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Are Competitive Electric Rates a Thing of the Past?

It’s time to talk turkey about what should be a major concern to all West Virginians, increasing electric rates. In his July 1 commentary, Mike Myer (Wheeling Intelligencer) asked “What’s Up With Electric Bills,” and then proceeded to use the appropriate term “skyrocketed” to describe what has happened to electric rates here in West Virginia.

In fact, from 2007 to 2016, West Virginia’s overall electric rates increased more than any other state in the union (on a percentage basis, per U.S. Energy Information Administration), representing an over 70 percent rate increase (U.S. average increase of 11.5 percent). In that same period, West Virginia’s industrial and manufacturing rates have increased by over 80 percent, and have doubled since earlier in the last decade.

In fact, 10 years ago, West Virginia’s industrial and manufacturing electric rates were consistently in the “top 5” lowest rates in the country, but now rank as low as 30th, with rates higher than Ohio, Kentucky, Virginia and New York, among many other states.

There was a time when energy intensive industrial, chemical, manufacturing, and institutional businesses wanted to move to West Virginia for the competitive electric rates, but that is no longer the case. Electric costs are a key cost of production for these concerns, in an ever more competitive regional, national and global environment.

So why have our electric rates increased so much, so fast, and what can we, as consumers, do about it? In the next few paragraphs I will attempt to put this issue into perspective, and then to make a few recommendations of change for the future of our state.

West Virginia’s electric rates are regulated by the Public Service Commission (PSC), led by three commissioners who are appointed by the governor. The lead commissioner, Michael Albert, has served in that position since February 2007. Prior to being appointed to the PSC, Albert was an attorney representing public utility companies in West Virginia.

Unlike all of our surrounding states, West Virginia’s residential, industrial and manufacturing companies are required to purchase electricity from the regulated utilities, either First Energy or American Electric Power. In exchange for their obligation to serve us, these utilities are awarded a monopoly and authorized a 10 percent return on their investments and costs, and we as customers are to get “just and reasonable” regulated rates. This begs the question, is a doubling of rates in 10 years “just and reasonable” for West Virginia consumers?

Several factors have contributed to these massive rate increases, many of which are fairly complicated, but still important for us to consider, as follows:

1) In 2000, West Virginia declined to pursue “customer choice” and chose to remain a regulated state;

2) Coal prices then increased;

3) Regulatory compliance costs increased under the Obama administration;

4) The shale gas revolution has changed wholesale electric pricing, with “unregulated” plants moving to the wholesale markets (PJM), and regulated coal plants remaining as West Virginia ratepayers’ burden;

5) Legislative ratemaking, allowing our utilities to impose surcharges on each item or area of expense, effectively shifting risk from their shareholders to ratepayers, and accelerating the utilities cost recovery from ratepayers;

6) Decreased demand/usage (coal mines were major West Virginia electric users) results in higher costs being spread over fewer billing customers, creating spiraling increases for customers that remain; and

7) Utilities’ motivation has changed — from that of a monopoly provider of a true public service, to that of a financially driven public corporation, squeezing every dollar out of their captive customers in order to provide stock dividends and increased shareholder value, enabled by the regulated rate process here in West Virginia.

When discussing the electric rate issue I am often asked, “But isn’t West Virginia a net exporter of electric power?” Yes, but the fact is that this is not even relevant to the regulated retail rates in West Virginia. Less than about half of West Virginia’s electric power generation is dedicated to retail ratepayers in West Virginia, and this is subject to regulated rate base recovery, not wholesale market pricing.

As captive ratepayers, we pay the cost of production for utility-owned regulated electric generation, including coal-fired plants.

West Virginia wholesale electric producers (non-utilities) have no obligation (or ability) to serve, or provide, direct benefits to West Virginia ratepayers. Therefore, we currently have no ability to benefit from lower market electric rates resulting from the bounty of natural gas being produced in our own state, even if the electric is produced here.

This has created a non-competitive environment, where surrounding states are out-competing West Virginia for economic development, jobs and future tax-base creation.

The current regulatory paradigm, with no access to, or benefit from, our own abundant natural resources, is harming West Virginia residents, businesses, and industry, as well as our future. Therefore, let’s address the regulatory environment first, with recommendations such as:

1) Fight rate increases at the PSC;

2) Support PSC turnover that protects ratepayers;

3) Stem legislation that places utility shareholder interests above those of ratepayers;

4) Pursue on-site generation with plentiful, clean-burning shale gas;

5) Demand creative options from our utility companies, and positive change from our legislature, such as PSC flexibility for interruptible, opportunity, and economic development offerings and tariff offerings — like surrounding states, with the value of economic contributions being recognized in negotiated rates;

6) Legislation to allow access to the PJM market and wholesale suppliers for large electricity users;

7) Relax on-site cogeneration rules by allowing third party investment/operation (without requiring public utility status); and 8) Explore on-site cogeneration to foster industrial campuses with industrial site electric cooperatives.

So, what’s at stake if nothing changes with West Virginia’s electric rate trajectory? As a resident, I am upset that we are paying higher rates than our surrounding states.

As a manufacturer, employer, taxpayer and major electric user, I am appalled that this has been allowed to happen.

I am concerned with the very viability of West Virginia’s future economy, jobs growth, and tax base. Implementing these measures would actually help to reduce utilities need for more power plant investments, lowering costs to captive ratepayers. This would also allow business and industry to access the benefits of West Virginia’s energy advantage, while enhancing the economy, fostering jobs growth, and improving the tax base.

It is time we demand positive change to move West Virginia forward.

Eddy is president and chief executive officer of Eagle Manufacturing Co. in Wellsburg.

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