The Virginia Supreme Court gave new life Thursday to a proposed rate increase by Appalachian Power Co. that would cost up to an average residential customer an extra $10 a month.
In a 5-2 decision, the high court found that the State Corporation Commission erred in 2020 when it denied the company’s request. The case now goes back to the SCC for additional proceedings.
A key part of the court’s 44-page opinion dealt with a controversial accounting practice in which Appalachian included the costs of the early retirement of several coal-fired power plants in 2015 to offset its earnings in 2019.
The SCC ruled that Appalachian failed to meet its burden of establishing that was reasonable — a decision that the commission lacked the regulatory discretion to make, the Supreme Court found.
Appalachian’s approach was allowed by law and verified by independent public auditors, the opinion states.
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Justices William Mims and Cleo Powell dissented, writing that the majority’s holding “takes away the Commission’s ability to protect ratepayers from potentially unreasonable accounting practices that will result in a rate increase.”
At issue was Appalachian’s base rate, which is determined by a review of the utility’s performance over the past three years, in this case the period between 2017 and 2019.
Under state law, if the company’s earnings fall below a range based on an authorized return on equity — which was 9.4% at the time — a rate increase is allowed. If, on the other hand, earnings during the triennial period exceed the allowed range, the company is not allowed to collect more revenue through higher rates.
Appalachian’s return on equity in 2017 and 2018 exceeded 9.4%, according to SCC documents. But in 2019, it dropped to 3.8% after the company offset earnings that year with the costs of the early retirement of several coal-fired coal plants, including the Glen Lyn facility in Giles County.
That brought the average return over three years down to the point that a rate increase was allowed, Appalachian argued to the SCC.
Virginia’s attorney general and other critics called the accounting practice “unconscionable,” arguing that the shutdowns actually occurred well before the beginning of the three-year period on which a rate increase is based.
But in its ruling Thursday, the Supreme Court ruled that the practice was allowed at the time by state law and what’s known as “generally accepted accounting principles” — a decision that required a deep dive into complex material.
“There is no common, layperson meaning to the terms ‘asset impairments,’ ‘recorded per books,’ or ‘financial reporting periods,’ “ the opinion stated. “These are terms of art used in the administrative regulations governing corporate finances.”
As for state laws on the regulation of electric utilities, which have been changed repeatedly by the General Assembly in recent years, the Supreme Court said it was required to follow the statute “regardless of what courts think of its wisdom or policy.”
If the decision leads the SCC to allow Appalachian to raise its base rate, it will be just the latest in a series of hikes for the utility’s 500,000-plus customers in Western Virginia.
While base rates are adjusted every three years and go to the utility’s core mission, other increases — called rate adjustment clauses — cover constantly changing factors such as fuel costs.
Since 2020, the SCC has approved at least four rate adjustment clauses for Appalachian: one for the higher costs of natural gas and coal, a second for higher transmission costs, a third to pay for environmental improvements to two coal-burning plants in West Virginia and a fourth for renewable energy projects required by a state mandate.
Together, the increases add up to about $18 for an average residential customer, someone who uses 1,000 kilowatt-hours of electricity per month.
In SCC documents, Appalachian estimated the increase in the base rate to be $10 per month. Company spokeswoman Teresa Hall said Thursday that customers can expect a higher rate.
However, she added in an email that “the amount and timing are unknown at this time. It will most likely be less than $10 for myriad factors.”