10:06am: Talkline with Hoppy Kercheval

As power companies ask for big rate increase, their coal supplies are a major subplot

Analysts in a big rate hike case before West Virginia’s Public Service Commission are questioning whether power companies managed their fuel supplies properly. If the companies had managed their supply better, the analysts conclude, then maybe there wouldn’t be such pressure for a steep rate increase.

The companies counter that they managed fuel supply as best they could under volatile economic conditions.

This is all part of the public debate over a $297 million annual rate adjustment request by Appalachian Power and Wheeling Power.

The companies say they have been running behind by millions of dollars on recouping costs while also facing the likelihood of additional costs.

Currently the monthly bill for a residential customer using 1,000 kilowatt-hours is $155.66, according to Appalachian Power. If approved as filed the adjustment would add $18.41 to that amount.

An evidentiary hearing in the case is coming up on Tuesday. In advance of that, analysts with entities like the PSC’s consumer advocate and the West Virginia Energy Users have been providing written filings to assess the request.

A major theme has emerged from the analysts who have weighed in: better handling of coal supplies for the Mitchell, Amos and Mountaineer plants could have alleviated financial strain on the companies — and their customers.

“These plants cannot generate at optimal levels when there is inadequate coal inventory. Not having these plants be able to generate electricity at optimal levels when it is economical for these plants to be running, such as in situations where the plants did not have adequate coal inventory, is believed to have resulted in
substantially higher energy costs,” testified Ralph Smith, an accountant making an assessment for the PSC’s Consumer Advocate Division.

He recommended that no rate recovery be passed on to West Virginia consumers until there’s more exploration of how the companies have handled their fuel supplies. “West Virginia ratepayers should not have to pay for costs that have been incurred by the Companies due to mismanagement or imprudent fuel procurement,” Smith testified.

Similarly, analyst Emily Medine testified on behalf of the Consumer Advocate Division that the companies made costly errors on their coal procurement efforts.

“I found that the Companies’ laser focus on reducing coal inventories that had ballooned in 2019 and 2020 to target levels established by the Companies seemed to blind them” to following their own procedures, to whether established inventory targets continued to make sense amid industry changes and to the possible consequences of the pace of inventory reduction.

Medine has recommended that the companies put up support for a third-party analyst to study the fuel supply problems and make recommendations back to the Public Service Commission.

Testifying on behalf of some of the biggest corporate energy users in the state, utility analyst Stephen Baron concluded the power companies should have procured additional supplies of coal in late 2021 to provide a sufficient inventory to economically operate their coal units when high PJM market energy prices would have produced beneficial margins.

“The Companies have failed to demonstrate that they acted prudently in that regard,” Baron testified on behalf of the West Virginia Energy Users Group.

The power companies, through responding witnesses, said they stand by their 2021 and 2022 forecasts and coal procurement actions. What has changed, the companies’ experts said, “is the unforeseen extreme volatility of the various commodity markets, which ultimately led to higher than projected costs.”

“Contrary to these witnesses’ assertions and assumptions, the actions taken by the Companies in times of market volatility and supplier non-performance were appropriate at the time they were taken based upon the information available at the time,” testified Jeffrey Dial, American Electric Power’s director of coal, transportation and reagent procurement.

Every coal supply agreement, he testified, depends on agreement between purchasers and suppliers: “The willingness of fuel suppliers to enter into short-term
versus long-term agreements has shifted over time with changes in the market.” And in recent years, he has concluded, fuel suppliers have been less willing to enter into long-term agreements.

When the power companies ran into shortfalls in the second half of 2021, Dial testified, they pressed some delinquent suppliers to deliver while also seeking replacement supplies.

“The combination of existing inventories and the expected fulfilment of contractual supply commitments fully justified the Companies’
assessment that it was adequately supplied until near the end of the summer of 2021,” Dial testified. “At that point, the Companies acted promptly and issued an RFP in September 2021. After the disappointing results of the September RFP, the Companies made many concerted efforts to secure additional coal.”





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