Business group tries to reach compromise before fighting back

By Garren Shipley -- Daily Staff Writer

WINCHESTER — Allegheny Power wants to raise rates on residential and industrial consumers alike, but a business group that fought the utility's last rate hike proposal tooth and nail isn't quite ready for another battle.

At least not yet.

The utility company filed paperwork with the State Corporation Commission earlier this month, asking to raise the average customer's monthly bill from about $70 to $90.

Allegheny says it is losing money at a rapid pace and will eventually have trouble keeping the lights on in the mid-Atlantic unless it can raise rates.

Business leaders have "met with Allegheny on two occasions, and we are attempting to see if we can reach some middle ground with them, prior to formally opposing them," said Frederick County Administrator John Riley, who also serves as the secretary of the county's Industrial Development Authority.

The IDA was the organizing force behind last year's "Stop Allegheny" campaign, which brought together businesses to testify against the rate hike at a commission hearing in Richmond.

It also ran radio ads exhorting residents to register their opposition with the State Corporation Commission.

Allegheny has twice gone to the state corporation commission in recent months in hopes of winning the right to raise rates with limited success.

While rate hikes have been on hold in Virginia since 2000, state law gives power companies the right to adjust their "fuel factor" based on the cost of coal, oil, natural gas, uranium and other fuels they use to produce electricity.

But Allegheny unilaterally surrendered the right to seek fuel factor adjustments as part of an agreement it signed with the state in 2000 as it prepared for electric de-regulation.

Deregulation largely failed, though, and legislators moved in 2007 to re-regulate the market, extending a period of rate caps — and Allegheny's agreement absorbing higher fuel costs — until the end of this year.

The result has been a financial disaster for the utility. Allegheny is on course to lose more than $100 million this year by selling electricity to Virginia customers, according to court documents.

That's simply not sustainable, particularly for a company that has only $187 million in revenue from Virginia each year, they argue.

Allegheny has been borrowing money to make up the difference, according to testimony filed with the commission, but the utility will run out of credit in the second half of 2009.

The firm is losing so much money that forcing it to continue to sell electricity at such low rates constitutes an illegal taking of their property, the company says in SCC filings.

Local representatives from Hood, R.R. Donnelley and other businesses told the three-judge commission that the last proposed rate hike could be seriously detrimental to their businesses and the local economy.

As of now, both sides are talking, according to Riley.

"I think the issue of fairness is the one that's being debated," he said. "Where Allegheny wanted to be versus the industrial users' comfort zone is a wide margin, and I think that's what they're trying to reach a middle ground on."

* Contact Garren Shipley at gshipley@nvdaily.com