AEP subsidiary Appalachian Power sent a special Valentine to all their customers in West Virginia yesterday. The Valentine admits that the company can no longer provide electric service to its customers at a rate that they can afford to pay. This is the result of AEP's head-in-the-sand denial of the steadily increasing costs of the coal that fuels 99% of their electric generation that is sold to West Virginians.
Appalachian Power's lobbyist has been trying to short-circuit a WV Senate bill that would require power companies to file Integrated Resource Plans. An IRP provides the Public Service Commission with the utility's plan for supplying electricity to its customers in the most cost-effective manner. It requires the utility to evaluate costs and benefits of choices for power purchase contracts, the cost of new and existing generation facilities, making investments in demand-side resources, including energy efficiency, and to diversify its supply portfolio in order to protect ratepayers from unmanageable rate increases caused by over-dependence on only one source of fuel.
Yesterday, Appalachian Power's lobbyist introduced identical bills in both the House and Senate that would, "authorize the Public Service Commission of West Virginia to consider and authorize the recovery of certain expanded net energy costs by certain electric utilities through the issuance of consumer rate relief bonds where such financing is reasonably expected to result in cost savings and rate mitigation to customers when compared with traditional financing or cost-recovery methods."
Appalachian Power's spokeswoman explained it like this:
"We have already bought the coal, we have already made the power and customers have already used that power," Matheney said. "We're facing this large amount of money that has already been spent."
The utility estimates that its yearly per-ton coal costs jumped 70 percent between 2007 and this year. Matheney said the normal process has proved unable to cope with such circumstances.
"When it doesn't work well is when those expenses accumulate much faster and grow to become much larger than you anticipated," Matheney said. "We feel that's where we are right now."
What Appalachian Power intends to do with this legislation is to put their West Virginia customers into long-term debt to pay these fuel costs, while the company is immediately reimbursed for their out-of-pocket costs caused by their own bad planning. Simply stated, it will cause the company's customers to live above their means. We all knows what happens when we live above our means for any extended length of time; eventually the house of cards collapses and we go bankrupt. This method of avoiding rate increases cannot support itself over the long term.
Appalachian Power's proposed legislation is not limited to a one-time occurrence. It will allow all WV utilities to issue bonds for past, present and future costs instead of raising rates through a standard rate case. Utility bonds have been issued in the past to pay for capital expenditures on fixed assets, such as scrubbers or power lines. In that instance, the customers who will finance the bond are receiving the benefit of the asset they are paying for over its lifetime. They're getting something in return for their payment. In Appalachian Power's world however, they would like for future customers to pay for current operating expenses, which only provide benefit to the current customers who are receiving the electricity generated by the coal that they can't pay for. They are asking your children and grandchildren to pay for the electricity you use today. This is not financially prudent. In fact, it's stupid. It also violates the basic premise of regulated rate recovery, which is that the charges you pay are "just and reasonable." Appalachian Power's lawyers know this, but they are nevertheless setting up this customer-financed Ponzi scheme.
There's a lot of little things wrong with this bill that I won't spend time detailing, because I don't have that much time! One I will mention -- this legislation will allow the unpaid customer debt to be shuffled among different rate classes for recovery before being financed through the bond. In other words, they could reassign the substantial unpaid debt of big, industrial electric customers to other classes of ratepayers, such as residential ratepayers, so that industry does not have to pay back their share of the expense that has been financed.
Matheney says, "Without something unusual, we would have to put that in a rate increase this year," she said of the $350 million. "We know that this is something that our customers cannot handle."
This is true. Appalachian Power's customers can no longer afford to pay for the service they receive. Something has to be done. Sweeping the debt under the rug for future generations to trip over is not the answer. Sensible planning to diversify generation so rising fuel costs can be managed is the answer. Until that can be accomplished, another reasonable solution has to be found. Selling debt bonds is not reasonable. A company that cannot provide a product at a cost that customers can afford to pay is usually headed for bankruptcy. How about it, AEP?
Appalachian Power's lobbyist has been trying to short-circuit a WV Senate bill that would require power companies to file Integrated Resource Plans. An IRP provides the Public Service Commission with the utility's plan for supplying electricity to its customers in the most cost-effective manner. It requires the utility to evaluate costs and benefits of choices for power purchase contracts, the cost of new and existing generation facilities, making investments in demand-side resources, including energy efficiency, and to diversify its supply portfolio in order to protect ratepayers from unmanageable rate increases caused by over-dependence on only one source of fuel.
Yesterday, Appalachian Power's lobbyist introduced identical bills in both the House and Senate that would, "authorize the Public Service Commission of West Virginia to consider and authorize the recovery of certain expanded net energy costs by certain electric utilities through the issuance of consumer rate relief bonds where such financing is reasonably expected to result in cost savings and rate mitigation to customers when compared with traditional financing or cost-recovery methods."
Appalachian Power's spokeswoman explained it like this:
"We have already bought the coal, we have already made the power and customers have already used that power," Matheney said. "We're facing this large amount of money that has already been spent."
The utility estimates that its yearly per-ton coal costs jumped 70 percent between 2007 and this year. Matheney said the normal process has proved unable to cope with such circumstances.
"When it doesn't work well is when those expenses accumulate much faster and grow to become much larger than you anticipated," Matheney said. "We feel that's where we are right now."
What Appalachian Power intends to do with this legislation is to put their West Virginia customers into long-term debt to pay these fuel costs, while the company is immediately reimbursed for their out-of-pocket costs caused by their own bad planning. Simply stated, it will cause the company's customers to live above their means. We all knows what happens when we live above our means for any extended length of time; eventually the house of cards collapses and we go bankrupt. This method of avoiding rate increases cannot support itself over the long term.
Appalachian Power's proposed legislation is not limited to a one-time occurrence. It will allow all WV utilities to issue bonds for past, present and future costs instead of raising rates through a standard rate case. Utility bonds have been issued in the past to pay for capital expenditures on fixed assets, such as scrubbers or power lines. In that instance, the customers who will finance the bond are receiving the benefit of the asset they are paying for over its lifetime. They're getting something in return for their payment. In Appalachian Power's world however, they would like for future customers to pay for current operating expenses, which only provide benefit to the current customers who are receiving the electricity generated by the coal that they can't pay for. They are asking your children and grandchildren to pay for the electricity you use today. This is not financially prudent. In fact, it's stupid. It also violates the basic premise of regulated rate recovery, which is that the charges you pay are "just and reasonable." Appalachian Power's lawyers know this, but they are nevertheless setting up this customer-financed Ponzi scheme.
There's a lot of little things wrong with this bill that I won't spend time detailing, because I don't have that much time! One I will mention -- this legislation will allow the unpaid customer debt to be shuffled among different rate classes for recovery before being financed through the bond. In other words, they could reassign the substantial unpaid debt of big, industrial electric customers to other classes of ratepayers, such as residential ratepayers, so that industry does not have to pay back their share of the expense that has been financed.
Matheney says, "Without something unusual, we would have to put that in a rate increase this year," she said of the $350 million. "We know that this is something that our customers cannot handle."
This is true. Appalachian Power's customers can no longer afford to pay for the service they receive. Something has to be done. Sweeping the debt under the rug for future generations to trip over is not the answer. Sensible planning to diversify generation so rising fuel costs can be managed is the answer. Until that can be accomplished, another reasonable solution has to be found. Selling debt bonds is not reasonable. A company that cannot provide a product at a cost that customers can afford to pay is usually headed for bankruptcy. How about it, AEP?
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