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Appalachian Power, a utility in southwest Virginia, is proposing to make renewable energy available to its ratepayers with a dedicated rate that comes with two caveats.
One is that the cost of the renewable power is priced significantly above the going market rates for wind-generated power in the PJM wholesale power market, which includes Virginia. The other caveat is that third-party sales of electricity throughout Appalachian Power’s (APCo’s) monopoly service territory would be prohibited.
Dozens of interested parties are intervening in the case, which is before Virginia’s State Corporation Commission (PUE-2016-00051). Most of these intervenors, including environmental and solar advocates, say the proposed rate would hurt the market for solar energy in Virginia.
With one narrow exception, Virginia is one of five states that effectively prohibits third parties from selling electricity – for example, a data center contracting directly with a wind farm. But as the costs of renewable energy continue to decline, interest in these types of deals is increasing.
Walton Shepherd, who represents the Natural Resources Defense Council on energy policy in Virginia, slammed APCo’s proposal for how it would “distort free market competition.” He says the move could also harm efforts to create clean-energy jobs in economically distressed southwest Virginia.
John Shepelwich, a spokesman for APCo, responded that the rider “responds to consumer and industrial demand/requests for 100% renewable energy generation” in its territory.
“The goal of this tariff,” Shepelwich said, is “to provide customers with easy access to cost-effective renewable energy with low transaction costs and a fixed energy component that provides price certainty and avoids fuel price volatility, without impacting other ratepayers.”
Shepherd and other intervenors challenged how “cost effective” the tariff is. Data from the U.S. Energy Information Agency (EIA) shows the market price of the renewable sources to be supplied – mostly from wind farms in Illinois, Indiana and West Virginia – is significantly below what APCo wants to charge. To provide a daily supply, APCo proposes to pair the wind energy with power from a hydroelectric plant in West Virginia.
APCo’s proposal states the average weighted cost of the renewable energy under the tariff would be about $72 per megawatt hour. This is because the out-of-state supplies were placed into service between 2001 and 2010. Since then, costs of wind systems have declined.
By comparison, the average cost of wind PPAs nationally in 2015 was $20.75 per megawatt hour, according to Mark Bolinger of the Lawrence Berkeley National Laboratory. That number excludes an extraordinarily high-priced contract by a California utility for electricity from a wind farm in New Mexico.
Many intervenors are scratching their heads over what business or other organization would be willing to pay such a premium even if it is for 100% renewable energy. Shepelwich would not name a company or organization interested in the tariff.
If a pilot program for non-profit customers of Virginia’s other investor-owned utility – Dominion Virginia Power – is any gauge, third-party sales of electricity are drawing more interest every year from all types of other customers, including businesses. Currently, however, only educational and some religious organizations are permitted to participate.
Electricity sales in monopoly franchise territories are a particularly hot topic in the Southeast, most notably in North Carolina, which has a renewable energy standard that providers must fulfill. While lawmakers in Georgia authorized third party sales in 2015 and saw the solar market there blossom, a bid earlier this year in Florida by clean energy advocates failed to secure enough support to gain access to the November election ballot.
One other facet of APCo’s tariff is drawing scrutiny. Despite its cost, the utility insists the tariff does not have to be in the public interest. The regional chapter of the Solar Energy Industries Association (SEIA) is among the intervenors asserting that any such tariff should be in the public interest. It contends the public is not being served because, its leader says, the tariff is misleading and would effectively remove solar supplied by third parties as an option for ratepayers.
“Customers who may wish to participate in this program would wrongly assume that the renewable energy projects would be located in-state and provide economic and environmental benefits to the Commonwealth,” which it would not, said Dana Sleeper, Executive Director of the Maryland-DC-Virginia chapter of SEIA. Sleeper added that “Ironically,” approval of the tariff “could result in fewer options for customers to purchase renewable energy and support renewable energy development in Virginia.”
The Hearing Examiner who managed a November hearing on the tariff is expected to issue its recommendation in the case in early 2017.
In a similar filing initiated in 2015, APCo proposed offering its own version of a third-party power purchase agreement for renewable energy only to see a Hearing Examiner at the state’s utility commission recommend against its approval because it wasn’t in the public interest. Central to the examiner’s opinion was that fundamentally, third-party electricity sales should be seen as legal. But APCo didn’t like that result so it withdrew the proposal, eliminating the need for the State Corporation Commission to rule and possibly open the floodgates to third-party sales.