Appalachian Power and Wheeling Power fuel cost rate hikes have cost their customers hundreds of millions of dollars.
The companies are looking to add dozens of millions more to that category via a pending $71.6 million rate hike request before the West Virginia Public Service Commission.
But West Virginia consumer advocate groups slammed the companies in filings of new testimony last week, contending they have unnecessarily put ratepayers on the hook for preventable cost increases through years of mismanaging their fuel procurement.
“The Companies’ fuel procurement group should expand their competency in understanding coal markets, coal procurement practices and coal plant operations,†energy procurement analyst Emily Medine of Vienna, Virginia-based Energy Ventures Analysis Inc., said in testimony filed July 23 on behalf of the PSC Consumer Advocate Division, an independent arm of the agency charged with representing residential ratepayer interests.
Appalachian Power and Wheeling Power have proposed to recover an additional $71.6 million in fuel costs over current rates effective Sept. 1.
The utilities have asked the PSC to approve a 3.79% increase in total revenues to cover that rate hike request projecting average monthly increases of $5.31 (3.03%) for residential customers, $15.05 (3.31%) for commercial customers and $13,400 (4.77%) for industrial customers.
Appalachian Power and Wheeling Power reported incurring losses of $40.5 million as they burned coal to address coal oversupply at their plants.
But consumer advocacy group testimony filed last week presents evidence that the American Electric Power-controlled utilities’ ratepayers are liable for many millions of dollars more in losses because of uneconomic operations at the companies’ coal-fired plants causing coal oversupply.
“[T]he Companies have not found a way out of their coal over-procurement problem,†Cathy Kunkel of ÂÒÂ×ÄÚÉä, energy consultant for the Institute for Energy Economics and Financial Analysis, a fossil fuel and renewable energy market research nonprofit, said in testimony filed July 23 on behalf of West Virginia Citizen Action Group, Solar United Neighbors, and Energy Efficient West Virginia.
The companies have filed 15 fuel cost rate cases prior to the latest case since fuel cost review was reestablished in a 2005 case, with the cumulative amount of all such rate increases since that review was reestablished totaling $673.1 million, per testimony from PSC staff Utilities Analyst Geoffery Cooke.
West Virginia has been an outlier in its enduring reliance on coal-fired power as other states shift to lower-cost renewable and gas resources.
The American Electric Power-controlled John E. Amos Power Plant is seen from a field outside of Winfield on August 23, 2018.
Gazette-Mail file photo
Kunkel found the monthly net margin of the companies’ three coal-fired plants from March 2024 through February 2025 was negative $81.4 million, meaning the cost of running the plants far exceeded the revenues the companies earned from selling the plants’ output into the energy market overseen by regional grid operator PJM Interconnection LLC.
Appalachian Power’s John E. Amos Plant in Putnam County was deepest in the red with a $58.9 million loss, per Kunkel’s testimony, which noted monthly net margins were negative in 10 out of 12 months for all three plants. The other two plants are Appalachian Power’s Mountaineer Plant in Mason County and the Mitchell Power Plant in Marshall County co-owned by Wheeling Power and Kentucky Power.
In testimony filed in April, American Electric Power Service Corp. regulatory services director Jason Stegall said low electric energy prices in 2024 resulted in less economic use of Appalachian Power and Wheeling Power coal-fired generating units in line with regional averages, resulting in coal supply that exceeded market demand for coal-fired power in 2024 and the companies’ consumption.
That imbalance put Appalachian Power and Wheeling Power at risk for exceeding storage limits at their coal-fired plants, Stegall said, noting that when the companies reach maximum storage level, they can’t accept further deliveries and risk having to pay for coal they can’t receive.
One way the utilities address that risk is by using market strategies to increase coal consumption, Stegall testified. Those strategies, Stegall said, include a “Must Run†status for coal plant units, meaning the companies commit them into the energy market for regional grid operator PJM and run them at “economic minimum output†to increase generation and thus raise coal consumption and lower risk of exceeding maximum coal storage levels.
When “Must Run†status didn’t yield a level of coal consumption that addressed the companies’ concerns, they used a price decrement to ensure PJM dispatched their units at levels that did, Stegall indicated.
The companies incurred losses of $40.5 million, Stegall said, asserting those losses were far below $299.8 million they could have lost had they violated their coal contracts and been forced to pay for coal which they couldn’t accept.
'A choice between two bad options'
But Kunkel testified that the $40.5 million loss estimate is inaccurate because it uses fuel and variable operation and maintenance cost estimates inconsistent with the coal plants’ actual costs.
Kunkel found the companies’ comparison between the coal units’ negative net margins and potentially larger costs from liquidated damages under coal contracts if the companies had not operated the coal units at a loss to be invalid.
“This comparison ignores the fundamental issue that the Companies’ oversupply of coal is leading to a choice between two bad options, a situation which the Companies should act to avoid in the future,†Kunkel testified.
Kunkel found the companies have kept entering into new coal contracts despite already high coal inventories, going into detail about the contracts redacted from the public version of her testimony. The companies risk once again pushing forecasted coal inventories to levels where they would need “Must Run†commitments and price decrements to uneconomically burn off excess amounts of coal, Kunkel testified.
The utilities already have incurred over $150 million of operating losses over a two-year period from such uneconomic operation of their coal units, Kunkel testified.
Citing high coal inventory conditions expected to persist through the review period of next year’s scheduled fuel cost rate proceeding, the companies likely will incur further losses from managing their coal plants to maintain their coal inventories at acceptable levels, Kunkel warned.
'An unstructured fuel procurement process'
Medine noted her latest testimony reflects findings from the four previous fuel cost cases for Appalachian Power and Wheeling Power dating back to 2021.
In that testimony, Medine asserted the companies hadn’t followed their own procurement procedures based upon industry practice, which resulted in going to market late despite numerous indications of a tightening market and, subsequently, significantly higher prices and extended terms for coal that could be bought.
Medine testified the companies paid suppliers to defer or reduce their contract volumes and paid a supplier for the companies’ failure to properly implement a right-of-first-refusal provision in a contract.
“The Companies continue to defend an unstructured fuel procurement process with no specific targets and tenure of its coal purchases,†Medine testified.
Coal purchasing strategy reevaluation advised Â
Kunkel recommended the companies should be directed to reevaluate their coal purchasing strategy and should focus on how they can avoid or reduce contract obligations and procurement decisions that make them have to operate coal units at a loss to address coal inventory worries.
Kunkel advised the PSC to direct the companies to track fuel consumption on an hourly basis to have a more accurate understanding of the economic impact of their unit commitment strategies.
Medine recommended the companies should adjust presented coal prices in future fuel cost rate proceedings to reflect what a reasonable average cost of coal in inventory would be that excludes the impact of what she said were prior imprudent purchases in the calculations.
The PSC also should warn Appalachian Power and Wheeling Power that failure to procure coal in line with forecasted fuel consumption, and persistent must-running of coal units at a loss could result in a disallowance in future fuel cost rate proceedings, Kunkel recommended.
Legal fight followed last PSC fuel cost disallowanceÂ
In January 2024, the PSC issued an order disallowing Appalachian Power and Wheeling Power from recovering $231.8 million in fuel costs from ratepayers after finding they failed to manage their coal-fired power plant operations prudently.
The PSC found the companies had disregarded trends and market signals impacting their coal procurement, causing them to over-rely on power purchased from PJM’s wholesale electricity market rather than generating energy at their own West Virginia plants.
But the West Virginia Supreme Court of Appeals in November 2024 filed an opinion reversing the PSC order, finding it was based on “extra-record evidence†of which the utilities weren’t given notice.
The companies had appealed the PSC order, which had allowed the rest of their requested cost recovery — $321.1 million — to be assessed to customers through a fuel cost rate hike starting Sept. 1, 2024.
In an opinion authored by Justice John Hutchison, the court agreed with the PSC that the utilities didn’t manage their coal-fired power plant operations prudently.
But the court sided with the companies in finding it was “fundamentally unfair†for the PSC to consult and rely on information outside the evidentiary record in the case in arriving at its disallowance calculation.
The PSC has scheduled an evidentiary hearing for October for the 2021, 2022 and 2023 fuel cost rate cases implicated in the Supreme Court order.
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