Nearly every West Virginia resident and business has seen their electricity bills go up significantly in recent months, and the rate increases are expected to keep coming.
Both FirstEnergy and American Electric Power, the parent companies of West Virginia’s largest electric utilities, have received rate increases for $62.5 million and $123.5 million since the beginning of the year, and FirstEnergy customers could be covering $200 million more in 2016 if state regulators approve two of the company’s recent requests.
In the past two years, the state’s Public Service Commission has approved millions of dollars of spending on expanded tree trimming programs and the takeovers of coal-fired power plants, like FirstEnergy’s Harrison Power Plant north of Clarksburg and American Electric Power’s John Amos Plant near St. Albans.
But when it comes to spending money on energy efficiency programs that could help homeowners and businesses save money by reducing their electricity usage, efforts to persuade commissioners of the need for additional resources have not gained a lot of traction.
Other states, including many of West Virginia’s neighbors, have actively expanded energy efficiency programs that help residential and commercial customers pay for things like energy audits, home appliance replacements, low-income home weatherization and energy efficient lighting.
According to the American Council for an Energy Efficient Economy, around half the states in the country have set energy efficiency standards that have helped save more than 25 million megawatt-hours of electricity in 2014, and cut participating customers’ monthly bills in the process.
But in West Virginia, those types of programs have lagged behind, either because of the state’s failure to adopt standards that push utilities to adopt efficiency programs or because of the PSC’s reluctance to require utilities to increase spending on the programs that already exist, as a result of past rate settlements.
In American Electric Power’s most recent energy efficiency case in June, commissioners Mike Albert and Brooks McCabe wrote that while increasing efficiency is without a doubt a “laudable goal” they had not been persuaded that it was in the public’s interest to expand the budget for efficiency programs.
In PSC documents and testimony, officials with FirstEnergy and American Electric Power have argued that low electricity rates in West Virginia make it more difficult to encourage residents and businesses to participate in the efficiency programs, even though every customer already pays for the programs through their rates.
At the same time, the West Virginia Legislature has failed to pass bills that would have established mandatory energy efficiency improvement standards.
The end result, energy efficiency proponents say, is residential and commercial customers dealing with dramatic jumps in electricity prices, while having a relatively-limited number of opportunities to actually do something about their inflated monthly bills.
“I think efficiency is a way for people to take control of their finances,” said Emmett Pepper, the executive director of Energy Efficient West Virginia. “It’s better than just hoping the bills stay low.”
Low rates don’t equal low monthly bills
For years, state officials and the state’s electric utility companies have announced that West Virginia has some of the lowest electricity rates in the country.
“Although the fact is often lost in the intensity surrounding major rate cases, West Virginia’s electric rates for residential customers are, by comparison on a national level, relatively low,” the PSC wrote in its March order giving AEP an overall revenue increase of 9 percent.
Those statements are true. West Virginia had the fifth lowest electricity rates in the country in 2013, according to the most recent data from the U.S. Energy Information Administration.
But while the state’s cost per kilowatt-hour of electricity is low, the focus on rates misses the larger point. Evidence shows that West Virginia, which has one of the highest poverty rates in the country, has some of the least energy efficient homes in the nation, causing residents to purchase more kilowatts of electricity per month than the average U.S. customer.
That in turn raises the cost of the state’s average monthly bill to just below the U.S. average in 2013, and that was before the PSC approved residential rate increases of 11 percent and roughly 13 percent for AEP and FirstEnergy customers earlier this year.
As a result of those increases, residential customers all over the state have seen their monthly bills rise dramatically, and it’s likely that all customers will see another large jump in 2016.
The average residential customer with Appalachian Power and Wheeling Power, AEP’s subsidiaries, has already seen their bills rise from around $94 per month to more than $108 in 2015, according company news releases. And they can expect to see another delayed increase of more than $5 a month in 2016.
Customers with MonPower and Potomac Edison, FirstEnergy’s subsidiaries, haven’t fared any better. They have already seen their monthly bills increase by several dollars a month in 2015.
And if the PSC approves the companies’ requests for an additional $209 million to cover vegetation management efforts and costs at the Harrison Power plant, residential customers could see their bills jump from $100 per month to more than $112 beginning in 2016.
Trailing in efficiency spending and energy savings
The differences in energy efficiency offerings in West Virginia and neighboring states has become readily apparent for some electric customers in West Virginia.
When FirstEnergy requested $165 million in the company’s ongoing expanded net energy case, one customer in the eastern panhandle wrote a letter to the PSC asking why Potomac Edison customers in neighboring Maryland could get rebates for replacing old dryers or refrigerators, while they could not.
The customer seemed amazed that even though they bought electricity from the same parent company they couldn’t take part in energy efficiency offerings because their home was several miles across the state line in West Virginia. “We get nothing from them but higher [and] higher rates. Why is this?” the customer asked the PSC.
The customer’s frustrations anecdotally captures the facts of the larger issue: West Virginia is the fifth worst energy efficient state in the country, according to a 2015 report by the ACEEE.
West Virginia trails all of its neighbors except Virginia in utility managed energy efficiency investment, according to that 2015 report. And even Virginia ranks higher overall because of energy efficiency tax credits in that state.
The ACEEE report shows that roughly $11 million was spent on utility-financed energy efficiency efforts in West Virginia in 2014, or $5.93 for every person in the state. In comparison, Maryland spent $319 million, or $53 per person. Pennsylvania spent $197 million, or $15 per person. Ohio spent $86.4 million, or $7 per person. And Kentucky spent $39.5 million, or $8 per person.
The energy savings of both companies have also fallen behind other regions of the country, including neighboring states where FirstEnergy and Appalachian Power own other utilities.
PSC documents show that neither company has achieved electric savings in West Virginia of more than 0.5 percent of annual residential sales. But in dozens of other states, utilities have been able to achieve demand reductions from 1 to 2 percent.
Making money off unsold electricity
Traditionally, the business model of electric utilities has been to build large, centralized power stations and to sell as much electricity as possible. Under that model, it’s not to the company’s benefit to encourage customers to use less electricity.
But that is exactly what energy efficiency programs seek to do, and as a result, the PSC has decided to increase incentives for Appalachian and Wheeling power officials.
As part of AEP’s rate case in March, the PSC allowed the company to start collecting money from customers for the amount of electricity that they didn’t sell as a result of more efficient homes and businesses. As a result, the companies are now collecting $3.9 million for “lost revenues,” electricity that they didn’t produce and they didn’t sell.
As a comparison, that arrangement would be like a food processing company getting paid for sales it didn’t make because of people’s choices to reduce their caloric intake.
Appalachian Power officials have argued that the “lost revenues” help the company offset any loss in the recovery of fixed costs that results from the implementation of energy efficient programs.
But while the new setup should make it more appealing for the companies to expand energy efficiency, it has been strongly opposed by members of the state’s Consumer Advocate Division, for effectively providing the company with a free stream of cash.
The CAD has pointed out that the companies have not actually experienced a drop in their total megawatt sales, even with energy efficiency. Customer rates are based on an expected amount of electricity sales.
Jackie Robert, the CAD’s director, said she couldn’t understand why the companies should be paid for energy savings the customers actually paid to implement.
“They want to be paid for by the efficiencies the customers have paid to have in the system,” Roberts said.
Others have been more open to the idea. Pepper, the director of energy efficient West Virginia, said he had mixed feelings on the issue, but he said it would help incentivize increased energy efficiency programs.
Even with the additional costs, Pepper said studies have suggested energy efficiency can be the cheapest way to balance future electricity supply and demand.
“We have above average bills, despite low rates,” Pepper said. “That speaks to the need for our homes and all the buildings in the state to be more energy efficient.”
Find out more about the programs that are available through Appalachian Power at http://takechargewv.com/residential/default.aspx. And learn how to apply for programs with MonPower and Potomac Edison at https://www.firstenergycorp.com/save_energy/save_energy_west_virginia/mon_power/for_your_home/low_income_home_check-upprogram.html
Reach Andrew Brown at email@example.com, 304-348-4814, or follow @Andy_Ed_Brown.