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Van Nostrand: W.Va. should require long-term utility planning

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As the price of coal ballooned in the last decade, so did the rates West Virginians pay for electricity.

Utilities' heavy reliance on coal here has kept prices low in the past.

But planning that looks 15 or 20 years ahead might have seen that coming, according to James Van Nostrand, director of the Center for Energy and Sustainable Development at the West Virginia University College of Law and a former utility lawyer and utility regulator.

Van Nostrand wants legislators to require electric utilities in West Virginia to protect ratepayers through the use of a long-term planning process called Integrated Resource Planning.

He makes his recommendation in "The Case for Integrated Resource Planning in West Virginia," the first in a series of discussion papers from the center.

Protecting ratepayers through planning

"West Virginians have not been well served in recent years by the heavy dependence of local utilities on coal for electricity generation," Van Nostrand wrote in the discussion paper.

Residential electric rates in the state rose 68 percent for AEP utilities Appalachian Power and Wheeling Power from 2000 to 2011, and 39 percent, from a higher baseline, for FirstEnergy utilities Mon Power and Potomac Edison.

Nearly all of the state's electricity eggs are in one basket — 97 percent of electricity comes from coal — so, as goes the price of coal, so must go the price of electricity.

Integrated Resource Planning, or IRP, might have prevented that outcome, according to Van Nostrand.

The IRP process models various scenarios using a variety of assumptions to arrive at a portfolio of resources that will give good service at the lowest cost to utility customers.

"Such modeling would include, for example, different coal price scenarios that would have highlighted the risk of heavy, and virtually exclusive, dependence upon coal-fired generation," Van Nostrand wrote.

What's "integrated" about it

A critical feature of IRP is that conservation and efficiency — that is, reductions in demand — must be considered alongside new generation capacity — increases in supply.

"This feature is the ‘integrated' aspect of integrated resource planning," Van Nostrand wrote. "This integration is completely missing in the current practices of West Virginia utilities."

In a Resource Plan FirstEnergy filed with the Public Service Commission of West Virginia in August, for example, demand-side options "were dismissed as ‘not a viable solution capable of meeting Mon Power's obligations,'"  — even as FirstEnergy conservation programs in Ohio are shaving more than four percent off of demand in five years.

After a cursory review of the options for matching future supply and demand, FirstEnergy concluded in its Resource Plan that the best option is for Mon Power to purchase more coal-fired power from another FirstEnergy subsidiary.

"The need for integrated resource planning cannot be made more clear than through the obvious inadequacies of the FE Resource Plan, with its self-serving ‘analysis' that concludes how ‘fortunate' West Virginia ratepayers are to be able to take these uncompetitive plants off the hands of the FirstEnergy affiliates," Van Nostrand wrote in the discussion paper.

IRP in long and widespread use, he wrote, and the side-by-side consideration of demand-side and supply-side resources was required in the federal Energy Policy Act of 1992.

Getting it legislated

Although some states have instituted IRP through their state commissions, Van Nostrand argues that it is for several reasons best done through legislation.

First, he notes, ratemaking is by nature a legislative function. The Legislature delegates it to the commission, as it imposes other requirements on utilities that are carried out by the commission — for example, the requirement to obtain a certificate of necessity and convenience before rendering utility service.

Second, he suggests, the decision to require IRP, with the fundamental requirement that demand-side resources be treated on the same footing as generating resources, may be seen as a significant policy choice, one that should be enacted by the popularly elected members of the Legislature rather than by the appointed members of an administrative agency.

Finally, he wrote, a Legislative statute demonstrates a commitment to a different way of doing things.

It must be noted that this was tried before: Senate Bill 162, introduced in January 2012 by Sen. Dan Foster, D-Kanawha, would have required the state's electric utilities to file "least cost" plans that might prevent such heavy reliance on one fuel.

Appalachian Power opposed Foster's legislation, which died in committee.

"It didn't necessarily say what planning horizon to use, which is what concerned us," Appalachian Power spokesperson Jeri Matheney later told The State Journal.

Van Nostrand suggests a 15- to 20-year planning horizon.

He also recommends that a West Virginia statute requiring IRP should give particular consideration to the "broader economic impacts through loss of jobs, reduced severance tax revenue and declining economic activity" that any change in the reliance on coal might have for the state.

In this document that launches the center's discussion paper series, Van Nostrand wrote that West Virginia needs policy responses to a future in which both environmental regulations and rising worldwide demand for coal are increasing the price of coal-fired generation.

Future discussion papers in the series will address energy efficiency investments, the state's Alternative and Renewable Energy Portfolio Standard, policies to stimulate development of the state's renewable energy potential and policies to promote use of the state's natural gas resources.