The State Corporation Commission (SCC) has slashed a proposed $154 million increase in base rates requested by Appalachian Power Company (APCo), ruling instead that a $61.5 million increase is reasonable.
Oddly enough, the move brought disappointment from APCo officials and a state delegate who has led a campaign to fight rate increases by the utility company.
“We’re disappointed in the outcome of the case, but we recognize that raising rates right now is difficult,” said Charles Patton, APCo president and COO. “Appalachian’s request was based on real costs of providing safe and reliable electric service to our customers.”
“We are fully aware of the economic pressures that our customers in Virginia face. Fortunately, the Commission is allowing us to pass along a $100 million annual reduction in fuel expenses that, when combined with today’s increase, will result in a net decrease in rates of about 3 percent.”
The new base rates will take effect Aug. 1 – the same day a fuel rate reduction takes effect, but the fuel rate reduction will be reflected on later bills.
The combined effect of the two rate adjustments is expected to result in a reduction of about $2.54 in the average bill for a customer using 1,000 kilowatt-hours of electricity.
But this reduction still doesn’t satisfy 10th District Delegate Ward Armstrong (D-Martinsville), who pointed out this is the thirteenth rate increase APCo has requested since 2006.
Armstrong is based in Martinsville, which has posted the state’s highest unemployment rate for at least a year now.
“The SCC’s ruling allows the company a 10.53 percent return on common equity. Virginia APCo customers now face the highest electric utility rates in the Commonwealth, as well as the highest rates in the AEP system nationwide,” Armstrong said.
He accused APCo of “strategically timing” its fuel factor rate reduction request with the SCC’s ruling on the base rate increase.
“While the SCC’s approval of this decreased fuel factor will mitigate the immediate impact of the approved base rate increase, it is cold comfort for residents who will soon face yet another winter of lower temperatures and higher electric bills,” Armstroing added. “Local businesses, still struggling to recover in our economy, will continue to wrestle with high electricity costs. Moreover, if the cost of fuel rises again, and it most assuredly will, this fuel factor decrease will be only temporary in nature.”
He said the “sharp and rapid” increase in utility rates APCo’s Virginia customers have experienced over the past few years “points to a systemic problem in the way Virginia currently regulates utilities.”
Armstrong says Virginia law currently limits the SCC’s discretionary powers when determining “what constitutes a fair and reasonable rate of return for electric utilities.” He said the law fails to adequately consider the impact of such increases on residential and business consumers.
“It is my hope that the Legislature will return to Richmond and seriously address what has fast become one of the most pressing problems facing the citizens and businesses of our Commonwealth,” he said.
Interim rates based on the company’s original rate request of $154 million were in effect from Dec. 12 through Feb. 24, when legislation enacted by the Virginia General Assembly stopped APCo from collecting the higher rate.
This was APCo’s first case reviewed by the SCC under new laws that re-regulated the state’s electric utilities in 2007, according to APCo.
“The new law has been the subject of some debate,” Patton said. “As demonstrated by the order, the SCC retains its rate-setting authority and discretion. Regrettably, the outcome of this case continues to put Appalachian at a disadvantage as it tries to attract the investors needed to build and improve our electrical infrastructure and comply with environmental mandates. Despite our disappointment, Appalachian Power is committed to working with our regulators and key stakeholders to provide safe, reliable power at a reasonable cost and which supports the financial health of the company.”
According to Appalachian, the company’s average returns on equity in recent years has been less than 5 percent, while companies that compete with it for investors earn 11 to 13 percent for shareholders. The company contends the SCC’s ruling doesn’t “guarantee a profit level for Appalachian.”
Although the ruling will end up reducing customers’ bills, the utility called these reductions “short term.” Company officials say stricter environmental controls and increasing costs to purchase power “will result in a long-term upward trend in electric rates. Customers should take care to use electricity wisely.”
Other rate decisions made by the SCC decreased APCo’s overall annual operating revenue requirement.
The SCC reports that more than 100 people spoke during several public hearings it held on the proposed rate increase, and another 37,000 written and electronic comments were received.