Photo Courtesy/WV Legislative Photography Senate Energy, Industry and Mining Committee Chairman Chris Rose said SB 505 will address electric grid reliability and affordability, though electric utility companies disagree.

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.

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.”