Utilities' billion-dollar proposals to buy coal plants are in - Business, Government Legal News from throughout WV

Utilities' billion-dollar proposals to buy coal plants are in

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Visions of West Virginia's power generation future differ.

The state's major electric utilities both have filed proposals with the Public Service Commission of West Virginia to take on additional coal-fired generation capacity. FirstEnergy's Mon Power filed on Nov. 16 and AEP's Appalachian Power filed on Dec. 18.

The utilities assert that these coal-fired facilities are the lowest-cost resource for West Virginia ratepayers.

Proponents welcome the opportunity to support the coal economy, and coal state residents may hear "more coal" almost instinctively as a good thing.

But some observers of the power industry warn of danger in committing ratepayers to generation portfolios based essentially on one fuel. They look throughout the nation and see diversification into cheap natural gas, renewables and especially energy efficiency saving ratepayers money in other states, and they want West Virginia's utilities to take it seriously.

The outcomes of these cases will influence the state's generation mix, incentive for diversification and efficiency and electricity rates for decades into the future.

Still relying on coal

Both Mon Power and Appalachian Power are staring down generation shortfalls in coming years. Both propose to meet them by taking coal-fired capacity off the books of their sister subsidiaries in Ohio.

FirstEnergy would have Mon Power buy 80 percent of the Harrison power plant for more than $1 billion.

AEP wants Appalachian Power to buy part of John Amos power station and half of Mitchell at a cost unspecified in the filing. Using book values the company presented in another filing, it could be on the order of $1.4 billion.

The proposals are an opportunity to support coal, some say.

"With strict environmental rules idling coal-fired plants at every corner, we simply cannot take opportunities to utilize West Virginia coal for granted any longer — particularly one of this magnitude," West Virginia Coal Association President Bill Raney wrote in a Dec. 27 letter of support for Mon Power's plan. "Mon Power's desire to acquire full ownership of Harrison and operate it to the benefit of its customers for years to come is one of the few bright spots in what has otherwise been a very challenging 2012 for the state's 20,000 miners and 70,000 spin-off workers."

But others point out that the proposals would increase the already extreme lack of diversification in the utilities' generation portfolios.

"West Virginians have not been well served in recent years by the heavy dependence of local utilities on coal for electricity generation," observed James Van Nostrand, director of the Center for Energy and Sustainable Development at West Virginia University and a former utility lawyer and regulator, in a recent discussion paper.

About 97 percent of the state's electricity comes from coal, he wrote. With no hedge against price increases, coal price hikes in the past decade led to dramatically higher rates: 68 percent for AEP's residential customers from 2000 to 2011, and 39 percent, from a higher baseline, for FirstEnergy's.

"Integrated" planning diversifies

That could have been prevented, Van Nostrand wrote, with integrated resource planning, or IRP.

IRP recognizes that reducing demand is just as good as increasing supply for meeting future power needs. And further, that diversification protects ratepayers from big increases in the cost of any one fuel.

The planning method compares the cost of demand-side measures — energy efficiency, for example — with the cost of supply-side measures — new generation or buying power in the market — to find the best "integrated" mix for ratepayers.

Neither of the utilities' proposals sets demand-side options alongside supply-side options, Van Nostrand said. And neither gives serious consideration to renewables which, while their costs are loaded up front, have no fuel cost and so serve to hedge against fuel price volatility.

Of possibly 25 IRPs he's reviewed in his career, he said, he has never seen an analysis that would put so much of a utility's generation on any one resource.

"That, to me, is the biggest advantage of IRP: diversification," he said. "You're trying to come up with a portfolio of resources that results in the lowest cost for customers over time. Diversification usually promotes that. Things like wind and solar should be part of it. And energy efficiency, that should be part of it too."

Money-saving efficiency possible

Efficiency is a resource that builds up over time, noted policy analyst and Energy Efficiency West Virginia Coordinator Cathy Kunkel.

"Energy efficiency investments now would yield significant savings in the next 10 or 15 years," Kunkel said.

"The company's plan is looking at locking ratepayers into a major capacity investment with significant long-term risk," she said of the more recent Appalachian Power filing, "rather than considering options that would allow it to ramp up energy efficiency and demand response or build other assets in West Virginia that wouldn't have the same sort of long-term environmental risk."

AEP and FirstEnergy are doing far more to save energy in other states than they are in West Virginia.

In the recent filing, Appalachian Power proposes to reduce demand by 3.3 percent by 2022, referencing what is considered "realistically achievable" in a 2009 Electric Power Research Institute study.

But AEP companies are achieving more elsewhere, Van Nostrand said.

Virginia has a voluntary 10 percent energy efficiency target by 2020, he said — three times Appalachian Power's proposed West Virginia target. Michigan mandates more than 10 percent by 2020; Indiana, 13.9 percent. And in Ohio, where both AEP and FirstEnergy are headquartered, utilities have to put in place efficiency measures equal to more than 20 percent of energy supplied by 2025.

A recent AEP filing in Virginia acknowledges that demand-side resources "are the least-cost resource, even in significant amounts," he quoted.

Kunkel agrees, and would like to see the PSC require complete IRPs with the utilities' proposals.

"If we're looking at a major investment in an asset that's going to last another 15 to 20 years, we really need to be looking as well at other alternatives that create local jobs and save ratepayers money," she said.

Next steps

These cases have been the subject of much dialogue even in advance of the formal filings.

In the Mon Power case, petitions to intervene were filed through Dec. 31 by the West Virginia Citizen Action Group, the PSC's Consumer Advocate Division, the West Virginia Energy Users Group of large industrial energy users, the Utility Workers Union of America/AFL-CIO and its Local 304, and the Sierra Club.

The commission had received 36 form letters of support for Mon Power and three original letters, including one from the Coal Association. It had received seven letters of protest.

The more recent Appalachian Power case had a petition to intervene from the WVEUG.

Mon Power is seeking a mid-April decision from the commission, a timeline the Consumer Advocate Division argues does not allow for proper consideration of the complexities. Appalachian Power is looking for a decision in June.

To follow the cases, subscribe at www.psc.state.wv.us to case numbers 12-1571 for Mon Power's and 12-1655 for Appalachian Power's proposals.

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