The Virginia State Corporation Commission, in an April 13 order, said that a hearing on Appalachian Power Company’s (APCo) rate case application will convene on Sept. 14 in the commission’s second floor courtroom in Richmond, Va., to receive opening statements, testimony, and evidence offered by the company, respondents, and commission staff on the application (Case No. PUR-2020-00015).
As noted in the order, APCo on March 31 filed the application with the commission for a triennial review of the company’s rates, terms, and conditions for the provision of generation, distribution, and transmission services.
APCo states that, for the combined 2017, 2018, and 2019 test years — referred to as the Triennial Earnings Test Period — the company earned an 8.24% return on common equity (ROE) on its generation and distribution operations on a Virginia jurisdictional basis, relative to the allowed ROE of 9.42% approved by the commission in a separate case (Case No. PUR-2018-00048), the commission said.
The company said in its application that its earned ROE during the Triennial Earnings Test Period is compared to a 140-basis-point band around the authorized ROE of 9.42%, from 70 basis points below 9.42% to 70 basis points above 9.42%. The commission added that APCo noted in its application that if its earnings fall within that 140-basis-point band, it is not permitted to request — or the commission to direct — a change in the company’s base rates.
The commission also noted that as noted in APCo’s application, if earnings fall below the 140-basis-point band during the Triennial Earnings Test Period, “the commission shall order increases to the utility’s rates necessary to provide the opportunity to fully recover the costs of providing the utility’s services and to earn not less than such fair combined rate of return, using the most recently ended 12-month test period as the basis for determining the amount of the rate increase necessary.”
The company said that its calculated earned return of 8.24% during the Triennial Earnings Test Period is equivalent to $23.6m in pre-tax earnings below 8.72%, the bottom of APCo’s authorized ROE band for the Triennial Earnings Test Period. The commission added that according to the company, that shortfall in earnings is due to the recordation of an expense in December 2019 related to the remaining Virginia jurisdictional share ($88.3m) of certain coal generating assets that were retired early; the expense of $32.6m in costs associated with severe weather events; and the expense of $33.7m in costs associated with projects that the company asserts were necessary to comply with laws and regulations related to coal combustion by-product management.
The commission noted that the company proposes to recover the $23.6m earnings shortfall over the three years that rates set in this proceeding will be in effect, i.e., 2021-2023.
APCo requests, based on its rate year analysis, an increase in its annual revenue requirement in the amount of $65m — a 5% increase to overall revenues, which includes the $23.6m in earnings below 8.72%, the bottom of APCo’s authorized ROE band for the Triennial Earnings Test Period.
The requested $65m increase comprises a $26.9m decrease in the generation function and a $91.9m increase in the distribution function, the commission said, adding that the company states that current rates were set based on a 2010 test year, and it is necessary to reallocate revenue across the generation and distribution functions based on the company’s class cost of service study.
The commission noted that the requested revenue increase also reflects, for instance, APCo’s requested authorization of an ROE of 9.90%, and proposed new depreciation rates for its steam, hydraulic, and other generation production plant, as well as its transmission, distribution, and general property.
The company states that the proposed revenue allocation eliminates an interclass subsidy existing in the generation function and allocates distribution function revenues to the classes so that all classes except “LPS (Industrial” receive an equal percentage increase of 6.5%.
Among other things, the commission added that according to the company, the requested revenue requirement would result in an increase in residential rates of 6.5% over the rates that are in effect as of March 31, 2020, resulting in a bill of $120.40 for a residential customer using 1,000 kWh of electricity.
The commission said that its staff is to file with the commission clerk by Aug. 13 its testimony and exhibits concerning the application.
Any interested person may file comments on the application by Sept. 8 through the commission’s website, the commission said, adding, “In light of the ongoing public health emergency related to the spread of COVID-19, the commission will subsequently schedule, to the extent practicable, oral public comment in this matter to be noticed via commission order and accompanying news release.”