APCo Not Out of Line to Ask for Rate Hike

A decade ago, “deregulation” was the word of the day in Washington and state capitals across the nation. And one of the hottest areas of deregulation was the electricity industry.

California led the way in deregulating the power-generation industry, opening the once heavily regulated sector to market forces and hoped-for competition.

The Virginia General Assembly jumped on the deregulation bandwagon, voting to deregulate the industry but at a somewhat slower pace than other states. Basic rates would be capped for a period of years to allow for competitors to the state’s big power providers — Dominion Power and American Electric Power — to enter the market.

Only that never really happened.

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Ken Schrad, spokesman for the State Corporation Commission which regulates the industry, put it quite succinctly in 2004, saying, “Deregulation was sold as better price, better price, better price. That isn’t what’s happening.” Provider choice just never materialized.

Yet, the state government kept the deregulation framework in place for another three years, finally killing off the idea in 2007 with a return to modified regulation of the market.

Yet during all those intervening years, electric rates across Virginia remained capped and customers enjoyed artificially low rates that just were not sustainable in the real world.

In just the last couple of years, Appalachian Power Co. (the branch of AEP that provides power to about half a million customers in Central and Southwestern Virginia) has been granted a series of rate hikes, based on the cost of fuel to generate power, environmental regulations and other factors.

For example, from Jan. 1, 2008, until Jan. 1, 2009, the bill of an average residential APCo customer using 1,000 kilowatt hours a month rose about 30 percent, through a combination of fuel-factor hikes and standard rate increases.

Currently, APCo has put in a request to the SCC for another rate hike, this one based on the fuel factor, that would raise the average bill by 13 percent.

State law allows a utility to collect the actual cost of power generation from its customers on a dollar-for-dollar basis. APCo, which is one of the nation’s biggest providers of coal-generated electricity, has seen its costs rise dramatically as the global demand for coal has driven the per-ton price to record levels.

More than 10,000 complaints have been lodged with the SCC, protesting the rate hike request. Politicians, including Amherst County’s Del. Ben Cline, have denounced the request, eager to be seen as on the side of the average Joe. Business owners have decried it as a jobs-killer.

Nevertheless, APCo’s request is entirely reasonable. The company’s generation costs have risen, therefore the price of the commodity it sells — in this case, electricity — should rise. It’s simple economics.

If the SCC grants APCo’s request in whole, the company’s rates will still be among the lowest in the state. A possible side benefit of higher rates, though, might be an increased interest in energy conservation: more insulation, energy-efficient appliances and lights, energy-saving windows and doors. The cost of wasting energy may finally be greater than the cost of saving energy.

For a decade, electricity rates in Virginia were artificially low, and we consumers enjoyed every minute of it. Those days are over and done with.