The West Virginia Public Service Commission should disallow $202.8 million in cost recovery for two American Electric Power utilities for failing to meet a 69% annual capacity factor at three coal-fired power plants, according to a consulting firm hired by the agency.
Appalachian Power Co. and Wheeling Power didn’t try to meet the PSC’s targeted capacity factor, such as by obtaining enough coal, entering into long-term contracts for cheaper coal or selling more electricity into the PJM Interconnection market, Critical Technologies Consulting said in a report filed Friday with the commission.
AEP’s environmental, social and governance goal of becoming net-zero by 2045 may have undermined the utilities’ efforts to boost production at the 2,930-MW Amos, 1,560-MW Mitchell and 1,330-MW Mountaineer power plants in West Virginia, the Mesa, Arizona-based consulting firm said.
“CTC concludes that the decisions taken or not taken by the companies are contrary to the prudency of addressing the commission established capacity factor of 69% in using the rate-based coal power stations on a self-generation mode,” the firm said.
The issue centers on an annual rate adjustment mechanism, called the expanded net energy cost, or ENEC, which allows utilities to recover their fuel, purchased power and environmental compliance costs.
With the PSC awaiting the prudency review report before deciding pending cost-recovery applications, the under-recovery for APCo and Wheeling Power’s ENECs has grown to $641.7 million, the utilities said in a Friday filing at the PSC. The utilities proposed spreading out the cost recovery so their customers wouldn’t have rate shock.
The PSC ordered the prudency review report in May 2022, partly because the utilities failed to meet an annual 69% capacity factor, a measure of how often a power plant runs. The prudency review covered the 2020-21 and 2021-22 ENEC periods.
“Anytime you have prudency being questioned by a [state utility] commission, it’s a significant issue,” Paul Patterson, an equity analyst with Glenrock Associates, said Tuesday. “If a utility’s spending is found to be imprudent, you won’t recover it.”
The utilities could have reached the 69% capacity factor target if they had bought enough coal, CTC said. Instead, their power plants had a 32.5% capacity factor for the one-year period starting September 2021, down from a roughly 68% capacity factor in 2010, according to the firm.
Although the utilities got cost-recovery for pollution control equipment added to the plants so they could run to 2040, they failed to secure lower cost coal, a “critical ingredient” for being dispatched by PJM, according to CTC.
“The companies benefit from a return on their new investment as reflected in higher rates, while the ratepayers do not benefit from the operations of the coal plants,” the firm said.
Also, in an effort to preserve dwindling coal stockpiles, the utilities increased the price of their bids to PJM so the West Virginia plants wouldn’t be called on by the grid operator, the firm said.
Tammy Ridout, an AEP spokesperson, said Wednesday the company believes its “actions and decisions are prudent and in the best interest of our customers, and we laid those out in the ENEC filing we made Friday.”
In the filing, APCo and Wheeling Power said their parent company was unable to buy more coal because supplies were scarce.
“A perfect storm of high fuel and energy prices and severely limited coal availability caught the electric utility industry by surprise in 2021 and its effects continued to reverberate across the industry into and throughout 2022,” they said.
CTC contends AEP’s ESG goals may be affecting operations at the coal-fired power plants.
“This emphasis on ESG and ‘net zero’ by the governance of AEP could have affected the organizational culture their employees have been working under to the detriment of meeting the orders issued by the commission in maintaining the coal power plants operating through 2040 and beyond,” the firm said.
The PSC should withhold ENEC cost-recovery until APCo and Wheeling Power show they are taking steps to run their plants more frequently, according to CTC. Once they are complying with PSC orders, the cost-recovery should be set based on the achieved capacity factor, it said.
In the period CTC reviewed, the utilities achieved 47.1% of the PSC’s ordered capacity factor. For the ENEC balance of $430.5 million as of September, they should recover $227.7 million, according to the firm. That approach also could be used for other periods, CTC said.
Editor’s note: This story was updated to include AEP’s comments.