West Virginia regulators favoring coal owners at expense of captive utility customers

It is no surprise to hear the U.S. coal industry has been under a lot of stress over the last decade or two, nor to learn that West Virginia has seen some of the biggest stresses. In West Virginia coal output has fallen from its peak level of 25 years ago and employment in the sector is down to under 13,000 workers, just 1/10th of peak employment reached in 1948.

The regulators of the West Virginia Public Service Commission are reacting to coal’s decline by siding with coal owners over the interests of West Virginia electric consumers. When regulated utility Appalachian Power sought a rate increase earlier this year, the PSC decided the increase was the result of parent company AEP not using enough coal. In response the Commission wants to require consumers to pay for more use of coal power whether or not aging coal plants are the cheapest source of power available. Last week the PSC saddled consumers with the $84.5 million cost of upgrading two Appalachian Power coal plants.

A few years ago I wrote a report with Patrick O’Reilly, then working at West Virginia University, describing the West Virginia consumer’s interest in switching to retail electric competition. The report, published in January 2019, noted that once-low regulated electricity rates in West Virginia were rapidly approaching the national average.

From the report, The Consumer’s Interest in Reforming West Virginia’s Electric Power Industry, p. 8:

West Virginia once had one of the lowest residential power prices in the nation, while Texas fell in the middle of the pack. As of the end of 2016, residential prices in Texas averaged below those in West Virginia. These price trends emerged despite Texas’s steadily growing economy and West Virginia’s slow decline in population over the period shown.

While average prices in the reformed states are still higher today than in regulated states, they started higher – often because of state taxes, regulations, and other factors that affected the cost of doing business. For the Top 10 reform states, inflation-adjusted prices are just over 1 cent per kWh higher on average when compared to prices in 2001 (about 9 percent higher). In regulated states, on the other hand, comparable prices are up over 1.5 cents per kWh since 2001 (about 15 percent higher). West Virginia prices started lower than the national average but rose faster. West Virginia prices rose nearly 3 cents per kWh, and were nearly 36 percent higher in 2017 than they were in 2001.

State politics work almost exclusively to the benefit of, first, coal owners and producers, secondly, coal miners and other workers, and more distantly to the benefit of others who work in communities surrounding coal production. Protecting the interests of electric power consumers is purportedly the job of the West Virginia PSC, but the PSC has chosen to side with coal producers instead.

Maybe had consumers in West Virginia given careful consideration to the reform option in 2019 they would now have a plan to respond to a regulatory commission clearly captured by industry.

The next best time to start is now.