The Public Service Commission’s consumer advocate isn’t down with a proposed settlement in a big and longstanding power company rate case.
“We have not agreed to the proposed terms and it’s inconsistent with the positions that we’ve advanced,” said Robert Williams, director of the PSC’s Consumer Advocate Division.
Appalachian Power and Wheeling Power filed a potential settlement earlier this week, proposing to bundle hundreds of millions of dollars in costs into a single product for investment through bonds. The companies would get a lump sum, and the investment would pay off for bondholders over roughly 20 years.
For power company customers, advocates of the proposed settlement suggest the structure would curtail the sticker shock of sharply higher rates. Officials on board with the settlement say the format would delay future cost recovery requests while also extending the full cost over a long period of time.
The power companies, which are subsidiaries of American Electric Power, hammered out the settlement proposal with representatives of the West Virginia Coal Association and the West Virginia Energy Users Group, which represents big industrial power customers.
“We are confident this settlement will achieve the most stable outcome and least rate impact possible for our West Virginia customers,” said Aaron Walker, Appalachian Power president and chief operating officer.
“We encourage the PSC to approve the settlement, which will keep customer bills affordable and support a reliable energy system.”
The consumer advocate, an official watchdog for the interests of rate payers, is far from convinced the settlement is really the best deal.
“I’ve already advised the company we will vigorously oppose,” Williams said.
“This document they filed recently is new and different. We should have the full opportunity to address it and present the reasons we’re opposed to it.”
This cost recovery case kicked off in 2021. As coal and natural gas prices rose dramatically that year and remained high throughout 2022, the power companies said they paid far more for fuel and purchased power than the amount included in rates. Over a year, unrecovered costs grew from $216 million to almost $553 million.
The full ask, including $88 million in anticipated future costs, is $641 million.
The Consumer Advocate Division has maintained that amount can’t be justified. The division is on the record saying a significant portion of the claim should be disallowed — in the neighborhood of a couple hundred million dollars.
If that big amount is lopped off the top of the claim, then the Consumer Advocate Division is advocating for the remaining cost to be spread out over a five- to seven-year period, amortization.
“We have recommended that the commission proceed to enter an order about how much of the under recovery should be disallowed,” Williams said. “We have urged commissioners to spread the balance they do think is prudent and recoverable over a number of years.”
That’s a different structure than the power companies are suggesting through the settlement proposal.
A major difference is the amount that might be allowed. While the consumer advocate is talking about disallowing a couple hundred million dollars up front, the settlement claim would agree to forego $50 million of the under-recovery balance.
And while the consumer advocate proposes to then spread out the costs, the settlement proposal would provide the companies with a big lump sum right away while paying off over time through a new securitization framework allowed by recent state legislation.
Securitization means pooling income-producing assets to turn them into a single product for investment, through consumer rate relief bonds.
The power companies say this approach mitigates impact on customer bills by enabling recovery of the expenses over a much longer timeframe plus recovery of other allowable costs at a lesser rate of return.
So the securitization package would include $503 million from the under-recovery balance, $32 million of additional costs that had piled up in recent months and $88 million from major storm costs. That total is $623 million.
The proposal also includes a stipulation that the power companies wouldn’t ask for cost recovery in 2024 — instead freezing such a request until sometime in 2025.
“It is the Stipulating Parties’ intent that the proposed securitization will result in a total level of rates no higher, and perhaps even lower, than they would be absent the proposed securitization, thus minimizing customer bills and promoting affordability and the continued economic competitiveness of the Companies’ West Virginia service territory,” according to the proposed settlement.
The proposal adds in more investment that could be part of a bond package, including construction work and environmental enhancements at the John Amos, Mitchell and Mountaineer power plants in West Virginia.
Williams isn’t sold. He suggests it doesn’t make sense to turn utilities’ recovery claims for standard costs into bonds.
“They’re wanting to roll everything into one big ball,” Williams said. “They’re sort of holding out the carrot, saying we’ll securitize our plants if you’ll take this deal and let us collect all our money. We think that’s not the way the commission should go.”
There are still several decisions to be made.
The biggest one is whether the three-member Public Service Commission would consider the settlement proposal. It’s still possible to simply reject it.
If the commissioners would want to take it up, Williams says the Consumer Advocate Division would want to hear it out more thoroughly, including cross-examination of the entities who signed on.
“If they want to consider it,” he said, “I think we would file responses.”