APCo, Higher Rates and Our Modern Lives

The News & Advance
Published: June 3, 2008

Nothing in this world is free; there’s a cost to someone somewhere along the supply chain and someone, ultimately, has to pay.

That’s the bottom line and the basis of Appalachian Power Co.’s request last Friday to increase its rates in Virginia by nearly 24 percent. That translates to about $16 a month for the average residential customer who uses 1,000 kilowatt hours on a monthly basis.

Like any other company, APCo’s cost of doing business has gone through the roof in the last several years. The power company is one of the largest providers of coal-generated electricity, and competition from foreign buyers has driven up the cost of American coal, just as it has a barrel of Saudi oil. Add to that the basic cost of complying with a myriad of local, state and federal regulations imposed on the industry, and the cost of the electricity to power your dishwasher and heat your water just keeps rising.

Then, there’s the cost — rather, the rising value — of APCo’s greatest asset: its 24/7 work force, the men and women who keep the grid online and who venture out in all kinds of weather at all hours of the day or night to restore service in a disaster.

As a public utility, the state government through the State Corporation Commission oversees the company and must approve its requests for higher rates. Two years ago, APCo requested a 25 percent hike and immediately began collecting the higher rates on an interim basis, as allowed under state law. Eight months later, when the SCC granted a pared-down request of 3 percent, the company had to refund its customers.

The May 2006 rate hike was one of the most controversial in the history of the SCC, generating tens of thousands of comments via the agency’s Web site and turning up the political heat on the three SCC judges and their staffs. In denying APCo’s hike, the commission based its decision on the fact that many of the increased costs the company was seeking to recover were estimated, not the actual tallies.

This time around, APCo is doing things differently:

w The proposed rates won’t go into effect until October, giving the SCC time to render a decision.

w The company is also leaving untouched a rate structure that places more of a cost burden on its business customers, rather than residential customers.

w APCo is also seeking the higher rates to pay for actual (not estimated) higher costs.

One of the biggest financial burdens looming for APCo, its parent American Electric Power and its millions of customers, is environmental regulation.

AEP and APCo are preparing to spend billions of dollars in the next couple of years — $5.4 billion and $2 billion, respectively — to comply with emission regulations associated with the generation of coal power. And that’s just the first phase of compliance, beginning in 2009 and lasting through 2015. The scope of the second phase of regulations is still up in the air.

Still, reliable electric service is one of the great marvels and great bargains of the modern era.

We flip a switch without having to think if the power is on or not. When it does go down in weather emergencies, crews are venturing into danger to restore service. It’s the cost of modernity, and it’s still a relative bargain.