RICHMOND — The State Corporation Commission (SCC) has denied a 20 percent rate increase requested by Allegheny Power that would have taken effect July 1, 2007. The 20 percent increase was part of an average rate increase totaling 49 percent that Allegheny Power proposed to phase-in over three years.

The SCC said the provisions protecting ratepayers in an agreement Allegheny Power entered in 2000 when the company voluntarily transferred its generation units to an affiliate still applied. The SCC said the 2000 agreement had been preserved by legislation enacted by the Virginia General Assembly in 2004 and 2007.

In that 2000 agreement, the company agreed to abolish its fuel factor recovery mechanism. Instead, purchased power costs were rolled into the company’s base rates which are currently capped under Virginia law through the end of 2008.

In the company’s application filed in April, Allegheny Power sought to reestablish its fuel factor. Under a rate mitigation plan proposed by the company, any purchased power costs not recovered through the requested 20 percent increase on July 1 was to be deferred for recovery over the subsequent three-year period.

The SCC wrote, “Allegheny’s requests herein to reinstitute its fuel factor recovery mechanism, and to increase retail rates to recover all of its purchased power costs, are explicitly prohibited by the memorandum of understanding (MOU).”

The Virginia General Assembly amended the Virginia Electric Utility Restructuring Act in 2004 and again this year. The Commission said, “We find that amendments to the Act do not modify the pricing mechanisms in the MOU such that the Commission is legally required to re-institute a fuel factor recovery mechanism and to allow Allegheny to recover all of its purchased power costs beginning July 1, 2007.”

As to the company’s claim that continued enforcement of the MOU violates federal constitutional law, the Commission wrote, “Any claimed losses to the company do not result from destruction of economic value by the Commission but, rather, represent value that has been lost as a consequence of economic forces to which Allegheny is subjected as a direct result of its own business decisions, decisions that Allegheny freely made and which were not forced upon the company by the Commission.”

As a result of the Commission’s denial of the rate request, the hearing scheduled for August 7, 2007 is cancelled.

Allegheny Power serves 98,000 customers in all or parts of 14 counties in the northwestern portion of Virginia.

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Case Number PUE-2007-00026