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Another Viewpoint: Ken Cuccinelli
AG clarifies APCo info

Monday, September 13, 2010

Recently, several misstatements have been made about utility rates and rate regulation in Virginia, resulting in confusion that has left consumers misinformed.

As attorney general, part of my job is to represent consumers in utility rate cases before the State Corporation Commission (SCC). Recently, I held two town hall meetings in Southwest Virginia to explain my office's role in a recent rate case involving APCo (Appalachian Power Co.) and to set the record straight about utility regulation.

In the APCo rate case, my office challenged the company's request for a $167 million base rate increase. The State Corporation Commission denied the vast majority of the requested increase (more than $100 million) and repeatedly noted that it was denying a significant portion of that because of arguments my office made on behalf of consumers. As an example, one of the fees that we argued should be denied was APCo's charge to customers to recover the costs of its Mountaineer Carbon Capture and Sequestration Project.

At the end of the case, APCo's requested $167 million base rate increase was reduced by $106 million. Because of these efforts and a fuel factor case filed in June, rates for APCo customers are now actually lower than they were last winter.

Much has been made about the fact that this was the first base rate case that was fully litigated under the state's "re-regulation" law, which passed in 2007. However, as I noted in both town halls, only one aspect of that law had an impact on the ultimate resolution of the rate case. The law changed how the authorized return on equity (ROE) is calculated by the SCC.

In the case of APCo, it appears from the SCC's order that the SCC would have set an ROE of 10 percent under the old law, but felt compelled under the 2007 law to set it at 10.53 percent. This resulted in a revenue requirement that was $7 million higher for APCo. For the residential customer, this represents an increase of approximately 70 cents per 1,000 kWh used, or about a dollar per month for the average household. That was the only aspect of the 2007 law that led to any increase in rates set by the SCC in the case.

Ultimately, the types of costs that APCo has sought to recover in its rate cases (fuel, environmental costs, etc.) would also have been recoverable under the law as it existed not only prior to 2007, but dating back to before the 1999 restructuring law, as well. While the 2007 re-regulation law has changed the process by which utilities apply for rate increases, the basic costs that a utility may seek to pass on to its customers remain essentially the same. Utilities have always been entitled to recover costs of environmental compliance. The amount of costs passed through to consumers has not changed; just the process by which the utility seeks to recover those costs has changed.

A great deal of misinformation has also been spread about the APCo case in general. The statement that APCo's customers pay the highest electric rates in Virginia is false. At least 20 electric utilities in Virginia have higher rates.

The statement that APCo's customers pay the highest rates of customers in the AEP (American Electric Power) system is false. Currently, in AEP's eastern system, Columbus Southern is nearly $15 per 1,000 kilowatt hours higher.

The statement that regulatory decisions in Washington have no impact on the rates paid by the citizens of Virginia is false. Almost half of the bill for APCo's residential customers can be attributed to mandates imposed by the federal government or costs approved by the federal government that APCo is allowed to pass on to customers. That is why anyone concerned with increasing electricity costs should take a firm stand against federal efforts - such as cap and trade legislation - that would significantly increase what the average APCo customer pays for electricity. If cap and trade passes, the resulting rate increases would dwarf the increases customers experienced between 2004 and 2009.

While I am not involved in the legislative process like I was when I was a senator, I am open to any suggestions that would make Virginia's utility laws better for all Virginians. My office has offered to work with legislators interested in utilities issues and remains willing to work with anyone who truly has the best interests of our clients, Virginia consumers, at heart.

- Ken Cuccinelli, attorney general of Virginia


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