Where Did the Term “Cross-Subsidization” Come From?

Here is a key amendment that AEP and FirstEnergy, with help from Del. Folk of Berkeley County, inserted into HB2201:

The [Public Service] commission shall assure that any net metering tariff does not create a cross-subsidization between customers within one class of service.
Before we tackle “cross-subsidization,” we need to clarify this sentence a little bit.  The word “tariff” refers to the rules and terms that the PSC approves for adjusting or crediting the electric rates of net metered customers.  The term “class of service” refers to the three classes into which electric customers are divided in West Virginia: residential, commercial and industrial.  The Folk amendment does not address “cross-subsidization” across rate classes, just within each class.  In other words, this sentence seems to say that all customers in a specific class must be treated the same.
But, is that true in any other situations besides net metered customers?  The answer is a definite “no.”  While claiming to treat all customers the same, Del. Folk’s amendment in fact singles out net metered solar power system owners for punishment.
“Cross-subsidization” among rate payers is baked into our regulated monopoly system in West Virginia.  FirstEnergy’s two WV subsidiaries just settled a base rate case with an 8.8% rate increase for residential customers.
A big part of that increase comes from new charges the PSC allowed FirstEnergy to recover from rate payers.  Those charges are for costs that FirstEnergy has, and will be, incurring for expanded clearing of power line rights-of-way.
FirstEnergy has to do a lot of right-of-way clearing for rural customers here in Calhoun County.  We get a lot of this kind of benefit, yet we pay exactly the same electric rates as someone who lives in the middle of Morgantown, where there are hardly any trees.  That is “cross-subsidization,” yet the Legislature has passed no law that prevents this kind of “cross-subsidization” which is arguably much less fair than the balance of benefits and costs that net metered customers create on FirstEnergy’s system.
This is just one example of the “cross-subsidization” that has been part of rate making in WV for decades.  East Virginia electricity blogger Ivy Main wrote extensively about this issue when AEP and Dominion Energy succeeded in undermining net metering in East Virginia by imposing “stand by” charges on their retail customers.
Want to see the worst form of “cross-subsidization between customers within one class of service” that has been around for decades in WV?  Take a look at Appalachian Power’s residential rate schedule.  Go to this link and go to page 43 of the .pdf file.
MONTHLY RATE (Schedule Codes 011, 015, 018, 038, 039, 051) Customer Charge. . . . . . . . . . . . . . . . . . .. $ 5.00/month Energy Charge: First 500 KWH ………………………….. .8.057¢/KWH All Over 500 KWH .. . ……………………… .6.847¢/KWH
Yes, you read that right.  APCo customers who use less than 500 kwh per month provide a heavy subsidy, in the form of higher electric rates, to th0se people who use more electricity.
If “cross-subsidies” are already a way of life in WV electric rate making, why did Del. Folk, as well as the new leadership of the WV Legislature, think that net metered solar power producers deserved to be punished?  Keep in mind that the words “cross-subsidization” do not appear anywhere in current net metering laws or in the PSC’s rules on net metering.
Two documents tell the tale.  Here is a recent article from Molly Jackson at the Brookings Institution that shows that more “model legislation” created by the American Legislative Exchange Council is introduced in the WV Legislature than in all other US state legislatures.  ALEC is an industry lobbying organization backed by AEP and the Edison Electric Institute, the electric industry’s trade association, and is dedicated to radically altering state government to serve industry interests.  ALEC has clearly targeted legislators like Del. Folk.
Here’s the graph from Ms. Jackson’s article (using data from 2011-2012 legislative sessions) that tells the tale :
ALEC graph
Gutting net metering is high on ALEC’s hit list, as you can see from this report, published by ALEC in March 2014.  Note in particular that ALEC’s main strategy for eliminating net metering revolves around labeling net metering a “subsidy.”
As it pertains specifically to distributed generation (DG) and net metering policies, ALEC opposes instances where DG customers are able to utilize the services associated with the electric grid without paying for its construction and maintenance. Such policies amount to a subsidy that benefits one source of energy and one class of ratepayers at the expense of everyone else who must pay for these services. [emphasis mine]
Isn’t it interesting that the language of Del. Folk’s “cross-subsidization” amendment so closely mirrors the language in this paragraph from the introduction to ALEC’s report?
Also note the false assumptions in the paragraph’s first sentence.  When net metered customers need electricity, they use and pay for it just like all other customers in their rate class.
When solar power producers generate more electricity than they need, their electricity passes out through their meter and into the houses of their nearest neighbors.  Try as they might, ALEC can’t change the laws of physics.  At most, this transfer uses a few hundred yards of a single distribution circuit, a cost easily offset by the fact that power sharing through net metering reduces the need for future grid expansion or centralized power plants.
Like Del. Folk’s “cross-subsidization” amendment, ALEC’s claim that net metering penalties are based on “fairness” is in fact a windfall subsidy to power companies forced on net metered customers.
West Virginians need to ask their legislators why they are doing the dirty work of out-of-state corporations to penalize one of the most innovative and dynamic sectors of the WV economy.

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