Appalachian Power and Wheeling Power, both units of American Electric Power (AEP), Monday filed a request with the Public Service Commission of West Virginia for a $226 million revenue increase. If approved, the request would raise rates in West Virginia by about 17 percent. The exact amount of the increase will vary by customer class and usage.
The increase in revenue is needed to recover increased costs of maintaining and improving distribution and transmission lines as well as generating plants. These day-to-day costs of an electric utility are recovered in “base rates.”
These costs have been rising for the last several years. This increase affects customer rates in West Virginia, where rates have not increased since 2011. During that same period rates for Appalachian’s customers in Virginia and Tennessee have increased.
The requested increase includes costs for major storm restoration efforts and a new vegetation management program. The company is seeking recovery of restoration costs from the two major storms that struck West Virginia in 2012, the Derecho on June 29 and Superstorm Sandy on Oct. 29. The company proposes to spread those costs over a five-year period to reduce the effect on rates.
The filing also includes costs for the recently approved cycle-trimming vegetation management program. While cycle trimming won’t eliminate outages from major events like the Derecho and Sandy, it will help improve reliability, reduce power restoration times and minimize some restoration and ongoing maintenance costs.
Rates will not be put into effect until approved by the commission, which can suspend rates for 270 days after July 30, 2014. Upon approval, typical residential customers will see an increase in their electric bills of less than a dollar a day. Residential customers who use 1,000 kWH a month will see their monthly bill rise from $94 to $116.
In the last year, Appalachian Power has begun implementation of an efficiency program called Lean throughout its service territory. The internationally known program, used by Toyota and other multinational corporations, is designed to engage front line employees in finding ways to eliminate waste and add value to customers. Plus, the company has implemented two major budget-cutting initiatives and reduced its workforce by more than 10 percent in the last five years.
The filing requests a 10.62 percent authorized return on equity. Earning a fair return on equity is critical to Appalachian’s ability to do business. It directly affects bond ratings and therefore the cost to finance infrastructure improvements, make long-term investments and provide reliable electricity.