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Fact-Checker: McDonnell and Energy Rate Hikes

If you believe a new television advertisement circulating in Roanoke and Bristol this week, Republican gubernatorial candidate Bob McDonnell supported $180 million in electric power rate hikes while he served as attorney general.

But while it's true his office did recommend rate hikes, the attorney general's Office of Consumer Counsel actually supported the increases because it was legally obligated to weigh in by state law. And the recommendations from McDonnell's office were in line with the final numbers eventually approved by independent state regulators.

Deeds launched the new TV ad Thursday, which questions McDonnell's support for the power rate increases for the Appalachian Power Co. between 2006 and 2008, when he served as attorney general.

In the ad, a narrator says: "In tough times, what kind of politician sides with Appalachian Power? Bob McDonnell. He recommended $180 million dollars in rate increases that would cost $360 dollars for each of us. McDonnell even said the utility companies were entitled to it. Entitled to it? Creigh Deeds is one of us."

The ad referenced a comment McDonnell made at a July 25 debate hosted by the Virginia Bar Association in which he said Appalachian and other utility companies "are entitled to rate increases."

In Virginia, rate increases ultimately are approved by a three-judge panel at the State Corporation Commission, a regulatory body that oversees investor-owned electric, natural gas, water and sewer utilities, and member-owned electric cooperatives, among other areas. Virginia's attorney general is obligated by statute to represent consumers on rate increase cases, the most contentious and time-consuming of which are base rate increase requests. State law allows utility companies, as a regulated monopoly, to recover reasonable costs of providing service, as well as profits.

"Various parties are typically involved in the process and the companies also ask for more than they end up getting approved," said Ken Schrad, an SCC spokesman.

According to the rate cases cited by the Deeds campaign, McDonnell's office recommended increasing a first-time environmental and reliability surcharge in 2005 and two base rate increases in 2007 and 2008.

All three of those cases were unusual, Schrad said, because they dealt with pending or newly-authorized legislation.

While it's true McDonnell's office did recommend rate increases, those hikes were more in line with the SCC's final rulings than with Appalachian's original, more costly requests.
In the 2007 case, for example, Appalachian asked for a 25.4 percent rate increase, to the tune of a net hike of $198.5 million. Using outside experts (mainly certified public accountants and regulatory energy consultants) the attorney general's office recommended a net increase of $29.8 million. The final ruling by the SCC was for a $24 million increase.

The reason for the vast difference in Appalachian's request and the final approved numbers, Schrad said, is that Appalachian unsuccessfully tried to incorporate pending legislation from the 2007 Virginia General Assembly into their application, legislation that reverted the state's energy markets to a type of regulated model instead of a competitive model used for about a decade prior.

While Appalachian failed to get much of the rate increase they wanted in 2007, they were more successful in 2008. The company requested $207.9 million then and was awarded $167.9 million, a 19.3 percent base rate increase. In that case, the attorney general's office recommended a $133 million increase, far lower than the final, approved figure by the SCC.

McDonnell's camp has said the television advertisement is misleading.

"The State Corporation Commission approves all increases, not the Attorney General's office," said McDonnell spokesman J. Tucker Martin. "Given that Creigh ran for attorney general he knows that. We guess he just chose to ignore it."

Still, Deeds's communications director, Mike Gehrke, argued that McDonnell could have certainly recommended lower rates and that he should have taken his job as an "advocate for the consumer more seriously, especially since consumers were faced with rate increases of this magnitude in this economy."

"Bob McDonnell had no problem being an interventionist attorney general when it came to his social agenda, but he didn't stand for consumers when it came to hundreds of dollars in electric rate increases," said Jared Leopold, another Deeds spokesman.

By Derek Kravitz  |  September 13, 2009; 7:00 AM ET
Categories:  2009 Governor's Race , 2009 Governor's Race Fact Checker , Derek Kravitz  
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So, Fact-Checker, who's telling the bigger lie?

Posted by: bmschumacher | September 13, 2009 7:38 PM | Report abuse

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