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The Virginia State Corporation Commission has substantially reduced the base rate increase sought by Appalachian Power Co. in a ruling issued today that meets a legislative deadline.
The ruling, in combination with a drop in a separate charge, will lower the average residential customer‘s monthly electric bill.
The commission cut nearly $93 million from Appalachian’s requested base rate increase of $154 million.
The new 7.1 percent base rate increase takes effect Aug. 1, the same day an interim decrease kicks in for a separate fuel factor charge that appears on household and business bills of Appalachian customers.
The timing of the two — one increase, one decrease — softens the blow of the base rate hike.
Preliminary estimates from the SCC suggest that the combined effect of the two rate adjustments indicate that an average residential customer consuming 1,000 kilowatt hours of electricity a month “will see a monthly bill decrease from $103.57 to $101.03, or about $2.54 a month, once the lower fuel rate is also reflected on bills.”
In utility and regulatory parlance, the base rate allows Appalachian and other regulated utilities in Virginia to recover costs tied to generation of power, its distribution to customers, related maintenance, depreciation and what is determined to be a fair profit.
Through the fuel factor charge, customers reimburse Appalachian, dollar for dollar, for the fuel it buys to generate electricity. Appalachian relies on coal to generate about 98 percent of the power it sells. The company asked the SCC to drop its fuel factor charge from 2.876 cents per kilowatt hour to 2.197 cents per kwh. It said he asked for the decrease primarily because the price of coal has dropped.
The base rate ruling followed a long and heated rate case process that was buffeted by an unusually cold winter in Appalachian’s service territory, associated spikes in customer consumption and bills, customer outrage about their bills, ongoing rate hikes and often contentious debate in the Virginia General Assembly.
In December, Appalachian began collecting an interim base rate increase of about 12.5 percent. But the storm of controversy described above led the utility to suspend collecting the interim rate pending the SCC ruling, which legislators ordered the commission to make no later than today.
Because Appalachian has no competition in its territory, the SCC regulates its Virginia operations and reviews and often reduces rate increases sought by the utility. State law provides opportunities for regulated electric utilities to recover through customer charges the utility’s “reasonable and prudent” operating expenses plus what is deemed to be a fair profit.
In December, rates for an average residential customer were about 61 percent higher than in December 2007, according to Appalachian.
The utility warns that its costs continue to rise, due in large part to expenses tied to compliance with environmental regulation, which means customers’ bills are destined to increase in the years ahead.
Todd Burns, an Appalachian spokesman, said customers should not become complacent because of the potential drop in their electric bills.