The millions of Virginians living in Dominion Virginia Power service territory aren’t the only ones facing onerous rate increases in the near future. Potomac Edison, a subsidiary of Allegheny Power, which supplies electricity to Winchester and several nearby counties, has asked the State Corporation Commission to raise rates to stave off an impending financial disaster.
At one point Allegheny was losing $100,000 a day and stands to lose up to $100 million, reports Garren Shipley with the Northern Virginia Daily. Those losses are unsustainable for a company that generates only $187 million a year in revenues in Virginia. If the SCC grants Allegheny the rate relief it requests, the average retail electric bill could increase from $70 to $90 monthly.
Allegheny’s financial crisis traces its roots to the re-regulation of electric power in Virginia. Potomac Edison had a power purchase agreement with another Allegheny subsidiary to meet its obligations at capped rates through July 1, 2007. After that date, Potomac Edison was planning to buy power at market prices, which it expected to be able to pass through to customers. But the General Assembly re-regulated the power industry that year, extending the caps on electric rates through December 31, 2008. That left Potomac Edison in a position where it had to buy expensive electricity on the open market but continue to supply it to customers at the old, capped rate.
Anticipating the problem, Potomac Edison filed with the SCC to raise rates by 20 percent to recover the estimated costs for power it purchased after July 1. The SCC rejected the request on the grounds that Allegheny had voluntarily transferred its electric generating units to a different subsidiary back in 2000 and had agreed to roll its purchased power costs into its base rates. Potomac Edison is appealing that decision to the Virginia Supreme Court.
Allegheny then filed an application for a smaller increase, contending that it was entitled to recover $42.3 million on grounds too technical to explain here. The SCC granted $9.5 million a year in relief, but rejected the rest of the request.
Meanwhile, Potomac Edison is hemorrhaging cash, and the company is issuing dire warnings. States the annual report:
At this time, there can be no assurance that Potomac Edison will be able to recover most of the cost of power purchases in excess of the capped generation rates. … The inability to recover such costs is expected to have a significantly negative effect on Potomac Edison’s income and cash flows … which in turn may have an adverse effect on its overall business, results of operations and financial condition.
Potomac Edison’s management is currently reevaluating planned capital and other expenditures and may postpone or eliminate all or a portion of those expenditures or take other measures in response to the expected negative impact of these regulatory decisions.
Consumers in Potomac Edison territory no doubt appreciate the lower electric rates. But they may not be terribly happy if the company curtails its ability to respond to ice storms, wind storms or other power outages, or if it lacks the capacity to upgrade sub-stations to serve new subdivisions. Things could get ugly.