Appalachian Power proposes seasonal rates, budget billing alternative

As state regulators in the coming months weigh a request from Appalachian Power to raise rates, they’ll also consider a plan to reduce bills during winter and a proposal to end a budget billing option that often leads to high “settle up” charges.

A state law passed in 2025 required Appalachian to submit those ideas to Virginia’s State Corporation Commission. The SCC will consider them as part of the electric company’s application, filed last month, for a base rate increase that could raise the monthly bill of the average residential customer by $9.10, or about 5.4%.

The average Appalachian Power customer uses 1,000 kilowatt-hours per month, and that customer’s total monthly bill is about $168 today.

Appalachian Power President and COO Brian Abraham said in testimony filed with the application that the billing proposals are part of the company’s effort to address customer affordability. Appalachian is also lengthening the time customers have on payment plans and shortening billing cycles during winter months.

“The current economic climate is characterized by significant increases in the costs of living, including energy costs, and APCo understands very well the impact this has on its customers and the rates they pay for electric service,” Abraham said. 

Appalachian Power, a subsidiary of American Electric Power, serves about 540,000 customers in western Virginia, of which about 466,000 are residential customers.

Seasonal billing structure proposed

Appalachian Power proposes alternatives to the current residential rate structure, one of which is a new seasonal billing method that aims to reduce customers’ costs during the winter.

Under the seasonal billing proposal, energy usage after the first 800 kilowatt-hours per month from December through March would be billed at a lower rate.

To compensate, the first 800 kilowatt-hours of those months, and energy usage during the rest of the year, would be billed at a higher rate than it is currently.

About 60% of Appalachian Power’s Virginia customers use electric heat in their homes, said Katharine Walsh, director of regulatory pricing and analysis for a subsidiary of AEP.

This can lead to “disproportionately high winter heating bills for customers with electric heat,” Walsh said in testimony submitted with the rate review application.

“The current residential rate structure disadvantages higher usage customers, including electric heating customers,” Walsh said.

A second, separate proposed alternative to the current residential rate structure would lower the regular charge for electricity and add a new charge based on a customer’s peak electricity usage during weekday daytime hours.

Walsh said this “on-peak demand charge” would give customers “another mechanism to control their electricity bill, in a time when affordability is top of mind.”

“Rather than using all electric appliances at the same time, by staggering usage, or delaying usage to the off-peak window, a customer can significantly reduce their on-peak billed demand,” Walsh said. “A simple example would be to not run the dishwasher, washing machine, and clothes dryer at the same time.”

Walsh said that if the on-peak demand charge were approved, it’s uncertain whether the company would be able to implement it by March 1.

Budget billing plan on the chopping block?

Appalachian’s budget billing plan allows the approximately 26,000 customers enrolled in the plan to pay a fixed monthly amount for 11 months of the year and then “settle up” any remaining balance on the account in the 12th month.

If a customer’s costs increase significantly due to changes in rates or electricity usage, that customer can experience a large and possibly unanticipated charge during that 12th month.

This results in “a significant uptick in customer dissatisfaction and complaints,” Appalachian Power regulatory consultant Hallie Long said in testimony submitted with the utility’s rate increase application.

“High year-end balances can create financial shock to customers, resulting in late payments or disconnections, in addition to an administrative burden for the Company,” Long said.

The company proposes to end that budget billing plan and offer its average monthly payment plan as the only levelized alternative to regular billing. Existing budget billing customers would be grandfathered in.

Under the average monthly payment plan, which about 57,000 customers use, a monthly bill is based on a rolling average and any deferred balance is split over 12 months.

“Small fluctuations in bill totals, as opposed to a potentially high one-time deferred balance payment, offer smaller, steady payments that make energy expenses more manageable, particularly for fixed-income and budget-sensitive households,” Long said.

Company seeks higher revenue, higher return

Appalachian Power said that the higher rates it’s asking for would provide $61.4 million more annual base rate revenue, which would represent a 3.3% increase in overall revenue.

Furthermore, the company seeks to increase its return on equity, which is essentially a regulated utility’s profit margin, to 10.5%.

Appalachian currently is authorized to earn a 9.75% rate of return, but it said in its filings that its actual combined return in 2024 and 2025 was just 4.655%.

The company said in its application that the rate increase is necessary because of factors including inflation and increased investment in electricity distribution and generation.

Appalachian has said that the increase request is the lowest in nearly 30 years and would have been higher if not for its ability to package certain expenses into bonds to spread those costs out over years.

That financing capability, called securitization, was authorized by the same state law that required the utility to submit ideas for seasonal billing and budget billing alternatives.

The SCC must make a decision about Appalachian Power’s rate request and billing proposals by Jan. 15. Any rate changes could take effect no earlier than March 1.

In a separate request designed to comply with a state renewable energy law, the company is asking state regulators for permission to raise the average residential bill $3.99 per month for a year, also beginning in March. 

Appalachian Power is required by state law to submit its rates for review every two years. The company’s last biennial rate case was decided in November 2024, when the SCC approved an increase that raised the average monthly residential bill by about $1.39, lower than the $10 that Appalachian had sought.