It takes nerve to pat yourself on the back for reducing costs when you are actually increasing costs. Power just did that by proudly announcing its lowest rate increase request in 30 years. So – that means for at least the past 30 years it has always wanted higher rates! It is taking credit for this through a securitization process – which was allowed by our previous legislature.
Both political parties supported using securitization –basically financing over time. It did reduce the expenses that Appalachian Power had to pay immediately, including those related to recovery from Hurricane Helene and upgrading coal powered power plants. Of course, Appalachian Power shareholders would not have liked immediate payment of all the utility’s expenses – their return on investment would have been hurt. Current customers would have paid more now too. But – this means that these financed costs remain for us to pay later. It will be more expensive in the long run as we pay the interest on these deferred payments.
This situation is a bit complicated, so yet again here’s an analogy. Suppose your home is flooded during a big storm. You may need to borrow money to repair the damage but choose not to change anything that could prevent it from flooding again. Borrowing money means you need to pay it back with interest – so your total costs would be higher than if you paid for it immediately. But, if you don’t do something preventive (perhaps put in more drainage?), it is likely to flood again. You could borrow enough to pay for prevention too – spending now to save later. As severe weather is happening more often, there’s an increasing chance that you would be paying off repair from the first flood while needing to pay for damage from the next flood. Probably most prudent would be paying now to prevent future damage while you are doing flood repairs. You would not just repeat making decisions based on outdated conditions.
Appalachian Power’s securitization was used largely to finance past events, looking backward rather than forward. We will be paying for these past expenses – with interest – for a long time. Appalachian Power could do a lot to reduce future costs by investing in electrical power sources that will fully take advantage of sunshine and wind being free! Of course, there would be an initial development cost, but isn’t that better than another 30 years of rising costs? Around the world – in both rich and poor countries – new power sources are dominated by renewable energy, particularly solar. The math is now very clear on the cheapest energy sources in the long run.
It is difficult for publicly (shareowner) owned power companies to look beyond relatively short-term balance sheets – as they need to answer to their investors. Very different is the role of the legislature – who can and should be looking to the long-term health of the Commonwealth. One encouraging response of our current legislature to our need for long-term reliable and affordable energy is our membership renewal in the Regional Greenhouse Gas Initiative (RGGI). Through this action, our legislators are providing strong leadership by incentivizing our energy providers to make investments that will reduce the future costs of energy while also decreasing our dependency on imported fuels. Good work!
