Appalachian Power’s proposed rate change would ‘effect increase of about $65m over current rates’

Appalachian Power President and COO Chris Beam said in a statement, in part: “We’re aware that we are filing this application at an unprecedented time in our history. We are required by law to make this filing now. We must follow that law, while balancing our customers’ expectations of safe and reliable service.

American Electric Power‘s Appalachian Power on March 31 said that as required by Virginia law, it has filed with the Virginia State Corporation Commission its first triennial rate case, with the request — if approved — to raise rates for customers an average of 5%.

The statement noted that, in reference to the COVID-19 pandemic, Appalachian Power President and COO Chris Beam said: “We’re aware that we are filing this application at an unprecedented time in our history. We are required by law to make this filing now. We must follow that law, while balancing our customers’ expectations of safe and reliable service. We will work with the SCC and all interested parties as this application is considered during these uncertain times.”

Appalachian Power noted that under the 2018 Grid Transformation and Security Act, it must submit a rate case filing on March 31, and the commission is required to rule on the application by Nov. 30. The company added that if the commission decides to grant a rate increase, it would not take effect until 2021.

The company said that the proposed increase would vary depending on customer class and usage. If approved as requested, residential customers using 1,000 kWh a month would see an approximate $10 increase in their monthly bill, Appalachian Power said.

The company also noted that the rates that its customers currently pay for electricity were set in 2011 and are based on 2010 costs. Appalachian Power said that since then, it has continued to maintain and improve its distribution and generation infrastructure, integrated renewables into the electric grid, complied with environmental regulations, as well as deployed new technology to improve reliability and communication with customers.

According to the company’s application filed with the commission, Appalachian Power requests approval to implement retail base generation and distribution rates that are designed to effect an increase of about $65m over current rates. The company said that the requested increase is comprised of a $26.9m decrease to the generation function and $91.9m increase to the distribution function.

The company also noted that the appropriate rate of return on its equity capital is 9.9%, which reflects the investment risks facing Appalachian Power and the need for financial integrity, as well as ensures that the company will be competitive with its peers as it seeks to attract and retain capital over the coming years.

The company further stated that it seeks approval of a new rider that would give the commission the flexibility and control to manage the company’s recovery of the costs associated with its remaining coal-fired generation units, the Amos and Mountaineer plants — the Coal Amortization Recovery Rider, or Rider CAR. Appalachian Power said that the proposal would allow for annual adjustments to the total amount of accelerated plant balance recovery, as well as a real time reduction to the return on rate base component of the company’s rates through monthly deferral accounting.

Appalachian Power said that to the extent that the commission approves a revenue requirement increase of less than $65m, the company requests that the commission allow it to recover the difference, up to $15m, from customers through Rider CAR. The company noted that as it collects dollars monthly through Rider CAR, an equal and offsetting amount of amortization expense would be recorded on its books and a regulatory liability would be created to recognize the collection of the original cost of the plants, which would reduce the company’s remaining rate base for the plants. Appalachian Power said that as that rate base is reduced, it would credit customers’ cost of service at its approved base rate weighted average cost of capital, with the credit to be applied to the monthly over/under deferral calculation associated with Rider CAR.

Among other things, the company said that it is proposing a winter heating block rate for residential customers who use more than 1,110 kWh a month during December through February in order “to mitigate the disproportionate collection of fixed costs from high usage heating customers.”

In addition, the company said that it proposes to move all of its transmission costs from its base rates to its transmission rate adjustment clause (T-RAC), noting that it has recovered transmission costs through its base rates since the 2011 biennial review, when its T-RAC was combined with its base rates. The proposal “does not change overall rate recovery and is revenue neutral for customer classes and individuals,” the company said. “It will simplify rate schedules such that only base rate generation and distribution charges appear on the company’s base rate schedules and all the transmission rate changes will be easily located on the T-RAC rider.”