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Cost, necessity concerns raised in Appalachian’s push to buy wind farms

Neither of Appalachian Power’s two planned wind farm purchases have garnered much support in recent filings with the state Public Service Commission.

In July, the electric utility announced its intent to buy a West Virginia and an Ohio wind farm to continue its shift “to an energy company of the future,” Appalachian President Chris Beam said at the time.

But filings from the West Virginia Energy Users Group, an association of industrial utility customers with heavy energy use, and the PSC’s independent staff, which makes recommendations to the agency, say cost concerns and a lack of need make the purchases unnecessary.

“Neither wind project is needed to meet the energy needs of [the companies’] customers,” said Stephen Baron of the WVEUG in a filing.

The Beech Ridge II Wind Facility in Greenbrier County would generate about 50 megawatts of power, while the Ohio-based Hardin Wind Facility would generate 175 megawatts of power. The acquisitions would inch the company closer to its goal of 25 percent renewable energy in its portfolio by 2031.

The wind farm purchases require approval from the PSC, the Virginia State Corporation Commission and the Federal Energy Regulatory Commission.

Appalachian is proposing to finance the farms’ development via an $84.6 million construction surcharge distributed over a span of 10 years, which would be implemented into customer rates. The charges are expected to begin in 2019 with a revenue requirement of $10.2 million, if approved.

Appalachian maintains that customers would see little, if any, of an actual increase in their utility bills because of renewable energy credits and a reduction in its purchased power costs.

The largest expected rate hike would occur in the wind farms’ 11th year, when tax advantages expire, the company said. The average residential customer would see a rate bump of about $0.93 at most that year, it added.

Still, the utility should make the potential rate impacts throughout the life of the wind farms clearer to customers, the PSC staff said.

“If the sole dollar figure noticed to ratepayers is the $0.93 increase for a residential customer then meaningful notice has not been accomplished to customers,” the staff said in a filing. “[Appalachian Power’s] proposed notice is too scant on the potential customer impacts.”

Randall Short, a deputy director of the PSC’s utilities division, said in a filing that Appalachian and its customers would be better off cost-wise simply purchasing energy from the regional marketplace instead of buying two wind farms, even when factoring in renewable energy credits.

“I believe the projections the Companies relied upon for the cost of purchasing the energy from the market are overstated and subsequently, the claimed benefits of acquiring the Wind Facilities are overstated,” Short said.

The value in purchasing the wind farms is “heavily dependent on the accuracy” of energy cost forecasts and market prices, according to Short. If the wind facilities’ costs exceed market prices, then ratepayers are on the hook for that loss, he said.

“What may appear now to be a good deal when considering the alternative of paying the projected higher market prices could go sour and cost ratepayers more than they otherwise would have had to pay if those projections are too high,” Short said.

Short recommended the PSC deny Appalachian’s request to acquire the Hardin Wind Facility. As for Beech Ridge, Short said customers “will likely be no worse off” if Appalachian acquires the facility, as it would have a similar value to buying energy from the market when factoring in renewable energy credits.

Appalachian has said the two acquisitions are similar to its purchase agreement with NextEra’s Bluff Point Wind Energy Center in Indiana, which the PSC approved in March. The PSC staff supported that transaction partly to avoid carbon regulatory hurdles, but Short did caution at the time that customers would be on the hook if the wind energy market falters.

Stephen Baron of the WVEUG said there is little room for error in Appalachian’s wind power projections to make the acquisitions worthwhile.

If market prices end up 8 percent lower than current projections, the Hardin project would be completely wiped of any economic benefit, Baron said. If prices are 13 percent lower than current projections, the same could be said of the Beech Ridge project, he said.

Baron is against the Hardin acquisition and said the Beech Ridge project would “be less risky for ratepayers,” but he added that he won’t expressly support that acquisition.

Customers have been burned before by wind power purchases, according to Short. He noted Appalachian executed four wind power contracts from 2008 to 2009, and due to market prices, West Virginia customers had to pay “approximately $19 million more in 2016 for power than they otherwise would have paid” with the wind contracts.

The deadline for rebuttal testimony in the case is Friday.