Appalachian Power plans for its renewable energy future 

While capturing more sunlight and wind to produce its electricity, Appalachian Power Co. will continue to burn coal in two large power plants in West Virginia until 2040.

That, at least, is one way that Appalachian says it could meet a state-imposed mandate that requires its Virginia customers to receive all-renewable power by 2050.

During a State Corporation Commission hearing last week, the utility presented six different options for complying with a sweeping state law passed in 2020 by the General Assembly. The Virginia Clean Economy Act aims to fight climate change by replacing fossil fuels with green energy in the generation of electricity.

A decision from the SCC on Appalachian’s renewable energy plan, which is updated yearly under the law, is expected in the coming months.

Of the six plans outlined in voluminous filings with the regulatory agency, Appalachian indicated that its preference is to keep the Amos and Mountaineer power plants – which produce nearly two-thirds of the utility’s electricity from their locations north of Charleston, West Virginia – operational for the next 18 years.

At the same time, the company would further diversify a power portfolio that includes banks of solar panels and rows of wind turbines.

Appalachian is seeking SCC approval to acquire a solar farm in Pittsylvania County and to purchase electricity from three others in Bedford, Louisa and Rockingham counties. The plan also calls for the company to own a wind farm in Logan County, Illinois, and a solar farm in Berkeley County, West Virginia, among other things.

All that would cost $32 million, which would be recovered through a rate increase. The average residential customer would pay an extra $2.37 a month in the upcoming rate year, according to SCC documents.

Appalachian warns that abiding by the law will cost its ratepayers much more in the coming years.

The Clean Economy Act requires the investor-owned utility to provide all carbon-free electricity to its approximately 540,000 Virginia customers by 2050, five years after the deadline for the state’s other large provider, Dominion Energy, to meet the same mandate.

Change comes slowly

For as long as Appalachian has served about 1 million customers in Virginia, West Virginia and Tennessee, the bulk of its electricity has come from burning coal, which produces the most greenhouse gas emissions of its sources.

As of Sept. 30, coal accounted for 64.5% of the power generated or purchased by the utility, according to Appalachian spokeswoman Teresa Hall. Natural gas, the second most polluting fuel, represented another 19.1%.

The remaining 16.4% came predominantly from hydroelectric power, produced by dams like the one at Smith Mountain Lake, and wind farms, all of which are located in other states.

Appalachian currently does not use enough industrial-scale solar energy to register in the breakdown. The company’s first venture into the field went online last year, when it began to purchase power from the Leatherwood solar farm in Henry County. That facility has a capacity of 20 megawatts, or enough to power about 3,600 homes.

The utility’s total capacity is about 6,000 megawatts; roughly two-thirds of that is generated by the two coal-fired plants in West Virginia.

Change is coming, but it won’t happen quickly.

“There are many factors that determine whether it is economical to invest in and continue to operate a generating facility, including the cost to operate the units and the costs of replacement capacity and energy,” Hall wrote in an email in response to questions from The Roanoke Times about why the coal plants are not being phased out faster.

“While we considered various alternatives, those options would be impractical, expensive and not in the best interest of customers,” the email stated.

Recognizing that utilities can’t turn on a dime when restructuring their operations, the Clean Economy Act sets benchmarks for the gradual transformation to all carbon-free electricity by 2050.

Over the next three years, Appalachian plans to purchase or acquire 500 megawatts of wind and solar energy. By 2040, the company expects its solar capacity to reach 3,300 megawatts, combined with nearly that much from wind.

Other steps include developing energy storage and the use of renewable energy certificates, which are essentially the currency for the green energy market.

A renewable energy certificate, which is a legal entitlement to 1 megawatt hour of electricity from a non-fossil fuel source, can come from an Appalachian-owned facility or be purchased from a third-party generator on an open market.

The owner of such a certificate then “retires” it, which is how compliance with the Clean Economy Act is measured.

Moving away from coal

In the current global discussion of climate change and how to slow it down, coal-fired power plants are from another century. The Amos facility began operating in the early 1970s, followed a decade later by Mountaineer.

That was before the U.S. Environmental Protection Agency imposed regulations meant to curb pollution from coal.

Last August, the SCC approved a rate increase that Appalachian said was needed upgrade the two plants’ coal ash disposal methods and treatments of flue emissions. Those improvements, required by the EPA, will allow the facilities to remain in operation until 2028.

The commission balked at a higher rate increase to cover more work, which would provide additional surface water protections, that is needed to extend the lifespans of Amos and Mountaineer to 2040.

However, the SCC gave Appalachian a second shot at its proposal, which would require additional study. That process is still in limbo – meaning that the retirement dates of the plants could change, which in turn would impact how much renewable power would have to be acquired, and how quickly.

For now, Appalachian is planning to take the required steps to keep the plants burning coal until 2040, according to William Castle, the company’s director of regulatory services.

Company officials point out that the West Virginia Public Service Commission has already allowed both plants to keep running through 2040.

When pressed on cross-examination at last week’s SCC hearing for details on the plants, Castle testified that “a lot could happen” that would change plans to keep them in service.

Appalachian does not have any coal plants in Virginia. It closed the Glen Lyn plant in Giles County about 10 years ago, and converted the Clinch River plant in Russell County to burn natural gas.

Should the company be moving faster to do the same in West Virginia?

“It would be too simplistic to say we want these two coal-fired power plants to close as soon as possible,” said Peter Anderson, Virginia policy director of Appalachian Voices, one of about a half-dozen organizations and businesses participating in the SCC case.

“The climate science demands that we decarbonize our power sector sooner than mid-century, but fairness compels us to ensure that we do it at least cost, while keeping the lights on and providing new economic opportunities for the communities that rely on the existing infrastructure,” Anderson said in a written statement.

Nationally, coal accounted for just 21.8% of the generation by electric utilities in 2021, according to the U.S. Energy Information Administration.

At 64.5%, Appalachian “is far behind many other utilities of comparable size in terms of its transition to clean energy resources,” Anderson said. Part of the reason is that about half of the utility’s service area is in West Virginia, he said, which does not have a mandatory clean energy standard.

With Virginia’s law less than two years old, it will take more time to have a substantial effect.

The cost of green power

How Appalachian intends to pay for its renewable energy became a major issue as testimony began Thursday in the SCC hearing.

Rather than determine the actual costs of wind and solar farms as the basis for its proposed rate increases, Appalachian is using a new framework that calculates their value based on future demand forecasts.

Such forecasts are “wildly speculative,” John Walker, an attorney for a steering committee of the Virginia Municipal League and the Virginia Association of Counties, said in his opening statements.

“The financial stakes are high for Appalachian ratepayers,” said Walker, whose clients include 10 cities, 30 counties and about 50 towns that are located in the utility’s service territory.

Although the financial impact for the coming rate year does not seem drastic – an extra $2.37 on the bill for an average residential customer, who consumes 1,000 kilowatt hours per month – critics say Appalachian’s calculations could lock in future rate increases at excessive levels.

“These errors would continue under Apco’s plan year after year after year,” Walker said. “This plan simply does not provide transparency and clarity, and that is very important to ratepayers.”

Castle acknowledged in his testimony that the utility is not using its traditional cost recovery methods. But with the Clean Economy Act, he testified, “we’re in a different era now.”

At the beginning of the hearing, Appalachian attorney Noelle Coates suggested that the parties involved in the case form a working group to address cost issues that are expected to linger.

Whatever the final price tag is for renewable energy, it will be the latest in a series of increases for Appalachian customers.

The SCC approved three major rate increases last year – one to recover transmission costs, a second to pay for environmental upgrades to the Amos and Mountaineer plants, and the third to cover the higher cost of coal and natural gas – that amount to about $16 a month for the average residential customer.

Those increases followed a denial by the regulatory agency in November 2020 of a base rate hike that would have boosted the monthly bill by another $10. Appalachian has appealed that ruling to the Virginia Supreme Court. The high court heard oral arguments in the case March 1; an opinion is expected in the coming weeks.

In SCC filings, the company has said the Clean Economy Act could lead to rate increases as high as 55% by 2035, but added that it’s difficult to make long-term predictions.

Utilities like Appalachian and Dominion are driven by the desire to earn a profit, Anderson said, so it’s up to the SCC to ensure they do not overbuild or choose more expensive options.

“It’s simply unfair to ask ratepayers to cover more than the minimum costs of the energy transition,” he said.

The public’s right to know

The SCC public record contains thousands of pages of pre-filed testimony, reports, and other documents that delve into the complicated process of complying with the Clean Economy Act.

Out of public view, however, is some financial information that has been placed under seal at Appalachian’s request.

The projected cost of resources such as solar and wind farms, and how much Appalachian has offered to purchase them, is “extraordinarily sensitive information” that should be kept confidential, the company says.

Release of the information would cause “irreparable harm not only to Appalachian and its customers, and to the developers, but also to the competitive solicitation process in Virginia as a whole,” Appalachian’s attorneys wrote in SCC filings.

The Virginia Attorney General’s Office of Consumer Counsel, which is a participant in the case, sees it differently.

“Customers and the public have a right to know basic ‘cost information’ related to generation facilities that customers will pay for,” Assistant Attorney General Mitch Burton wrote in a motion asking the SCC to lift its protective order.

Burton took issue with Appalachian’s concerns that releasing the information might enable bidders for its projects to raise their asking prices, to the detriment of its customers.

“The argument seems to go, we need to charge customers higher rates, but we must keep the underlying ‘cost information’ for the higher rates secret because, if not, we will have to charge customers even higher rates,” Burton wrote.

Hearing examiner Mary Beth Adams will rule on the Attorney General’s motion later, and for now the information remains confidential.

The SCC hearing continued late into Friday afternoon, and will resume Monday. In past cases, hearing examiners have allowed participants to file written briefs before they issue a final order.

Every year, the process will repeat itself as Appalachian, state regulators, and other groups involved in the proceedings make adjustments to the blueprint to become carbon-free.

“Thankfully,” SCC utilities analyst David Dalton said in his testimony, “this is a marathon and not a sprint.”