August 2, 2024 - A representative of Appalachian Power and Wheeling Power answered questions Wednesday morning from members of the West Virginia Public Energy Authority regarding recent utility rate increases and whether the companies were relying too heavily on purchasing power instead of generating its own.

Appalachian Power and Wheeling Power, both subsidiaries of Columbus-based American Electric Power, sought $552.9 million through an Expanded Net Energy Cost filing with the state Public Service Commission for costs incurred but not yet reimbursed between March 1, 2021, through Feb. 28, 2023.

The $552.9 million ENEC filing is meant to cover the costs of purchasing electricity from the PJM Interconnection, a wholesale energy transmission company – also called a regional transmission organization – serving West Virginia, 12 other states, and Washington, D.C. The companies also sought $88.8 million to cover forecasted costs between Sept. 1, 2023, and Aug. 31.

Nicholas Preservati, director of the state Office of Energy, briefs the state Public Energy Authority Wednesday on coal supply and electric generation issues between 2021 and 2023 with Appalachian Power and Wheeling Power.

Photo: Steven Allen Adams

Instead, the PSC only allowed $321.1 million in ENEC costs to be collected over a 10-year period, or $32.1 million per year. Those rates do not go into effect until Sept. 1, which amount to approximately $2.50 per month for residential customers. In its Jan. 9 order, the PSC determined that due to the companies purchasing power from PJM instead of generating their own, that they were responsible for covering part of the $552.9 million ENEC request.

“In lieu of self-generation, the Companies’ purchase of excess amounts of power from the PJM market at prices that were at the highest level in PJM history was unreasonable and the result of imprudent decisions regarding coal inventories, coal procurement, bidding into the PJM energy market, and minimization of out-of-service time,” according to the PSC order earlier this year.

“If the Companies had planned and operated prudently, they could have reduced their West Virginia jurisdiction ENEC costs by at least $231,769,413 during the time period of March 1, 2021, through Feb. 28, 2023,” the order continued. “Incurred costs of $231,769,431 were unreasonable and the result of imprudent decision, actions, and inactions by the Companies.”

Both Appalachian Power/ Wheeling Power claim they had to purchase power from PJM instead of self-generating power from its three coal-fired power plants in the state due to increased costs of coal at the time and the non-delivery of 3.8 million tons of coal in breach of contracts.

Nicholas Preservati, director of the state Office of Energy, cited data from the PSC and a report commissioned by the PSC from CTC showing that the Mitchell Power Plant in Moundsville remained at 6 percent capacity between September and December 2021, with the John Amos Power Plant in Winfield at 3 percent capacity and the Mountaineer Power Plant near New Haven at 0 percent capacity.

“They had to buy substantially more energy from PJM rather than self-generate,” Preservati said. “During that period…PJM had the highest energy prices that it had in 20 years. During that same period of time, the companies had the lowest generation at the three plants that they’ve had in 20 years. That’s why this issue is important.”

A previous PSC order set an expectation that coal-fired power plants need to achieve at least a 69 percent capacity factor in order for in-state electric companies to self-generate power and reduce reliance on purchased power. According to reports cited by Preservati, Appalachian Power/Wheeling Power could have avoided seeking a $552.9 million ENEC and generate $231.7 million in cost savings.

“It’s more than a goal: it’s an expectation,” Preservati said. “(The PSC) expects the companies to generate at that capacity if it is economically viable. They’re supposed to take reasonable steps to operate at that capacity factor.”

John Scalzo, the vice president of regulatory and finance for Appalachian Power, argued that had the three in-state coal-fired power plants received the coal they were under contract to receive in 2022, their capacity factor would have been closer to 50 percent. Scalzo also argued that operating the plants at a 69 percent capacity factor would have resulted in $240.4 million in additional fuel costs.

“When you look at…the price of our dispatch and the average price of PJM, our dispatch costs were higher,” Scalzo said. “If we would have run it at 69 percent capacity factors during that time period, it would have cost $240 million additional we would have had to recover from customers.”

Scalzo said that claims that corporate decarbonization goals by parent company AEP or executive compensation programs for increasing carbon-free power generation were not reasons why the three coal-fired power plants were not run at high capacity factors.

“For us, what limited our dispatch was availability of the coal, the price of coal, and the competing price of natural gas,” Scalzo continued. “I can’t highlight enough that we would never ever let any of that – whatever it is – impact what we do for customers. We are always trying to do what is best for customers.”

The PSC scheduled an evidentiary hearing and public comment hearing on Aug. 12, for Appalachian Power/Wheeling Power’s latest ENEC case. The companies are seeking an additional $20.4 million in annual revenue. The evidentiary hearing is 9 a.m. at the PSC headquarters in downtown Charleston, and the public comment hearing will begin at 5:30 p.m. that evening.