West Virginia Tests the State's Coal Future for Electricity

 

 

By Miranda Willson

March 7, 2023 - West Virginia is at an impasse over how much to run some of its largest coal-fired power plants, with implications for carbon emissions and the future of coal in the eastern United States.

The state Public Service Commission is pressing American Electric Power Co. to ramp up three major power plants at higher capacities months after the company reported problems with securing coal from suppliers.

The commission has argued that AEP’s coal fleet should operate at a capacity factor of at least 69 percent to maximize the use of in-state energy and limit power purchases from the regional electricity market. The metric essentially reflects how often a plant is running at its full output.

AEP wouldn’t disclose its current coal plant usage rates, but projections from 2021 showed three major plants well below the proposed level.

“It’s unprecedented,” Joe Daniel, a manager focused on clean energy at the think tank RMI, said of the capacity target. “There were some conversations and discussions in Montana and Indiana about having targets, minimum capacity factors or burn amounts, but none of those actually came to fruition.”

AEP has indicated that running its coal plants more often to comply with the commission’s directive could increase bills for consumers. The company asked for a $297 million rate increase last year to pay for rising fuel costs.

While the commission recently denied the rate increase for now, it is convening a task force to “address issues surrounding the production of energy” at coal-fired power plants and energy affordability.

The questions being considered by the task force underscore a growing tension over West Virginia’s coal-friendly policies and the economic reality facing the most carbon-polluting fossil fuel. Coal supplies in West Virginia have tightened as mining companies are increasingly shipping their product to lucrative markets overseas, posing new supply and cost challenges for coal-dependent utilities, observers said.

The fight in West Virginia also echoes those in other coal states grappling with the future of a fuel that has long dominated their economies and that some say is still needed to keep the lights on.

Last week, for example, the Kentucky Senate passed a bill that would establish a series of tests for utilities seeking to retire fossil fuel power plants, including proof that closing plants would not harm consumers. The legislation is now pending before the Kentucky House of Representatives.

In West Virginia, how often AEP’s coal plants run could be particularly significant for carbon emissions. One of the plants subject to the capacity factor target, the John Amos power plant, emitted more than 11.5 million metric tons of carbon dioxide in 2021, putting it among the top 10 carbon-spewing plants that year, according to EPA data.

Environmental advocates and others argue that efforts to extend the life of West Virginia coal — and now, to run existing plants more often — are driving up energy bills. The price of coal in the U.S. has nearly quadrupled in the last three years, and the majority of the Mountain State’s coal plants have been operating at losses, said Daniel of RMI.

Electricity rates in West Virginia have risen faster than the national average over the last decade and a half “because we doubled down on coal instead of diversifying with wind and solar,” said James Van Nostrand, director of the Center for Energy and Sustainable Development at the West Virginia University College of Law.

The average bill for households served by AEP, for example, went up 18 percent between 2016 and 2020, according to the West Virginia Consumer Advocate Division, an independent division at the PSC that advocates for consumers.

“It’s just going to get worse with this capacity factor ruling,” Van Nostrand said.

On the other hand, coal backers are bolstered by recent warnings about power plant retirements from PJM Interconnection LLC, the operator of a regional power grid serving about 65 million people across mid-Atlantic and Midwestern states.

Last month, PJM said the impending retirement of dispatchable power plants — most of which are coal-fired — could threaten the reliability of the electricity system if new projects fail to make up for the lost power sources (Energywire, Feb. 28). PJM manages the flow of power in 13 states, including West Virginia, plus the District of Columbia.

“Whether people agree with it or not, coal is a reliable way of feeding those operations until the whole system gets modified and upgraded,” said Robert Williams, director of the Consumer Advocate Division.

The dispute over AEP’s plants comes at the same time as another major utility in West Virginia, FirstEnergy Corp. subsidiary Monongahela Power, is evaluating whether to buy a 40-year-old coal plant that has faced repeated financial problems and is at risk of closing this year.

The Public Service Commission ordered the company to evaluate the potential purchase of the Pleasants Power Station in December, and a report on the idea — which has support from Gov. Jim Justice (R) — is due at the end of this month.

Competition and Reliability

A coal production powerhouse throughout much of the 20th century, West Virginia still burned coal for about 90 percent of its electricity needs in 2021. That’s in contrast to many states that are replacing much of their coal with cheaper sources of power, namely natural gas and renewable energy.

Although coal constitutes a significant portion of West Virginia’s economy, the number of coal miners in the state dropped to 11,927 in 2021, the lowest number in over a century, according to state statistics. Still, West Virginia produces more coal than any other state except Wyoming.

Since West Virginia’s task force on coal and affordability was established last year, the group has held one closed-door meeting.

Members include West Virginia’s major electric utilities, such as AEP subsidiaries Appalachian Power and Wheeling Power, as well as the utility commission’s Consumer Advocate Division, the West Virginia Coal Association, and representatives from environmental and energy consumer groups.

Although the task force was supposed to deliver a report to the commission on its findings in February, commission staff asked last month to extend the report due date by six months.

“Due to the large number of members, complex issues, and varied points of view involved with this Task Force, the parties have been unable to generate a substantive final report at this time,” staff said.

In creating the task force, the commission described it as a “general investigation” considering ways to decrease electricity costs by running coal plants more often.

“Because the Commission has recently expressed concern over the rising cost of energy paid by the Companies, we believe the Companies and the [coal association] should come together with Staff, the Consumer Advocate Division (CAD) and other interested parties to discuss ways to operate their generation plants at higher capacity factors so as to lower the costs recoverable from utility customers,” the commission said in the document.

Some task force members say the effort underscores what may be a hard pill to swallow for many West Virginians: Many coal plants in West Virginia and beyond, according to various analyses, are largely uneconomical at this point compared to alternative sources of energy.

“Those coal-fired power plants sit there as a hedge against the price of power in the market, but they cannot compete economically in the wholesale market 365 days a year,” said Derrick Price Williamson, a member of the task force who serves as executive director of the West Virginia Energy Users Group, which advocates for industrial energy consumers.

Still, as long as West Virginia uses coal, power plants should be running whenever it is economical to do so, considering how much consumers are paying to keep them open, Williamson said.

As of now, AEP’s Amos, Mountaineer and Mitchell power plants — the ones subject to the capacity dispute — are expected to remain in operation until 2040. In 2021, the Public Service Commission approved upgrades for all three plants to comply with federal environmental requirements, costing a total of $383.5 million.

The commission said when it approved the upgrades that it was important to keep the coal plants in operation “for the interests of current and future utility service customers, the general interests of the state’s economy, and the interests of the Companies.” The commission said many jobs would be lost if the plants were to retire sooner.

That sentiment is shared by those with ties to the coal industry, which says coal’s economic troubles are due to unfair federal regulations.

“When you’re sitting there competing against the subsidies that the feds put out for wind and solar, it’s hard to compete with them,” said state Sen. Rupie Phillips, a Republican and staunch coal supporter in the West Virginia Legislature who comes from a coal mining family.

What’s more, coal has been a boon for electric reliability in the PJM region, said Michelle Bloodworth, the CEO of America’s Power, which represents the U.S. coal fleet and supply chain.

Bloodworth pointed to concerns raised by PJM about whether new energy resources would be able to adequately replace retiring power plants given the challenges associated with siting and building new renewable energy projects.

“It’s the first time PJM has announced and acknowledged that retirement of thermal generation, primarily coal but also some natural gas and nuclear, is happening at a faster pace than what we can build new generation,” Bloodworth said.

Environmental advocates have countered that new generation can replace coal as long as it is approved to come online in a timely manner. Clean energy advocates in West Virginia also argue that trying to save coal is futile — and a lost opportunity for consumers who could benefit from cheaper power.

“The bottom line is wind and solar have zero fuel costs,” said Van Nostrand of the West Virginia University College of Law.

Running ‘When It’s Feasible’

For now, AEP’s requested rate increase of $297 million — which would raise customers’ monthly bills by $18.41 on average — has been rejected by the commission. But the utility maintains that the rate request reflects how much it costs to purchase fuel for its West Virginia power plants.

“We continue to seek an increase … because the amounts currently being recovered do not reflect our costs for purchasing fuel or power,” Scott Blake, director of media relations and policy communications at AEP, said in an email.

As for the 69 percent capacity factor target, Blake declined to comment on how much the company runs its West Virginia coal plants, citing “market rules.”

In 2021, however, the company told the commission that it projected capacity factors of 49.6 percent for the Amos plant, 57.3 percent for Mountaineer and 34.7 percent for the Mitchell plant.

There could be various impacts from running the plants “at a particular capacity factor,” Blake said. He said the company has experienced coal supply challenges because of supply chain bottlenecks and labor shortages, among other issues, affecting “the price and availability of coal.”

“We attempt to maximize the value of our plants for our customers at all times,” Blake said.

Williams of the West Virginia Consumer Advocate Division disputed the notion that the commission wants AEP or other utilities to run their power plants at times when it’s uneconomic to do so.

Instead, he said, the task force seeks to address issues with companies’ coal supplies that have led them to rely less on their own resources and more on purchases through PJM, which can increase costs for consumers.

During last year’s winter heating season, West Virginia utilities had trouble getting coal to their power plants because so much of the fuel was being sent overseas, Williams said.

Coal prices were relatively high after Russia’s invasion of Ukraine, which has driven up demand for fuels originating in the U.S. Natural gas prices also have seen price increases, though the benchmark U.S. gas price is now significantly lower than it was last summer.

“I don’t think anyone is trying to make the argument that we want them to incur higher costs for the sake of having coal plants, but if they’re going to have them up and running, we want them running when it’s feasible to run,” Williams said.

Regardless of what is accomplished through the task force, Daniel of RMI said it represents “an important test for the commission” and coal’s future in West Virginia.

Energy cost burdens are disproportionately high in the state, and that problem will continue so long as there’s an effort to cling to coal, he said.

“You have to look at the bigger, longer-term trends and the bigger picture, and all of those arrows point in the same direction,” Daniel said.