CLARIFICATION: The PSC has neither considered the companies’ latest request nor has reached any decisions on it.
Appalachian Power and Wheeling Power did not prudently manage their coal supplies in 2021 and 2022, leading to shortages of fuel and higher electricity costs, a consulting group has concluded.
The West Virginia Public Service Commission asked Critical Technologies Consulting to review the companies’ fuel procurement practices.
”The companies did not appear to exercise common sense and prudency in their decisions to fulfill ‘their obligation to serve their customers’ with economic, safe, resilient and reliable electricity based on the use of the coal plants as established by the commission,” the group said in its 56-page report, released on Friday.
In a statement Friday, the PSC said it’s reviewing the report’s conclusions. But the report comes at the same time the companies have asked the PSC for approval to recover $552.9 million from ratepayers to address the higher cost of coal and natural gas. If the PSC approved the companies’ latest request, rates could go up as much as 37 percent. The companies have offered two dramatically lower alternatives, though rates would still go up either 12 percent or 3.5 percent.
The PSC already denied the company’s request last year to recover $297 million from ratepayers. The under recovery balance has only grown since.
Beginning in the summer of 2021, the Mountaineer, John Amos and Mitchell power plants began to find themselves short on their coal inventories.
In September 2021, they attempted to secure new coal supplies but got no response. The U.S. economy had rebounded from the COVID-19 pandemic restrictions, and so had demand for electricity. The demand for coal and natural gas increased, and so did the price.
Rather than burn through the supply they had, although it was economic to do so, Appalachian Power and Wheeling Power conserved coal so they’d be able to meet the higher winter demand for electricity. As a result, the three plants were idle for long periods in late 2021.
Instead, the companies purchased power from the PJM regional market, which includes West Virginia and a dozen other states, at a higher price. Because the plants lacked enough coal purchased earlier at lower prices, they couldn’t take advantage of the situation and generate power at a lower cost and sell it back to the PJM grid at a higher price, the consulting group concluded.
According to company officials in PSC testimony, the coal shortages persisted into 2022.
Russia’s invasion of Ukraine early last year scrambled the international demand for fossil fuels. It kept the price of coal and natural gas high as European countries sought alternative sources of fuel, including the United States, to avoid buying it from Russia and funding its war in Ukraine.
Last summer, Appalachian Power sued its biggest coal supplier, American Consolidated Natural Resources, in Columbus, Ohio, and New York City, claiming the coal company had not delivered the coal required under contract.
ACNR countersued in the same courts, claiming Appalachian Power did not arrange for transportation or delivery of the contracted coal.
The consulting group’s report concluded that Appalachian Power and Wheeling Power failed to secure longer-term coal contracts in late 2020 when it knew it would need the supply, instead of relying on the volatile spot market.
The companies had gone before the PSC in 2020 to request a surcharge on ratepayers to upgrade the wastewater treatment and coal ash disposal systems at all three plants with the intention to keep them operating beyond 2028.
Rather than getting electricity from economically sourced coal in 2021 and 2022, the consulting group concluded, ratepayers were paying for the three plants to sit idle.
In an echo of the criticism from PSC Chairman Charlotte Lane, the consulting group concluded that Appalachian Power and Wheeling Power parent company American Electric Power’s decarbonization goals played a role in throttling the coal supply to the plants.
AEP officials have testified to the PSC that decarbonization did not affect their fuel procurement decisions for the three plants.
AEP aims to be carbon-neutral by 2045, five years ahead of its earlier goal of 2050.
Recently, the price of coal and natural gas has declined. Coal, in particular, is down from its high of $200 a ton and is back below $100.
There may be other reasons why the plants were not operating when they were needed.
Data from Standard & Poor’s, a global credit rating firm that monitors utilities, showed that most of the Amos plant was down during the sudden deep freeze before Christmas.
According to the data, only one of the three units at Amos, Unit 2, was operating at all. Unit 1 went offline in October and was still out of service in December.
Unit 3 at Amos was operating at full power but went offline at 6 a.m. on Dec. 20 and remained out of service through the winter storm. At 1,300 megawatts, Unit 3 is as big as Mountaineer.
Unit 2 at Amos has a capacity of 816 megawatts of the plant’s total capacity of 2,932 megawatts.
No similar outages were reported at either Mountaineer or Mitchell over the holiday weekend when temperatures plunged into the single digits or below zero across much of the country.
In total, PJM lost 7,600 megawatts of coal capacity and 32,500 megawatts of natural gas during the peak of the crisis.
PJM had asked state officials to tell residents to cut back on their electricity use. Ultimately, no rolling blackouts occurred in the 13-state territory.
It’s not clear why the two Amos units were down during the December freeze. A PJM report in the coming months may shed light on what went wrong.
Appalachian Power is an underwriter of West Virginia Public Broadcasting.