American Electric Power's Mitchell Plant is seen in Marshall County. (File Photo)

CHARLESTON — A bill passed Thursday by the West Virginia Senate and a bill set for passage next week in the House of Delegates have something in common: Both bills are aimed at increasing base-load power with the goal of limiting increases in power bills for residential customers.

But electric utility companies and consumer advocates also have something in common: They’re concerned that both bills could have the opposite effect and cause electric rates to increase, and limit access to affordable electricity.

SHOCK VALUE

On Thursday, the Senate passed Senate Bill 505, creating the Reliable and Affordable Electricity Act, in a 22-11 vote. Opposition to the bill included the Senate’s two Democratic members 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 being sought by an electric utility in West Virginia. It mandates that utilities provide detailed evaluations of new and retiring electric generation units and transmission assets concerning their impact on reliability during peak demand.

The bill outlines a burden of proof for utilities seeking rate adjustments and directs the PSC to make specific findings regarding 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 these reliability considerations.

The PSC would be required to include specific information in its rate approval orders, including the dollar amount of the rate increase approved and any costs and expenses that have been denied for rate recovery. The goal of SB 505, according to Senate Energy, Industry and Mining Committee Chairman Chris Rose, R-Monongalia, 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, an affiliate of Akron-based FirstEnergy.

According to PJM Interconnections – the regional transmission organization serving West Virginia and 12 other states along with Washington, D.C. – the total electrical generation fuel mix as of Thursday afternoon was 91,776 megawatts. Natural gas-generated power made up 39% of the generation fuel mix, or 36,072 megawatts. Coal-fired generation made up only 13%, 11,939 megawatts.

According to the U.S. Energy Information Agency, the vast majority of electricity consumed by West Virginians is produced by coal-fired power (94.5%), followed by natural-gas-fired power (3.2%). “West Virginians use about three-fifths of the electricity generated in the state. As a result, West Virginia is a net supplier of electricity to the regional grid and ranks fifth in interstate transfers of electricity.”

SB 505 would modify the rate of return to a pay-for-what-you-get type model supported by Isaac Orr, co-founder and vice president of Always On Energy Resources, a former researcher for the conservative Heartland Institute. The bill is also supported by the West Virginia chapter of Americans for Prosperity.

photo by: W.Va. Legislative Photography

Senate Energy, Industry and Mining Committee Chairman Chris Rose, R-Monongalia, said Senate Bill 505 will address electric grid reliability and affordability, though electric utility companies disagree.

The bill creates a formula that would require the PSC to use a specific formula to adjust the allowable rate of return to reflect the effective load carrying capacity for the balancing authority in which the asset operates. The formula is based in part on reliability scores, also called the capacity value, that PJM provides for different sources of electricity.

“What the formula does is it takes the rate of return formula that all utilities throughout the country use and then it 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 getting paid all their expenses and rate of return, even when they don’t run their plants all the time. We still guarantee them that rate of return while they buy power off the grid,” Rose said.

For example, PJM gives coal a capacity value of 84%. Natural gas plants range from 62% to 79% depending on fuel availability, and nuclear plants receive a capacity of 95%. In contrast, onshore wind receives a capacity value of only 35% and 14% for solar. Rose said SB 505 would incentivize electric utilities in the state to run coal and purchase less energy off 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 continued. “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 affiliates in West Virginia – FirstEnergy (MonPower and Potomac Edison) and AEP (Appalachian Power and Wheeling Power) – opposed SB 505. Representatives of both companies said the bill will have the opposite effect, causing the companies 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 Thursday. “If enacted, West Virginia would become the only state in the country to adopt such a burdensome and punitive framework. This bill would significantly increase the complexity and cost of utility rate cases, ultimately driving up 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 raised concerns with electrical utilities was House Bill 2014, Gov. Patrick Morrisey’s certified microgrid program, though changes to the bill made Wednesday might have alleviated some of the concerns.

The committee substitute for HB 2014 adopted by the House Energy and Public Works Committee Wednesday would create the Power Generation and Consumption Act. It would establish the Certified Microgrid Program within the yet-to-be reorganized Division of Economic Development to encourage 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 generate electricity within these districts primarily, as well as allow for 10% of electricity produced to be sold on the wholesale market. Eligible industrial plants and facilities locating within these districts would constitute “new electric generating load” and are not required to connect with public electric utilities.

House Finance Committee Vice Chairman Clay Riley, R-Harrison, has long been a supporter of incentivizing data center and microgrid construction in West Virginia and is a co-sponsor of HB 2014. One such solar microgrid project is already under construction in Jackson County by Berkshire Hathaway Energy (BHE) Renewables and Precision Castparts Corp. (TIMET) for a new titanium melt facility.

“What you’re really seeing across the landscape throughout the U.S. is a need for power, a need for energy. And where better to look for energy than in West Virginia,” Riley said in an interview Thursday. “As you start to look at grid stability and the availability of low demands, the electric grid is going to get strained. Then they’re going to begin to look at, 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,” Riley continued.

The original version of HB 2014 as introduced on behalf of Morrisey had additional provisions relating to future electric generating capacity requirements similar to SB 505. These provisions included ordering the PSC to require electric utilities with coal-fired power plants to operate at a 69% capacity and increase their stockpiles of coal from a 30-day supply to a 45-day supply.

A previous PSC order set an expectation – not a requirement – that coal-fired power plants need to 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 purchased power from PJM.

During a meeting last summer of the state Public Energy Authority, a representative of Appalachian Power said that operating their three coal-fired power plants at a 69% capacity factor would have resulted in $240.4 million in additional fuel costs that likely would have been passed on to customers.

“Various aspects of the bill unrelated to the microgrid provisions will lead to rate increases for our customers, amounting to millions of dollars,” Walker said in his Wednesday statement. “One of the most concerning outcomes is increased costs associated with the provision related to coal procurement and plant operations. While we understand that this is not the intended effect of the bill sponsors, it is a reality of how the bill is written.”

“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 said.

However, the committee substitute for HB 2014 removed the requirement for the 69% capacity factor. It also changed 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 said. “I don’t want to speak for the utilities, but I think they felt a lot more comfortable with that. Again, this is about creating an opportunity and protecting our rate payers. In the end, if we get these data centers or these manufacturers to locate here, it ultimately provides more dollars over fixed asset costs, which lessens the impact to ratepayers.”

The committee substitute for HB 2014 also would create an Electronic Grid Stabilization and Security Fund to provide support for electric grid stabilization for regulated utilities and grid security. Some of the funding for this would come from the ad valorem property taxes generated by data centers after taking into account local county bonds and levies.

Tax revenue would be split between the new Electronic Grid Stabilization and Security Fund (15%), with 55% going to the Personal Income Tax Reduction Fund, 10% going into the Economic Development Closing and Promotion Fund, 5% going into the Water Development Authority’s Economic Enhancement Grant Fund, 5% going into the Low Income Energy Assistance Program administered by Department of Human Services, and the remaining 10% going back into the general revenue fund.

Pepper said he was not a fan of creating an Electronic Grid Stabilization and Security Fund, calling it a “slush fund” for electric utilities.

“The so-called ‘Electronic Grid Stabilization and Security Fund’ is straight-up a slush fund,” Pepper said. “My read of the bill is that the money can only be used for power plants and their connected big power lines and can’t be used for the local distribution lines. There are few, if any, interruptions due to power plants, so that fund should focus solely on the real issue at hand – local power lines and helping people have backup power – until there is a basis for the hypothetical issue of power plants needing taxpayer dollars.”

HB 2014 was on first reading Friday and could be up for passage as early as Tuesday, meeting the Wednesday Crossover Day deadline.