September 16, 2024
One of West Virginia’s primary electricity providers, Appalachian Power, has increased monthly residential prices by 30 percent since 2013 (get data here) –adjusting for inflation (seen in Figure 1). This is thirty times more than the 1 percent inflation adjusted change in average residential electricity prices across the United States in that decade. The pattern of increasing residential electricity prices continues as West Virginia’s energy providers rely heavily on inefficient coal plants. In 2023, 86 percent of the electricity generated in West Virginia came from coal – the highest share of any state in the nation.
From 2013 to 2023, the real median household income of West Virginia residents only increased by 10 percent. When income doesn’t keep up, rising electricity costs have daunting ramifications for household budgets across the state.
Figure 1
West Virginia is one of the 13 states (plus the District of Columbia) that is served by the regional transmission organization PJM Interconnection, which plans and manages wholesale electricity for its jurisdiction. In the state, the Public Service Commission regulates the prices that investor-owned electric companies charge customers. Moreover, the commission works to ensure rates “reasonably encompass” the cost of service and revenue requirements of utility companies.
Residential electricity bills are primarily composed of Base Rates and Riders - both of which are approved by the commission after deliberation of cases and reports of utility companies. The Base Rate covers costs such as operation and maintenance expenses, depreciation, taxes, and return on capital. Riders are additional charges not included in standard rates that allow utility companies to recover the costs of other programs. Expanded Net Energy Costs (ENECs) are one of the numerous components of the Riders portion of electric bills. ENECs cover increases in the cost of fuels necessary to run plants, and often reflect rising energy prices.
In West Virginia, ENECs account for about 32 percent of the electricity bill, and some of the most recent rate hikes have been proposed through ENEC filings. In a 2023 filing, Appalachian Power requested $552.9 million for costs incurred but not yet reimbursed, and $88.8 million to align current ENEC costs with revenue. If approved, this would have translated to a 37 percent increase in monthly electricity bills if costs were recovered in one year, or a 12.1 percent monthly increase if costs were spread across three years. The dramatic rise in coal and natural gas prices largely accounted for the requested increases. However, the commission denied much of the company’s request, and instead approved $321 million in fees to be recovered over 10 years. Moreover, the commission stated that Appalachian Power did not “properly manage its coal supplies” in 2021 and 2022, which led to the purchase of coal power at high prices.
In September 2021, the Public Service Commission issued an order for West Virginia coal plants to operate at a capacity of at least 69 percent – much higher than the 49.1 percent average operating capacity of plants across the whole US that year. But it is not clear that would be possible, or even bring down prices. In April 2022 testimony by Jason Stegall, AEP’s past manager of regulatory pricing and analysis, it was stated that AEP plants did not have enough coal to run at that level. According to Ohio Valley River Institute senior researcher Sean O’Leary, increasing capacity requirements of coal plants will not result in lower rates due to the rising costs of coal-fired power. Rather, the higher capacity requirements would contribute to the ongoing development where “dependence on coal-fired power is correlated with rising energy costs.”
Figure 2
The Public Service Commission has no regulatory authority to determine the price of coal and other fuels used by utility companies to generate electricity. So, while the commission can make adjustments to ENEC rates based on requests, utility companies remain subject to the volatility of coal and natural gas prices. As shown in Figure 2, 86 percent of the electricity generated in West Virginia in 2023 came from coal, which is far above the share in other states in the region. This reliance on high levels of coal for energy generation increases the state’s susceptibility to disruptions. The COVID-19 pandemic and the Russian invasion of Ukraine were unanticipated crises that resulted in elevated energy costs. While the entire US experienced increased energy prices as a result of those developments, West Virginia’s dependence on coal has made the state particularly vulnerable. The volatility in coal and natural gas prices in recent years has made West Virginia residents victim to unstable – and often expensive – monthly electricity bills.
West Virginia was ranked worst in overall utility performance in the 2022 Electric Utility Performance review produced by the Citizens Utility Board. In an email correspondence, Ohio River Valley Institute senior researcher Ted Boettner stated that the rapid growth in the retail prices in West Virginia is primarily due to the state’s “aging fleet of coal-fired power plants facing huge decreases in capacity factors at their plants, the rising cost of coal, environmental regulations, and utility mismanagement of contracts.” In a state with the third highest poverty rate in the country, monthly utility rates increasing at a steeply faster rate than income has jarring implications for the financial well-being of families.
ACKNOWLEDGMENTS: Special thanks to Ted Boettner from the Ohio River Valley Institute for providing incredibly pivotal insights during this process.
Note: This data focuses on Appalachian Power because it has the highest hourly actual demand for electricity in West Virginia. It has also had the most persistent coverage while requesting rate hikes. Mon Power is another primary electricity provider in the state whose adjusted rates have actually declined in the past decade. The differences in the available rates for customers reflect the complicated nature of West Virginia energy systems.
Sources
Coyne, C. (2024, August 19). PSC suspends AEP electric rate hike until May as customers protest against another increase. West Virginia Watch. https://westvirginiawatch.com/2024/08/19/psc-suspends-aep-electric-rate-hike-until-may-as-customers-protest-against-another-increase/
Engagement between States and Regional Transmission Organizations. (2022). In the National Council on Electricity Policy. https://pubs.naruc.org/pub/6C1AA0FC-1866-DAAC-99FB-993D01E9FDA5
Monongahela Power Company and the Potomac Edison Company. (2008, December 29). In Public Service Commission of West Virginia Charleston (08151 lcomd122908.wpd). https://www.psc.state.wv.us/scripts/WebDocket/ViewDocument.cfm?CaseActivityID=256439
News Bureau: Learning about utility riders. (n.d.). https://puco.ohio.gov/news/news-bureau-riders
PJM - about PJM. (n.d.-b). https://pjm.com/about-pjm
PSC Jurisdiction over Electric Industry - Public Service Commission of West Virginia. (n.d.). https://www.psc.state.wv.us/electric/jurisdiction.htm
Retail electricity prices closely tracked inflation over the last 10 years - U.S. Energy Information Administration (EIA). (n.d.). https://www.eia.gov/todayinenergy/detail.php?id=63064
Report to the Governor of the Commonwealth of Virginia, the Chairman of the Senate Committee on Commerce and Labor, the Chairman of the House Committee on Commerce and Energy, and the Commission on Electric Utility Regulation of the Virginia General Assembly. (2023). Commonwealth of Virginia State Corporation Commission. https://www.scc.virginia.gov/getattachment/2dab0736-18c6-417a-8e71-ca26df982c8d/2023-VEUR.pdf
Tate, C. (2024, January 9). PSC Denies Part Of Appalachian Power’s Fuel Cost Recovery Case. West Virginia Public Broadcasting. https://wvpublic.org/psc-denies-part-of-appalachian-powers-fuel-cost-recovery-case/
Weisbrod, K. (2022, December 5). Soaring West Virginia electricity prices trigger standoff over the state’s devotion to coal power - inside Climate News. Inside Climate News. https://insideclimatenews.org/news/20112022/soaring-west-virginia-electricity-prices-trigger-standoff-over-the-states-devotion-to-coal-power/
What is in an electric bill - Public Service Commission of West Virginia. (n.d.). https://www.psc.state.wv.us/electric/bill.htm
W.Va. regulators want coal plants to boost production. (2022, June 30). S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/w-va-regulators-want-coal-plants-to-boost-production-70977300
2023 ENEC. (n.d.). https://www.appalachianpower.com/company/about/rates/2023ENEC
