about a year ago in one of his blogs so my suggestion is just a further tweaking of a previous idea.

    this is another one of those situations where having the right of citizen referenda – even if just advisory could send a message to the GA.

  11. Anonymous Avatar
    Anonymous

    You still didn’t answer the question: will a bigger wind power grid lower the costs per unit of electicity sold?

    RH

  12. Anonymous Avatar
    Anonymous

    “which will be easily recovered.”

    As long as you don’t count the cost of doing without electricity when you need it.

    RH

  13. Anonymous Avatar
    Anonymous

    Let me get this straight.

    Let’s say my electricity provider offers me a smart meter, which will raise my bill 3% per month, off the bat.

    Then, If I accept this offer, it will increase the cost of electricity I use when I need it most by 8X.

    And the bet I’m making is that if enough other suckers buy into this, and stop using electricity when they need it, that it will eventually reduce the capital costs for the power company to the point where they can voluntarily reduce my bill by something like 10% so that I can come out ahead in the end, 20 years from now.

    I don’t think so.

    You need a better offer than that.

    RH

  14. Anonymous Avatar
    Anonymous

    “this is another one of those situations where having the right of citizen referenda – even if just advisory could send a message to the GA.”

    How many times do I have to say this?

    Put the (advisory or not) referendum on the back side of your state tax form.

    Cost, next to zero.

    Then, let the results be published, and let the legislators do as they please, and explain why it isn’t what the people said they want.

    This isn’t rocket science. Ask the people what they want, and make sure they respond by making it part of their single mandatory civic responsibility.

    For God sakes, don’t leave it up to just the voters.

    RH

  15. Larry Gross Avatar
    Larry Gross

    re: “will a bigger wind power grid lower the costs per unit of electicity sold?”

    no – not at this point.

    coal is cheaper to burn that the costs involved in building and operating wind turbines.

    but this is not about money per se. It’s about the very rising cost of electricity – in part – because of the every increasing consumption of electricity by SOME users because the proportional cost of excessive usage is cheaper in comparison to the savings one gets from conserving.

  16. Anonymous Avatar
    Anonymous

    Usually you get some benefit from mass production, whether it is coal or wind a bigger system will provide lower unit costs – up to a point.

    If you have massive excess capacity sitting idle, then it is no longer cost effective, as you have ointed out concerning peak power.

    Wind turbines will always sit idle part of the time, whether we need the power or not.

    But, my answer would be that if it costs more, it is because it uses more resources, and when you chase all of that back to its source, it affects the environment, somewhere.

    Now, you can pick and choose among the types of damage you cause and assign higher costs to things that cause greater damage. You have to set priorities. But what you cannot do is assign an infinite cost to every form of damage. If you do, then you cannot “afford” to do anything that uses resources.

    RH

  17. Larry Gross Avatar
    Larry Gross

    “But, my answer would be that if it costs more, it is because it uses more resources,”

    how do you arrive at these kinds of conclusions.

    you totally ignore efficiency or pollution or that a process can be improved in efficiency and pollution reduction.

    you seem to think that everything is locked and cannot be improved.

    Wind Turbine electricity costs more not because the parts and/or assembly cost any more proportionately to build solar panels or coal plants or nukes but why?

    because it cannot generate pound for pound electricity at the same rate as coal can.

    but coal has far higher externalized costs – real costs – that are not incorporated in the cost of the electricity.

    Further – a wind turbine network would ALWAYS be generating power even if some turbines were ‘off line” just the same way that you can have a coal-powered plant offline and still have adequate power on the grid.

    Further – the cost of wind turbine electricity is not affected at all by the world price of coal and other world-commodity fossil fuel prices and as such – the price of wind turbine electricity would not be subject to ever increasing costs due to competition for what “fuels” it.

    We use coal power for one reason – it’ cheaper in the shorter term.

  18. Anonymous Avatar
    Anonymous

    “how do you arrive at these kinds of conclusions.”

    It is what I was taught in graduate school, in environmental economics, and energy management. It was consistent with what I was taught in chemical thermodynamics, and economics of geological resources.

    There are, for example studies of the ecological footprint of various societies. The way this is done is to examine all the resources used by individual families, and trace them backwards to their ecological source.

    For most families, there is one primary resource, which is income, and except for savings, most of it is spent on goods and services. The more income you have, the more gets spent on goods and services, and the larger your footprint, by and large.

    It is no different with businesses.

    Ask yourself why solar and wind are still more expensive than coal. You have large and expensive capital costs and land costs.

    With solar you need to create high purity silicon, which is energy intensive, and the assembbly process is still labor intensive. With wind power you need to create big heavy machinery, which has highly automated controls, and has to be built to extreme dynamic tolerances.

    Either way you need to have highly trained engineers and technicians, which don’t come cheap. Plus a lot of expensive hardware, and land.

    Where does all the money go? Just like the studies mentioned above, it winds up buying goods and services, all of which affect the environment.

    Bottom line, if it costs more and you follow the money, it is (most likely, but not always) bad (worse) for the environment.

    ——————————

    you totally ignore efficiency or pollution or that a process can be improved in efficiency and pollution reduction.

    Absolutely, not true.

    However, there are limits. You cannot improve the efficiency of a process forever. Eventually you hit a thermodynamic limit beyond which more efficiency costs more than it gains. At some point, we will expend more energy pumping oil out of the ground than we get from the oil we pump.

    You ignore the fact that efficiency has a price. Sometimes the price is more than the efficiency is worth.

    If I’m sailing, theoretically the shortest route straight upwind is an infinite number of infinitely short tacks, but practically, that is impossible.

    It is possible to make a sailboat that traves straight into the wind, which seems impossible. It sounds like it would be a prepetual motion machine. It is called a flettner ship. It uses sails similar to those little ventilator turbines on your roof, that spin around a vertical axis. Then you attach the shaft to a propellor and off you go, straight upwind. By going around and around, those little sails are essentially making an infinite number of infinitely short tacks.

    But, it isn’t free and it isn’t cost effective, or faster than a normal sailing vessel.

    Which is why only one was ever built.

    ———————————
    We use coal power for one reason – it’ cheaper in the shorter term.

    That depends on your discount rate, and the cost of pollution caused by coal. However, as I pointed out, the alternatives also cause pollution, but it’s more of an externality, so it isn’t so obvious.

    So yu have a bunch of people driving to the factory to manufacture wind turbines and they use big forges and smelters and composites made from hydrocarbons and glues that emit VOC’s. And they travel around to maintain these things. All of that emits pollution, which you have to measure and prioritize as to type, and compare that to the cost of pollution from coal and all of its related activities.

    So, I maintain that if wind costs more, it is (most probably)because it requires more resources, which you will find if you follow the money.

    You can, of course, raise the price of coal pollution to make coal less competitive. But if you do, you will have to explain why that form of pollution should be more costly than the summ of all alternative forms of pollution.

    As you say, it is a matter of priorities.

    My argument is not that environmentalism isn’t a good thing. It is that it is so poorly managed and politicized that we can’t tell when it is a good thing and when it isn’t. We are terrible at setting priorites, and we have no social, societal, or political means to establish a consistent way of going about it. I merely insist on a better level of management.

    I think it was Ted Turner who said, look, nuclar power might kill us, but coal will kill us for certain.

    That’s one way to look at it and one way to set priorities. I imagine there are many others, but you cannot set priorities that violate the laws of physics, and expect them to work.

    Even when they obey the laws of physics, they still might not work.

    Like the Flettner ship.

    RH

  19. Anonymous Avatar
    Anonymous

    “every increasing consumption of electricity by SOME users because the proportional cost of excessive usage is cheaper in comparison to the savings one gets from conserving.”

    That sounds to me like yu are saying that we use elctricity because it is worth what it costs.

    Suppose all our electricity was from renewables. What would be the incentive to conserve, if you are not using anything up?

    The answer, of course is that you ARE, using things up: all the things you use to make an infinite number of turbines with. We can no more afford that than we can afford to burn an infinite amount of coal.

    So, there are three questions: What is the rational crossover point, and what is the limit? Who decides what happens when we hit htat point?

    RH

  20. Larry Gross Avatar
    Larry Gross

    Using your worldview – it is wrong to be using pollution reduction measures right now on coal plants.

    That the cheapest power is the power with the least impediments.

    That when we require less polluting power that we are, in fact, just causing other kinds of pollution somewhere else.

    right?

  21. Larry Gross Avatar
    Larry Gross

    re: “That sounds to me like yu are saying that we use elctricity because it is worth what it costs.

    Suppose all our electricity was from renewables. What would be the incentive to conserve, if you are not using anything up?”

    Renewable does not mean free.

    and if it turned out that major breakthroughs in solar rendered it not only cheaper than coal but cheaper than wind – wind would probably go away – along with coal.

    This would happen without regard to whether it qualified as a ‘renewable”.

    “Renewable” does not mean solar panels that last for a 1000 years. They WILL have to be replaced at some point and there is a cost to that.

    There is also a cost to distributing electricity and that cost might actually be much reduced if solar reduced the need to transmit power over longer distances.

    But solar and wind will NEVER totally replace either coal and/or nukes unless we develop ways to store power or use backup power at the point of use.

    But what it WILL do is cut pollution to a fraction of what it is now.

    It could mean that the coal we do burn can be much cleaner because solar/wind are used to process it into essentially a cleaner gas to burn.

    We know one thing for sure – that the status quo will not remain unchanged and I think that is where I simply don’t buy the argument about the current status quo not changing due to economic theories and physical laws.

    I’m quite sure that there is a physical limit as to just how much energy can be obtained from a square foot of solar panel but I’m also quite sure that the current technologies have reached it.

    improvements in the technology are – inevitable – the estimate of the amount of time required is what is not precise.

    how much electricity people would use if it were cheap and non-polluting is not something I have read much about but there are places on earth like Iceland where electricity can be produced for very little cost beyond the turbines and distribution but there IS a limit even there.

    Iceland 27,716 26,220 16,137
    USA 13,242 13,657 11,687
    Germany 6,900 6,682 6,645

    http://earthtrends.wri.org/text/energy-resources/variable-574.html

  22. Anonymous Avatar
    Anonymous

    “That the cheapest power is the power with the least impediments.”

    Not necessarily. Not having impediments could mean that there are costs that are not measured, or paid for.

    But if you make the cheapest power more expensive with artificail impediments, or impediments (presumably to prollution, as a market failure) that are priced inorrectly relative to pollution caused by the competition, then, yes.

    If you require less polluting power, and if that solution is considerably more expensive then there is a pretty good chance then when you follow all the money you will find it is because more resources are used.

    That doesn’t not necessrily mean more pollution, just more resources used. That might just mean environmental degradation unrelated to pollution, per se. But the odds are, it means more pollution as well.

    So, now what you have to do is rank one form of pollution against another.

    You can’t do that if you think all pollution is equally bad and all pollution deserves an infinite amount of resources devoted to its prevention.

    The cheapest power is the one with the lowest costs where total costs equals cost of the power, plus the cost of pollution it creates, plus the cost of preventing what pollution you can.

    RH

  23. Larry Gross Avatar
    Larry Gross

    “So, now what you have to do is rank one form of pollution against another.”

    do you seriously believe that coal pollutes less than the other technologies?

    Have you considered what happens when entire mountaintops are removed because it is “too expensive” to mine coal by tunnels?

    what does that mean?

    If we required mountaintop removal and strip mining to NOT result in acid streams and we required the existing ones to be restored to non acid conditions.. what would happen to the price of coal-generated electricity?

  24. Anonymous Avatar
    Anonymous

    “But what it WILL do is cut pollution to a fraction of what it is now.”

    How do you KNOW that? If you said it will cut one form of pollution to a fraction of what is is now, then I would agree.

    “do you seriously believe that coal pollutes less than the other technologies?”

    Again, if you said it will cut one form of pollution to a fraction of what is is now, then I would agree. But if you consider the total system, then I doubt anyone has seriously asked the question. The mere fact that you ask if I’m serious suggests that we haven’t thought this through.

    I believe that a stong argument can be made that if the other technologies are a lot more expensive, then they will use a lot more resources. If you follow the money or study the U.S. input output tables, you will see what I mean.

    But the real issue is whether they pollute in a manner that has a much lower priority than say SO2, CO2, mercury, and radiation (Coal releases a lot of radiation.)

    Suppose we find out some day that driving all over creation to maintain all this scattered equipment winds up releasing as much CO2 as the coal plant it replaces? (Manufacturing and recycling and operationg all those vehicles, isn’t environmentally free.)

    We want to reduce the VOC emissions from cars, so we lean out the mixture. Now it burns hotter and cleaner, but it creates more NOX. We traded VOC for NOX. Taht wasn’t enough so we put on catalytic converters to scavenge the rest of the VOC, but that lowered the engine efficiency, so we burn more fuel and get more NOX and more CO2. Now we traded VOC for CO2 and NOX. And we have to manufacture the converters, but that isn’t measured as part of the Auto pollution, so we don’t care about it.

    Not that this is bad, but it just means we don’t have a clear picture of what’s going on. We just claim we cleaned up the car, and declare victory.

    When you ask questions like “Have you considered what happens when entire mountaintops are removed because it is “too expensive” to mine coal by tunnels?” then I think you are beginning to understand my thinking.

    “If we required mountaintop removal and strip mining to NOT result in acid streams and we required the existing ones to be restored to non acid conditions.. what would happen to the price of coal-generated electricity?”

    You could do that. You could require that all the CO2 created by burning coal be captured and sequestered. That evey bit of flyash be captured, That all the mercury and radioctive materials be caught before they escape.

    You could require that use of coal be perfectly clean. And if you did that, then the price of coal generated electricity would rise to the point of infinite cost.

    What’s your point? That we can subsidize solar and wind by by introducing assymetric handicaps to the competition? We could equally require that all of the processes leading up to the production of wind power have no environmental consequences. And the result would be the same: the price would be infinite.

    You can be certain that when those assymetric regulations are introduced, there will be lawsuits to try to equalize them. If you have unrealistic regulations on one front, what’s to prevent them on another?

    Where do you draw that line that says, this much and this kind of pollution from producing solar power is OK, but that no kind in any amount from burning coal is OK?

    Whoopee, if we just make the price of using coal high enough, then we can afford to hire China, and generate all our electricity with coolie power. Then we won’t have any coal pollution.

    ———————–

    We can put the coal comapnies and coal burns out of business tomorrow. We just nationalize them and turn their property into the national industrial historical park.

    Once we get rid of all the property rights, then we can have all the polltion control and environmental protection we want.

    And since no one will be able to count on owning anything, it will all be free, no cost.

    ————————–

    We can get rid of all pollution the same we we got rid of acid streams: we “require it”. We require that everything everywhere to be put back, just as it was before we used it, restored to “non-polluted conditions”.

    Including all the things we used to put it back with.

    Gee, maybe it would be easier and less polluting to do nothing, so we don’t have to put it all back.

    That way we could avoid a command and control economy. Or any enonomy at all.

    RH

  25. Anonymous Avatar
    Anonymous

    “”Renewable” does not mean solar panels that last for a 1000 years. They WILL have to be replaced at some point and there is a cost to that.”

    We are going to have millions of them. Which state wants to sign up to be the place where they get dumped? Or are we going to require that all silicon be restored to its original (non acid) condition? We can require that all the silicon tetrachloride be reduced back to silicon, ao it won’t be dangerous. What would happen to the price of solar powered electricity?

    RH

  26. Anonymous Avatar
    Anonymous

    First we say we all live in a petri dish: if we don’t stop fouling our own nest we are all going to die.

    So we require that no one foul our nest.

    Then we say, look, if we are really efficient and clean about what we do, then everyone can afford to have all they want. It’s really free to be clean.

    Except for honest people like EMR who says outright that what we need is fewer people consuming less stuff.

    to which I say, OK, Who want’s to be first?

    RH

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