Listen to “Proposed Legislative Rule Could Change Electricity in West Virginia” on Spreaker.
Throughout the legislative process, bills often direct a state agency — usually one with expertise in the subject at hand — to promulgate legislative rules.
In West Virginia, the Legislature requires agencies to promulgate these rules so broad statutes can be translated into detailed, enforceable standards — without allowing an executive agency to make binding law entirely on its own.
Why? There are several reasons.
The process gives the public an opportunity to weigh in on the rule making — more on that shortly. It also recognizes that setting policy and effectively implementing it are two different things. The technical knowledge required to bridge that gap is not always found within the Legislature.
And who wants a rogue agency regulating without first being constrained by the expressed will of the people’s elected representatives?
All well and good. Efficient; prudent.
HB 2014: The Capacity-Factor Debate Is Back
That brings us to House Bill 2014 — the much-discussed data center bill shepherded by the Morrisey administration during the governor’s first year in office and passed by the Legislature.
The law directs the Public Service Commission to promulgate legislative rules governing electric utilities — specifically, how their available generating capacity participates in PJM markets and the practice of economic dispatch.
“The Commission shall require utilities to maintain their thermal baseload generating units in a manner to allow them to be able to self-generate and achieve at least a sixty-nine percent capacity factor,” the legislation, now law, states.
A 69 percent capacity factor.
Sound familiar? It should. The concept has been debated on and off for two years but never gained passage outright in previous legislation, despite multiple attempts.
Capacity factor measures how much electricity a power plant generates over a period of time compared with how much it could have generated by operating at full capacity continuously.
The debate centers on how frequently West Virginia’s power plants should run versus how often utilities should purchase electricity from the regional market.
PJM’s system of economic dispatch generally uses bids submitted by power producers to determine which generating units should operate. The lowest-cost available units are typically dispatched first, helping ensure customers receive electricity at the lowest practical production cost.
The market does not care where that electricity is generated or which fuel produces it — as long as the power is available when needed.
As required, the PSC published its proposed legislative rule in the State Register for public review.
As with most things in life, the details matter.
Read through the proposal, and much of it may not sound particularly troubling. Perhaps it isn’t. But a few sentences on Page 6 could turn conventional energy-market practices on their head:
“The utilities are expected to take advantage of PJM Manual 11 Market Rules 2.3.3., et seq., which allow self-scheduling rather than allowing PJM to accept or reject their output into the day-ahead market. The utility is not expected to operate at a net-positive margin in all hours of the day. It is expected to reasonably anticipate and project expected day-ahead market prices and schedule increments of generation to minimize negative margins during periods of low market prices while allowing for reasonable, and limited ramping of generation levels as market prices fluctuate in the day-ahead market.”
What is self-scheduling?
It means telling PJM that a power plant will run regardless of whether its bid clears the market. In other words, the unit may operate even when the cost of generating its electricity is higher than the market price.
Economic-dispatch decisions based strictly on cost take a back seat. The plants run — period.
Why should you care?
Because if West Virginia utilities routinely self-schedule their generating units rather than allowing market economics to determine when they operate, the price received for their electricity may be less than the cost of producing it.
Who pays the difference?
You do.
Not the utility. Not the state. Not the fuel industry.
You — the customer.
The Arguments For and Against
Why would anyone believe this is a good idea?
The broader economic argument quickly surfaces.
Most of West Virginia’s power-plant fleet runs on coal, and West Virginia does not mine as much coal as it once did. Advocates argue that running these plants more frequently — even when market prices suggest otherwise — could bolster an industry and workforce currently facing difficult economic conditions.
“HB 2014, which was passed unanimously by our current Legislature and signed into statutory law by Governor Morrisey, envisioned our coal plants to be fine-tuned and operated efficiently to benefit rate payers and offering data centers, fully charged, baseload power during the interim period before micro grids are seriously considered,” said Chris Hamilton, president of the West Virginia Coal Association. “It was also envisioned that every utility should participate in every capacity auction in order to benefit our rate payers. We look forward to participating in this rulemaking.”
During an appearance earlier this week on MetroNews Talkline, Hamilton said he believes PJM’s economic-dispatch system is susceptible to anti-coal political pressures that hamper coal’s ability to compete in the market.
Coal revenue and coal-severance tax collections are not what they once were. Ask almost any county school system in southern West Virginia, and officials will quickly attest to that reality.
Although coal still supplies a significant portion of the region’s electricity, its market share is nowhere near what it was during the 1990s and early 2000s. Natural gas has become PJM’s most abundant source of electricity, followed by nuclear power.
As this piece was being written Tuesday afternoon, natural gas-fired generation accounted for approximately 44 percent of PJM’s electricity output. Nuclear power accounted for 27 percent, while coal ranked third at 15 percent.
That is typical of a normal day. In periodic checks throughout this year, natural gas has consistently remained PJM’s leading source of generation.
Multiple natural gas-fired power plants have been proposed in West Virginia this year. The state sits squarely in gas country atop the Marcellus Shale, and the industry provides significant employment and severance-tax revenue.
Utilities consistently cite natural gas as a reliable and economical fuel source when seeking regulatory approval to construct new generating facilities.
Natural gas industry advocates argue that regulatory mandates encouraging self-scheduling would come at their industry’s expense and amount to a subsidy for coal.
“West Virginia’s energy policy should remain fuel neutral and focused on delivering reliable, affordable electricity to consumers,” said Rebecca McPhail, president of the Gas and Oil Association of West Virginia. “Encouraging utilities to self-schedule generation or pursue a specific capacity factor is a risky approach that could interfere with economic dispatch and ultimately increase costs for ratepayers. West Virginia is fortunate to have abundant coal and natural gas resources, and our regulatory policies should allow those resources to compete based on cost, reliability, and market demand, rather than favoring one form of generation over another.”
What Happens Next?
West Virginia’s process for finalizing legislative rules includes several stops intended to serve as checks.
After the public-comment process concludes, the proposed rule must be submitted to the Legislative Rule-Making Review Committee.
Delegate Kayla Young, a member of the committee, has expressed reservations about the proposal.
“The self-scheduling of bids in our energy grid rather than competing on price guarantees that our bills will go up,” Young said. “We saw Ohio similarly mandate running uneconomic plants—2019’s HB 6—when cheaper options existed. It cost their ratepayers $400,000 a day until they repealed the law last year.”
Eventually, legislative rules authorized by the committee are bundled into legislation and presented to the full Legislature during a subsequent session. This rule would be no different.
What Does It All Mean?
Boiled down, the issue is relatively simple:
Should West Virginia adopt an energy policy that causes its coal plants to run even when their electricity is more expensive, based on the argument that doing so produces a broader economic benefit for one of the state’s struggling industries?
How would that policy align with the need for affordable electricity — already a serious concern for many West Virginians?
Should the government favor one energy industry over another, particularly when both operate in West Virginia, employ West Virginians and contribute severance-tax revenue to state coffers?
These questions are not new. They have been asked time and again in different regions of the country and across different industries.
One principle seems fundamental: When has government ever produced a lasting public good by picking winners and losers?
Never.
The rest may seem a bit academic. But, as with all public policy, citizens — and voters — should weigh in by making their opinions known to the PSC and their lawmakers.
If they do not, there should be little room for complaint if the eventual policy results in higher electric bills.
This is also a lesson in paying attention.
How many consequential public-policy decisions are settled through the promulgation of legislative rules — documents that carry the force of law but that most of us never take the time to read or follow through the process?
Then, later, we wonder why things are the way they are.