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    Appalachian Power, Wheeling Power defend $297 million fuel cost increase request on top of other rate hikes at PSC hearing


    October 5, 2022 - Mike Tony, The Charleston Gazette-Mail, W.Va.

     

      Oct. 5—Witnesses on behalf of Appalachian Power and Wheeling Power defended the companies' request for a $297 million increase in the rate that it charges captive ratepayers to cover fuel costs at a hearing before state regulators Tuesday.

      Company witnesses pushed back against arguments that the rate increase would be inappropriate, given the $124 million they already received in fuel cost recovery this year, their parent company's growing profitability and criticism the companies have face for their approach to procuring coal for electricity.

      Tuesday's hearing brought fresh scrutiny of the rate hike request first submitted to the Public Service Commission in April. If approved, the rate increase would raise the monthly bill for a residential customer using 1,000 kilowatt-hours by $18.41.

      Appalachian Power and Wheeling Power utility rates have nearly tripled from $55.28 in 2003 to $153.71 in 2022 for a residential customer using 1,000 kilowatt-hours, according to Public Service Commission data.

      The companies' request comes after two previous multimillion-dollar approvals earlier this year from the commission for increases in the rate that the companies charge for buying power or fuel to generate electricity, known as an Expanded Net Energy Cost rate.

      In March, the Public Service Commission approved a $31.4 million increase in that rate to reflect a recalculation by the commission of reduced purchased power costs and additional fuel-handling costs incurred by Wheeling Power.

      Then, in May, the commission approved a $93 million increase in rate recovery. The agency's order said the move was "to prevent future possible rate shock to the customers."

      Cross-examining Appalachian Power director of West Virginia regulatory services Randall Short, West Virginia Energy Users Group counsel Derrick Price Williamson noted that, if approved, the rate increase would raise the companies' fuel cost recovery increases to more than $420 million this calendar year.

      "This is the price we have paid for energy," Short said. "This is the price we have paid for fuel, and we're trying to get those costs in line with revenues."

      Williamson and Consumer Advocate Division counsel Heather Osborn pointed out West Virginia's high concentration of residents in poverty (estimated to be 16.8% as of last year, per the U.S. Census Bureau).

      The Energy Users Group represents large industrial energy users. The Consumer Advocate Division is an independent arm of the Public Service Commission that represents ratepayers' interests.

      American Electric Power, parent company of Appalachian Power and Wheeling Power, reported $2.5 billion in earnings attributable to shareholders in its 2021 annual report, up from $2.2 billion in 2020.

      "The profit level of AEP is not what's at issue in this case," Short said. "The issue of the case is, what are the costs we have incurred?"

      Short said the companies would be open to having its cost recovery spread out over a longer period of time.

      Witnesses for the Energy Users Group and Consumer Advocate Division reiterated prefiled testimony in which they contended that the companies botched their coal procurement last year, resulting in fuel cost increases that customers shouldn't have to pay for.

      Energy Users Group witness Stephen J. Baron, president of the Atlanta-based utility rate consulting firm Kennedy and Associates, testified that it would be "reasonable" for the commission to disallow at least $82.6 million of what the companies are asking for.

      Baron cited his finding that the companies should have procured more coal supplies for the fourth quarter of 2021 to provide enough inventory to economically operate their coal units during periods when high PJM market energy prices would have yielded favorable margins to offset the high cost of purchased energy from the PJM market.

      PJM is the regional transmission organization that coordinates electricity movement through West Virginia and all or parts of 12 other states.

      Consumer Advocate Division witness Emily Medine, a coal procurement expert with Virginia-based Energy Ventures Analysis Inc., testified that the companies responded too slowly to mid-2021 market events as its coal inventory decreased, including rising gas prices and a strengthening coal market.

      Medine said in prefiled testimony that the companies' "laser focus" on cutting coal inventories blinded them to possible consequences of the pace of their inventory reductions.

      Medine recommended in part that the companies pursue recovery of damages from coal suppliers that didn't meet supply agreements.

      Appalachian Power has gone down that path, filing a lawsuit in Franklin County, Ohio Common Pleas Court in June against Ohio-based ACNR Coal Sales Inc. alleging that ACNR failed to supply coal it committed to provide to Appalachian Power.

      Appalachian Power said in the lawsuit that ACNR left Appalachian Power with a shortfall of over 1.3 million tons after agreeing to provide more than twice that amount in contract year 2021, seeking what it estimated was over $45 million in damages.

      ACNR countersued in August, saying that Appalachian Power chose not to accept coal from ACNR throughout 2021 and 2022, either through the latter company's "own poor decision-making" or a failure to find appropriate vendors and contractors to collect the coal from ACNR.

      ACNR referenced protests filed with the Public Service Commission by the Kanawha and McDowell county commissions in its lawsuit to argue that Appalachian Power tried to portray ACNR as a "bad actor" to draw attention away from its own "poor business management"

      "[Appalachian Power's] lawsuit serves no purpose other than to deflect blame for APCo's internal decision-making in an attempt to salvage its rate increase petition in West Virginia and to attempt to use the Complaint to obtain concessions from ACNR that APCo has no right to demand," ACNR said in its filing.

      The hearing will continue Wednesday.

      Mike Tony covers energy and the environment. He can be reached at 304-348-1236 or mtony@hdmediallc.com. Follow @Mike__Tony on Twitter.

      ___

      (c)2022 The Charleston Gazette (Charleston, W.Va.)

      Visit The Charleston Gazette (Charleston, W.Va.) at www.wvgazette.com

      Distributed by Tribune Content Agency, LLC.

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