by Keryn

This bill proposes granting authorization for the Public Service Commission to issue “financing orders” to electric utilities to recover increased Expanded Net Energy Costs from their ratepayers through the issuance of consumer debt bonds.

In the instance that caused this legislation to be proposed, AEP affiliate Appalachian Power has already incurred the expense of purchasing fuel that has already been burned and turned into electricity that it has already supplied to its customers.  Now ApCo finds that it will have to request another rate increase in the neighborhood of 40% to recover its expenses from customers. 

Fuel is a recurring expense that should be paid for at, or as close as possible to, the time it is used.  If not, the recurring liability of deferred expenses not recovered through current rates will merely snowball until the debt reaches a point where it can never be repaid through rates that consumers can afford.  “Pay as you go” makes financial sense.

Expanded Net Energy Costs (ENEC) represent a utility’s operating expenses that will vary from year to year.  Capital expense and fixed costs are covered under a different ratemaking process at the PSC.  In an ENEC case, a utility presents its projected cost of service for an upcoming year.  It also presents its actual cost of service for the prior year and compares, or trues up, its actual costs to the previous estimate that has been collected from ratepayers.  Any resulting rate increases are completely dependent upon the accuracy of the utility’s planning when presenting an ENEC case.  The “true-up” determines whether an over recovery or under recovery of rates from customers has occurred.  In the case of an over recovery, a refund is due to ratepayers.  In the case of an under recovery, the unpaid rate balance is charged to ratepayers over the next year.  This balances rates, when properly planned, so that large increases are unlikely to occur.

Appalachian Power’s planning process is broken.  The traditional ratemaking process works for other utilities.  In FirstEnergy affiliates Mon Power and Potomac Edison’s ENEC case last year, a projected 2012 over recovery was balanced against outstanding fuel-related under recovery to result in a smaller rate increase than would have otherwise been required.

The issuance of consumer debt bonds will reward AEP by allowing them to recover their expenses, while their customers incur the liability of the company’s poor planning over a longer period of time.  Instead of fixing the problem, this merely shifts it onto the backs of our children and grandchildren.

Tim Manchin’s “least cost planning” bill will be introduced in the House.  That bill will require utilities to file Integrated Resource Plans with the Public Service Commission every two years that will demonstrate how the utility plans to provide electric service to its customers in the most cost-effective manner over the next 20 years.  In its plan, the utility must evaluate costs and benefits of choices for power purchase contracts, the cost of new and existing generation facilities, investments in demand-side resources, including energy efficiency, and to create and effectively manage a diverse generation portfolio in order to protect ratepayers from unmanageable rate increases caused by over-dependence on any one source of fuel.  This approach works to solve the underlying planning problem that has continued to cause huge rate increases.

A sensible approach to this problem must include long-term solutions, not just a temporary “band-aid” approach that sweeps the issue under the rug for consumers to deal with in the future, such as HB4540 proposes.  The current under recovered fuel expense balance must be dealt with in a manner that Appalachian Power’s customers can afford.

We propose the following:

1. Bond issuance is limited to this one-time specific event.
2. Any bond issuance is limited to a 5-year re-payment period.
3. Least-cost planning must be instituted.
4. The outstanding fuel cost debt was directly caused by Appalachian Power’s poor planning, therefore some responsibility for the expense should remain with the utility, instead of the entire cost becoming the burden of customers.
5. Several provisions in the bill need amendment to ensure :

• That debt is repaid proportionally by customer classes who caused it;
• That the utility cannot sell the debt bond to their affiliates or absorb it internally, which defeats the purpose of the bond;
• That costs to administrate and set up financing of the bond, including costs of the Public Service Commission, become the responsibility of the utility, not to be recovered from ratepayers;
• That review of the utility’s books and records relating to the financing be transparent and open to review by affected customers;
• That the PSC’s financing order be subject to public hearing and review, including proper publication/notice to all affected consumers.

The increasing cost of electricity for West Virginians, at a time when they can least afford it, is a serious problem that deserves thoughtful consideration by all stakeholders, not a last-minute, quick fix that will allow all utilities to shirk future responsibility for their actions and create consumer debt outside of the traditional just and reasonable regulatory ratemaking process.