By Stephen Smoot
Recently, State Senator Brian Helton (R- Fayette) shared that he would re-introduce a bill that would forbid utilities from raising rates unless the power companies are running coal-fired plants at a minimum of 69 percent capacity. Helton noted in an op-ed that the percentage is “the standard the Public Service Commission recommends.”
He also shared that he and State Senator Rollan Roberts (R-Raleigh) “called for an investigation from the PSC into the utilities and pushed them to justify every rate increase . . . we will continue holding them accountable.”
In recent years, PSC rate increase requests from the state’s power companies have come due to the cost of meeting United States Environmental Protection Agency regulations, notably those on effluent.
Sen. Helton stated that he received no guarantees that rates would not increase in the future either.
He then added that “using more coal creates good-paying jobs, strengthens local economies, and helps keep people here.” Helton subsequently stated “this directly undercuts AEP’s narrative for why rates keep rising.” He then attacks less efficient and productive green energy initiatives that “cannot provide continuous baseline power.”
“Protecting coal – while also valuing our natural gas resources, means jobs, dependable power, and predictable bills for families.” Helton said while attacking left-wing backed subsidies of green energy projects, such as for wind and solar.
That said, the momentum in state energy development has gone more toward creating new natural gas generation capacity. This includes First Energy putting plans in place to replace two coal plants with natural gas in North Central West Virginia and American Electric Power considering partial conversion to gas of two of its coal-fired plants.
Senator Helton has the laudable intention to restore and further grow the markets that drive coal production in West Virginia communities. Critics of Helton’s proposed legislation have pointed out that this works against the efficient allocations of the free market and could lead instead to higher rates.
T.J. Meadows, currently with West Virginia Metro News, was formerly director of federal policy with AEP. He points out aspects of how energy grids work that could kick in the “law of unintended consequences” on this legislation.
“Our power grid isn’t political,” stated Meadows, who went on to add that “it’s based on engineering and economics.”
West Virginia forms part of the PJM Interconnection network. It originally formed in 1927 for Pennsylvania, New Jersey, and Maryland, but has since extended to 13 states, including the Mountain State.
It serves as one of seven companies that operate the transmission grid across the United States and Canada. PJM Interconnection serves approximately 1,100 companies with about 65 million customers. It takes responsibility for safety, reliability, and security of the bulk transmission of energy over its system.
PJM also manages the wholesale electricity market, balances the needs of the areas and stakeholders that operate within its area, and ensuring that it maintains grid reliability and all of its other functions at the lowest cost possible to all involved.
To maintain market efficiency and pass as little of that cost along to rate-paying consumers as is possible, PJM Interconnection must practice ruthless price minimization. It must consume first from the sources with the best combination of most reliability and cheapest cost.
Meadows states that “Helton’s bill would blow up that logic” because “it would require utilities to run perhaps more expensive plants even when cheaper ones are available.” Meadows gave the example “imagine running a $70 per megawatt-hour unit to run while a $40 unit sits idle.” He insists “that’s not ‘accountability,’ that’s waste.”
He goes on to explain that the proposal confuses “two different markets that keep the lights on: capacity and energy.” Meadows states that “capacity means being available when needed” and compared it to emergency services on standby. He then says “energy is the actual electricity produced” and that all energy markets seek out the least expensive energy available. If it uses up the capacity of the least expensive sources, the grid then turns to the next least expensive source.
Helton argues that the government has subsidized “very unreliable” renewables such as wind and solar. He stated that “right now, our government has subsidized and played favorites to pick the Green New Deal unreliable sources of energy.”
In July of this year, PJM Interconnection reported that their purchase percentages are 45 percent from natural gas, 21 percent nuclear, 22 percent coal, four percent hydroelectric, three percent wind, and one percent solar. Over the year prior, PJM purchased three percent more natural gas. Its use of both coal and wind power dropped by four and two percent respectively.
Sources such as solar and wind lack the consistency of coal, nuclear power, and natural gas and cannot effectively replace them as foundation sources of energy for the grid. The grid needs sources of energy that operate continually regardless of the weather or daylight.
A worrisome note from the report was that PJM’s cleared volume only slightly cleared its projected reliability requirement, according to Renewable Energy World. Supplies of energy have tightened considerably as artificial intelligence driven systems push consumption higher and higher. This will increase quickly as PJM expects peak demand to increase by 30 GW by 2030.
PJM also has a logistics issue in transmission capacity limits.
Governor Patrick Morrisey’s plan to dramatically expand West Virginia power production comes as a response to these pressing regional needs. His vision, however, does not expect to rely on renewables. It does state that coal, natural gas, and nuclear power would form the legs of the stool.
That said, one of the largest independent renewables companies in the United States, MN8, has several solar farm projects underway in West Virginia from Mingo County to the Eastern Panhandle. Another green energy production firm, Clearway has erected a number of wind turbine operations as well.
Helton’s proposal also may have some issues beyond what Meadows described. West Virginia’s population of less than 1.8 million has virtually no leverage in a system that serves 65 million. Meadows also stated that courts have consistently ruled that utilities cannot be forced to operate at a loss.
Additionally, changes that look positive up close can have unintended consequences down the road. For example, in past years, the West Virginia State Legislature responded to calls to increase certain reimbursement rates for those serving customers of the Public Employee Insurance Agency, or PEIA. They did so to the levels requested, which created both the positive change anticipated, but also led not long after, in part, to the draconian increase in premiums needed to keep the program financially solvent.
Another unintended consequence could be a situation that is the exact opposite of what the Senators intend. The industry has already started to move to shift capacity from coal to natural gas. Helton’s bill could accelerate that process if the industry sees that as the path of least resistance to the act. Additionally, protecting the industry from the market, such as it is, would remove incentives from the industry to improve cost-efficiency and also de-incentivize government regulators to pare back restrictions on coal-fired plants when appropriate.