Allegheny: Warrior run will raise rates

January 09, 1997

In 1988, the utility then known as Potomac Edison signed a contract to buy power from the Applied Energy Services' proposed Warrior Run power plant in Allegany County. PE officials didn't want to sign, but under a federal law passed during the Jimmy Carter administration, they didn't have much choice. Eight years ago, PE folks thought they could live with the deal, but now, with states beginning to pass legislation that will allow everyone to choose their electric company, the deal will be a killer, hurting local industry and costing the region jobs.

That's the short version of what Allegheny Power officials told us this week when they visited The Herald-Mail to talk about Warrior Run. The new wrinkle, at least to my ears, was the statement by Michael Morrell, the utility's senior vice president and chief financial officer, that the dispute could be solved without shutting down the Warrior Run plant.


Up to now, I'd heard (and read in Allegheny Power's full-page newspaper ads) that the only way to avoid a 13 percent power rate hike (about $9 a month for the typical customer, Morrell says) would be for AES to agree to a buyout of its contract. Not necessarily, says Morrell.

"There always has been more than one option. The plant could be converted to a (natural) gas plant," Morrell said.

Morrell explained that there is new technology now available that would allow Warrior Run to generate power at rates Allegheny could justify paying. And it wouldn't be difficult to convert, at this point, he said.

"The major components, to my knowledge, have not been ordered yet," he said.

But construction has already begun. Why didn't Allegheny Power try to do this buyout a year ago?

The utility tried to negotiate a buyout as far back as 1992, Morrell said, "but there was no desire on their part to be bought out at that time. I wish we had been more aggressive at that time."

In my Dec. 26 column on this issue, I noted that AES is way ahead of the game when it comes to the public relations on this matter. The firm has a press packet that includes a July 1995 Wall Street Journal article that shows the firm to be employee-friendly, with many lower-level employees getting a voice in big decisions.

The same article also paints AES as environmentally responsible, going so far, in one instance, as to figure out how many trees they'd need to plant in a South American rain forest to compensate for a new plant's carbon dioxide emissions. Color pictures of AES employees doing just that are included in a brochure that makes AES look like it's running a resort rather than a power company.

In short, AES is as smooth as it is aggressive, while Allegheny only been able to generate a few letters of protest (to this newspaper, anyway) over Warrior Run.

Morrell says this is because even industries which will be adversely affected don't like to get into confrontations publicly.

"Our industrial customers are up in arms, but they don't like to go after each other in public," Morrell said.

Somebody had better, if what Morrell saying is true. Warrior Run's Steve Hase says he's skeptical about the 13 percent figure, but Morrell stands by it and say Allegheny's analysis shows that for every 10 percent increase in power rates, there'll be 88 jobs in the region lost in every year of the 30-year contract.

"Prices today for power are in the range of 2 to 3 cents per killowatt hour. This project's power will cost 6.2 cents per killowatt hour," he said, adding that this will mean $1.7 billion in extra costs to rate payers over the next 30 years.

If the Public Utilities Regulatory Policies Act which forced Allegheny into this arrangement is such a bad thing, why hasn't Congress repealed it?

Morrell said that the law was passed in 1978 (when the oil embargo was fresh in everyone's mind) to allow the development of alternative energy sources (like wind and geo-thermal) by requiring the big utilities to buy any power these new technologies could produce. To wipe the law out now would also mean wiping out these technologies, and the environmentalists don't want to see that happen.

There are also people who've invested a great deal of money in plants based on this law, Morrell said, and will fight any attempt to overturn it. Still others, he said, have linked the open competition issue to this one, making it difficult to make progress on one without some agreement on the other.

In addition, according to Victoria Schaff, Allegheny Power's vice president for governmental affairs, the repeal of PURPA would not affect current contracts. A buyout, or an agreement to persuade AES to switch to new gas technology at Warrior Run is the only solution, Morrell and Schaff say.

In the near future, when there's more citizen awareness on this issue, The Herald-Mail will offer Allegheny and AES space in this section to argue their positions. AES's Hase is reluctant now, saying whatever else Allegheny is, they're still customers. Morrell says he's ready to go, so keep watching this space.

Bob Maginnis is editor of The Herald-Mail's Opinion page.

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