West Virginia is a standout in its allegiance to coal power.
In the United States as a whole, coal’s share of the electricity mix has fallen from around half in 2005 to just 22 percent as the nation has turned to cheaper natural gas and increasingly, renewable energy. By contrast, West Virginia generated 91 percent of its power from coal in 2021—with no other state even coming close. While uneconomic coal plants across the nation were being shut down, West Virginia even approved a transfer of responsibility for several major coal plants from corporate shareholders to the state’s ratepayers.
Critics of West Virginia’s pro-coal policies say the results are now evident in the state’s skyrocketing utility bills. Household customers of one of the state’s largest utilities, American Electric Power (AEP), have seen their electricity rates rise 180 percent in the past 15 years, five times the average increase for ratepayers in the United States.
“It’s all about overwhelming economic forces,” said James Van Nostrand, professor at the West Virginia University College of Law and director of its Center for Energy and Sustainable Development. “The rest of the country embraced natural gas, they embraced wind and solar, and we doubled down on coal. And the West Virginia ratepayers are paying for that.”
But West Virginia regulators and coal power’s supporters in the state’s business community maintain, despite evidence to the contrary, that coal power is the most affordable source of energy. And they are taking a stand over AEP’s latest request for rate hike in West Virginia to pay for the company’s skyrocketing costs. West Virginia officials and business advocates argue the true villain in the story of the state’s rising electricity prices isn’t coal, but the climate change agenda.
After AEP’s West Virginia subsidiaries requested a 12 percent rate hike in April, the state Public Service Commission launched an investigation into the reasons for the utility’s high costs. The regulators made clear they believed the cause was the company’s inadequate use of its West Virginia coal plants, possibly due to the company’s decarbonization goals.
That charge flies in the face of the evidence: AEP’s coal plant carbon dioxide emissions in West Virginia, in fact, increased as its costs were rising in 2021, and made up about 40 percent of the state’s total, just as they had for the past decade, according to federal Environmental Protection Agency data.
Last month, the Sierra Club even included AEP’s West Virginia subsidiary, Appalachian Power, on its list of “greenwashing” utilities—companies that claim to be battling climate change while dragging their feet—and gave its clean energy transition plan a grade of F.
But the state Public Service Commission has held off making a decision on the AEP rate hike request for seven months, while it seeks an explanation why the company is not operating its coal plants at a target rate the regulators set last year—a target that is beyond the reach of most of the nation’s aging coal plants, including AEP’s.
AEP has warned the regulators that ramping up the coal plants in this manner could result in even higher costs for West Virginia customers.
The Public Service Commission’s tenacity, and the AEP rate case now before it, provide a window into one of the greatest challenges of the U.S. clean energy transition: Much of the nation’s electricity policy is set by states, and some states remain committed to fossil fuels.
The nation’s first federal climate law, the Inflation Reduction Act, passed by Congress in August, seeks to give such states an extra push as it injects $370 billion into the U.S. economy to accelerate the transition to clean energy. The law, which West Virginia’s own Democratic senator, Joe Manchin, played a key role in shaping, includes enhanced incentives for new solar, wind, carbon-reduction and battery projects and clean tech manufacturing in “energy communities,” areas traditionally reliant on fossil fuels. The federal incentives could feed a nascent thirst for industrial development tied to renewable energy that has begun taking hold in West Virginia.
But the new federal law doesn’t force change—it only provides incentives. It remains to be seen whether states with strong long-standing policies favoring the fossil fuel industry will be fertile ground for clean energy, increasing job opportunities and easing the costs of electricity for West Virginia’s consumers.
“West Virginia policymakers are facing a moment of truth, a real choice,” said Sean O’Leary, senior researcher with the Ohio River Valley Institute, a think tank focused on energy and economic issues in Appalachia. “The crossroads at which West Virginia policymakers stand is really one of whether they basically join the rest of the country in moving to clean and renewable resources, or whether they try to preserve coal. My fear is they’ll choose the latter course.”
Keeping Coal Plants Open Is the Law
The coal that lies beneath West Virginia has shaped the state as surely as the mountains that rise above it. Even though production peaked in 1997, the state is still second only to Wyoming in coal output. Yet employment in the West Virginia mines has been falling since its high point of 125,669 in 1948, and is less than one tenth of that today.
Long before environmental concerns and competition from natural gas squeezed the coal industry, mining jobs disappeared as companies replaced workers with big machinery and dynamite. And as labor costs dropped and mine output soared, coal brought wealth—at least for a time—to industry owners and executives. They wielded an enormous influence on West Virginia politics that endures today, even though the high-wage blue-collar jobs the mines once promised have mostly evaporated.
State policymakers don’t have the power to turn back the clock, but they do have some say over the operation of coal power plants in the state. Sixty percent of the coal mined in the state goes to electricity, and half of that is consumed by those West Virginia coal plants, so keeping the state’s nine remaining coal plants open has become a state policy imperative.
If there were any doubt about that, the state Legislature made it official last year. Lawmakers overwhelmingly passed a bill requiring power plant operators to maintain a 30-day supply of coal under contract. They also set up bureaucratic roadblocks to the shutdown, sale or idling of the plants. The law’s text notes that more than 600 coal plants have shuttered nationwide, including 18 within the state. And 70 percent of the 162 coal plants that were purchasing coal mined in West Virginia just a decade ago have shut down.
“It is imperative the state of West Virginia take immediate steps to reverse these undesirable trends to ensure that no more coal-fired plants close, no additional jobs are lost, and long-term state prosperity is maintained,” the law reads.
Much of West Virginia, though, has been in a struggle to gain prosperity rather than maintain it. The state ranks 49th among 50 states in median income and has one of the country’s highest poverty rates. In 2020, West Virginia led the nation in deaths from drug overdoses, with a mortality rate nearly triple the national average.
The state has the lowest labor force participation in the nation, with just 55 percent of adults working or actively looking for work. And the coal industry isn’t helping. The mines employed just 11,927 workers in 2021, the fewest since 1890 and a 46 percent drop from a decade earlier.
Still, coal has an impact on West Virginia’s economy and psyche far beyond the number of miners employed. The most generous estimate, from the West Virginia Coal Association, is that the industry creates $14 billion in economic activity annually, or 18 percent of the state’s GDP. West Virginia University economists measure the impact at somewhat less — 15 percent for mining and natural resources, which includes the state’s growing natural gas industry. The university’’s analysts also note that the sector’s impact on GDP is not about the number of jobs. Instead, it reflects the industry’s high wages and capital requirements. The sector accounts for only 3 percent of statewide employment.
However small the coal workforce, state leaders invoke the miners when they vow to protect the industry. “So many different people throughout all of the… land and everything have thrown rocks at our natural resource industries, our coal miners and gas workers—it really makes me mad,” Republican Gov. Jim Justice said in this year’s State of the State speech. “I don’t know how you exist in the state of West Virginia and turn your back on the very industries that have made this state and still continue to do so.”
‘We Will Not Go Cold Turkey on Coal’
Justice, an heir to a family coal fortune who won office in 2016 on a promise that he “won’t give up on coal,” turned to unabashed advocates of industry to fill the three-person state Public Service Commission, the electricity-rate-setting agency that has an outsize role in setting the course of West Virginia’s energy future.
Justice’s hand-picked commission includes its chair, Charlotte Lane, a longtime energy industry lawyer-lobbyist and former state lawmaker who ran unsuccessfully for Congress in 2013 on a pledge to end what she called President Barack Obama’s “war on coal.” The energy and natural resources sector was her biggest industry supporter, contributing more than $71,000 to the $522,000 she raised in four campaigns, according to the National Library on Money and Politics.
Last year, Justice added Bill Raney, a retired president of the West Virginia Coal Association whose accomplishments arguably include turning West Virginia from a blue state to red. Republicans were never thought to have a lock on the traditionally blue-collar union state until 2000, when West Virginia gave President George W. Bush his margin of victory following a fierce coal industry-led campaign against the Democratic nominee and climate action champion Al Gore.
After Bush retracted his own campaign pledge to regulate carbon emissions from power plants, Raney told fellow coal industry leaders, “You are already seeing in his actions the payback, if you will, his gratitude for what we did,” The Wall Street Journal reported at the time.
Along with Justice’s third appointee to the Public Service Commission, Renee Larrick, a former teacher and business manager for a law firm, Lane and Raney have led an extraordinary charge over the last year to keep the state’s coal plants alive. They describe that goal as one in the same as the Commission’s official mandate: to keep power available and affordable for West Virginia consumers.
Commission spokeswoman Susan Small said the members declined to be interviewed. “The commission speaks through its orders,” she said in an email.
“The PSC has come under criticism for favoring coal fired generation over renewable energy,” she said. “The fact is that the commission favors lower cost generation over higher cost generation.” Lane pointed to the most recent Energy Information Administration monthly statistics, which she said show West Virginia’s rates are “the 18th lowest out of all 50 states,” which she attributed to the state’s coal power.
But the figure Lane cites does not fully reflect the pressure faced by West Virginia households due to the rapid run-up in their electricity costs. According to the Commission’s own figures, the rate increase has been greatest for customers of AEP, which has more coal generation in West Virginia than any other utility, and serves the southern half of the state, which has some of the highest poverty rates.
In their orders on utility rate requests and other business decisions, the West Virginia regulators have argued that relying on coal mined mostly within the state assures a “secure base load generation capacity.”
Because electricity is shared across state borders on regional grids, the regulators maintain that West Virginia coal power has a homeland security benefit that has grown as neighboring states have turned to renewable energy, which they view as less reliable. Quoting the text of last year’s law, they say that West Virginia’s coal plants provide “slow, steady generation that produces power on a continuous cycle, ensures grid stability, and protects against overloads and power shortages.”
Such benefits may be invisible to the average electricity West Virginia customer, who experienced 452 minutes of power failures last year, not including those caused by major storms—three and a half times the national average, according to the Energy Information Administration (EIA). That’s the worst power system reliability record in the nation for the second year in a row, a problem that officials attribute to trees falling over power lines in the largely rural state, Reuters has reported. West Virginia’s reliability record shows that no matter how slow or steady coal plants are, they are no guarantee against the transmission failures that cause most outages.
Still, the Public Service Commission maintains that coal plants bring numerous economic benefits to the state.
“Direct employment at the plants, use of West Virginia coal, state, county and local taxes related to operating generation plants, and related employment in businesses supporting the plants and the coal industry cannot be discounted or overlooked,” the commission wrote in an October 2021 decision. It was the last of a series of orders directing AEP’s two West Virginia subsidiaries, Appalachian Power and the smaller Wheeling Power, to keep their three aging West Virginia coal plants operating through 2040.
Early last year, it looked as if one or more of AEP’s plants—Amos, Mitchell or Mountaineer—could be forced to close. Like other U.S. coal power plants, they had to invest in upgrades to meet new EPA rules for handling coal ash and removing toxic heavy metals from their wastewater.
AEP calculated that it was worth making the investment at Amos and Mountaineer but likely more cost-effective to shut down the oldest plant, 51-year-old Mitchell. The company left it to the regulators to decide. Operators of more than two dozen coal plants around the country have since announced they would retire them by 2028 rather than upgrade to meet the new requirements, according to tracking by the Sierra Club.
But one day before the EPA’s deadline to submit plans for meeting the new rules, the Public Service Commission ruled that West Virginia’s ratepayers would pay the $448 million investment needed to keep all three plants open for two more decades. The cost for West Virginians, originally estimated at $170 million, ballooned 164 percent after regulators in the neighboring states that shared oversight, Kentucky and Virginia, refused to foist the costs on their states’ consumers. The West Virginia commission brushed aside pleas from the Sierra Club and others that the state should use the decision as an opportunity to move toward cleaner energy.
“We recognize that in the future, for new power supply resources, we may have to rely more on intermittent resources such as wind and solar and enhance their load-serving capabilities with extensive and expensive battery resources,” the commission wrote. “It is premature, however, to begin abandoning our traditional base-load power supply resources, which can be upgraded to meet environmental requirements.”
In her online video commentary last week, Lane put it more bluntly: “We will not go cold turkey on coal at the expense of West Virginia ratepayers.”
But the state’s ratepayers will be paying to upgrade the coal plants. The charge will be phased in over time as construction work is completed, eventually adding up to a 3.3 percent increase in customers’ bills, according to AEP.
And even as that decision was being finalized in the fall of 2021, the costs of electricity generated from fossil fuels were rising. Natural gas prices became extremely volatile as the market struggled to match supply with demand in the aftermath of the Covid-19 pandemic, and early this year, the Russia-Ukraine war triggered an enormous global spike in energy prices. The price of coal shot up to its highest sustained levels in years. AEP returned to the Public Service Commission, seeking a far larger series of rate increases.
Price Shock in West Virginia
The entire world has been struggling with the soaring energy prices of the past year, but the rapid runup in electricity costs has been an extraordinary shock for West Virginia, a state that had among the nation’s lowest electricity rates 15 years ago. Since then, the average residential electricity rate has risen more slowly than inflation in the rest of the United States, meaning that electric bills became a smaller portion of household expenses. In West Virginia, however, they became a greater part. The pain is evident in the hundreds of protest letters that regulators have received about AEP’s latest planned rate hike.
“We can’t afford the things we need for our kids because we have to choose to survive instead of live!” wrote Dorothy Black, who lives in Huntington.
Ernie Rhodes of Charlton Heights, West Virginia, wrote, “My work has notified employees that if this rate increase goes through that they will be closing their doors.”
Betty Chapman, of Milton, West Virginia, mailed a copy of her $109.07 electric bill to the Public Service Commission along with a handwritten note about how she goes to bed wondering if she should skip using her oxygen machine to save energy. “I worked hard all my life and never fussed about rate increases, but I am on Social Security now and have reached my limit,” she wrote.
Making matters worse for West Virginians is their household electricity consumption, which is 20 percent higher than the national average. “That’s not by accident—that’s by design,” said O’Leary of the Ohio River Valley Institute. “Energy efficiency is perceived to be a threat to coal.”
Indeed, the Public Service Commission has rejected or scaled back proposed utility energy efficiency programs—for example, a plan to expand use of smart thermostats—as too costly. West Virginia’s energy-efficiency policy ranks 48th among the 50 states, according to the American Council for an Energy-Efficient Economy. EIA data shows West Virginia utilities spent about $3 per customer in 2021 on energy efficiency, one-twelfth of the nationwide average of $36.
The $297 million rate hike proposed by AEP’s Appalachian and Wheeling power companies in April would add about $18 per month to the average monthly household bill. It comes on the heels of proposals for two other fuel-cost-related rate increases that were partly granted by the Public Service Commission. If approved, AEP’s West Virginia utilities, which serve 45 percent of the 1 million customers of West Virginia, will have imposed energy-cost rate increases totaling $428 million since September 2021.
“The companies have been operating for over a year now in extremely challenging circumstances,” AEP said in a new filing in the rate case at the start of November. “Market prices for coal and natural gas increased swiftly and dramatically and remain high. The availability of coal has been and continues to be frustratingly constrained.”
The filing, a plea for action on the company’s seven-month-old rate request, reflected the charged atmosphere around the case.
“In light of the burdens that these circumstances place on the companies and their customers, it may be tempting to jump to the conclusion that the companies are at fault and must have done something wrong,” the filing said. “This is a dangerous temptation (and one that is not supported by the evidence). This proceeding should be guided by rational evaluation, not by emotion; its outcome based on facts, not on feelings.”
In an email exchange with Inside Climate News, AEP said that a decline in population and businesses in West Virginia had taken a particularly hard toll.
“Appalachian Power has made significant investments in transmission, distribution and generation to continue providing safe and reliable power to our customers, which are reflected in rates,” an AEP spokeswoman, Tammy Ridout, said in an email. “As fewer large energy users and residents work and live in the state, the costs needed to maintain reliable service have been spread to a smaller number of customers. That’s one of the reasons we are focused on economic development to try and bring more jobs and growth to the state as the energy transition continues.
“We know our customers count on us every day to meet their energy needs while working to keep bills as low as possible,” she said. “We continue to focus on reducing our operational costs and advancing economic development opportunities in our service territory.”
West Virginia was indeed one of only three states that lost population in the last census, but a shrinking customer base isn’t the whole story. Neither Illinois nor Mississippi, the other two states where population dropped, has experienced such rapid increases in electricity costs.
Van Nostrand, the West Virginia University law professor, argues that the state’s electricity customers are now suffering the consequences of state government policies of the past decade to keep aging coal plants operating even though they have become uneconomic.
In his new book, The Coal Trap, Van Nostrand, a former energy industry lawyer and New York State regulatory agency staff member, details the sometimes arcane decisions made by the West Virginia regulators to bolster the coal industry. The industry’s influence in the state is so great, he said, that it was able to persuade policymakers to fight overwhelming economic forces that turned against coal power after natural gas from shale fracking flooded the market. Since the mid-2010s, when natural gas power became cheaper, hundreds of coal plants have shut down across the country.
But West Virginia has been able to keep open nine of the 15 coal plants that were operating in the state a decade ago. One reason, Van Nostrand argues, is that the state’s ratepayers took responsibility for the costs of some of the larger plants by order of the Public Service Commission.
The commission approved moves in 2012 and 2013 by AEP and the other large utility operating in the state, FirstEnergy, to transfer West Virginia coal plants from their unregulated subsidiaries to their regulated subsidiaries. These weren’t mere bookkeeping changes: The transfers meant that the future risks and costs of the coal power plants would be borne by West Virginia’s ratepayers rather than the company’s shareholders.
Of course, the shareholders would lose out on any future profits. But the fact that AEP and FirstEnergy sought to transfer them, in Van Nostrand’s view, shows there were no profits to be had.
“These plants were losing money once the shale gas revolution happened,” he said. “In every other state in the country, they were selling coal plants for pennies on the dollar. But in West Virginia, they dumped them on the ratepayers. The ratepayers bought them.”
In 2013, the Institute for Energy Economics and Financial Analysis, an Ohio-based think tank focused on the energy transition, concluded that AEP and FirstEnergy had vastly oversold the benefits of the coal plants in their petitions to the commission. The analysts estimated that Appalachian Power and its customers, the West Virginia ratepayers, would save $500 million by 2024 by shutting down the plants and relying instead on purchases of power from the grid.
Two years before that projected date, AEP’s rate hike requests for 2021 and 2022 alone are approaching that figure.
Regulators Land on a 69 Percent Solution
The Public Service Commission maintains that AEP’s coal plants are a good deal for the state’s consumers. In Lane’s video message on coal power’s benefits, she argues that the state’s existing power plants were built decades ago at much lower cost than the cost of building new wind or solar energy, if one takes into account the capital costs customers already have paid through depreciation.
AEP could bring its operating costs down, Lane and the other West Virginia regulators argue, if it simply used its coal plants more.
“The coal association has them believing that the plants are just sitting there, and of course they would be more economical, just run them,” Van Nostrand said. “That’s just not the way it works.”
The cost of running a coal plant includes not only the initial capital investment and ongoing fuel costs, but maintenance needs that increase steadily over time. The amount of coal required to generate each megawatt of power can increase as a plant ages, due to maintenance needs, the impact of poor coal quality and the system stress caused by the cycling up and down of plants for repairs or when demand is low.
But the West Virginia regulators have concluded the solution is to not cycle the plants down. So the commission has held off making a decision on AEP’s full rate request and instead ordered proceedings examining the corporation’s management of the plants.
The central question in the case is why AEP has failed to follow a Public Service Commission directive issued in September 2021 requiring companies to ramp up their coal plants to run at least 69 percent of the time—a figure that it calculated offered the most efficient plant operation.
There were a number of problems with this order.
First of all, old U.S. coal plants simply aren’t running at such high capacity rates. They need too much downtime for maintenance. Even if an older coal plant runs at a high rate in the summer months, when demand is typically high, it will have to be brought down for planned maintenance in the fall, when seasonal demand is lower, to address wear and tear on the equipment. That is exactly what happened at AEP’s plants in 2021, testified Aaron Sink, manager of Appalachian Power’s Amos plant at last month’s hearing. “Those operating hours have to be met with maintenance needs,” he said.
And for plants like AEP’s West Virginia units, which operate in competitive regional wholesale electricity markets, the price of coal power often gets beaten out by cheaper natural gas, nuclear power and renewable energy. So as a result of both energy economics and maintenance needs, the average U.S. coal-plant capacity rate has been falling and has averaged less than 50 percent since 2019, according to the EIA. Indeed, over the past two years, AEP’s newest West Virginia coal plant, 40-year-old Mountaineer, has only been operating at 59 percent capacity, followed by Amos, at 44 percent, and Mitchell, at 36 percent.
Another problem, AEP has testified, is that it hasn’t had enough coal to run its West Virginia plants at such a high rate. The coal companies with which it had signed supply deals reneged on those contracts in late 2021, leaving the company with a 2 million-ton coal shortfall. Although AEP has reached settlements with most of its suppliers over the missed shipments, it has taken the largest underground mining company in the nation, American Consolidated Natural Resources, to court for breach of contract. (ACNR, based in Ohio, emerged from the 2019 bankruptcy of Murray Energy, purchasing all of the assets of the previous firm.)
Exactly why the coal industry failed to supply AEP cannot be known with certainty—companies guard the details of supply contracts, and the parties in the litigation declined to comment.
When the spot market price for coal suddenly spikes, as it did in late 2021 and early 2022, coal companies cannot take advantage of the opportunity if they are stuck in contracts that pay them a lower price. Some look to get out of those deals. In a current counterclaim against AEP, ACNR charges that AEP breached its contract by refusing to accept shipments “from time to time.” Adding to the conflict, utilities don’t want to lock themselves into new long-term supply contracts when coal prices are high.
Such disputes are an embedded cost of keeping coal power plants running that the West Virginia Public Service Commission doesn’t take into account when it touts the reliability and affordability of coal.
The regulators’ 69 percent order also vastly understated the costs of operating the West Virginia coal plants. Part of the explanation lies in how electricity gets bought and sold in wholesale markets like PJM, the 13-state system in which AEP participates with some 20 other Middle Atlantic utilities.
Every day, the utilities bid to provide power to the 65 million customers served by the PJM grid. PJM evaluates bids and dispatches power from the plants, automatically starting with the least expensive available generation and moving up progressively to more expensive generation until demand is met. Power plants won’t be called on if their bids are too high or if they are down for maintenance or other reasons.
In its 69 percent capacity factor order last September, the West Virginia Public Service Commission assumed that AEP’s three West Virginia coal plants would be highly competitive in this market. It estimated that the cost of power production at the plants ranged from about $20 to $22 per megawatt-hour generated, far less than what it figured the cost would be for purchases of electricity off the PJM grid, $35.44 per megawatt-hour. But those figures are now wildly out of date, as the average electricity price on the PJM grid rose to a record $77.84 per megawatt hour in the first nine months of 2022. And they do not take into account the cost of maintenance, operation or capital upgrades, which increase proportionally as a coal plant ages.
Although the costs of operating individual plants in real time are not available to the public, power companies do report their costs annually to federal authorities. Based on these reports, coal-fired power (“fossil steam power”) has been consistently more expensive than natural gas and wind power nationwide since 2015, according to the EIA. The cost of coal has been higher than nuclear and hydroelectric power since the EIA began recording the data in 2010.
Last year, Energy Innovation, a nonpartisan energy and climate think tank, completed a cost analysis of all 235 coal plants still operating in the United States. The Mitchell plant was among the nation’s most expensive to run, the researchers found: $45.78 per megawatt-hour, more than double the Public Service Commission’s estimate.
Indeed, Energy Innovation found that building new wind power in the region would be 34 percent cheaper, and new solar power, 16 percent cheaper, than continuing to generate power from the Mitchell plant. That did not make Mitchell unique: Energy Innovation calculated that 80 percent of the nation’s coal plants cost more to run than investing in new renewable energy does.
Energy Innovation’s 2021 analysis suggests that the economics of AEP’s two other West Virginia coal plants were better, although still higher than the West Virginia regulators’ estimates. Amos had costs roughly on par with those of shifting to wind power, while Mountaineer could still produce power at a lower cost than building new renewable capacity as of last year. But those calculations were completed before the run-up in fossil fuel prices began in late 2021. Energy Innovation is now updating its analysis to take into account the latest available coal costs as well as the impact of the new Inflation Reduction Act, which is expected to further lower the price of renewables.
Even now, it is clear that coal power overall has a hard time competing in the PJM market. The EIA’s hourly grid monitor shows that from mid-October through mid-November, only 14 percent of PJM’s power came from coal even though coal plants make up 28 percent of the installed capacity on its grid. The PJM electricity mix was dominated by natural gas and nuclear energy, indicating that they were cheaper. Renewable energy made up 8 percent of the power on the grid; it accounts for 7 percent of PJM’s installed capacity.
The West Virginia Public Service Commission, however, does not accept that its calculations on the economics of the state’s coal power are wrong. The commission acknowledges that coal prices have increased but says that because natural gas prices have also risen, coal power is bound to be cheaper. “The PJM market price is likely going to exceed the cost of self-generation by the companies, even at increased coal prices,” the commission said in an order in May.
EIA data show that the West Virginia regulators’ projections of fossil fuel prices quickly proved incorrect because the cost of natural gas for generating electricity—after soaring early this year—fell below the cost of central Appalachian coal in June.
The West Virginia regulators maintain that if AEP were managing the plants properly, contracting for coal with better foresight and bidding strategically in the PJM market, West Virginia’s coal plants would be revealed as among the cheapest power producers available.
“It is clear that the companies’ fuel supply planning and overreliance on market purchases are self-inflicted wounds,” the regulators said in their May order launching a deeper investigation. “Instead of allowing coal inventories to decline precipitously, the companies should have been doing everything possible to use their plants more and increase fuel inventories at the same time.”
The West Virginia regulators and their allies have a theory on why AEP isn’t taking advantage of the purported cost savings of coal: its climate change agenda.
“We do not know now whether the companies [the AEP subsidiaries Appalachian Power and Wheeling Power] are influenced by a decarbonization policy or not,” the regulators wrote in May. The commission’s intent, however, they said, is for the companies “to maximize their use of fossil-fuel generation that is cheaper than purchased power rather than a policy geared to decarbonization at any cost.”
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AEP indeed has committed to a corporate-wide goal of an 80 percent reduction in its greenhouse gas emissions by 2030 from the baseline year of 2005, and a long-term target of net zero by 2045. But in the West Virginia rate case, the company has testified that its climate policy is “absolutely not” driving its decision-making on the coal plants in the state.
“The notion that the companies may be intentionally not running their coal-fired plants to achieve some type of decarbonization goal is simply not true,” said John Scalzo, vice president for regulatory services and finance for Appalachian Power and Wheeling Power, in testimony submitted in the rate case. “The companies’ coal-fired plants will run when (1) they have available fuel, (2) are not in a necessary outage (i.e., are “available”), and (3) when dispatched by PJM.”
Still, AEP faced round after round of questioning on its climate policy at a hearing last month in Charleston on the rate hike.
“Do either of the companies here prioritize clean energy transition over affordability?” asked Jacob Altmeyer, a lawyer for the West Virginia Coal Association, one of the industry groups that intervened in the case.
“We prioritize reliable, safe energy for our customers,” replied Randall Short, director of West Virginia regulatory services for AEP’s Appalachian Power.
AEP was taken to task for having insufficient coal on hand, with one longtime coal industry consultant, Emily Medine—acting as a witness for the Public Service Commission’s consumer affairs division—submitting testimony that the company had been “laser-focused” on reducing its coal inventories.
Noting that the low levels were due to coal companies’ failing to fulfill their delivery contracts, AEP responded in a case filing, “It appears that Ms. Medine misunderstands fundamental principles of contractual relationships.”
But at last month’s hearing, Lane, the commission’s chair, maintained that AEP was ultimately to blame. “Explain to me how you can run out of coal for any reason,” she said to one company witness. “I mean, isn’t it better to have too much coal than not enough coal? And explain to me why you are just sort of going along and just having a minimal amount of coal, and then all of a sudden you need more coal?”
Raney, the commission member who had served as the coal industry association’s president, made clear his suspicion that AEP’s high costs resulted from the company’s decarbonization strategy. He asked if climate goals were driving low use of AEP’s fossil fuel plants.
“Who keeps track of meeting the 80 percent goal by 2030? Of the 80 percent reduction in CO2?” he asked AEP officials. “When the … coal plants are not operating, the gas plants are not operating, does that count possibly to the 80 percent on that particular day?” He was referring to the company’s target for reducing its greenhouse gas emissions by 2030.
AEP responded that it was a company-wide goal evaluated on an annual basis.
“Honestly, I think as of last year we already met it,” Raney replied.
In fact, carbon dioxide emissions at AEP’s three West Virginia coal plants were up 2.1 percent in 2021 to more than 22 million tons, according to data from both the EIA and the EPA. That was not only a rebound from the fall in emissions nationwide in 2020 because of decreased demand for electricity during the pandemic, but also the highest level those plants had hit since 2018.
Compared with 2005, the base year that AEP is using to measure its climate progress, emissions at AEP’s three West Virginia coal plants—like power plant emissions overall in West Virginia—were down by 31 percent, EIA’s data indicate. That is below average by comparison with the rest of the country, which has seen a 40 percent reduction in greenhouse gas emissions from the electric power sector in the past 15 years.
AEP maintains that, depending on conditions on the PJM grid, its West Virginia coal plants are sometimes economical to run, and sometimes not. The company has warned West Virginia regulators that their 69 percent target would require running the coal plants when it is not economical to do so. The company asked whether West Virginia ratepayers would cover such increased costs. “The companies feel somewhat like a football team trying to play on an expanse of grass with no markings or goal posts,” AEP said in a September filing.
The West Virginia regulators have refused to further clarify their order, dismissing as implausible the idea that coal power could be relatively expensive. “The commission does not agree with this premise,” the regulators wrote in May.
At last month’s hearing, AEP’s lawyer, Anne Blankenship, tried to question a member of the commission’s staff, Geoffrey Cooke, on whether state regulators supported the idea of customers’ shouldering the cost of running the coal plants at 69 percent capacity if it is not economically advantageous.
“I really haven’t thought much about that because it seems to appear that the 69 percent is going to be economic,” Cooke testified.
“So you haven’t considered the situation where it’d possibly be uneconomic to run at 69 percent?” Blankenship asked.
“No, I have not,” responded Cooke.
As New Business Seeks Clean Power, Old Industry Favors Coal
Many in the state’s business community support the regulators’ call for 69 percent coal power, including the West Virginia Coal Association and the West Virginia Energy Users Association, comprising energy-intensive industries like Marathon Oil and the chemical giant Chemours.
“Coal-based electricity here within West Virginia is still a good bargain,” Chris Hamilton, president of the West Virginia Coal Association, said in an interview, pointing to the Public Service Commission’s figures. “There are no alternatives to coal generation that are as affordable and have other advantages such as having electricity available 24/7 and also checks all the boxes for homeland security. We think coal is still a pretty good deal.”
Hamilton attributes the string of recent rate increases to utility mismanagement. “Our electric utilities have not forecasted coal production and coal obtainment accurately,” he said. “They have not attempted to build their inventories, as they should.”
He did acknowledge, though, that coal supplies were short. “We have a world energy crisis underway, and prices have gone up astronomically around the globe,” he said. Hamilton said that the coal companies also faced multiple pressures that were making it difficult to ramp up supply, including worker shortages, the reluctance of lenders to finance coal operations (because of their “environmental, social and governance,” or ESG investment policies) and the current direction of federal policy. “It’s a little bit of a perfect storm for us today,” he said.
He said that electricity rates in general were no worse in West Virginia than elsewhere and that rates for industrial customers were lower than in neighboring states. West Virginia’s average industrial power rate is indeed the lowest in the nation, according to the EIA’s most recent monthly figures. Industrial customers in West Virginia pay half the rate that residential customers pay, one of the biggest electricity discounts for industry in the country.
Hamilton maintains that low-cost coal power has been crucial to attracting industry to the state. He cites a plan announced this year by the steelmaker Nucor to build a $2.7 billion plant in Mason County—the company’s largest single capital investment ever and a record for West Virginia.
But the Nucor deal underscores the pressures that are building in West Virginia for a transition away from coal. The plant, part of Nucor’s plan to produce low-carbon steel, is already committed to drawing at least some of its power from a new solar power farm being built by AEP, which worked with the steel company on the plan. “Having renewable energy in the mix was a key factor” in Nucor’s decision to locate in West Virginia, said Chris Beam, president and chief operating officer of AEP’s Appalachian Power.
The $200 million Black Rock Wind Farm, which opened this year in Grant and Mineral counties, will supply power to Toyota’s 25-year-old plant in the town of Buffalo, which employs 2,000 workers. The carmaker said the wind project would help it move toward its goal of eliminating carbon emissions from its manufacturing by 2035. And in September, Warren Buffett’s Berkshire Hathaway announced that it would invest $500 million in a new aerospace manufacturing hub in Ravenswood, West Virginia, powered entirely by a solar energy microgrid.
Making the Berkshire Hathaway announcement in September, Justice sounded far less coal-centric than earlier in his career. “I couldn’t be more proud of the fact that West Virginia will help lead the way into a new era of renewable energy microgrid-powered manufacturing,” the governor said.
In fact, the project will be the first to benefit from a new law that had been passed only a day earlier by the state Legislature in a special session called by Justice. The legislation allows for the creation of special “high impact” business districts exempt from regulation by the Public Service Commission “in certain circumstances where the availability of electricity generated from renewable sources is demonstrated to be necessary.”
Van Nostrand said it was not surprising that lawmakers gave Berkshire Hathaway a carve-out, given the skepticism about the costs of renewable energy reflected in the commission’s previous conditional approvals for such plants. But he said that such deals underscore the plight of West Virginia’s ordinary households, which are stuck paying the high cost of keeping coal alive.
“The legislators are getting the message that if you’re going to attract the job creators, you’ve got to give them access to renewable energy,” he said. “But the policy ends up being Band-Aids for the sophisticated customer with clout like Berkshire Hathaway, while the rest of us are stuck with rates going through the roof and keeping coal plants open through 2040.”
AEP has reported that its balance of unrecovered costs for its West Virginia operations grew to $430.5 million by September, an increase of 45 percent since the company originally sought its rate increase in April. The company told investors on Oct. 27 that it was looking at issuing bonds to address the shortfall. Utilities often turn to such financing to lower the long-term interest charges on extraordinary costs after events like hurricanes or natural disasters. It can ease but not eliminate the cost for customers. AEP’s West Virginia customers would still eventually face charges on their electric bill, to pay for this particular “storm”—in this case, high-cost fossil fuel.
For now, the Public Service Commission has made no decision on AEP’s rate increase request and continues its investigation into why the company isn’t using its coal plants more. “What is it going to take to get your attention that we really mean 69 percent?” Lane, the commission chair, asked the company at the October hearing.
The company will not meet that goal in the near future. Coal supplies continue to be tight, AEP officials testified. And in a reminder of the enduring cost burden, they noted that two of AEP’s three West Virginia coal plants, Amos and Mitchell, were scheduled to be down for planned maintenance through December.