Allegheny Energy Inc. electric delivery subsidiary Allegheny Power requested permission last week from the Virginia State Corporation Commission (SCC) to recover the increased cost of purchasing power beginning July 1, 2007. With Dominion Virginia Power’s similar filing earlier in the week, Allegheny’s action marks the second such request last week by a Virginia utility due to the rising costs of power generation fuels.

If approved, Allegheny said it would be the first change in its Virginia rates in more than six years, despite dramatic increases in the cost of fuels used to generate electricity. Since 2000, the utility said the cost of natural gas has increased by 74% and the cost of coal has increased by 41%. As a result, power prices have risen significantly.

Allegheny Power pointed out that its Virginia rates are currently among the lowest in the nation, according to the Energy Information Administration (EIA). Even after the July 1 adjustment, the company’s residential rate would still be well below state and national averages, the company said. Under Allegheny Power’s proposal, the July 2007 monthly bill for an average residential customer using 1,000 kWh would be approximately $77, as compared to the state average of $85 and the national average of $104.

Earlier in the week, Dominion Virginia Power filed a request with the SCC to adjust its fuel rate on July 1, which would mark the company’s first fuel rate adjustment in three-and-a-half years. The company noted that the increase is needed to cover the significantly higher costs of fuel used to generate electricity. If approved by the SCC, Dominion’s fuel rate adjustment would raise the average monthly bill for a typical residential customer using 1,000 kWh of electricity by $3.41 from $87.18 to $90.59, an increase of approximately 3.9%.

“If there were no plan to help customers transition to current prices, it would be necessary for Allegheny to request an $85 million rate increase,” said Allegheny Power President David E. Flitman. “But we recognize the financial impact that a large, one-time rate increase would have on our customers, so we have proposed a transition plan to moderate the increase and spread it over four years.”

Under the request Allegheny Power filed:

Allegheny Power’s filing also proposes a competitive bidding process to secure its Virginia power requirements. The initial contract period will run from July 1, 2007 to May 31, 2008. The utility delivers electric service to more than 1.5 million customers in Pennsylvania, West Virginia, Maryland and Virginia.

As part of its rate increase request, Dominion Virginia Power said it is prohibited from making a profit on fuel costs. Base rates, which cover the company’s other expenses as well as investment in facilities and profit, remain capped until 2009.

The utility also explained that a state law enacted this year caps the 2007 increase in total rates at 4% for residential customers. Without the law, the increase would have been significantly higher. Remaining fuel expenses not recovered in this case will be deferred for recovery in later years, but without added interest.

Even after the proposed July 1 adjustment, Dominion Virginia Power contends that its residential rates would remain more than 15% below the national average for investor-owned utilities. While Allegheny Power cited EIA figures, Dominion Virginia Power used the Edison Electric Institute (EEI). According to EEI, the typical monthly bill is $107.40 for a residential customer using 1,000 kWh.

Dominion Virginia Power’s fuel rate was last adjusted in January 2004 just prior to a sharp escalation in fuel prices. For example, the forward price of natural gas has increased by 90%, crude oil by 143% and coal by 25% since the last adjustment, the utility found. Only the cost of nuclear fuel, which has risen 8%, has increased at a pace in line with general inflation.

The company estimates that it will have absorbed approximately $1.5 billion in increased fuel costs not covered by rates during the three-and-a-half years since the last adjustment. “Those increased costs cannot be recovered from customers and are not part of today’s request,” Dominion Virginia Power said.

Until 2004, fuel adjustments were made annually in accordance with state law. That year the General Assembly froze Dominion Virginia Power’s fuel rates at January 2004 levels until July 1, 2007.

The fuel adjustment request would allow Dominion Virginia Power to collect an additional $219 million to cover its fuel expenses for the year beginning July 1, 2007. Another $443 million in costs would be deferred until July 2008, subject to another 4% limit on the increase in total residential customers’ rates. In all, Dominion Virginia Power expects to spend nearly $1.9 billion on fuel for the 12 months beginning July 1. Dominion Virginia Power noted that fuel costs currently comprise about 22% of a 1,000 kWh residential customer’s bill.

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