Coal Costs Loom Large in Utility Rate Cases Before PSC as Renewables Grow Nationally

 

 

January 3, 2024 - As 2023 comes to a close, it’s evident the year brought signposts pointing to an accelerated path toward renewable generation in the electric power sector.

- In February, the federal Energy Information Administration reported power plant owners and operators planned to retire 8.9 gigawatts of coal-fired capacity — 4.5% of total coal-fired capacity at the beginning of the year.

- In March, the EIA noted that generation from renewable sources — wind, solar, hydro, biomass and geothermal — surpassed coal-fired generation in the electric power sector for the first time in 2022.

- In April, the EIA said most newly built capacity will be from renewable energy technologies in its projection of the nation’s power grid nearly doubling in capacity from 2022 to 2050.

But in West Virginia, 2023 ends with the state’s investor-owned electric utilities clinging to coal in cases reflecting rising coal-rooted fuel costs for which ratepayers are liable.

A Closer Look at the Settlements

Appalachian Power and Wheeling Power on Wednesday filed a proposed settlement of three fuel cost rate cases from the past three years that included a proposed $641.7 million rate hike request and a finding the state should disallow $202.7 million in cost under-recovery for the companies.

Under the proposed agreement between the companies, the West Virginia Energy Users Group and the West Virginia Coal Association, the utilities would forgo $50 million of the $553 million fuel cost under-recovery balance they reported as of Feb. 28, 2023 and securitize the remaining balance. Per the agreement, another $88 million in storm costs and $32 million in additional fuel cost deferrals incurred from March through September 2023 would be securitized.

Passed by the state Legislature earlier this year, House Bill 3308 authorizes the Public Service Commission to issue financing orders to utilities to allow recovery of certain costs through securitization via consumer rate relief bonds.

Appalachian Power spokesperson Karen Wissing declined to estimate potential rate impacts if the proposed settlement of the fuel cost cases is approved, saying the term of bonds and interest rates factoring into rate impacts wouldn’t be established until the securitization process is finished.

“We believe there will ultimately be minimal impact on rates,” Wissing said in an email.

The PSC approved an $88.8 million fuel cost rate increase for American Electric Power-controlled Appalachian Power and Wheeling Power in September.

Meanwhile, FirstEnergy-controlled Mon Power and Potomac Edison also are seeking more from ratepayers to cover fuel expenses. FirstEnergy controls the Harrison Power Station in Harrison County and Fort Martin Power Station in Monongalia County, both coal-fired facilities.

Last month, the companies proposed agreements that would increase how much customers are charged through rates that cover the utilities’ vegetation management and fuel costs. The average residential monthly bill would increase by $2.47 starting Jan. 1 for the vegetation management program and by an additional $3.77, effective March 27, for fuel costs, per the agreements.

Also pending is a Mon Power and Potomac Edison proposal drawing the ire of solar energy advocates who say the move would short-change customer residents and businesses that generate their own solar electricity.

Net metering is a billing mechanism that credits customers who generate their own electricity from solar power for returning the electricity they don’t use back into the grid.

In a case in which Mon Power and Potomac Edison are asking for a $172.7 million rate increase, the utilities have proposed adjusting the amount a customer is credited for either kilowatt-hours produced in a month or excess kilowatt-hours credited against a future month to the wholesale price level for energy.

The change would be effective for customers who enroll in a net energy metering rider after March 27, 2024.

The PSC approved a $91.8 million rate increase to cover Mon Power and Potomac Edison fuel costs in Dec. 2022. The rate hike followed a $94 million rate hike the PSC approved for the utilities in May 2022, also for fuel costs. That followed a $19.5 million fuel cost rate increase approved in December 2021.

Kanawha Leaders Call Proposal “Overreaching”

The Appalachian Power and Wheeling Power fuel cost case settlement proposal filed Wednesday has sparked opposition from ratepayer advocates.

The Kanawha County Commission urged the PSC to reject the proposed settlement in a letter Friday, saying Appalachian Power’s relief sought “should be denied in its entirety.”

The commission called the proposal “one-sided and overreaching.”

“It places an unsufferable burden on ratepayers and grossly neglects their best interests,” the commission said in a letter signed by Deputy County Attorney Christopher Settles.

In a brief letter to the PSC filed Thursday, PSC staff recommended the agency reject the proposed agreement.

The Consumer Advocate Division, an independent arm of the PSC charged with representing residential ratepayers, also isn’t on board with the proposed settlement.

Under the proposal, Appalachian Power and Wheeling Power would forgo a fuel cost rate filing in 2024 unless the over-recovery or under-recovery incurred from Oct. 1, 2023 through March 31, 2024 exceeds $50 million. Otherwise, the companies would make their next fuel cost rate filing in April 2025 with a review period of March 1, 2023 through Feb. 28, 2025.

The proposed agreement recommends targeting a securitization term of 20 years.

The requested settlement would set aside a recommendation from Critical Technological Consulting, a Mesa, Arizona-based power industry consulting firm, that the PSC disallow $202.7 million in cost under-recovery.

The firm, known as CTC, found in a review of Appalachian Power and Wheeling Power fuel procurement commissioned by the PSC that the companies didn’t pursue longer-term or creative approaches to obtain fuel needed for higher capacity factors, or use rates, required by the PSC.

CTC computed the aggregate capacity factor for Appalachian Power’s John Amos and Mountaineer plants in Putnam and Mason counties and Wheeling Power’s Mitchell plant in Marshall County to be 32.5% on an annualized basis from September 2021 to September 2022.

CTC said it “defies common sense” that the companies couldn’t obtain coal from West Virginia needed to yield higher capacity factors than their combined net 32.5%.

Appalachian Power requested the PSC clarify whether its requirement that plants must operate at or above 69% should be limited by “the principle of economic dispatch” in a filing last year.

The Rocky Mountain Institute, a Colorado-based clean energy consulting firm, submitted a filing to the PSC in April in a case soliciting electric supply recommendations arguing that the PSC risks decreasing electric reliability by requiring coal-fired plants operate at a use rate of at least 69%.

The institute contended that forcing older steam units to run at a higher frequency could cause additional wear and tear on the plants, possibly resulting in forced outages and increasing the risk of unexpected reliability events.

Capacity factors have been falling nationwide amid the decline of coal as an electric generation source throughout most of the country outside West Virginia in recent years.

Per the proposed agreement, Appalachian Power and Wheeling Power, joined by the West Virginia Energy Users Group and the West Virginia Coal Association, would request the PSC find the terms, price per ton and contract length of current coal contracts “prudent and reasonable.” The companies would agree to review and evaluate their fuel procurement practices and coal inventory targets at their three in-state coal-fired plants within six months to address the impact of supply disruptions and price volatility.

Derrick Price Williamson, executive director of the West Virginia Energy Users Group, called the settlement a “sensible resolution that protects all customer classes in a manner that is fair, in the public interest, and in the economic interest of the State” in an emailed statement Thursday. The group is an association of large industrial energy users.

Hearings, study suggested in rate hike caseRenewable energy advocates opposed to the Mon Power and Potomac Edison net metering proposal are calling for public hearings in the companies’ $172.7 million rate hike request case. The utilities reported a roughly $35 million decrease in their requested revenue recovery in a filing last week, citing a change in depreciation rates resulting from a settlement in another case.

The West Virginia Citizen Action Group, Solar United Neighbors and Energy Efficient West Virginia submitted a joint filing on Dec. 21 asking the PSC to hold at least three public comment hearings within the utilities’ service territory and at least one hearing conducted electronically.

The companies’ rate hike proposal had drawn 1,234 comments in protest as of Friday — an unusually high total.

In testimony filed in the case Tuesday, Dan Conant, founder and CEO of Shepherdstown-based solar installer Solar Holler LLC, suggested the PSC could order a third-party study to determine the value of solar in West Virginia.

Conant noted last month’s release of a study projecting a “shared solar” program in Virginia offers over $5 billion in total benefits from 2024 to 2050, with utilities accruing $64 billion in net benefits from 2024 to 2026. The study was conducted by Dunsky, a Canadian energy transition consulting firm.

Under Virginia’s “shared solar” program, customers buy subscriptions for electricity directly from a shared solar facility that is owned, operated and managed by a private entity.

Renewable energy proponents have pushed for West Virginia to approve community solar programming. Community solar is a setup in which customers receive solar energy without having to install their own solar energy system, typically benefiting from energy generated at an offsite array.

Experts say community solar saves residential consumers about 10% in electricity costs. Proponents say it would open up affordable renewable electricity to low- and moderate-income customers and extend the benefits of solar to people who are unable or unwilling to have solar arrays installed where they live.

Twenty-two states had policies supporting community solar as of Dec. 2021, according to the National Renewable Energy Laboratory, a national lab of the Department of Energy.

But the Legislature has balked in recent years at community solar, favoring coal-friendly legislation like 2023’s House Bill 3482 requiring the Department of Economic Development to designate sites viable for coal electric generation projects.

The last coal-fired power plant 100 megawatts or greater built in the United States as of November came online in 2013, according to the EIA.

Coal comprised 91% of West Virginia’s electricity generation in 2021, far more than any other state. West Virginia electric bills have ballooned as the state has doubled down on coal.

State ratepayers faced a 90% climb in average residential electricity retail price from 2005 to 2020, per EIA data. Only Michigan had a greater increase by percentage.

West Virginia’s AEP and FirstEnergy utilities have received approval to construct renewable energy sites but are committed to coal for years to come, with projected coal-fired plant lifespans lasting for another 11 to 16 years.