Appalachian Power is seeking state approval to raise its rates. Photo by Matt Busse.

Appalachian Power Co. is asking state regulators to approve a modified proposal to adjust the utility’s base electricity rates and other costs that would result in the average residential customer’s monthly bill rising by about $16, rather than $25 as outlined under an earlier plan.

The request comes on the heels of two cost increases already approved this year that together will have the effect of raising customers’ monthly bills by about $24 per 1,000 kilowatt-hours. The utility commonly cites 1,000 kWh per month as representing average usage. 

Among other things, the new rate proposal would raise the utility’s annual revenue by $127.3 million, compared to $212.6 million under its original plan. The new plan was filed Tuesday as the State Corporation Commission conducts a regular review of Appalachian’s rates and earnings, which was last done in 2020. 

“This proposed stipulation represents a compromise that does in fact result in a much smaller cost increase for customers than what Appalachian Power was originally asking for,” said Will Cleveland, senior attorney with the Southern Environmental Law Center, representing the nonprofit environmental group Appalachian Voices.

Appalachian Voices joined Appalachian Power, State Corporation Commission staff and five other entities in supporting the new proposal, which the utility said “resolves all issues” among those participating in the current discussion of the utility’s rates.

Also supporting the proposal were Kroger and Walmart, both large purchasers of electricity; the Old Dominion Committee for Fair Utility Rates; the Virginia Municipal League/Virginia Association of Counties Appalachian Power Steering Committee, which negotiates electricity service contracts with Appalachian Power on behalf of local governments; and the Virginia Poverty Law Center.

“We are extremely pleased with the settlement,” Appalachian Power spokesperson Teresa Hamilton Hall said in a statement, adding that it will allow the utility to improve service reliability for customers and that it includes a provision to help offset the rate increase for lower-income customers.

The SCC is expected to rule on Appalachian’s request later this year. If approved, the increase wouldn’t take effect before January.

Appalachian Power will then undergo another rate review next year. Legislation passed this year changes the review schedule from every three years to every two years and sets the first review to begin March 31, 2024.

The commission is scheduled to hold a hearing at 9:30 a.m. Thursday to hear evidence from Appalachian Power, the SCC and others in the current review case. An audio stream will be available on the SCC’s website.

The SCC on Wednesday held a public comment hearing in the case. Of the 13 residents who had signed up to speak and whom the SCC called during the hearing, most did not answer the phone; the only one who ended up providing sworn testimony was a Salem resident who didn’t address the current case directly but said Appalachian Power is “gouging us to death.”

Ahead of that hearing, at least four dozen comments were submitted online or by mail. All were based on Appalachian’s original, higher increase request, before the utility filed notice of the compromise proposal, and all opposed raising rates.

Examples of submitted comments include “This is absolutely absurd for them to raise their rates again,” “You are creating financial stress for all of your customers,” and “Please deny their request so that some of us can eat this month.”

In its initial rate increase application, Appalachian said it “understands that its rate request comes at a time when many economic factors are increasing the costs of living for the Company’s customers.”

“The Company is also bearing similar cost increases that impact its ability to continue to provide safe and reliable service to customers,” Appalachian said.

To help offset the latest proposed increase for low-income customers, Appalachian said it would eliminate their $7.96 monthly basic service charge. The utility defines low-income customers as those who get assistance from at least one state agency.

Appalachian said about 7% of its residential customers would see that charge waived, which would cost the utility about $3 million in annual revenue. To make up for that loss of revenue, Appalachian’s proposal includes a “modest” increase of 54 cents per month for all other residential customers.

Dana Wiggins, director of outreach and consumer advocacy for the Virginia Poverty Law Center, said the latest rate increase request shows that “our system of electric utility regulation does not include affordability to the customers as a fundamental part of the ratemaking process.”

Nonetheless, Wiggins said, the VPLC supports the compromise agreement because of the provision for lower-income customers and because Appalachian has agreed to meet with the organization to improve consumer transparency and reduce the frequency of service disconnections for customers.

“That would be a win for the company and their customers in the months ahead,” Wiggins said in a statement.

In its original request filed in March, Appalachian sought the higher rate increase in part to pursue a 10.6% annual return on equity, up from its current state-authorized rate of 9.2%. Return on equity is essentially the allowed amount of profit for the regulated utility. 

A higher return on equity would allow Appalachian to “attract capital investments and maintain its financial integrity in the challenging economic conditions,” the utility said at the time.

Appalachian said that over the past three years, it saw an actual average return of just 5.39%. The new compromise proposal would allow Appalachian to pursue a return on equity of 9.5%.

Appalachian Power’s parent company, American Electric Power (NASDAQ:AEP), reported $1.3 billion in annual profit for 2022, up from $1.1 billion the year before.

The new proposal would also have Appalachian Power begin using 2040 as the retirement date when calculating depreciation costs for the 2,933-megawatt coal-fired John Amos power plant in West Virginia, which is the largest plant in the utility’s portfolio.

Appalachian Power had been using a retirement date of 2032-2033 for depreciation purposes since its 2014 regulatory review. But Appalachian plans to continue to use the plant into 2040, and using the later date in its accounting would spread out the depreciation period over more years, lowering the annual cost by about $30 million, according to filings with the SCC.

That was the main concern for Appalachian Voices, which focuses not just on how clean Appalachian Power’s electricity is but also how affordable it is, said Cleveland, the SELC attorney.

“If Appalachian Power were to decide to retire Amos before 2040, we would support that, but there’s nothing to suggest they’re going to, so we see no reason why Appalachian Power should effectively require customers to pay more now to pay it off early when it’s going to continue to run until at least 2040,” Cleveland said.

The new compromise proposal also calls for the company to put $18.8 million of its new revenue each year toward vegetation management, which Appalachian Power said is needed to improve the reliability of its service.

While customers would see a relatively lower bill increase under the latest proposal than under Appalachian’s original request, it also would come after other recent cost increases.

In March, the SCC approved Appalachian’s request to raise customers’ costs in response to higher fuel prices. That change, which had taken effect in November on an interim basis, increased the average residential customer’s monthly bill by about $20.

In July, the SCC approved Appalachian’s request to increase its authorized Transmission Rate Adjustment Clause, or T-RAC, by $45.1 million, to $413.2 million. The increase takes effect Sept. 1 and will raise the average residential customer’s monthly bill by about $4.

The T-RAC is included in customers’ bills to pay for transmission services, fees and construction. Most of that increase will cover higher electricity transmission charges, although $2.2 million will go toward Appalachian’s investment in new infrastructure at the Wildwood Commerce Park in Carroll County, according to SCC documents.

In approving the T-RAC increase, the SCC acknowledged its “awareness of the economic pressures that are impacting all utility customers” but said it must follow the law and the evidence provided for the increase.

Matt Busse is the business reporter for Cardinal News. Matt spent nearly 19 years at The News & Advance,...