The other shoe drops: APCo follows Dominion in seeking rate increase due to high fossil fuel costs

Virginia residents who buy electricity from Appalachian Power will see a rate increase of almost 16% this year if the State Corporation Commission approves the utility’s request to recover more than $361 million it has spent on higher-than-expected coal and natural gas prices. APCo proposes to recover the excess over two years, meaning rates will remain elevated even if fossil fuel prices drop. According to the filing, a customer who uses 1,000 kWh per month would see an increase of $20.17.

The SCC is likely to approve the request because it has little room to do otherwise. Virginia law allows utilities to recover their spending on fuel dollar-for-dollar, though they cannot tack on a profit for themselves. Last month, the SCC approved Dominion’s request to increase rates by an average of nearly $15 per month for the next three years to cover past excess fuel costs. 

The good news, says APCo, is that Virginia customers will see lower bills in the future because the utility is investing in renewable energy. “Incorporating more renewable sources of power into the company’s energy mix is another step in reducing customer fuel costs,” declares the company’s press release, issued the same day as its SCC filing. “As Appalachian Power adds more renewables, there is less need for coal and natural gas to generate power.”

Well, yes, but wouldn’t it have been nice if APCo had come to this conclusion before now? The current situation was entirely predictable. A supply glut kept natural gas prices low for almost a decade, but drilling companies weren’t making money. Today’s higher prices make it profitable to drill for gas, but oil and gas companies don’t trust that the market will stay strong, so they are returning profits to shareholders rather than investing in new wells. So tight supplies may keep prices high. Or not! Nobody knows. (As for coal, natural gas generation and coal are ready substitutes for each other, so coal prices track natural gas prices.) 

For years clean energy advocates like me have been urging utilities and the SCC to value price stability in generation planning, only to be ignored. Other states took the lead in installing price-stable renewable energy, while Virginia added more gas plants. When I dug into the data this summer, it became clear that the great majority of states with lower rates than Virginia also had higher amounts of renewable energy in their generation mix. I’ve reprinted a summary table here. 

StatePrice cents/kWh% REsource of RE
Virginia12.837biomass, hydro, solar
Idaho9.8674mostly hydro
Washington10.1275mostly hydro
North Dakota10.4840mostly wind
Utah10.6615mostly solar
Montana11.0052mostly hydro
Wyoming11.0619mostly wind
Nebraska11.1128mostly wind
Oregon11.2268mostly hydro, some wind
Missouri11.5412mostly wind
Arkansas11.7510mostly hydro
Louisiana11.984biomass
South Dakota12.0382wind, hydro
Iowa12.0960almost all wind
North Carolina12.2616mostly solar and hydro
Oklahoma12.3845mostly wind
Kentucky12.637hydro

I compiled this table in July, using then-current Energy Information Agency data. Now EIA has updated its data, and Virginia’s position is worse than ever. As of July 2022, Virginia’s average residential electricity rate has now hit 14.42 cents/kWh. This puts us above every state in the South Atlantic except Georgia. (Poor Georgia comes in at 16.02, but that’s what building nuclear plants will do for your rates.) Meanwhile, the states whose rates increased the least are those with high levels of wind, solar and hydro. 

This isn’t rocket science, folks. Wind and solar have lower levelized costs than coal and gas, and they insulate consumers from the volatility of the world oil and gas markets. You don’t have to be a climate advocate to understand this, but apparently it helps.

5 thoughts on “The other shoe drops: APCo follows Dominion in seeking rate increase due to high fossil fuel costs

  1. Dominion’s RE percentage is 9% (slightly higher than the state avg) and the plan is to go to 25% by 2026. Dominion provides commercial and industrial customers with some of the cheapest kw/h rates in the country and need to charge higher instead of hitting residential customers with rate hikes — some warranted (fuel based) but the majority not so given the above concessions, “sweet deals” to other clients.

    • Thanks, that’s a really interesting document. However, chart 16 represents share of investment value, not percentage of kWh produced. It makes sense that the value of renewable energy investments would be higher, because the solar projects are newer and haven’t depreciated much yet. It looks like these are also investments of Dominion the holding company rather than DEV the regulated utility in Virginia, so we can’t even conclude that these are Virginia investments (though I am guessing a majority of them are). The solar projects Dominion owns are mostly for the benefit of customers outside the regulated rate base (corporate clients primarily).As I understand it, the percentage of renewable energy DEV delivers to its Virginia ratepayers is very small and consists mostly of biomass. (Slide 19, claiming 5% RE for DEV, might be right, or it might still not be subtracting out the corporate contracts.)

      Nonetheless, I appreciate your sending this presentation my way.

  2. Thank you , Ivy. And does this list of costs finally mean that we are not going to hear more about how more renewable energy resources will increase our price? Renewable energy resource cost continues to drop as the industries develop.

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