Legislature Guarantees APCo Rate Increase

If you pay your electric bill to Appalachian Power, you just got screwed by the WV Legislature.  In the just-concluded 2012 legislative session, the Legislature overwhelmingly passed HB4530, which locks APCo rate payers in to at least ten years of higher electric rates.  Not only will APCo customers have to pay the full cost of the company’s high priced coal buying mistake, but the Legislature also allowed them to add this year’s rate increases to the bond bailout bonanza.  Here is a link to the final version that was passed last week.

As George Hohman pointed out two weeks ago in the Charleston Daily Mail, there was a pretty good chance that APCo shareholders would have had to pay for at least some of APCo’s high priced 2008 coal, but HB4530 would allow the WV PSC to force APCo customers to swallow all of this cost, plus pay for ten years of interest on the bonds, plus pay for all the costs of issuing the bonds, including lawyer and commission fees.

Here are some highlights of HB4530:

  • The bill was sponsored by all the major leaders in both houses of the Legislature.  Both the Senate and House versions of the bill were fast tracked for passage from the minute they were introduced.
  • The bill refers to the bonds as “consumer rate relief bonds” when they are nothing of the sort.  The bill includes specific language that prevents the PSC from shifting any costs associated with issuing the bonds back onto APCo or AEP shareholders.  If you do a net present value analysis of the bond cash flow, the net present value of all the money paid by rate payers over the life of the bonds totals more than the present amount of APCo’s coal debt.  That is simply bad business.  These are “consumer rate increase bonds.”
  • In its original form, HB4530 would have allowed bonds to be forced on rate payers for any costs incurred by any power companies in WV at any time.  The House Finance Committee passed Del. Nancy Guthrie’s amendment which limited cost recovery to only costs incurred as of December 31, 2012, effectively limiting these bonds to APCo’s 2008 coal problem.
  • When HB4530 got to Chairman Corey Palumbo’s Senate Judiciary Committee, that committee amended the bill to allow APCo to include the additional rate increase that they will be applying for this year.  So despite APCo’s claims that this was only about their past debt, Sen. Palumbo’s Committee voted the power company (and the rest of the Legislature approved it) an extra bonus increase for APCo customers.

Even though the Legislature gave the PSC the right to approve these APCo bailout bonds, the Commission still has to analyze and approve the financing and rate mechanism.  If you are an APCo customer, you need to be watching this process very closely.  The PSC can still deny APCo the right to issue these bonds.  You need to let them know what you think when the case comes up for review.

Here’s an interesting footnote for Appalachian Power residential and business rate payers.  APCo told the Legislature that they couldn’t recover their coal debt from rate payers in part because Century Aluminum closed in 2009, reducing their rate revenue.  Well, two years ago, the Legislature voted Century a special rate cut, so that if the plant restarts, Century will be paying much lower electric rates than any other residential or business in WV.  So, Appalachian Power customers, you have already been pre-screwed by the Legislature.

One thought on “Legislature Guarantees APCo Rate Increase

  1. Thanks for pointing out that it’s not over until the PSC actually uses the tool. The right intervenor could get a lot of mileage out of Century Aluminum. How much of this outstanding fuel debt is theirs? Why are the remaining APCo ratepayers expected to pay Century’s share of the cost? Or anyone else’s for that matter…

    I think Jamie taught this concept best on his recent blog post:

    “Third, it is a violation of fundamental ratemaking principles to force future ratepayers to bear the costs that are being incurred by current customers. This is known as the “matching principle”: those who cause the costs, bear the costs. Under Appalachian Power’s proposed misuse of securitization, current ratepayers would not have to bear the costs incurred by Appalachian Power to serve them. Rather, securitization allows the costs to be shifted to future customers. There is a complete mismatch between costs incurred and revenue received when the bonds are paid back in future years. Current ratepayers get subsidized; future ratepayers get burdened with costs not associated with the costs incurred by Appalachian Power to serve them at the time. It’s great if you’re an Appalachian ratepayer in 2012, since you are dodging the bullet of paying the actual costs of serving you. It’s not so great if you’re an Appalachian Power ratepayer in 2017, when you are paying utility rates completely unrelated to the costs incurred by the utility in serving you in 2017. It’s a mismatch. It’s not fair. And utility commissioners abhor such practices in setting rates. Yet Appalachian Power’s securitization bill embraces this mismatch, as it avoids the current pain of the $350 million under-recovery caused by its mismanagement.”

    Be careful what you wish for, AEP, you just might get it! 🙂

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