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Proposed bill would require electric utilities to cost out all resources

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Electric utilities can plan for the future and, of course, they do. 

But left to their own devices, they don't necessarily see investments that reduce demand for their services as their best option — even though they might be best for ratepayers. 

A new draft of bills introduced last year but stalled in committees would ask the utilities to take those investments seriously. 

The bill would require Integrated Resource Planning: apples-to-apples cost comparisons of all resources to meet future demand. 

The process is "integrated" in that it considers demand-side resources that reduce need, such as investments in better insulation and appliances, alongside supply-side resources such as new power plants. 

The goal? The lowest cost for customers over time.

Resource planning conducted in the state so far hasn't put demand initiatives on an equal footing with supply.

But in the utilities' view, this bill isn't necessary. 

How IRP Works

"West Virginians have not been well served in recent years by the heavy dependence of local utilities on coal for electricity generation," reads a recent energy policy discussion paper written by James Van Nostrand, a former utility lawyer and utility regulator and now director of the Center for Energy and Sustainable Development at the West Virginia University College of Law.

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. 

IRP modeling might have prevented that, according to Van Nostrand. 

"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 — leading to fuel diversification that would have protected against price spikes in any one fuel.

It also would include an evaluation of investments in efficiency measures side-by-side with investments in new generation capacity.

IRP has been around for decades and more than half of states require it in some form.

Is Legislation Needed?

IRP bills introduced in 2012 — House Bill 4646 and Senate Bill 162 — stalled, at least in part because the utilities did not want it. 

"We don't want it," said Appalachian Power Vice President for External Affairs Mark Dempsey. 

Meetings since among lawmakers, representatives of coal and the utilities, Van Nostrand and others have resulted in a new draft, but not greater utility buy-in.

"We have no interest in third-party special interests coming in and requiring us to do what the Public Service Commission already has the ability to order," Dempsey said. 

FirstEnergy also said IRP legislation is not needed. 

"We believe this is an issue best left in the hands of the PSC," spokesman Todd Meyers wrote in a brief email on the subject. 

"One of the things the special interests might think about doing would be intervening in one of our rate cases," Dempsey suggested. "But they don't have to wait for that — they could petition the commission at any time to do this." 

Promoters of the bill say that's been done. Testifying on behalf of intervenor West Virginia Citizen Action Group, policy analyst Cathy Kunkel urged the commission in a 2011 FirstEnergy rate case to require the utilities to conduct IRPs. 

"The outcome was a settlement that required FirstEnergy to come up with a Resource Plan, which was emphatically not an Integrated Resource Plan since it rejected all demand-side resources out of hand," Kunkel said. 

How Far Ahead Can Utilities Plan?

Dempsey also argued that, with industry conditions changing rapidly these days, an IRP is obsolete before two years is up. 

State Sen. Corey Palumbo, D-Kanawha, chairman of the Judiciary Committee where SB162 stalled last year and a participant in the subsequent meetings on the topic, said everyone understands it's a rapidly evolving energy environment and these would be living documents.

Asked his opinion on a bill's chances, Palumbo said, "I'd like to still talk to and work with the utilities, and I think the political reality is, if they all line up against it and all of the coal folks line up against it, it will be very, very difficult to get it passed."

A sponsor for the bill has not yet been identified.