When developers joined with Gov. Jim Justice last week to announce a new solar power and industrial plant in Jackson County, they described the $500 million deal as the kind of clean energy project of the future so many West Virginians have been waiting for.
“This project demonstrates how investing in clean energy can revive economies that have served our country’s energy needs for decades,” said Alicia Knapp, CEO of the renewables arm of billionaire Warren Buffet’s Berkshire Hathaway Energy.
But landing the project required an unusual move by state lawmakers and the Justice administration: cutting West Virginia’s utility regulator — the Public Service Commission — out of any oversight over the project’s plan to use green, renewable energy.
Berkshire Hathaway Energy will be building a microgrid, or an energy system that can power itself, on the former Century Aluminum site in Ravenswood. The project will deliver solar energy to all of the customers within a special business development district, which will be overseen by the state Department of Economic Development.
But eliminating the PSC from the process means that even though Berkshire Hathaway Energy will act as a utility by powering businesses within its own industrial park, the company will negotiate rates with its customers, with little to no rate regulation from anyone. Its only current customer is Precision Castparts Corp., a titanium parts manufacturing company that Berkshire Hathaway owns, but the company plans to attract other industrial customers to the park.
James Van Nostrand, a law professor at West Virginia University who recently wrote a book that documents how the PSC has hampered efforts to diversify West Virginia’s energy industry at the expense of ratepayers, says that it makes sense that Berkshire Hathaway Energy would want to go around the PSC. The state utility regulators have repeatedly been hostile to renewable energy and would have delayed or killed this plan, he said.
“This is the worst PSC in the country. And Berkshire Hathaway are really, really smart people. And they figured that out, ‘we’re not going to come to West Virginia if we have to deal with the PSC,’” he said.
Lack of oversight
When lawmakers convened for a special session during September interim meetings, they passed the bill to create two special business districts via the Department of Economic Development. The next day, many lawmakers gathered with Justice to announce the Berkshire Hathaway deal.
The new legislation makes no mention of Berkshire Hathaway Energy. But it’s crafted around the company’s plans: It enables any person or business to provide renewable electricity to others within the district. Berkshire Hathaway Energy will do that for Precision Castparts and future customers via a solar-powered microgrid, which is a mini grid that can sustain itself by generating its own power.
Microgrids using any energy source have great potential to increase the resilience and reliability of the grid, according to Guohui Yuan, who manages the systems integration program at the U.S. Department of Energy’s Solar Energy Technologies Office. Thanks to developments in how they store solar energy and support the load, they are now highly feasible, Yuan said.
“If you put all these together, there is really the benefit of operating the grid with this flexibility, right with the flexibility for another solution,” he said.
But he also said that West Virginia’s arrangement — exempting a project from state utility regulations — is not common for microgrids. Usually, when a customer owns a microgrid (think, a homeowner with solar panels, or a college campus that generates its own power from natural gas combustion turbines) it is not overseen by a utility regulator. But in cases where the power generator is distributing the energy to other customers, it generally is.
Leaving the PSC out of the process means that in most cases, Berkshire Hathaway Energy, which is worth $53 billion, will get to set its own rates, except when they go to the PSC to ask for a “special rate”. And it will also choose its customers: The company will select which customers enter the business park, according to Dan Winters, vice president of communications and public affairs for BHE Renewables.
Winters said that the project bypassed PSC oversight because West Virginia is a regulated electricity state, where monopoly utility companies cover an entire area — in Jackson County’s case, Appalachian Power — and that they therefore needed the carve-out in order to operate.
The PSC accepts new applicants who want to provide energy to West Virginia customers, but the applicants must prove that their supplying power is publicly necessary. Although Winters would not comment on the viability of applying for PSC approval, the state code indicates that there are avenues that BHE could have taken to do so.
Still, it ultimately could have proven difficult with a commission that has been so historically cozy with coal.
Is this good public policy?
For nearly two decades, West Virginia ratepayers have seen their electricity costs skyrocket.
Part of the reason why is that in the past two years, the PSC has repeatedly made uneconomical changes to the way utilities operate that have increased energy costs for West Virginians in order to burn more coal. Two of the three current commissioners have worked for coal, oil, and gas industry groups.
Last year, the PSC voted to pay for upgrades to three coal-fired power plants in order to keep them open through 2040, even though they will cost West Virginia ratepayers over $440 million. Part of the reason the cost is so high is that Kentucky and Virginia utility regulators, who oversee the same utility companies, would not pay for the upgrades. West Virginia’s commissioners also issued an order that two utility companies run their coal-fired power plants at 69% capacity, in spite of executives testifying that this would force them to raise rates.
Given that history, some lawmakers believe that cutting the PSC out of the legislation was exactly the right move.
Del. Kayla Young, D-Kanawha, who was a solar energy lobbyist prior to her time in office, says bypassing the PSC could actually be a good thing for renewable energy.
“A lot of us know … the PSC is, like, not trying to help renewables,” she said. “So as much as we can get away from them, the better, honestly.”
Del. Evan Hansen, D-Monongalia, has worked as a renewable energy consultant for more than a decade and also supported the way the deal was crafted. He said this kind of legislative action was necessary, given utility regulators’ history in the state.
“It would be ideal if the public service commissioners represented a range of interests, because there’s so much more that can be done to diversify the energy mix and to save people money on their electricity,” he said. “But the Legislature can take action.”
Lawmakers and state officials did not say that the topic of utility regulation played a role in their negotiations with Berkshire Hathaway. Sen. Glenn Jeffries, D-Putnam, who sent the original letter to Warren Buffett about the opportunity to invest in West Virginia, met with the president of BHE frequently to show them different potential sites in the state. He said that the PSC never came up in his conversations with the company.
Susan Small, the PSC’s spokesperson, declined a request for comment about the carve-out. But in response to a Freedom of Information Act request for communications about Berkshire Hathaway Energy’s West Virginia plans, the agency said that their communications, which occurred with the Department of Economic Development and Department of Commerce, were exempt under state law and disclosure rules that applied to those departments.
Andy Malinoski, a spokesperson for the Department of Economic Development, would not provide answers about when the department began discussing the exclusion of the PSC with Berkshire Hathaway Energy.
Some of the Legislature’s most vigorous supporters of renewable energy – and most vocal backers of strong environmental regulations – say this particular regulatory exemption is actually good public policy.
“I do think this is good public policy, because this is a situation where the renewable energy company should not be regulated as a public utility, because they’re only providing electricity to a very small number of customers that are located in the same district,” Hansen said. “So they’re different than a public utility that provides electricity to thousands of customers across the entire state.”
He said that he wouldn’t feel the same way if the project had been a coal-fired power plant.
Yet the exemption could set a precedent by which other, non-green energy projects don’t need to be regulated.
For this deal, Gov. Justice says a wide variety of other energy stakeholders are supportive, too.
“One of my first calls was to the Coal Association,” Justice said about the deal. He said that after that he called American Electric Power. “And you know what? They helped us, and they were on board.”