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Groups discuss market-based rates for commercial electric consumers in West Virginia

CHARLESTON — A coalition of groups including major manufacturers, power companies, electric regulators and consumer advocates took a look at a new way to charge large consumers of electricity in West Virginia, though the groups differ on whether it would help or hurt residential customers.

A task force created last year by the West Virginia Consumer Advocate Division released its final report on March 9 studying a market-based rate system for determining electric costs for commercial and industrial ratepayers.

The task force consisted of PSC staff, the PSC’s Consumer Advocate Division, the West Virginia Energy Users Group, Appalachian Power Co. and Wheeling Power Co. (both AEP subsidiaries), Monongahela Power Co. and Potomac Edison Co. (both FirstEnergy subsidiaries), Longview Power LLC, Interstate Gas Supply Inc. and West Virginia Citizens Action Group, Solar United Neighbors and Energy Efficient West Virginia.

An MBR system would peg electricity prices for large commercial and industrial consumers of electricity to a rate based on the wholesale energy price set by PJM Interconnection, which manages the electric grid for West Virginia and 12 other states plus Washington, D.C. Instead of paying rates based on the utility’s cost to provide electricity, prices for industrial/commercial consumers would rise and fall based on the PJM wholesale rate.

The task force began meeting April 5 of last year and held nine meetings with the final meeting on Feb. 16. In the end, the task force was unable to reach a consensus on whether West Virginia should offer an MBR. Instead, the Energy Users Group, AEP, and FirstEnergy reached an agreement in principle to expand market-related Economic Development Rider to create a limited MBR pilot program.

The pilot MBR program would provide limited market-based pricing for new and existing EDR customers using 5 megawatts or more with a cap of 25 megawatts. The pilot would also create an optional Energy Hedge Program for commercial/industrial customers using more than 25 megawatts limited to two existing customers. AEP plans to file a tariff modification proposal reflecting the agreement by June 30, while FirstEnergy will file their modification proposal by July 31.

According to the final report, an MBR plan would be legal in West Virginia but subject to PSC approval depending on if the plan involves any deregulation or bumps up against statutory or regulatory concerns. Some of the task force members believe an MBR plan would be feasible in West Virginia, including the Energy Users Group, without affecting residential ratepayers.

“WVEUG and some participants believe it is possible to avoid issues related to stranded costs that could cause disparities between customers on an alternative pricing program and those remaining on a cost of services-based rate,” the report stated.

But according to a response to the final report filed March 23 by West Virginia Citizens Action Group, Solar United Neighbors and Energy Efficient West Virginia, an MBR would be a “significant” change from the status quo that exists currently for large consumers of electricity. Emmett Pepper, the legal director for Energy Efficient West Virginia, asked wouldn’t all West Virginia ratepayers want access to lower rates.

“Why is it that some of the state’s most sophisticated, price-sensitive, and intensive energy used prefer to avoid cost-of-service rates in favor of retail access to competitive energy supply, or market-based pricing,” Pepper asked. “Relatedly, if those customers could realize more affordable energy supply by pursuing competitively priced options, why shouldn’t all West Virginians enjoy that same freedom and opportunity?”

According to Pepper, the share of income for West Virginia residents going towards electric bills was approximately 50 percent higher than the national average in 2021. That was based in part, according to Pepper, because of the state’s over-reliance between 2008 and 2019 on coal-fired power for electric needs.

“CAG/SUN/EEWV maintain that it is essential to consider the affordability impact to all customers in any future proceeding concerning market-based pricing, by design, that will shift responsibility to pay the costs of existing generating units to all other customers,” Pepper wrote.

Pepper also argued that the Legislature would likely have to pass a bill in order to allow for MBR proposals. There are also options for commercial/industrial customers, including special curtailable rates, demand response agreements, and discounted cost-of-service rates for individual contracts. Pepper said the combination of risks to customers, unbundling cost-of-service rates, and introducing additional changes during a period of volatile prices makes offering an MBR unfeasible.

“Solutions to energy affordability must not simply shift sunk costs between and within customer classes, and must not merely concentrate benefits that would otherwise accrue to all customers for the benefit of a few,” Pepper wrote. “Even without departing from the status quo, there are tools available to encourage efficient use of energy that should remain solutions of first resort. These fundamental principles should be considered in the evaluation of any future proposals.”

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