Appalachian Power is close to obtaining additional wind energy generation for the next 20 years, but customers will be responsible for its costs if the wind energy market goes south, according to recent testimony before the state Public Service Commission.
The PSC is mulling over whether or not to approve Appalachian Power’s purchase of 120 megawatts of wind power, which the company announced in June 2016. The source would be energy company NextEra’s planned Bluff Point Wind Energy Center in Indiana. It is expected to be operational by 2018.
The independent PSC staff recommended the PSC approve the purchase, Randall Short, deputy director of the PSC utilities division, said in testimony published last week.
Short acknowledged Appalachian Power customers would have to pay higher rates if wind energy market prices are lower than the company’s projections for the next 20 years. He pointed out Appalachian Power’s four wind energy purchase agreements in 2008 and 2009, before West Virginia’s natural gas boom.
The spike in production in the Marcellus Shale years later led to 1,025 gigawatt-hours of wind energy being produced at a cost of nearly $74 million in 2015, according to Short. These contracts forced West Virginia customers to pay $19 million more for power than they would have otherwise paid that year, he said.
“[PSC staff] continues to be concerned with a mismatch between past projections of market prices used to evaluate the value of previous wind contracts and the actual market prices that were lower than projected, leaving customers to pay higher prices than market prices,” he said.
However, Short concluded that allowing Appalachian Power to hedge against future fossil fuel variations and avoiding carbon regulatory hurdles makes the purchase worth it. He said as long as wind power remains a cost-effective option, customers will benefit, even if the margin of error is “very small.”
“When these benefits are included with staff’s market sensitivity analysis at various price projections and the value of the [renewable energy credits] is used to offset the price of the Bluff Point wind contract, staff believes that, while small, there is a greater likelihood than not of total benefits to ratepayers if the [purchase] is approved,” Short said.
Stephen Baron, a utility consultant representing the West Virginia Energy Users Group, said in hearings he doesn’t support Appalachian Power’s current request for approval. The company should take on 20 percent of the purchase responsibility instead of having ratepayers take on the entirety of potential costs, he argued.
“I believe that this allocation of 100 percent of the risk [to customers] is at best questionable, if not unreasonable,” he said.
Baron also said the economic benefit for sticking with wind instead of alternative sources would be minimal, especially if the United States becomes more lax in its energy and environmental regulations. President Donald Trump and his administration have been pushing to roll back regulations they deem unnecessary.
John Scalzo, Appalachian Power’s director of regulatory services for West Virginia, said at a PSC hearing earlier this year that the company currently doesn’t have enough energy to meet annual consumer requirements. The Bluff Point purchase would help alleviate that shortage while being a better option than more regulated energy sources.
Baron said since Appalachian Power is a member of PJM Interconnection, an organization that monitors the regional energy marketplace, it doesn’t have to worry about a shortage because it can buy whatever additional energy it needs from the PJM market.
Appalachian Power said its ratepayers would benefit by not having to rely as heavily on the PJM marketplace, according to Short.
Appalachian Power continues to rely on the John Amos and Mountaineer coal-fired power plants, but the company’s integrated resource plan filing with the West Virginia PSC at the end of 2015 indicates it wants to move toward more solar and wind energy in the coming years.
The more recently filed plan with the Virginia PSC suggests the company is looking to take that even further. West Virginia’s plan called for adding 600 megawatts of wind resources from 2018 to 2022, while Virginia’s plan nearly doubled that with 1350 megawatts.
The recent rush for wind energy by Appalachian Power may be unsurprising, given company statements about Congress’ extension of the Wind Production Tax Credit in 2015 making purchasing wind power from Bluff Point more appealing.
Credit is eligible for the first 10 years of a facility’s operation, which covers Appalachian Power for just half of its Bluff Point purchase agreement.
American Electric Power, which owns Appalachian Power, was the original developer of the Bluff Point project, according to an Indiana Economic Digest article published when the purchase was first announced.
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