West Virginia electric utilities offer discount for new or expanding businesses

Two electric utilities serving customers in West Virginia have announced a new discounted "incentive rate" to attract new businesses and grow existing businesses.

Appalachian Power Company and Wheeling Power Company announced on February 14, 2019, that they are are offering discounted rates for electric service to new or expanding businesses meeting defined standards. The discount reduces qualifying customers' incremental billing demand by 40% for a 5-year term. The utilities are offering this new rate to new or existing customers who establish at least 500 kilowatts of new demand for electricity and meet criteria including creating at least 10 jobs or investing at least $2.5 million in an expansion in West Virginia.

The announcement follows a January 29, 2019 decision by the Public Service Commission of West Virginia to approve the companies' "Economic Development Rider" tariff proposed by the utilities in a November 28, 2018 filing. According to the Commission, the discounted rate is "experimental in nature" and is limited in size to an aggregate of 250 megawatts for the companies. As approved by the Commission, the rate will impose no incremental rate burden on any of the companies' West Virginia retail customers, and should result in a net contribution to defray the companies' fixed costs.

According to the Commission's order, the discounted rate will not be available in instances where there is "simply a change in ownership of existing customer operations", where operations are merely relocated within the companies' services territories, or where increases in demand result from the resumption of normal operations following abnormal operating conditions. The rate is also unavailable to "business facilities engaged in the retail sale to the average customer of consumer or final goods" due to concerns that adding new customers engaged in competitive retail sales of consumer goods would increase the "likelihood that the new load will displace an existing load with the net result being zero benefits."

The Commission noted the companies' expectation that the rate "will serve as an inducement for economic development in the West Virginia service territories of the Companies" and that "the resulting economic development will be beneficial to the West Virginia retail ratepayers of the Companies and to the economy of West Virginia."

Appalachian Power and Wheeling Power are subsidiaries of American Electric Power. AEP Appalachian Power has 1 million customers in Virginia, West Virginia and Tennessee.

US Supreme Court stays Clean Power Plan

The Supreme Court of the United States has issued an order staying the U.S. Environmental Protection Agency's Clean Power Plan regulations limiting carbon emissions from electric power plants.  As a result, the rule's effect is frozen until legal challenges to the rule are resolved in federal court.

The Supreme Court of the United States.

EPA's final Clean Power Plan rule establishes emission guidelines for states to follow in developing plans to reduce greenhouse gas emissions from existing fossil fuel-fired electric generating units.  Developed by EPA pursuant to Clean Air Act Section 111(d), the regulation prescribes carbon reductions for states.

While state-level emissions reductions are federally prescribed, the rule places states in the role of developing their own compliance plans for how to reach the required emissions reductions.  The rule was published in the Federal Register on October 23, 2015, as Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,662.  It gave states until September 6, 2016 to file a final plan, or an initial plan with a request for an extension, for EPA review.

If implemented, the EPA says the Clean Power Plan will reduce carbon emissions from power plants by 32% below 2005 levels, or about 870 million short tons.  EPA estimates the regulation could yield public health and climate benefits worth $54 billion in 2030 alone.  As states cut back on using carbon-intensive fuels such as coal and oil, EPA projects that renewable energy will grow, with utility-scale wind and solar expected to double by 2030 under the Clean Power Plan compared to 2013 levels.

But numerous lawsuits have been filed challenging the rule, along with petitions to stay or freeze its effectiveness pending judicial review.  Last month, the D.C. Circuit Court of Appeals denied petitions for stay from parties including states, utilities and trade groups such as the American Coalition for Clean Coal Electricity.

Parties then filed petitions for stay to the U.S. Supreme Court.  Under a 2012 Supreme Court precedent, Maryland v. King, a party seeking a stay must demonstrate (1) a "reasonable probability" that the Supreme Court will grant certiorari or agree to hear the case, (2) a "fair prospect" that the Court will reverse the decision below, and (3) a "likelihood that irreparable harm [will] result from the denial of a stay."  This is a relatively high burden.

Today a majority of the U.S. Supreme Court agreed to stay the Clean Power Plan rule, by order entered in the West Virginia, et al. v. EPA, et al. case and others consolidated into the West Virginia case.  In the Court's words:

The Environmental Protection Agency’s "Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units," 80 Fed. Reg. 64,662 (October 23, 2015), is stayed pending disposition of the applicant’s petition for review in the United States Court of Appeals for the District of Columbia Circuit and disposition of the applicant’s petition for a writ of certiorari, if such writ is sought. If a writ of certiorari is sought and the Court denies the petition, this order shall terminate automatically. If the Court grants the petition for a writ of certiorari, this order shall terminate when the Court enters its judgment.

The order notes that Justice Ginsburg, Justice Breyer, Justice Sotomayor, and Justice Kagan would deny the request to freeze the rule's effect.  This note reveals a 5-4 decision to issue the stay, with Chief Justice Roberts, Justice Scalia, Justice Kennedy, Justice Thomas and Justice Alito in the majority as supporting the stay.

With the Clean Power Plan's effect stayed, litigation over the rule will now proceed in the U.S. Court of Appeals for the District of Columbia Circuit.  The 27 states participating in challenges to the rule are likely cheering.  Those include Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, West Virginia, Wisconsin and Wyoming.  Meanwhile, the 18 states who filed in support of the EPA, along with those states who have started preparing compliance plans for the regulation, now find themselves on less certain footing.  So too do electric power generators, and others interested in energy markets.  If controversy persists, whatever decision the circuit court issues is likely to be appealed to the Supreme Court.

Coal power plants retiring in 2015

The U.S. portfolio of electric power plants will continue to shift in 2015, according to a federal assessment projecting that nearly 16 gigawatts (GW) of generating capacity will retire in 2015.  Most of the capacity to be retired this year is coal-fired generation.  This continues a multi-year trend away from coal, and toward natural gas and renewable resources.

According to the U.S. Energy Information Administration, nearly 16 GW of generating capacity is expected to retire in 2015.  Of this, 81% (12.9 GW) is coal-fired generation.  Generator retirements are heavily composed of coal-fired generation, split between bituminous coal (10.2 GW) and subbituminous coal (2.8 GW).  Most of this retiring coal capacity is found in the Appalachian region, with slightly more than 8 GW combined in Ohio, West Virginia, Kentucky, Virginia, and Indiana.

New environmental regulations and struggles to remain cost-competitive explain most of these retirements.  This year, the Environmental Protection Agency's Mercury and Air Toxics Standards (MATS) take effect.  MATS requires existing large coal- and oil-fired electric generators to meet stricter emissions standards by retrofitting the units with new emissions control technologies.  While some units have been granted extensions to operate through April 2016, some power plant operators are choosing to retire units instead of making cost-prohibitive investments in pollution control.

Most of the coal-fired units slated for retirement are smaller and operate at a lower capacity factor than average coal-fired units in the United States.  According to EIA, the to-be-retired units have an average summer nameplate capacity of 158 MW, just 60% as big as the 261 MW average for other coal-fired units.  In 2014, the average capacity factor for all coal units was 61%, but the subset of coal units retiring in 2015 had an average capacity factor of just 36%.  The relatively small size and low capacity factor of these power plants make it harder for them to compete economically against other generation sources.  This competition is especially difficult if sufficient natural gas-fired generating capacity is available, as the cost of natural gas has fallen to levels not seen since 2012.

The coal capacity retiring in 2015 accounted for 1.6% of total U.S. generation during 2014.  At the same time, electric generating companies expect to add more than 20 GW of utility-scale generating capacity to the power grid.  This new capacity is dominated by wind (9.8 GW), natural gas (6.3 GW), and solar (2.2 GW), which together compose 91% of expected new capacity in 2015.

Marcellus shale gas drilling slows

Natural gas drilling activity has declined in parts of the Marcellus Shale formation under Pennsylvania and other eastern states, largely as a result of low gas prices.  These prices in turn are largely the result of significant increases in the available supply of recoverable natural gas made possible by horizontal drilling techniques and hydraulic fracturing or fracking.  As a consequence, many natural gas producers are focusing on areas of shale rich in both gas and natural gas liquids.

The Marcellus Shale, a layer of ancient marine sediment rich in organic material and extending beneath Pennsylvania, Ohio, West Virginia, New York, and Maryland, is believed to be one of the world's largest natural gas fields.  In 2008, drilling activity in the Marcellus Shale began to increase significantly, as these newer drilling techniques and increases in the price of other fuels like oil made the shale gas economically feasible to recover.  (Compare this map of Marcellus shale drilling activity in Pennsylvania from 7/25/2008 to this map of permits issued as of March 9, 2012.)  As of this spring, Pennsylvania alone had issued 11,772 permits for vertical and horizontal gas wells in the Marcellus formation.

One result of the expansion of shale gas production is a significant decrease in the price of natural gas.  Since 2008, natural gas prices at the Henry Hub in Louisiana (where gas as a commodity is typically priced) have fallen from over $12 per million British thermal units (MMBtu) to as low as $2 per MMBtu.  Other factors have played a role in this price decline, such as a mild winter with lower-than-expected heating demand and the overall economic slowdown, but the increase in supply due to shale gas production is viewed as a major cause of the price decline.

Now, one of the effects of the price decline is a decrease in natural gas drilling activity.  This decrease is particularly marked in areas where the shale produces "dry gas", or natural gas that is primarily methane and is low in so-called natural gas liquids.  Natural gas liquids -- hydrocarbons other than methane that are extracted when natural gas is processed in a natural gas treatment facility -- include ethane, propane, and butanes.  These natural gas liquids are important feedstocks for the production of many chemicals and plastics, and add value to the natural gas produced from "wet" shales.

Where shale gas contains significant amounts of natural gas liquids, production appears steady or increasing, while gas producers in areas with lower amounts of natural gas liquids are now saying that they are having a hard time making money off gas alone.  If this trend continues, areas of dry gas like much of the known portions of the Marcellus Shale may continue to see a slowdown in drilling activity while producers focus on areas rich in natural gas liquids.