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The new president of Appalachian Power Co. told a group of regional leaders recently that while electricity rates have recently dipped, rate increases are on the horizon as the utility faces the costs of meeting environmental regulations.
Charles Patton, who was named president and chief operating officer in the summer, said Appalachian will file a new rate application with the State Corporation Commission by March 31 but it was too soon to discuss details.
In 2009, Appalachian sought a generation and distribution base rate increase of $154 million. In July, the commission approved a $62 million rate increase.
Patton acknowledged that the company didn't do a very good job of preparing the public for rate changes that sparked frustration and legislative action last winter.
In response, Patton and other company officials have been meeting with community groups, legislators and major industrial customers to make their case about the utility's need to recover its increased costs while balancing the strain that puts on customers.
On Jan. 6, Patton spoke to community leaders in Lynchburg in the morning and then at lunch to an invited group of about 25 people in Collinsville, including government officials, business executives and officials with nonprofit agencies.
Patton said he has heard elderly customers talk at public hearings about having to make hard decisions about paying their electric bill or buying food.
At the same time, he said that financially, Appalachian is the worst-performing utility in the system of its corporate parent, Ohio-based American Electric Power. Appalachian has a state-authorized cap of 10.5 percent return on equity; 2009 return on equity was 5.6 percent.
The burden borne by customers who live on fixed incomes and may live in poorly insulated homes is something that Patton said keeps him awake at night.
"As a society, we're going to have to decide ... what do we do" for people in that situation, he said.
Though Appalachian has contended that its rates historically have been lower than other utilities in Virginia and its corporate peers, those rates spiked dramatically between 2005 and last year.
Appalachian's typical residential customer paid $57.82 a month for 1,000 kilowatts of electricity in 2005. By 2010, that customer paid $102.88. As of Jan. 1, that monthly bill had fallen to $96.21 because of decreased coal costs and the expiration of an environmental and reliability surcharge.
One driver was coal prices: They rose sharply in 2008-09, and Appalachian produces most of its electricity from burning coal. Meanwhile, to meet federal mandates, the utility spent $2.4 billion over five years to retrofit several aged coal-burning plants with scrubbers to remove sulfur dioxide and lessen nitrogen oxide emissions.
Within five years, the company will have to decide what to do about its many other aging plants, Patton said. It's likely that the next round of plants will burn natural gas, rather than coal, to produce electricity, he said.
Patton spoke Thursday in a community that has weathered more than a decade of changes to the textile and furniture industries, including last month's closing of the last Stanley Furniture Co. production plant, which put hundreds of people out of work.
Del. Ward Armstrong, D-Henry County, took the lead last year in arguing that a state regulatory scheme adopted in 2007 does not give the corporation commission enough discretion to control electric rates.
His efforts fell short in the legislature last year, but he has assembled a work group to study the issue.
He said last week that he will introduce legislation designed to give regulators more discretion in setting rates. The General Assembly convenes this week.
"I think the SCC's hands have been tied too tightly behind their backs," Armstrong said.
Patton said Appalachian met with Armstrong this winter and is waiting to see the report from his group.