A proposed agreement between two American Electric Power subsidiaries and state ratepayer groups would allow the utilities to pay off old debts without huge rate increases.
Under the agreement, Appalachian Power and Wheeling Power would sell $376 million worth of bonds and use the proceeds to pay off the debt. The bonds would be paid off over a term of up to 15 years.
Most of the debt stems from fuel costs the companies accumulated following dramatic rises in coal prices in 2008 and 2009. The utilities had about $311.9 million in charges outstanding on their books at the end of 2011.
Fuel and purchased power costs are paid for through a charge that is included in the overall rate on a customer’s power bill. Such costs are reviewed and adjusted each year. Without a bond sale, the utilities say they would need to raise rates by 30 percent to 40 percent.
In 2012, the Legislature passed a law that allows utilities to sell bonds to recover fuel costs.
Also unpaid is $22.7 million from Century Aluminum’s 2006 electrical contract for its Ravenswood plant, which shut down in 2009. The Public Service Commission, which must approve the proposed agreement, had ruled previously that Appalachian Power could use proceeds from the bond sale to recover this cost.
“It’s a good proposal based upon the situation we’re in,” Byron Harris, director of the PSC’s Consumer Advocate Division, told the Charleston Daily Mail ((http://bit.ly/104TGpiV).
“Once you determine that there’s this big chunk of money we owe the company, then the question is what’s the best way to pay back that debt,” he said. “I think that’s what this accomplishes.”
Harris estimated that the bond sale would save ratepayers about $35 million this year.
But other cases pending before the PSC could negate this savings.
In response to last June’s windstorm, the PSC has ordered power companies to develop new tree-trimming programs. Also, Appalachian Power is seeking the PSC’s approval to buy additional portions of two power plants.
“At the end of the day, it’s not clear that anybody’s going to see an actual rate decrease,” Harris said. “Maybe lower than it would otherwise be, but we’ll see.”
The proposed settlement agreement followed negotiations between the power companies and the Consumer Advocate Division, PSC staff attorneys, Century Aluminum and the West Virginia Energy Users Group, which includes DuPont, Bayer, Steel of West Virginia Inc. and other manufacturers.