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WV legislators discuss electricity prices, prescription drug costs

By PHIL KABLER

Charleston Gazette-Mail

CHARLESTON, W.Va. — West Virginia’s electricity rates, for years among the lowest in the nation, have risen in the past decade to the middle of the pack, raising concerns for state efforts to recruit business and industry to the state, legislators were told Tuesday.

“We recognize we have an issue. We see it in the development world as we talk to prospects,” Josh Jarrell, deputy secretary of Commerce, told an interim committee on energy. “Electricity rates are coming up in our conversations where they never did before.”

David Ellis, director of quality assurance for the state Public Service Commission, said two key factors have caused electricity rates in the state to spike:
The installation of $2.8 billion of pollution control devices, primarily to capture sulfur emissions, on state coal-fired power plants.

“The cost of that $2.8 billion is passed on mostly to West Virginia customers,” he said.

Declining ability of state power plants to sell excess power production on national markets, as costs for electricity generated at natural gas-fired plants have plunged.

Early in the 2000s, electricity generated by coal-fired plants cost just over $1 per million BTUs, while electricity from natural gas-fired plants cost about $4.50 per million BTUs, and peaked in 2008 at over $8 per million BTUs, Ellis said.

Currently, electricity from gas-fired plants is running at about $2.50 to $3 per million BTUs, while coal-fired electricity is in the $3.50 per million BTUs range.

As a result, power companies are seeing prices for selling excess electricity generated at West Virginia power plants plunge by as much 90 percent.

“They no longer have hundreds of millions of dollars a year from sales of excess power on the market,” Ellis said.

Derrick Williamson, a Charleston lawyer representing the West Virginia Energy Users Group, a consortium of the 15 largest industrial users of electricity in the state, said West Virginia had a competitive advantage when its rates were among the five lowest in the U.S., an advantage lost now that its industrial electricity rates are 23rd.

“We no longer have an advantage,” he said. “We’re not worse off. This is not a horror show.”

However, he said the state should consider options to increase competitiveness, including eliminating a tariff on industrial users that helps subsidize residential rates, as well as allowing major electricity users to have access to so-called competitive markets, in states that do not regulate electric rates.

Ellis, however, warned that rates in deregulated states can be extremely volatile, with rates that can literally change by the hour for some customers.

“Once you go down that path, you’re letting the genie out of the bottle,” he said. “The energy market does not care about the interests of West Virginia.”

Williamson said he does not support total deregulation, but giving large-scale electricity users the option to tap into the competitive market.

From 1999 to 2001, the Legislature debated deregulating the electric power industry, but ultimately rejected the proposal, citing the state’s already low electric rates, as well as the cautionary tale of California, where deregulation at the time had resulted in bankrupt power companies, blackouts, and soaring prices.

Also during legislative interim meetings Tuesday, the co-owners of a company that helps businesses and government agencies analyze and negotiate Pharmacy Benefits Management (PBM) contracts pitched their services to an interim committee tasked with cutting government waste and inefficiencies.

Michael Staab and Greg Madsen, co-CEOs of Innovative Rx Strategies, told legislators their firm is frequently able to help clients reduce prescription drug costs by 10 to 15 percent.

Before founding the company, both men were executives with CVS Caremark, one of the nation’s largest PBMs, and said they know the tricks of the trade.

In offering to review PEIA’s PBM, which happens to be with CVS Caremark, Staab said, “If somebody wants us to look at this contract and provide our expertise and experience, that’s what we’ll do.”

He said that with corporate clients, the firm charges a fee of about 20 percent of cost savings, with smaller fees for governmental agencies and nonprofits.

Ted Cheatham, PEIA executive director, told legislators he was not familiar with the company, but said PEIA hires similar consulting firms to help write Requests for Proposals, and review those proposals when it bids out its PBM contract.

He said consultants are currently conducting an annual market check of CVS Caremark prices to assure that the rates are competitive with industry benchmarks, a service that Staab and Madsen told legislators their firm performs.

“I believe you will see our rates go down as a result of the market check,” said Cheatham, noting that another major PBM, Express Scripts, has been cutting prices in an attempt to rebuild lost market share.

Nonetheless, Cheatham told legislators he would be happy to meet with Staab and Madsen, adding, “It can never hurt to have an independent evaluation.”

Reach Phil Kabler at [email protected], 304-348-1220, or follow @PhilKabler on Twitter.

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