CHARLESTON — The West Virginia Senate passed a bill Thursday, and the House of Delegates will vote on it next week. Both bills aim to increase base-load power while limiting increases in power bills for residential customers.
However, electric utility companies and consumer advocates share a concern: that both bills may have the opposite effect, raising electric rates and limiting access to affordable electricity.
SHOCK VALUE
Senate Bill 505, which creates the Reliable and Affordable Electricity Act, was passed by the Senate 22-11 on Thursday. The bill was opposed by the Senate’s two Democrats and nine Republicans.
SB 505 would require the state Public Service Commission to consider bulk-power system reliability when determining fair and reasonable electric rates proposed by a West Virginia utility.
It requires utilities to conduct detailed evaluations of new and retiring electric generation units and transmission assets in terms of their impact on reliability during peak demand periods.
The bill establishes a burden of proof for utilities seeking rate adjustments and directs the PSC to conduct specific investigations into asset compliance and cost recovery, potentially adjusting the rate of return based on a resource’s capacity value. The commission retains the authority to approve or deny cost recovery based on reliability criteria.
The PSC would be required to include specific information in its rate approval orders, such as the dollar amount of the approved rate increase as well as any costs and expenses denied for rate recovery. Senate Energy, Industry, and Mining Committee Chairman Chris Rose, R-Monongalia, stated that SB 505’s goal is to ensure energy reliability and affordability.
“Senate Bill 505 is intended to protect customers from being charged excessive rates for electric service, which stems from the recent trend of electric utilities retiring legacy electric generation assets in favor of building energy generation assets, transmission lines, substations, and interconnections that are unable to meet demands during peak demand periods when compared to the legacy assets,” said Rose, a controls technician with MonPower, a subsidiary from Akron, Ohio.
According to PJM Interconnections, the regional transmission organization that serves West Virginia, 12 other states, and Washington, D.C., the total electrical generation fuel mix as of Thursday afternoon was 91,776 megawatts. Natural gas-generated power accounted for 39% of the generation fuel mix, or 36,072 MW. Coal-fired generation accounted for only 13%, 11,939 megawatts.
According to the United States Energy Information Agency, coal-fired power generates 94.5 percent of the electricity consumed in West Virginia, followed by natural gas-fired power (3.2%). “West Virginians consume roughly three-fifths of the electricity produced in the state.
As a result, West Virginia is a net supplier of electricity to the regional grid and ranks fifth in interstate transmission of electricity.”
SB 505 would change the rate of return to a pay-for-what-you-get model supported by Isaac Orr, co-founder and vice president of Always On Energy Resources and former researcher for the conservative Heartland Institute. The bill is also supported by Americans for Prosperity’s West Virginia chapter.
The bill establishes a formula that requires the PSC to adjust the allowable rate of return to reflect the effective load carrying capacity of the balancing authority in which the asset operates. The formula is based in part on reliability scores, also known as capacity values, which PJM provides for various sources of electricity.
“What the formula does is it takes the rate of return formula that all utilities throughout the country use and then adds the capacity value portion at the end,” Orr explained last week during a Senate committee meeting. “Essentially, it scales the profit that a utility can earn based on the (PJM capacity value).”
“Our power plants are paid for all of their expenses and rates of return, even when they are not in operation at all times. We still guarantee that rate of return while they purchase power from the grid,” Rose said.
For example, PJM assigns coal an 84% capacity value. The capacity of natural gas plants ranges from 62% to 79% depending on fuel availability, while nuclear plants receive 95%. Onshore wind, on the other hand, receives only 35% of its capacity value, while solar receives 14%. Rose stated that SB 505 would encourage electric utilities in the state to run coal and purchase less energy from the PJM marketplace.
“What it does is … prevents Mamaw from paying for the cost of that plant sitting there idle, or even only running at 30% due to the wear and tear and maintenance that occurs at only running them at 30%,” Rose went on to describe. “This prohibits the rate payer from eating the cost of them choosing to buy off the grid, but also try to piggyback and make them pay for the plant as well.”
Both major electric utility companies with West Virginia affiliates, FirstEnergy (MonPower and Potomac Edison) and AEP (Appalachian Power and Wheeling Power), opposed SB 505. Representatives from both companies said the bill would have the opposite effect, causing them to seek even higher electric rate increases.
“We strongly oppose Senate Bill 505, which represents a dramatic and unprecedented shift in utility regulation,” said Will Boye, a senior communications representative for FirstEnergy, in a statement released Thursday.
“If passed, West Virginia would be the only state in the country to implement such a burdensome and punitive framework. “This bill would significantly increase the complexity and cost of utility rate cases, ultimately raising electric bills for hardworking West Virginians.”
“SB 505 reduces utilities’ allowed return on investments in new generation and transmission based on a formula incorporating factors for capacity values and effective load-carrying capacity,” said Aaron Walker, president and chief operating officer for AEP, in a statement Wednesday.
“This means that the allowed return will only be a percentage of what it would be under the current traditional ratemaking. Appalachian Power believes this bill would discourage future investment in generation and transmission in West Virginia.”
Walker said the latest version of SB 505 would disincentivize construction of new electric plants, such as natural gas-fired plants, in order to meet future base load needs of new manufacturing in the state and possible data centers being considered.
“Without the ability to build new generation to meet growing customer demand–including from industries like manufacturing and data centers–West Virginia risks losing thousands of jobs tied to plant construction and long-term operations,” Walker said. “Even worse, customers would bear the brunt of higher energy prices over time as utilities are forced to rely more heavily on purchased power and volatile PJM capacity and energy markets.”
Energy Efficient West Virginia, a consumer advocacy organization, is often on the other side of the utility companies in PSC rate cases fighting requests for higher prices borne by residential customers. But the organization is in agreement with both AEP and FirstEnergy, stating that SB 505 does nothing to address affordability.
“The so-called ‘Reliable and Affordable Electricity Act’ does nothing to address the significant reliability issues we have here … and will result in LESS affordable electricity, so it’s actually the exact opposite of what it says,” said Emmett Pepper, policy director for Energy Efficient West Virginia.
“I hope that our Legislature gets serious someday about lowering electric bills, as well as empowering people to take control of their energy bills on their own, instead of forcing us to keep subsidizing monopoly-owned power plants,” Pepper continued. “But here we are. Another bill to subsidize power plants that can’t survive on the free market, and that we have to keep subsidizing them, apparently forever.”
REBOOT
Another bill that sparked concern among electrical utilities was House Bill 2014, Gov. Patrick Morrisey’s certified microgrid program, though changes made Wednesday may have alleviated some of the concerns.
The House Energy and Public Works Committee adopted a committee substitute for HB 2014 on Wednesday, which would create the Power Generation and Consumption Act.
It would create the Certified Microgrid Program within the yet-to-be-reorganized Division of Economic Development to promote the development of industrial plants and facilities, such as high-impact data centers.
These “high impact Industrial business development microgrid districts” would be powered by microgrids that would primarily generate electricity within the districts, with the option of selling 10% of the electricity produced on the wholesale market. Eligible industrial plants and facilities located within these districts would be considered “new electric generating load” and are not required to connect to public electric utilities.
Clay Riley, R-Harrison, Vice Chairman of the House Finance Committee, has long advocated for incentivizing data center and microgrid construction in West Virginia and is a cosponsor of House Bill 2014. Berkshire Hathaway Energy (BHE) Renewables and Precision Castparts Corp. (TIMET) are already building a solar microgrid in Jackson County to power a new titanium melt facility.
“What you’re really seeing across the landscape in the United States is a demand for power and energy. “And what better place to look for energy than West Virginia,” Riley said in an interview Thursday.
“As you start looking at grid stability and the availability of low demand, the electric grid will become strained. Then they’ll begin to consider, “Well, what other opportunities do we have?”
“This is just an opportunity to make it easy for companies to locate close to the source – coal, natural gas – to be able to generate these type of megawatts and gigawatts that they need to power either data centers or even manufacturing facilities, in my opinion,” says Riley.
The original version of HB 2014, introduced on Morrisey’s behalf, included additional provisions related to future electric generating capacity requirements, similar to SB 505. These provisions included directing the PSC to require electric utilities with coal-fired power plants to operate at 69% capacity and increase coal stockpiles from 30-day to 45-day supply.
A previous PSC order specified, but did not require, that coal-fired power plants achieve at least a 69% capacity factor when economically feasible in order for in-state electric companies to self-generate power and reduce reliance on PJM power purchases.
During a meeting of the state Public Energy Authority last summer, an Appalachian Power representative stated that operating their three coal-fired power plants at a 69% capacity factor would have resulted in an additional $240.4 million in fuel costs, which would most likely have been passed on to customers.
“Various aspects of the bill unrelated to the microgrid provisions will result in rate increases for our customers totaling millions of dollars,” Walker said in his Wednesday statement. “One of the most concerning outcomes is an increase in the costs associated with coal procurement and plant operations. While we understand that the bill sponsors did not intend for this to happen, it is a result of the bill’s language.”
“We are also deeply concerned about House Bill 2014, which includes provisions that would add uncertainty and delay to long-term generation planning, threatening reliability and economic growth,” Boye told the audience.
However, the committee substitute for HB 2014 eliminated the requirement for a 69% capacity factor. It also reduced the requirement for a 45-day supply of coal to an average annual minimum of 30 days.
“We modified that to include a 30-day rolling average,” Riley informed me. “I don’t want to speak for the utilities, but I believe they felt much more at ease with that. Again, this is about creating opportunity while protecting our ratepayers. Finally, attracting these data centers or manufacturers to locate here generates more dollars over fixed asset costs, reducing the impact on ratepayers.
The committee substitute for HB 2014 would also establish an Electronic Grid Stabilization and Security Fund to help regulated utilities stabilize their electric grids and ensure grid security. Some of the funding for this would come from ad valorem property taxes generated by data centers, after accounting for local county bonds and levies.
The new Electronic Grid Stabilization and Security Fund (15%) would receive 15% of tax revenue, with 55% going to the Personal Income Tax Reduction Fund, 10% going to the Economic Development Closing and Promotion Fund, 5% going to the Water Development Authority’s Economic Enhancement Grant Fund, 5% going to the Department of Human Services’ Low Income Energy Assistance Program, and the remaining 10% returning to the general revenue fund.
Pepper opposed creating an Electronic Grid Stabilization and Security Fund, referring to it as a “slush fund” for electric utilities.
“The so-called ‘Electronic Grid Stabilization and Security Fund’ is straight-up a slush fund,” Pepper told Reuters. “My understanding of the bill is that the funds can only be used for power plants and their associated large power lines, not for local distribution lines.
There are few, if any, interruptions caused by power plants, so that fund should focus solely on the real issue at hand – local power lines and assisting people with backup power – until there is a basis for the hypothetical issue of power plants requiring taxpayer dollars.”
