Appalachian Customer: ‘It’s Either Pay Up Or Freeze’

By David McGee
Staff Writer / Bristol Herald Courier
Published: October 5, 2008

With electric rates set to rise from 15 percent to nearly 40 percent across most of the region, reactions from customers range from uneasiness to outrage.

“I think it will be hard on people. It’s hard enough now,” said Erica Ford of Abingdon, Va., an Appalachian Power customer. “With gas prices, a lot of people are going to have to start making choices between food and prescriptions and heat.”

Ford, whose home uses gas for heat and to heat water, said her average power bill still is about $117.

“Everything else is going up. This is going to hurt a lot of people – a lot of people on fixed incomes,” said Eva Graham of Abingdon, another Appalachian customer.

Graham’s friend, Jean Schwab of Abingdon, said electric rates in this area are lower than in her native Ohio, even with the expected increase.

“It’s either pay up or freeze,” Schwab said.

Jennifer Johnson, a Bristol Virginia Utilities customer who lives in Washington County, Va., said her bills have risen often.

“It’s out of control,” Johnson said. “It’s a shame we have no more say than what we do. We’re just at their mercy.”

Across the region, everyone from private citizens to businesses and governments are bracing for a new round of electric rate increases.

Think your electric bill is high? The Bristol (Va.) School Board has budgeted more than $556,000 to power its buildings – which don’t use electric heat – during fiscal 2008-09. That’s a nearly 60 percent increase compared to fiscal 2005-06, when the school division spent about $348,000.

Across the state line, the Bristol Tennessee Housing Authority, which provides power for residents of the 210 apartments in its two high-rise housing complexes, has increased its electricity budget from $254,000 to more than $310,000 for the current fiscal year.

Reasoning with rate hikes

In August, the Tennessee Valley Authority board of directors voted to increase the price it charges for electricity by an average 20 percent, effective Oct. 1.

TVA supplies power to the nearly 50,000 customers served by Bristol Tennessee Essential Services and Bristol Virginia Utilities.

Nearly all of that increase was directly attributed to the “skyrocketing” cost of coal and natural gas, which TVA uses to fire plants that produce electricity, TVA President Tom Kilgore said during a summer teleconference with reporters.

The price of coal has risen 128 percent during 2008, while the cost of natural gas has gone up 58 percent. TVA contracts with a variety of suppliers and a fifth of those contracts expire and must be renegotiated every year.

About 56 percent of TVA’s electricity is produced at coal-fired plants, while 11 percent is purchased from producers using either coal or natural gas.

Because most of the increase is classified as a fuel cost adjustment, that rate is subject to change every three months. Which means another increase is possible Jan. 1. Prior to the newest rate hike, TVA’s cumulative fuel adjustment rose 12.2 percent since it was implemented in 2006.

Residential customers in both cities can expect to pay about 16 percent more, while some industrial and commercial customers will pay 18 percent to 20 percent more for power.

It represents TVA’s second rate hike of the year, following a 7 percent jump in April.

The average residential customer who uses 1,300 kilowatt hours per month can expect the bill to increase by about $18.

Greater increases for Southwest Virginia

Appalachian Power, which serves about 500,000 customers in Southwest Virginia, is asking the Virginia State Corporation Commission to approve a cumulative 37 percent average increase in the price it charges for electricity.

In May, the company requested an average 23.9 percent increase in the base electric rate and a 2 percent average increase to recoup environmental and reliability costs for system improvements made in October 2006 and December 2007.

In July, the company filed an additional request to recoup what it charges for coal and other fuels used to produce power. That factor was originally projected to raise the average customer’s bill by an additional 12 percent.

In asking for the base rate hike, company officials claim revenues in Virginia are declining and place Appalachian in a “precarious” financial condition.

“Despite cost control efforts, it is clear that earned returns in the company’s Virginia jurisdiction are not close to meeting even minimally acceptable financial results,” company President Dana Waldo said in a news release.

Last month, the SCC held hearings in both the environmental and reliability and fuel factor cases, but no final rulings have been issued, commission spokesman Andy Farmer said Friday.

Based on those hearings, the environmental and reliability increase – which goes into effect Jan. 1 – now is expected to be about 1.3 percent, Appalachian spokesman John Shepelwich said.

In addition, the fuel cost adjustment now is expected to be about 10 percent for residential customers and an average 13 percent for all users.

The interim fuel cost adjustment now is in effect and a final ruling is expected later this month, Shepelwich said.

“The primary reason for the change in the fuel adjustment is we had asked for a 16-month period to get this more on a year-to-year cycle,” Shepelwich said. “The commission suggested, with the volatility of the coal marketplace, to use only a 12-month period.”

On Friday, the company submitted additional information about coal pricing at the request of the SCC, Shepelwich said.

If the price of coal continues to climb, this year’s reduction could prompt a larger fuel adjustment request next year, Shepelwich warned.

The SCC will consider the proposed base rate change on Oct. 29, the same day it is scheduled to go into effect on an interim basis.

If that increase is approved, a residential customer who uses 1,000 kilowatt hours of electricity per month can expect the bill to rise from about $71 to about $97 – excluding local taxes. A consumer using 1,500 kilowatt hours per month can expect his or her monthly bill to jump from about $103 to about $140.

Approval isn’t guaranteed, however. Public outcry helped prompt commissioners to roll back a 2006 Appalachian increase last year and that drumbeat is under way again.

In 2007, the commission trimmed a 25 percent Appalachian increase back to just 3.1 percent, after a widespread customer protest.

Company officials claim that rollback contributed to its current plight and, in part, prompted the latest base rate increase request.

As of Friday, the three combined rate cases have elicited almost 16,000 “e-mails, letters and signatures on petitions,” SCC spokesman Farmer said.

“Last year’s rate case was a little different because there we got phone calls – 50,000 phone calls,” Farmer said. “This year, people are more aware of the process for submitting written comments, so we’re getting a lot of e-mails, letters and several groups are circulating petitions. We’ve not gotten a lot of phone calls.”

While comment periods have concluded for the other requests, the SCC will accept public comments until Oct. 22 on the base rate case, Farmer said.

Among those who’ve already written letters are the Gate City and Clintwood town councils, the Buchanan County Board of Supervisors and state Delegate Bill Carrico, R-Independence.

“While I and the majority of my constituents recognize the need for reasonable, periodic rate adjustments, APCo’s proposed increase, as written, would be financially devastating for many of Southwest Virginia’s most vulnerable residents,” Carrico wrote in an Aug. 13 letter to the SCC.

Carrico wrote many “simply cannot afford to pay” the higher rates and he urged the commission to consider phasing in any increase it approves over a period of years.

In a resolution sent to the SCC, the Buchanan County Board of Supervisors expressed “vigorous opposition” to Appalachian’s requests, which it called “excessive.”

The resolution cited parent company American Electric Power’s 2007 annual report, which outlined plans to target more than $500 million in rate changes across all its divisions.

“We do get a lot of response to [all] rate cases, especially with the advent of the Internet,” Farmer said. “We set up a dedicated e-mail box for each case and those comments and petitions become part of the record for that case.”

A large number of petitions and letters have also come through the office of state Delegate Dan Bowling, a Richlands Democrat who represents Buchanan and parts of Russell and Tazewell counties.

“We’re just trying to take care of our constituents,” Bowling said. “We have a lot of retired people and people on fixed incomes and,  with everything else going up like gasoline and food, it really upsets those people.”

Looking ahead

The TVA hike – its largest in 30 years – is a doubly bitter pill for BVU customers. They’ve absorbed rate increases totaling 18 percent over the last 18 months, which BVU officials said was needed to bring them in line with other TVA suppliers.

“This is a major concern for us. We don’t ever want to raise rates,” Rosenbalm said. “I am concerned about the citizens of Bristol and Washington County and the hardships it creates for individuals and families.”

With greater demand for coal around the world, combined with TVA’s reliance on coal for about 60 percent of its power generation, the situation could grow even more tenuous, Rosenbalm said.

“The market is out of control. This country needs to get a better handle on its energy sources and policies, for all of our sakes,” Rosenbalm said.

Part of TVA’s increased reliance on other sources is blamed on drought conditions in the Southeast, which continue to limit how much hydroelectric power it can generate, Browder said.

“The first thing we need is a tropical storm to settle in this area for a week,” Browder said. “This is the fourth year that the drought has affected hydroelectric production, which is the cheapest form.”

While TVA’s long-range outlook is for energy prices to stabilize, the utility should take additional steps to expand its portfolio of nuclear power plants, Browder said.

“While the cost of coal and natural gas has gone up, the cost [increase] of nuclear is nil,” Browder said. “Because it takes so long to get a [nuclear] plant approved in the U.S., nuclear is a long-term solution, not short-term. But if we’d started that 10 years ago, we’d be closer now. The future is going to get here at some time.”

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