State regulators on Wednesday approved a rate increase for Appalachian Power that would allow the company to earn a little more than a tenth of the additional annual revenue that it asked for earlier this year.
The State Corporation Commission gave the OK for Virginia’s second-largest electric utility to raise rates to earn $9.768 million more revenue per year for the next two years. The new rates take effect Jan. 1.
In March, Appalachian asked regulators for permission to earn $95.1 million more each year, which would have increased the average residential customer bill by $10.22, or 6%. The company said it needed to pay for investments, including making its service more reliable.
Appalachian Power spokesperson Ashley Workman said Wednesday that the utility still is reviewing the SCC’s decision and calculating how it would impact customers’ bills.
“We feel that the Order strikes a reasonable balance between the company’s financial health and the impact on our customers,” Workman said in an email.
Appalachian’s initial proposal was criticized by residents, lawmakers, businesses and advocacy groups, in part because it came on the heels of other rate increases that have upped the bill of the average resident who uses 1,000 kilowatt-hours per month by about $50, to $173, over approximately the past two years.
The environmental advocacy nonprofit Appalachian Voices participated in the SCC’s rate case evaluating Appalachian’s request.
Josephus Allmond, an attorney with the Southern Environmental Law Center representing Appalachian Voices, praised the SCC’s order on Wednesday and said it was evident that commissioners took utility customers’ concerns to heart.
“We think it’s a strong decision from the commission,” Allmond said. “We think they took a hard look at the evidence and came back with something that will allow APCo to still attract capital but also protect their ratepayers.”
Allmond noted that the SCC denied Appalachian’s request to raise its basic service charge from $7.96 to $9. The charge is a fixed monthly fee that covers meter reading, billing and other services.
“That would have been just a little bit more saddled on APCo’s ratepayers, who have already had enough,” he said.
The utility’s request came as part of a biennial review of rates with the SCC. Previously, Appalachian was required by law to submit its rates for SCC review every three years. State legislation passed last year changed that frequency.
After its original $95.1 million revenue increase proposal in March, Appalachian lowered its request to $64.2 million. In August, the staff of the SCC recommended allowing $47.2 million in additional revenue.
Virginia law allows Appalachian to recover “reasonable and prudent” costs and earn a “fair” rate of return, but what constitutes “reasonable,” “prudent” and “fair” is up for public debate during any rate case. The decision ultimately rests with the commissioners of the SCC, which since January is back up to its full allotment of three commissioners after having two vacancies for two years prior.
Among the topics debated as the rate case proceeded was how much return on equity — essentially, the utility’s ability to earn profit for its investors — Appalachian should be allowed. The SCC approved a return on equity of 9.75%. Appalachian had requested an annual return on equity of 10.8%, up from 9.5%, and said that in 2023 its actual earnings were below that 9.5% mark.
In requesting higher rates and a higher return on equity, Appalachian said that it needed to cover the costs of restoring service after storms; increased capital, material and labor costs; and expenses associated with vegetation management to improve service reliability.
The utility’s proposal was met with backlash from a ratepaying public already feeling the effects of inflation on top of previous rate increases.
“The rate hike that Appalachian Power are asking for will literally cause people to have to choose between having power, having food, having medications they need,” Robin Belcher of Grundy said during a public hearing that the SCC held in September.
That public hearing preceded a five-day evidentiary hearing in September. Both involved attorneys for various stakeholders and witnesses who provided testimony.
The SCC’s public record in the case holds more than 150 individually submitted online comments, a letter from the Charlottesville-based advocacy group Clean Virginia with more than 3,600 electronic signatures, a letter from more than a dozen state lawmakers and multiple resolutions passed by county boards of supervisors opposing higher rates.
Besides Appalachian Voices, also participating in the rate case were the Office of the Attorney General’s Division of Consumer Counsel, the Old Dominion Committee for Fair Utility Rates, the VML/VaCo APCo Steering Committee, Walmart, Kroger, Steel Dynamics and the Virginia Poverty Law Center.
Appalachian Power is a subsidiary of publicly traded American Electric Power (NASDAQ:AEP). It has approximately 540,000 customers in Western Virginia and is the largest electric utility in Southwest Virginia.
