A settlement is up for approval in a big and longstanding cost recovery case for power companies.
The upshot for customers of Appalachian Power and Wheeling Power is that they could be spared the sticker shock of big rate increases if the unique terms of the settlement are approved by the West Virginia Public Service Commission.
“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 settlement does not explicitly detail the effects on customers’ bills. That specific information would come later.
Representatives of Appalachian Power and Wheeling Power filed the proposed settlement agreement Wednesday. The power companies were joined by The West Virginia Energy Users Group, which includes some of the state’s biggest industrial customers, and the West Virginia Coal Association.
The terms deal mostly with an accumulated under-recovery balance of about $553 million that had been piling up since 2021.
The proposal embraces securitization of the under-recovery balance, which means pooling income-producing assets to turn them into a single product for investment, through consumer rate relief bonds.
The power companies like the approach, saying it 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.
The securitization is possible because of a bill passed the last legislative session, House Bill 3308.
Under the terms in this case, the companies agreed to forego $50 million of the full under recovery balance.
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.
“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.
If the Public Service Commission agrees to the proposed settlement for the Expanded Net Energy Cost filing, a next step would be requesting a financing order.
After that, the financial effects on customers would be more clear. “Rate design will be determined in the securitization proceeding,” the settlement proposal states.
Derrick Williamson, executive director of the West Virginia Energy Users Group, said the settlement strikes a fair balance.
“Importantly, the settlement reflects AEP’s agreement to forego recovery of $50 million they otherwise sought their customers to pay, while at the same time providing, through securitization legislation approved by the Legislature and Governor early this year, a mechanism to insulate all ratepayers from the effects of about $500 million in other costs,” Williamson said.
“The other option would be yet another increase in customer ENEC rates sometime in early 2024; instead, the settlement provides for a conditional freeze such that the Companies cannot increase ENEC rates again until sometime in 2025.”
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 cost recovery cases wound up getting bumped along without resolution.
Now an agreement may be within reach, depending on a ruling from the PSC.
“It is a sensible resolution that protects all customer classes in a manner that is fair, in the public interest, and in the economic interest of the State,” said Williamson of the Energy Users Group.
“If the Commission had rendered a decision reflecting the core terms of the settlement, we would have viewed that as an excellent outcome, and WVEUG therefore supports the Commission’s approval of the settlement after it affords all parties their due process.”