Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, May 5, 1993 TAG: 9305050287
SECTION: VIRGINIA PAGE: C1 EDITION: METRO
SOURCE: MARK MORRISON STAFF WRITER
DATELINE: BEDFORD LENGTH: Long
\ At least one major industry reportedly has threatened to leave because of what some business leaders charge is price gouging by the city-owned electric system.
Appalachian Power Co. also has questioned why Bedford's industrial electric rates average 25 percent more for a typical large power user than rates charged by other Virginia municipalities that operate independent utilities.
Apco further claims that Bedford is venturing into a risky plan to buy electricity from an Indiana power company that could lead to power shortages - and possibly higher electric bills.
But Apco says its warnings to Bedford have been ignored.
In response, city officials charge that Bedford's electric rates are higher because of a price squeeze on power that Apco sells wholesale to the city. They say the price squeeze is designed to drive their electric system out of business.
They contend that the power purchase from Indiana actually could lower rates.
At issue is a dispute between Apco and Bedford that has implications beyond Bedford's electric system. It also affects the city's tax rate and industrial growth, and municipally owned electric utilities in Salem, Martinsville, Danville and Richlands.
The dispute escalated in March when Bedford City Council voted to raise its electric rates. That angered some business leaders, who pointed out that the city's rates already were higher than Apco's rates.
Bedford is the only locality in Western Virginia operating its own power utility that doesn't charge rates that are in line with Apco's.
A typical large industry in Bedford using 2 million kilowatt-hours of electricity a month pays the city $100,487 a month. An Apco industrial customer buying that much electricity has a monthly bill of $82,895.
Some members of the Bedford Industrial Management Council, a group of business leaders, have said Bedford is using the electricity department as a "cash cow" to maintain lower taxes. This price gouging, they argue, unfairly burdens larger businesses, which typically use the most power.
Sources have said that one industry, Wheelabrator Abrasives Inc., has threatened to leave the city if Bedford's rates remain higher than Apco's. Wheelabrator, a maker of steel abrasives for shot-blast cleaning and one of the three largest users of electricity in Bedford, would not confirm this threat, however.
City Manager Jack Gross acknowledges that there is a problem.
"When the costs go up, their profits go down. I understand that," he said.
But Gross contended that the higher electric rates help keep down the city's real-estate and personal-property tax rates. So, when compared to other localities - with lower electric rates and higher taxes - Bedford remains competitive, he said.
"A business threatening to move has to look at its overall expenses."
Indeed, only three cities in Virginia have lower real-estate tax rates than Bedford. Only two have lower personal-property rates, according to the Virginia Municipal League.
Gross said that lowering the electric rates to meet Apco's rates would force City Council to double Bedford's taxes. Bedford's electric system contributes about $1.5 million annually to the city's budget.
Unfair practices? Bedford and other cities earn profits on their utilities by purchasing Apco power at wholesale prices and then selling it to their own customers at retail prices. Many of the municipalities, including Bedford, also generate some of their own electricity.
Bedford's small hydroelectric plant on the James River in Big Island provides the city's electric system with 15 percent of its power supply. The other 85 percent comes from Apco.
It is that 85 percent that has created problems, according to Gross.
He says that Apco charges localities that run their own electric utilities higher wholesale prices than it does industrial customers.
Apco has provided the city with its explanation, but it has done nothing to satisfy Gross. "Something is wrong when you sell something at retail less than you do at wholesale," he said.
"Why that's happening is not for me to say."
Bedford Mayor Mike Shelton said city officials have their suspicions, however. He questioned whether Apco was trying to strengthen its monopoly by driving out the competition.
"It smells of unfair business practices to me," Shelton said.
Apco calls rate low Apco denies any wrongdoing.
Dan Carson, an Apco vice president, said the rates the company charges its wholesale and retail customers are regulated by state and federal agencies, and are based on how much it costs to serve those customers.
In other words, it costs Apco more to provide power to cities than it costs to provide power to industrial customers. Those higher costs are passed on to the localities.
"It is, in fact, a situation which is based upon fairness and is not new," Carson wrote in a letter to the city that has been obtained by the Roanoke Times & World-News.
"We're convinced of the reliability of PSI," he said.
Mayor reports `threats' Shelton took issue with what he called "open and veiled threats" and "scare tactics" by Apco to dissuade Bedford from buying PSI power. He said Apco just does not want competition and he questioned Carson's motives: "Frankly, his letter only strengthened my resolve that we are definitely doing the right thing."
In the end, Gross said there is a simple solution that could resolve the dispute between the city and Apco, and end the complaints from business leaders over Bedford's higher electric rates.
The solution, Gross said, would be for Apco to lower its wholesale prices to equal the prices it charges its retail industrial customers. So far, Apco has resisted this. Gross said competition from PSI might motivate Apco otherwise.
"That's what this fuss is about. It's about free enterprise," he said.
"There has been no intentional price squeeze as alleged."
In fact, Carson contends that Apco's wholesale rates to municipalities actually have gone down in the past 10 years. Local government officials in the region generally confirm that Apco's rates are among the lowest in the country. He stopped short of accusing the city of its own price squeeze, but he said it is puzzling to Apco why Bedford has higher rates.
Cities check alternative Meanwhile, Bedford has agreed to a plan that could allow the city to buy power from PSI Energy Inc. of Indianapolis at a lower wholesale price than Apco's. Martinsville, Danville and Richlands also have agreed to the plan. Salem is considering it.
In Bedford, Gross estimates the city could save $2 million over 10 years by purchasing PSI power - a savings he said could be passed along to customers through lower electric rates.
Apco disputes this.
Carson said the cost-savings estimates provided to Bedford and the other municipalities by an Atlanta consulting firm are grossly exaggerated. He said Apco officials have tried to explain this to the city, but they have been ignored.
Further, Carson said the PSI plan could backfire because the power PSI has earmarked for Bedford and the other municipalities would come from surplus supplies. Carson said it is not guaranteed.
This could have a devastating effect. If PSI surpluses ran short, then Bedford and the other purchasers could be left with power shortages that potentially could shut down local industries - or force the cities to purchase emergency energy from other sources at much higher prices.
Again, Carson said Apco has tried to explain this, but has been ignored.
Shelton, Bedford's mayor, said that is not true. He said Apco does not have any new information to offer that the city's consulting firm in Atlanta has not provided.
Memo: ***CORRECTION***