The Charleston Daily Mail’s Jared Hunt has a story today on the final coal bond bailout plan presented by Ohio company AEP’s WV subsidiaries to the WV PSC. The total amount of the bailout is now $410 million, up from the $350 million they told the Legislature it would cost last February and up from $391.5 million that they told the PSC at the beginning of the current case. As Keryn and I predicted, AEP has used the coal bailout gift given to it by the Legislature to keep jacking up their customers electric rates. We also learn later in Hunt’s story that the actual current debt owed on AEP’s big 2008 coal mistake is only $311.9 million, $103 million less that what AEP now wants WV customers to pay interest on in the new bailout plan.
Hunt states the facts of the situation, but misses the real financial point.
With historically low rates in the bond market right now, the companies feel it’s a better way to pay off the costs than traditional bank financing.
The joint filing said the companies expect to sell 10-year bonds at an average market rate of 1.77 percent. By comparison, if the companies tried to get capital loans from a bank, they could expect to pay an interest rate of 8.84 percent.
The point is that right now, AEP is paying that 8.84 percent interest. If the PSC approves the coal bailout, AEP’s WV customers will be paying the 1.77 percent interest. Why not just raise rates and pay off the full amount of what rate payers owe all at once? Because AEP and the WV PSC don’t want to face the wrath of AEP rate payers for sticking them with the real costs of the failed policies of AEP and the PSC which have tied WV electric rates to the vagaries of the coal market.
Note the weaseling by the AEP PR person on the rate impact of the bailout:
Because of that wide difference in interest costs, Appalachian Power spokeswoman Jeri Matheney said a bond sale would produce significant savings over the next decade.
“In the long term, over the life of the bonds, we expect securitization will save customers about $146 million,” Matheney said.
Under the bond proposal filed Wednesday, the average residential customer would pay a $0.309 per kilowatt-hour charge, referred to as the Consumer Rate Relief Charge. Revenue from that charge would be applied to the bond payments.
But Matheney said that doesn’t mean customers will pay higher rates. She said that charge would simply replace some of the current fuel costs customers are already paying.
“We believe that the current ENEC charge is enough to cover the Consumer Rate Relief Charge; that’s why there would be no change in rates,” she said.
Note that neither Hunt nor Matheney tells you where this magical $146 million savings actually comes from. Is it the difference between the interest rates that AEP is now paying and what WV rate payers would be saddled with? Is it the cost of coal bailout bond costs compared with the current ENEC charges for the AEP coal mistake? We don’t know. It’s just a magical number that AEP put out there. Kind of like the $350 million they used in their snowjob on the Legislature earlier in the year.
Matheney’s gobbledygook assessment of rate impacts compares apples to oranges, but we don’t even know what apples and what oranges she is using.
Back in February, Daily Mail business reporter George Hohmann made all these points in an excellent story about the Legislative debate (or lack of it) on the coal bond bailout bill.
As I noted in an earlier post, if AEP’s plan goes through the PSC, the PSC will join AEP and almost all of WV’s legislators in giving APCo and Wheeling Power customers a great big screwing. That’s blunt language, but there really is no other way to describe it. Instead of calling its proposed coal bailout bond charge the “Consumer Rate Relief Charge,” AEP should more accurately call it the Interest Cost Transfer to Consumers Charge.