When the economy picked up and global demand for coal soared in 2021, seven of West Virginia's nine coal-fired power plants operated far below capacity and their coal supplies dwindled. With markets tight and coal prices at record highs, the state's utilities relied on the less expensive and natural gas generation-heavy PJM spot market to serve their customers.

But the companies found themselves paying more for the wholesale power than they had budgeted when natural gas prices spiked during the second half of 2021, costs they are now trying to recover. The upheaval over their rate cases has, in turn, spawned an initiative by the state Public Service Commission to boost output at the state's under-utilized coal plants.

Responding to a petition by the West Virginia Coal Association, the commission convened a task force this month to "consider ways to decrease energy costs for West Virginia utility customers, including operating at higher [coal plant] capacity factors so as to lower the costs recoverable from utility customers."

Appalachian Power Co. and Wheeling Power Co., the West Virginia subsidiaries of American Electric Power Co. Inc., or AEP, have questioned the idea that running coal plants more will lower power costs. Renewable energy and environmental groups said people and businesses in the state face ever-rising bills because of the state's dependency on uneconomical coal plants.

A 2021 study from West Virginia University found that while average power prices in the PJM region dropped over the past decade, West Virginia residential prices climbed. Industrial customers have been paying more for power in the state than their peers in other PJM states since 2016, the study said.

Plants ordered to operate at 69%

While coal plants can be scheduled to run more consistently over a longer period of time and achieve what is known as a higher capacity factor, economics dictate otherwise, AEP told the commission.

"The companies would not, on their own, elect to pursue such a course of action, unless it were clear that the commission wanted them to do so after considering the interests that it is statutorily required to consider and had concluded that higher capacity utilization was more important than lower-cost power," Jason Stegall, AEP's manager of regulatory pricing and analysis, said in testimony filed in April.

AEP has also asked regulators to give them clearer direction on a September 2021 commission order stating that West Virginia coal plants must operate at a 69% capacity factor, which only two smaller plants in the state did in 2021. Even if the company had been aware of the commission's capacity factor order earlier in the year, AEP's plants would not have had enough coal on hand to run that much, Stegall said.

"Less expensive power has long been available from the wholesale market, and that's likely to continue to be the case due both to the proliferation of low-cost renewable resources and natural gas," Sean O'Leary, a senior researcher with the Ohio River Valley Institute, wrote in an email. "When combined with climbing capital costs for coal-fired power, increased capacity factors will not lower rates. Rather, it will continue a now well-established trend in which dependence on coal-fired power is correlated with rising energy costs."

A $10 power bill increase

AEP, West Virginia's largest utility, has asked state regulators to approve a $297 million annual rate adjustment to recoup higher-than-expected fuel costs in 2021 and cover anticipated steep energy costs. Such an increase would raise an average monthly residential power bill by about $10, which many households can ill-afford, said Robert Williams, director of the commission's Consumer Advocate Division.

The docket on the proposed rate increase has been flooded with protests from ratepayers who said AEP's rate increase would harm the state's many low-income communities.

"McDowell County residents struggle already with the median income of $17,021 per individual and $24,072 median income for a family," wrote Mavis Brewster, general manager of a water district in the southern corner of the state. "If the PSC approves [the] increase request, it could have a devastating impact on the residents of McDowell County and could force many commercial customers to close the doors on their businesses."

Shifting away from coal and investing in more natural gas or renewable generation would add costs for utilities that must still pay for their plants whether they are running or not, Williams said. Williams expects the task force to discuss ways for coal producers and plant operators to enter into longer-term contracts that he believes will make it more cost-effective.

$600 million upgrades to keep plants going

AEP and FirstEnergy Corp., the other major utility to serve West Virginia, have welcomed the creation of the commission task force and generally see eye to eye with the commission when it comes to keeping coal alive. In 2021, both utilities asked West Virginia regulators to approve environmental upgrades that will extend the life of their often-idled coal plants by many years.

The commission in October decided to grant AEP more than $448 million for upgrades that will bring its 2,900-MW John E. Amos, 1,299-MW Mountaineer and 1,560-MW Mitchell plants into compliance with federal coal ash disposal and wastewater regulations. The multiyear project will keep the plants operating until at least 2040.

State regulators in AEP's service territories in Virginia and Kentucky did not go along with the plan, which means the company's West Virginia ratepayers will have to foot the entire bill.

A witness for the Sierra Club, which intervened in the case, said retiring the plants by 2028 and replacing the generation with clean energy could save ratepayers $1.8 billion. The commission countered that keeping the plants in operation instead would save West Virginians up to $2.3 billion.

In January, FirstEnergy subsidiaries Monongahela Power Co. and The Potomac Edison Co. asked the commission for $142 million for similar upgrades that will keep the 1,098-MW Fort Martin plant in service until 2035 and the 1,984-MW Harrison plant until 2040.

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