Do you know the old advice to investors – “Buy low and sell high”? Well, building a new gas-fired power plant right now is doing exactly the opposite. This is the worst time in history to be paying for construction of a new natural gas-fired power plant. It’s buying when the cost of buying has never been higher.
But that’s exactly what the West Virginia Public Service Commission (PSC) is considering. Regulators are currently reviewing integrated resource plans, submitted by the state’s public utilities to determine what kinds of power plants get built, how much customers will pay, and what the state’s electric grid will look like for decades to come.
FirstEnergy and its subsidiary, Mon Power, are asking the West Virginia Public Service Commission to approve the expenditure of roughly $2.5 billion to build a 1,200 MW gas plant that would be capable of generating about the same amount of electricity as West Virginia’s Fort Martin coal-fired power plant. The cost could rise to $3.1 billion, if Mon Power fails to get a subsidized loan from the US Department of Energy. To put the cost in context, a report published in 2023 by the US Energy Information Administration found that the cost to build a gas plant of that size was, at the time, $1.04 billion. In just the last three years, amid feverish concerns about data center-driven electric system load growth, the cost of construction has nearly tripled. That cost will likely be lower in a few years, when load growth fever abates and supply chains catch up with demand.
In the meantime, prudence would dictate that, if we find ourselves in need of additional energy resources, we should thoroughly explore available alternatives before deciding to pay the highest price in history. Those alternatives include resources such as energy efficiency programs, demand response programs, and technologies that would integrate distributed and battery resources into the grid. In addition to being less expensive than adding gas-fired generation, these alternative resources are also more readily available.
Would these distributed resources, perhaps in combination with renewable resources, fully meet the need? Perhaps and perhaps not, but they would, if embraced, at least significantly reduce the need for added gas-fired generation, which would also save money. In any case, a truly thorough and rigorous quantitative analysis of multiple scenarios under a variety of conditions would make clear the most cost-effective way forward.
But that’s not what FirstEnergy and Mon Power are bringing to the table.These utilities have a powerful profit incentive to prefer solutions that require substantial spending over cheaper, more efficient alternatives. They don’t profit from the sale of the actual energy they generate, but rather, from returns on capital investments from building things like power lines, substations, and power plants.The bigger and the more expensive the power plant, the greater the utility’s profits. The only constraint on the utility’s ability to invest and maximize profits is the state Public Service Commission, which must approve all capital expenditures for which the utility will be allowed to bill customers.
The PSC has multiple mandates, including cost-effectiveness. It also cares about grid reliability and resiliency and even the economic impacts of the choices made by the utilities it regulates. That fact should make the challenge of justifying a new gas-fired power plant even greater because, from an economic development perspective, a plant of the size proposed will probably employ fewer than thirty people. At least that’s the case with similarly sized, nearby gas plants in Ohio and Pennsylvania.
But most concerning is the possibility floated by FirstEnergy and Mon Power that the new plant is primarily needed to serve prospective data centers. That’s frightening because in Pennsylvania and Ohio, where data center development is much more advanced, utilities are shifting some of the costs induced by data centers to customers,who are now suffering double-digit rate increases.
This effect can be mitigated if utilities and their regulators adopt special tariffs or rate structures for data centers to ensure that they will pay not only for the energy they use but also for the infrastructure they require. These regulatory measures could also address the risk data centers impose on other ratepayers if they fail to materialize or operate below expected levels. These protections can reduce the need to recover costs from existing customers in the likely scenario that demand for data centers is overstated.
FirstEnergy CEO Brian Tierney told investors last fall that his companies will not seek special tariffs for data centers, claiming that existing customers’ interests will be protected by means of special contracts between FirstEnergy and data center owners. But FirstEnergy is a profit-motivated player, and the consideration of special contracts is a particularly opaque process. That makes the PSC even more reliant than usual on the utility to determine what is fair and unfair.
Pennsylvania’s Public Utility Commission is developing a model tariff for utilities and the legislature is considering requiring utilities to adopt special tariffs for data centers and similar large load customers. In the interests of rate payers and a resilient and reliable grid, West Virginia should do the same.