Coal fuels less and less Virginia electricity. But when should utilities pull the plug on plants?
‘Throwing good money after bad’
Dominion Energy’s Virginia City Hybrid Energy Center in Wise County, Va., 2019. (Sarah Vogelsong/Virginia Mercury)
When Dominion Energy broke ground in 2008 on the largely coal-fired Virginia City Hybrid Energy Center, then-Lt. Gov. Bill Bolling called it “the largest economic development project in the history of Southwest Virginia.”
Today, the facility, the last coal plant to be built in Virginia, remains a local economic force, tipping more than $8.9 million in property taxes into Wise County’s coffers in 2020. But that investment comes at a price. According to Dominion’s own calculations, the continued operation of Virginia City is expected to cost utility ratepayers — none of whom live in Wise County — $472 million through 2029.
Those numbers have become key touchstones in a struggle over how fast Virginia should wind down its coal fleet, with the utilities pushing to keep their remaining large investments in service through 2040 or 2045 and many environmental and consumer groups arguing that closures should happen far sooner, preferably by the end of the decade.
“From a utility’s perspective I think the question to be asked is, ‘Do the benefits of continuing to operate this facility outweigh the costs to the customers?’” said Will Cleveland, an attorney with the Southern Environmental Law Center.
Both sides have emphasized different costs and different benefits. Advocates for faster closure highlight the declining use of coal plants to provide customers with energy, the additional costs ratepayers will have to shoulder to keep them running and the need to stop emitting carbon. Utilities meanwhile point to their power reserve obligations, local economic impacts and the cost of rapidly rolling out renewables to replace shuttered coal generators.
Keeping Virginia City afloat, said Dominion spokesperson Rayhan Daudani, “helps us provide reliable power for our customers and also plays an important role in Southwestern Virginia with hundreds of jobs and significant local revenue while helping clean up millions of tons of waste coal and thereby improving regional water quality.”
Cleveland, however, described Virginia City as “a power plant in search of a reason to exist.”
“I think you can both close the coal plant and provide the necessary assistance to Wise County all for less money than it now costs Dominion customers to keep the thing open,” he said.
The last coal plants
Once the driving force behind Virginia-produced electricity, coal has over the past decade found itself steadily losing its corner of the market.
Part of the reason is purely economic: The shale revolution ushered in a glut of cheap natural gas that has been able to undercut coal as electric utilities’ fuel of choice. Capacity factors — an indicator of how often plants are run, with a factor of 100 percent indicating constant usage at maximum output — show declining usage of coal plants in favor of natural gas. Between 2017 and 2019, Virginia City’s capacity factor fell from about 62 percent to 22 percent, while that of the Clover Power Station in Halifax County dropped from about 43 percent to 17 percent.
Clover “used to provide about 25 percent of our power, and last year it was about 5 percent of our power,” said Kirk Johnson, ODEC’s senior vice president for member services.
Appalachian Power’s use of its Amos and Mountaineer plants, which are located in West Virginia but serve the company’s Virginia customers, have also fallen. According to utility data, capacity factors dropped between 2017 and 2020 from an average of 54 percent to 40 percent for Amos and from 62 percent to 46 percent for Mountaineer, with a spike in use at the latter in 2019.
Natural gas isn’t the only force exerting pressure on coal, however. Heightened environmental regulation has also played a role. Rules introduced by the U.S. Environmental Protection Agency in 2015 to govern coal ash and coal wastewater disposal are forcing plants to either make costly upgrades or shutter; last Monday, the agency announced it plans to begin strengthening them further. And rising concern about climate change-causing carbon emissions has led a growing number of states to pass laws to phase out fossil fuels. Coal plants, which are generally older and produce more carbon dioxide than their natural gas counterparts, tend to be first on the chopping block.
Virginia is no exception. The 2020 Virginia Clean Economy Act set a 2024 deadline for the closure of most of the state’s coal units, although it allowed Virginia City and the Clover Power Station jointly owned by Dominion and Old Dominion Electric Cooperative to stay open until 2045.
“The economics are already showing that it doesn’t make any sense” to keep operating most coal plants, said Dori Jaffe, a senior attorney with the Sierra Club who is involved with current litigation before Virginia’s State Corporation Commission concerning two coal plants owned by Appalachian Power Company.
Operators have in numerous cases agreed. Dominion has retired or converted 11 coal units in Virginia over the past three years and plans to close its last two coal units at the Chesterfield Power Station in 2023. Appalachian Power closed its last three Virginia coal units in 2015. Non-utility companies shuttered the Spruance coal plant near Richmond this January and announced plans to convert a King George coal plant to storage and solar in March.
Nevertheless, a few large coal plants continue to operate for the foreseeable future. Virginia City is one. Clover may be another. Although Dominion has projected a 2025 retirement date for the plant in long-range planning, no firm commitments have been made, and the facility’s shared ownership means both Dominion and ODEC must agree to any closure plan.
Appalachian Power’s Amos and Mountaineer coal plants present a curious problem due to their West Virginia location. While not subject to Virginia closure deadlines, both facilities face significant pressure from state law requiring utilities to source an increasing amount of their electricity from renewables through 2050.
“The costs incurred to comply with the Virginia Clean Economy Act may be higher because of continued operation of Amos and Mountaineer than it otherwise would be,” said Cleveland.
When Appalachian Power intends to shutter those plants remains a question mark. During its 2020 rate review, the utility asked regulators to plan for accelerated retirement dates of 2032 and 2033 for the facilities rather than 2040, although the later date has resurfaced this spring in a fresh round of proceedings over environmental investments.
The utilities acknowledge the declining use of coal plants but say that isn’t the whole picture. Serving daily load is just one of their obligations, they point out. Maintaining power reserves sufficient to meet year-round demand spikes is another, one that can’t be ignored.
“We are required to have a certain level of capacity — in other words, we must be ready to provide our customers a certain amount of power at any given time,” said Appalachian Power spokesperson Jeri Matheney. Amos and Mountaineer represent nearly two-thirds of the company’s capacity, she said; retiring them early “would expose the company and our customers to an imprudent level of uncertainty and market volatility.”
Johnson, the ODEC executive, also said that even though Clover is “not much of an energy source” for the cooperative, it is “a valuable capacity resource so we can meet our capacity obligations” within the regional electricity market.
“We spend a lot of time talking about the future of Clover and what is in the best interest of our members,” he said.
To invest or not invest
Dominion and ODEC remain in the driver’s seat when it comes to decision-making about Virginia City and Clover. But Appalachian Power’s hand is being forced this spring as it seeks state approval for several large investments to comply with tighter federal coal ash and coal wastewater disposal regulations at Amos and Mountaineer.
The choices are stark. If Appalachian doesn’t comply with the coal ash rule, it will have to close both facilities by 2023 at the latest; not complying with the wastewater rule would trigger a closure date of 2028.
The utility has asked regulators for permission to do both, allowing the plants to operate through 2040. The price tag for Virginia and West Virginia customers would be $250 million, split evenly between the two projects. As a result the average Virginia customer would see a monthly bill increase of $2.50.
Appalachian has said continuing to operate the plants through 2040 is “the most economical solution for customers,” and that if it was forced to retire one or both by 2028, it would have to spend billions of dollars on replacements “much earlier than necessary.”
“Virginia customers would bear the costs of this unprecedented capacity overhaul,” said Matheney.
But while the company has faced no opposition to its coal ash investments, which are widely viewed as cleanup costs, both the Sierra Club and the Virginia Office of the Attorney General have disputed the wisdom of the wastewater investments that aim to prolong Amos and Mountaineer’s lives through 2040.
“This is a moment when neither market nor regulatory trends favor coal generation. And yet the company is requesting recovery from ratepayers of additional capital that it wants to invest into West Virginia coal plants in the apparent hope that the plants will weather the economic and regulatory headwinds that are faced by other coal plants all over world,” said Sierra Club attorney Evan Johns during proceedings before the State Corporation Commission this June.
SCC staff too expressed hesitancy about the prospect of racking up further costs.
“It would appear to be inconsistent with market and industry trends to assume that the Amos and Mountaineer plants will be able to operate economically in the market through 2040,” said utilities policy specialist Earnest White in May testimony on the proposal.
A hearing examiner sided with the skeptics earlier this month, saying she was “concerned about the validity of APCo’s conclusion that the [wastewater] investments will ultimately be beneficial to ratepayers” and recommending that the commission withhold approval of them until the utility could provide more detailed analysis.
Kentucky regulators on July 15 took a similar stance, denying Appalachian’s proposal to make the same upgrades at its Mitchell plant on the grounds that it hadn’t proved the projects were “a reasonable, cost-effective alternative.” West Virginia regulators are still mulling the same proposal before the Virginia commission.
A replacement for coal
No accounting of coal’s costs can be complete, say both the utilities and advocates of early closure, without an accounting of what it will cost to replace it.
“No party disputes that the company will have to acquire replacement capacity for the plants at some point in the future,” Appalachian Power wrote in a filing with the State Corporation Commission last week.
When that point in the future should be is hotly disputed.
Early closure advocates say that phasing out the plants sooner would be better not only for curbing air pollution but in some cases on economic grounds.
Continuing to operate coal plants would be a matter of “throwing good money after bad,” said Cleveland of the Southern Environmental Law Center, pointing in particular to Virginia City’s projected 10-year losses of $472 million. (Appalachian Power doesn’t make similar valuations of its facilities publicly available.) The plants have been built, so “customers are on the hook for that regardless of whether it retires now or in 30 years.”
But, he asked, “Is it beneficial to the customer to ask them to incur yet more cost to keep operating?”
Appalachian Power has argued that pushing off replacement costs to the future while the coal plants finish out their lives would be better for customers. One Sierra Club proposal to procure 6.3 gigawatts of solar and storage as a replacement by 2028 at an estimated cost of $5 to $7 billion was described as “simply too much, too fast to be feasible” by James Martin, the director of resource planning strategy for Appalachian Power parent company AEP.
“The only practical solution, and the most economic solution, is to preserve the dependable capacity that these units provide for our customers,” he testified to Virginia regulators.
Much of the decision-making regulators will face in the Appalachian case, as well as any future case involving coal plant investments, comes down to whose accounting they accept. In the present proceedings, Appalachian contends early retirement of both plants would cost customers $1.5 billion by 2039, while the Sierra Club argues such a step would save ratepayers $670 million.
Electric cooperatives like Old Dominion also face a separate set of challenges because of their non-profit structure, which gives them less flexibility in deciding how to handle early retirement costs.
“We don’t have some tools like securitization that are available to investor-owned utilities,” said Johnson. “We can’t shove any of these costs or this depreciation on shareholders. It all has to come from those 1.5 million people that we serve at the end of the line.”
Less abstract are the impacts the inevitable closures will have on plant employees. Appalachian spokesperson Matheney described the company’s facilities as “the primary employers and tax paying entities in many communities.”
“Our intent is to provide as much notice as is feasible, often as long as five years, to prepare for a closure,” she said.
Other coal plants serve a similar function.
“Our county has become very dependent upon the revenue from” Virginia City, Wise County resident David Rouse told a Senate subcommittee this winter. “It now provides about 20 percent of the county’s budget in terms of taxation. Not only would we suffer from the loss of employment but our schools would suffer significantly from the loss of revenue as would other county services.”
Dominion has emphasized this financial contribution in regulatory testimony. Virginia City, it said during litigation over its 2020 long-range plan, “is expected to remain in the company’s fleet for reasons beyond the results of the economic analysis.”
“In addition to serving customers’ energy and capacity needs, [Virginia City] support jobs, economic development and water quality improvements in the coalfield regions of the commonwealth, and reduces reliance on imported power,” the company wrote.
Cleveland, who has consistently argued against the reasonableness of continuing to operate the plant, said that any early closure would need to be accompanied by “a very thoughtful companion effort to make sure that Wise County and its residents are not left out in the cold.” But, he added, “I think there are lots of ways to solve that problem.”
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