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Anticipating more federal regulation, power companies ask for expedited cost recovery

Anticipating increased regulation from the Biden administration, power producers are asking the state Legislature to allow expedited recovery for the cost of upgrading environmental control equipment.

“I think they’re especially apprehensive now that the administration in Washington, D.C., has a philosophy that they don’t like fossil fuel power, so they don’t know what’s coming at them. So this is in part anticipating that,” said House Energy Chairman Bill Anderson, the legislation’s lead sponsor.

West Virginia’s coal industry wants the relief for the power companies, saying the break might give coal a better chance of continuing as a contributing power source.

There are some catches too.

The West Virginia Energy Users Group, which represents some of the big manufacturers around the state, says the legislation is unnecessary, expensive and will lack a full examination.

“They would rather pay the lower rates as long as they can,” Anderson said. “It’s kind of a matter of whose ox is going to get gored here.”

And there’s a good chance household power consumers may see increased costs too.

Here you may be darned if you do or darned if you don’t. In other words, residents may see incremental power bill increases through expedited cases or they may see bigger bumps through the normal rate cases.

“Ratepayers could be on the hook for investments in aging power plants that should be shut down to save ratepayers money,” the West Virginians For Energy Freedom coalition said in an email blast.

Those are the choices delegates will have to make when they vote on HB 2959. The bill is lined up for possible passage this week in the House of Delegates.

“To me,” Anderson said, “the predictability for the company to be able to recover their costs reasonably approximate time they have to spend this money is the right policy. And we will see if the Legislature agrees, collectively — both the House and the Senate.”

Under normal circumstances, state law allows utilities to raise customers’ rates to cover increased expenses through a practice called cost recovery. The West Virginia Public Service Commission determines if a utility’s requests to cover expenses through rate increases is valid.

In those instances, the PSC does a thorough review of the project’s costs, revenue and profits, including whether ratepayers would benefit from what the utility proposes building. The examination gives commissioners and the public a full understanding of the situation.

The bill would allow the utilities to apply for expedited recovery of their costs. That application would be prior to their next regularly scheduled base rate case.

Electric utilities may file an application with the state Public Service Commission for the expedited recovery of costs for installing, operating and maintaining environmental pollution control equipment to comply with federal or state environmental requirements.

“The major utilities in the state — First Energy and American Electric Power — they face a situation where they many times have to face tens of millions and sometimes more than that on pollution control equipment,” Anderson said in an interview in his office last week at the Capitol. The vice chairman, Delegate John Kelly, whose office is next door, sat in.

“Normally they would have to spend it and wait for their next regular rate case to come up. That can sometimes be several years from the time they have to make expenditure of money.”

Delegates heard from the groups that would be affected when the House Energy & Manufacturing Committee considered and passed the bill last week.

Steve Westfall

Delegate Steve Westfall, R-Jackson, asked several questions about how the bill might affect a large employer in that area, Constellium Rolled Products in Ravenswood. Westfall said the plant is responsible for hundreds of jobs but also has an enormous power bill. His worry was that increased power costs could hinder the company’s ability to maintain all those jobs.

“Do we know what additional equipment we might have to put on and what the possible cost would be?” Westfall asked.

Sammy Gray

The likely cost of upgrades would be millions of dollars spread out over time, said Sammy Gray, First Energy’s senior advisor for West Virginia state government affairs.

“It depends on what regulations are coming,” Gray said.

“We’ve heard there’s more coming from the feds right now. We’re not sure what those rules will be or what they’ll cost.”

Jason Pizatella

Speaking for the West Virginia Energy Users Group was lobbyist Jason Pizatella. He said 20 to 25 of the largest electric users in the state would be affected.

Bottom line, he said, “These types of bills cause electric bills to go up and they will do so in this case.”

Pizatella said the energy users are not opposed to cost recovery for environmental upgrades. But they are opposed to the expedited manner.

Ratepayers lose the protections of a traditional, fully litigated base rate case, where investment costs by the utility may be offset by other expenses that have decreased and/or revenues that have increased, he said. With a narrow, limited surcharge cost recovery process, ratepayers lose the right to evaluate those potential cost offsets.

“What that does is, it prevents a fully-litigated base rate case before the Public Service Commission,” Pizatella said.

And, he said, accelerated surcharge cost recovery could also shift the risk of investment from the utility and its shareholder to all ratepayers, including manufacturing and industry, mom and pop stores, and senior citizens.

Traditional regulation requires the utility demonstrate that its investment is “used and useful” before the cost can be recovered from ratepayers, which protects ratepayers and keeps the risk of investment on the utility and its shareholders until their investment is actually providing a service or benefit.

“It means the risk of that investment is shifted from the utilities and their shareholders onto ratepayers,” Pizatella said.

Environmental pollution control equipment would include, but wouldn’t be limited to, carbon capture, reduction, and/or storage if state or federal reductions of carbon or carbon dioxide emissions were required.

Chris Hamilton

Chris Hamilton, president of the West Virginia Coal Association, spoke in favor of the bill. He said “extraordinary times” require it.

“In these times of uncertainty, this bill and the expedited recovery provides a little more certainty and predictability to the process,” Hamilton said, getting a little emotional.

“Unlike the Energy Users Group, which would just as soon see these plants be retired and other energy forms come into our state regardless of the consequences of our basic industries, basic job rates and life of our communities – we would like to see additional certainty.”

West Virginians for Energy Freedom didn’t speak at the legislative committee meeting. In the coalition’s email blast, members made clear they oppose the bill.

“HB 2959 would grant monopoly utilities cost recovery for projects without a full review from the PSC or the public,” the coalition wrote. “Ratepayers could be on the hook for investments in aging power plants that should be shut down to save ratepayers money.”

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