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Electric rates will drop by 3.7% next year for West Virginia customers under a settlement between energy efficiency advocates and FirstEnergy subsidiaries Mon Power and Potomac Edison.

The West Virginia Public Service Commission approved the deal Wednesday. The utilities also must justify continuing coal plant operations and provide an economic analysis of plants for which they plan major improvements. The deal rejects the companies’ application to modernize two coal plants, but the utilities can apply again.

FirstEnergy expects a multi-year modernization and improvement program at the plants to be complete by 2025. The program would include continuing air-emission reduction projects at both plants and new wastewater treatment projects to meet the U.S. Environmental Protection Agency’s new effluent limitation guideline requirements, according to FirstEnergy spokesman Will Boye.

The utilities settled with the West Virginia Energy Users Group, Sierra Club, Consumer Advocate Division of the Public Service Commission, West Virginia Citizens Action Group, Solar United Neighbors and commission staff.

The utilities are seeking to modernize the Harrison Power Station in Haywood and Fort Martin Power Station in Maidsville. A letter Mon Power and Potomac Edison lawyers sent the commission last month estimates the cost at slightly more than $247 million.

The Harrison and Fort Martin power stations annually use more than 5 million and 2.8 million tons of coal, respectively, according to FirstEnergy’s website, although Boye said FirstEnergy reduced total tonnage and costs after renegotiating contracts earlier this year.

Energy efficiency advocates said the settlement would help ensure that FirstEnergy considers investing in clean energy and embraces solar and energy efficiency options before proposing more spending on coal units.

“That’s probably the main thing we were focused on is just making sure we’re ... looking at numbers and making sure this is a good investment for ratepayers,” said Charleston attorney Emmett Pepper, who, along with the nonprofit law firm Earthjustice, represented the West Virginia Citizen Action Group and Solar United Neighbors in the two cases that were settled.

“FirstEnergy wanted to spend hundreds of millions of their customers’ hard-earned dollars upgrading decades-old generating units,” Gary Zuckett of Citizen Action Group said in a statement. “West Virginians know what it’s like to decide whether it makes sense to make an expensive repair on an aging car. FirstEnergy should do the same before spending our money on these units.”

Testifying in one of the cases on behalf of the Sierra Club, Rachel Wilson of the Massachusetts-based research and consulting firm Synapse Energy Economics, said Mon Power inappropriately self-committed its coal units. That resulted in net operating losses as the company consistently offered its coal units at prices below production costs in the PJM Interconnection energy market.

Self-committed generators operate regardless of whether the market-clearing price is sufficient to cover marginal costs, according to the U.S. Energy Information Administration. PJM is a regional transmission organization that coordinates wholesale electricity movement in all or parts of 13 states and the District of Columbia.

“The approval of our settlement will allow consumer advocates to gain a clearer picture of the costs associated with the utility’s uneconomic coal plants,” Karan Ireland, the West Virginia Sierra Club’s senior campaign representative, said in a statement. “By both requiring a forward-looking analysis of its coal-fired generation and by being fully transparent about uneconomic and unnecessary operation of its Fort Martin plant, the public will be given an accurate understanding of how Mon Power is burning expensive, dirty coal needlessly in order to charge consumers more money.”

Boye wrote that FirstEnergy coal-unit commitment practices are based on providing the best value to customers. The practices consider contract obligations, unit reliability and operational and environmental requirements.

“We are committed to providing safe and reliable electricity at an affordable cost, and we are pleased to be able to lower electric rates for our customers by $50 million, or 3.7%, in 2021 as a result of this settlement and Commission action,” Boye wrote.

Pepper is confident the settlement will provide a framework for future consideration of FirstEnergy proposals for spending on modernization projects.

“It’s good for consumers,” Pepper said. “It’s good for anyone who’s interested in making sure we’re evaluating the power plants ... and their cost and efficacy.”