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Virginia regulators to weigh Appalachian Power Company rate increase

Virginia, (Qnnflash) – Virginia’s second-largest electric utility, Appalachian Power Company, has submitted a proposal to regulators for a substantial rate increase. The utility attributes its request to inadequate revenues over the past three years and escalating operational costs.

If approved by the State Corporation Commission (SCC), the proposed rate hike could lead to an approximate $20 rise in the average monthly residential bill. However, concerns have arisen from various quarters, including the Office of the Attorney General, questioning the size of the utility’s rate increase request and its ambition for a significant boost in permissible profits.

The ongoing rate case involves the SCC’s review of the company’s earnings and the establishment of future customer rates along with the company’s new profit margin. In this specific instance, Appalachian Power seeks to raise its annual earnings by $212 million, marking a 14.3% increase from its previous allowable earnings. Additionally, the utility is seeking approval for a new profit margin of 10.6%, a notable jump from its current rate of 9.2%.

Adding a layer of complexity, this year’s rate case is the final one conducted under the existing three-year review system. Recent legislation has modified the schedule to biennial reviews beginning in March 2024, while also granting regulators the authority to adjust rates as necessary.

A hearing for the case is scheduled for Wednesday.

Inevitable Rate Adjustment
Given the extent of Appalachian Power’s reported underearnings, some form of rate adjustment is highly likely.

Current state law mandates that regulators increase the utility’s electric rates when its earnings fall below a designated threshold. This threshold is established based on the profit margin set by the commission for the review period. If the company’s actual profits fall within a range of 0.7 percentage points around the authorized profit level, rates remain unchanged. Rates must increase if earnings fall below the lower limit of this range, and regulators can choose to reduce rates and issue customer refunds if earnings surpass the upper limit.

At present, Appalachian Power operates under an approved profit level of 9.2%. However, the utility contends that its average profit level over the past three years has been just 5.39%, significantly below the authorized rate.

The dispute over Appalachian Power’s underearnings is not in contention. The SCC staff confirmed the company’s earned rate of return as 5.49%. All parties involved, including the Office of the Attorney General, are in agreement that the actual profit level was lower.

The utility attributes its diminished earnings to factors such as a shrinking customer base, revenue losses resulting from the COVID-19 pandemic (including impacts from the suspension of late fees by the state), and global economic pressures. These external pressures include elevated energy prices due to the Russia/Ukraine conflict, prolonged delivery times, and increased costs for transmission and distribution supplies.

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