Utility regulators considering Appalachian Power rate increase

Following an order from the Virginia Supreme Court overturning part of a 2021 rate review, a state regulator has proposed allowing Appalachian Power Company to recover an additional $65 million from ratepayers. 

The amount is less than what the company wants, but critics want that number lowered, citing concerns about double earnings and retroactive ratemaking.

The dispute stems from a decision by Appalachian Power, the state’s second-largest electric utility, primarily serving Southwest Virginia, to include the costs associated with the 2015 retirement of eight of its coal-fired units in an accounting of its expenses between 2017 and 2019. 

Under the 2018 Grid Transformation and Security Act, the State Corporation Commission reviews the rates and profits of Dominion Energy and Appalachian Power every three years. Rate reviews had previously occurred every two years and were suspended in 2015 and 2016.

If the company has profited an amount above an upper threshold determined by state law, then 70% of the excess earnings have to be returned to ratepayers. But if the company earns below a lower threshold, then future rates must be increased.

Appalachian Power Company in 2020 sought to raise rates to increase revenues by $65 million. Among the calculations it relied on to justify the increase was $88 million in costs remaining after the early closure of eight coal-fired units in 2015. 

A provision of the GTSA allowed utilities greater flexibility to recover the costs of early retirements. 

The SCC initially ruled that the coal plant retirement costs did not qualify as expenses and instead ordered the company to amortize, or spread out, recovery over a 10-year period. The ruling meant that Appalachian Power’s earnings did not fall below the state’s lower threshold and the utility therefore wasn’t entitled to a rate increase.

Appalachian appealed the ruling to the Virginia Supreme Court, which said in August that the commission had erred and that the utility should be allowed to count the $88 million as an expense. The decision would rejigger the accounting of the utility’s earnings to push them below the lower threshold set by state law, triggering a mandatory rate increase.

In November, a hearing examiner recommended the company be allowed to recover $37 million in prior costs and $28.4 million in future costs.

Appalachian had asked to recover $40.6 million from customers to adjust where it falls relative to the threshold, but the hearing examiner removed $12.2 million in expenses related to items such as storm costs and short-term employee incentives. 

Several groups filed comments opposing the recommendations. 

The attorney general’s office argued projected revenue losses from two still-active coal plants should rely on a new retirement date of 2040, when they are now expected to close, and not the 2032 date Appalachian Power used. 

The office has also argued that the $28.4 million in going-forward revenues should be included in regulators’ reviews of the company’s 2021 and 2022 earnings, despite not being collected until after 2022. If those revenues aren’t included, then reviews of those years will show underearnings and could lead to another rate increase, the office stated.

The Virginia Poverty Law Center opposed the recovery of revenues from a new rider, saying it would result in retroactive ratemaking, which in general is not allowed in the state.

“The Commission may not impose a retroactive rate increase on customers to compensate a utility for any past deficiency – or alleged deficiency – in earnings,” attorney William Reisinger wrote.

The State Corporation Commission will now review the hearing examiner’s recommendations.

This story was updated to say the Virginia Poverty Law Center is opposed to a new rider.