In this morning’s Charleston Daily Mail, Jared Hunt reports that there is a settlement in APCo’s bond bailout case at the PSC.
The story is a little misleading, however. Mr. Hunt reports that “Appalachian Power and state ratepayer groups” agreed to the settlement. The only entities he cites as “ratepayer groups” are the Consumer Advocate Division of the WV PSC, an agency, and the WV Energy Users Group, a small number of the largest electricity users in WV. These are hardly groups made up of rate payers. One is an agency of the PSC itself, and the other is a very narrow group of consumers who almost always cut deals to put more of their power costs onto small business and residential customers.
Mr. Hunt also tries to provide an explanation of the bail out:
After being saddled with $442 million in fuel, purchased power and pollution control equipment costs in 2009, Appalachian and Wheeling asked the PSC for a 43 percent rate increase.
To avoid slamming customers all at once, the PSC opted for a plan that would spread those costs over four years. It granted a 10.5 percent increase in 2009, a 7.2 percent increase in 2010 and a 7.3 percent increase in 2011.
But those increases failed to significantly reduce the power companies’ outstanding balances. By the end of 2011, Appalachian and Wheeling still had about $311.9 million in ENEC charges outstanding.
Since the original plan didn’t work, the power companies successfully lobbied state lawmakers to pass a bill last year allowing them to finance the outstanding debt by selling bonds.
But he failed to explain why “the original plan didn’t work.” That PSC plan for deferred payment of the rate increase failed because the PSC had assumed that electricity demand in WV would continue to rise, providing enough rate revenue to cover deferred costs. Since 2009, electricity demand in WV has remained flat. If demand continues to stagnate, or even falls, the bond bailout, essentially mortgage payments on the cost of coal that was burned in 2008, won’t work either without significant new rate increases.
Mr. Hunt apparently doesn’t understand how bond debt works. He quotes Consumer Advocate Byron Harris:
Harris estimated that by issuing bonds rather than continuing to go through the ENEC process, the companies will save ratepayers about $35 million this year.
Nowhere in the article does Mr. Hunt tell us what the cost of interest payments on the bail out debt will cost APCo rate payers. The only thing he cites is the “savings” in the first year after the paper one-time ENEC cost is turned into ten years of bond payments plus interest. Mr. Hunt would have done himself a favor if he had looked at the story that his former colleague George Hohmann wrote last year.
Here’s what Hohmann wrote in February 2012:
Why not leave the debt on Appalachian’s books and have the ratepayers pay the utility? This would eliminate the need for high-priced bond lawyers and specialists. Alas, the company would not have a revenue stream dedicated to paying off the debt. Accountants might require the company to write it off, resulting in a big loss to stockholders.
As Hohmann pointed out, APCo’s problem was not that the debt existed. The company’s problem was that it commercial bond holders were beginning to think that demand in WV would never recover and APCo would have to write off its bad debt against profits. Until the WV Legislature bailed out their bad fuel decisions. Of course, neither Mr. Hohmann nor Mr. Hunt look squarely at the question of whether APCo needs to be stuck buying coal at all, when there are now so many alternatives for generating electricity.
Mr. Hunt does point out that even his non-existent “savings” from the coal debt/Century Aluminum bail out will have no positive impact on APCo’s rates, because the WV PSC has already said it will allow APCo higher rates for right of way clearing it has failed to do for decades and because the PSC may also approve the dumping of new coal-fired generating plants on APCo rate payers.
Let’s see, what’s wrong with this picture. The Legislature allows APCo to heap extra bail out costs on rate payers caused by high coal prices in 2008, and now APCo wants to add more coal-fired generation to the electric rates of its WV customers. Is this really a good idea?