Power transmission lines. (Ned Oliver/Virginia Mercury)

Appalachian Power Company, Virginia’s second largest electric utility serving more than half a million customers in and around Southwest Virginia, will not be allowed to raise its rates for the upcoming three years, regulators decided Tuesday.

The State Corporation Commission also slightly decreased the company’s allowed profit margin, from 9.42 percent to 9.2 percent. Appalachian had argued it should be increased to 9.9 percent. 

In ruling that the current rates should remain in place, the State Corporation Commission rejected a December 2019 accounting decision by the utility that sought to expense $88 million in costs related to the retirement of eight coal-fired units in 2014 and 2015.

The effect of the December 2019 writeoff was so significant that it allowed Appalachian to claim it had underearned over the past three years despite reporting tens of millions in overearnings in 2017 and 2018. Virginia Attorney General Mark Herring’s office decried the move as “highly unreasonable” and “unconscionable.” 

Appalachian, though, argued that changes to the law made by the Grid Transformation and Security Act of 2018 permitted the utility to expense costs related to the early retirement of fossil fuel plants. It also claimed that the language of that law prohibited the State Corporation Commission from weighing whether or not the decision had been reasonable. 

Complicating the case was the question of whether a new consumer protection law known as House Bill 528 should apply. This law, which reversed part of the Grid Transformation and Security Act, restored the SCC’s authority to determine the period of time over which the costs of plant retirements can be recovered by Appalachian Power and Dominion Energy. Without that authority, utilities would be able to recover certain costs all at once rather than spreading them out over time, potentially allowing them to reduce the amount of overearnings they would otherwise have to return to customers as refunds or credits.

But while the Office of the Attorney General and Virginia Poverty Law Center argued the new law should apply to Appalachian’s rate case, preventing the utility from writing off the $88 million in retirement costs all at once, the State Corporation Commission disagreed on the grounds that the rate case was filed before the legislation went into effect on July 1.

Appalachian Power’s service territory. (APCO)

Nevertheless, the SCC in its Tuesday order found that it did have the authority to determine the reasonableness of the company’s expenses and rejected its December 2019 accounting, pointing out that up until then, Appalachian had treated the plant closures as normal retirements. In that month, the utility “fundamentally changed course,” regulators wrote. 

Ultimately, the commission determined that between 2017 and 2019, Appalachian Power overearned just shy of $2 million. Virginia statute does not authorize refunds to be made to customers unless earnings are more than 0.7 percent above the approved profit margin. 

While “pleased” with the commission’s rejection of the rate increase, Herring in a statement from spokesperson Charlotte Gomer said he thought the Attorney General’s Office “laid out a strong case for APCo customers to receive rate refunds and a rate decrease” and was “disappointed the Commission’s order did not include more analysis on those issues we raised that could have brought customers rate relief.”

Will Cleveland, an attorney with the Southern Environmental Law Center who had argued against the expensing of the $88 million, praised the commission’s decision. 

“The idea of using accounting gimmickry to engineer a rate increase in the middle of a global pandemic is exactly the wrong direction for Virginia right now, and I believe the commission properly applied the law and found that accounting maneuver was improper,” he said.

Appalachian spokesperson Teresa Hall said that company leaders were reviewing the SCC order. 

UPDATE: On Wednesday, Appalachian notified the Virginia Supreme Court it intends to appeal the SCC’s decision.