Appalachian, which sells power to half of the state, is backing new legislation that will allow it to sell low-interest bonds guaranteed by ratepayers.

Under the plan, the state Public Service Commission would ensure that Appalachian's 500,000 customers would pay rates high enough for the company to pay off the multi-year bond. But the company said the plan is the only way it can avoid a one-year, 30 to 40 percent rate hike.

Appalachian is asking for the plan after a scheme to avoid a dramatic rate hike in 2009 failed. That year, Appalachian and its sister company, Wheeling Power Co., asked for a 43 percent rate to recover $442 million in fuel, purchased power and pollution control equipment costs.

The company primarily blames a spike in coal prices starting in 2008 for causing the problem.

The companies and the state Public Service Commission avoided a one-year increase - which would have been the largest in state history - by agreeing to spread it out over four years.

That plan didn't work out.

Appalachian spokeswoman Jeri Matheney said the company is still in the hole by about $300 million after three years. Now customer rates are still too low to recover those costs or to pay for still-elevated coal prices. A drop in sales - including curbed demand from large industrial customers like the now-idled Century Aluminum facility in Ravenswood - has not helped, either.

The company acknowledges that its customers are at the breaking point. Not only have they seen three consecutive years of rate increases as part of the four-year deal, but the company also asked for another rate hike related to other costs.

"We understand that customers in West Virginia are at the breaking point," Appalachian President Charles Patton said during a public hearing in the House last week.

So the company has asked lawmakers to allow another multi-year effort to recover the few hundred million dollars it needs.

Under the plan, utility companies could ask the PSC to allow them to sell bonds. The bonds would be guaranteed by PSC-mandated utility rates. Because the bond would be backed by law, Appalachian believes the bond would be repaid at the same low-interest rate that governments receive.

The company contends it could get a AAA-rated bond with the lowest possible interest rates if the bill passes. Appalachian's own bond rating from Moody's is Baa2, which is considered medium grade.

"The legislation is necessary so these bonds have a AAA rating," Matheney said.

Without the bill, the company said rate increases are unavoidable. With the bill, the company thinks it can deal with previous coal costs without raising rates at all.

"Spreading it out that way means we can pay for the bonds in the rates we already have; we wouldn't have to raise rates at all - that's the goal to keep rates where they are," said Steve Ferguson, Appalachian's director of regulatory affairs.

It's not clear how much money the company would save if it simply entered another multi-year deal with the PSC to spread the costs out like it did back in 2009.

"This is an option and that could be done, but it would mean more increases for customers," Matheney said.

But asked to provide information on what the additional costs to customers would be, Matheney said "nobody" at the company had estimated how much more customers would pay from another multi-year deal with the PSC.

If the bill passes, the PSC would still have to approve the use of the bonds, as well as the bonds themselves. Presumably, Appalachian would have to prove to the commission that the bonds would be cheaper.

Appalachian would create holding companies for each bond it sells. Without being able to issue the bonds, the company would have to carry the liability on its books, something that could affect the its current bond rating and increase borrowing costs, Matheney said. She said that additional cost could be passed on to customers, too.

"It's not like we want the good bond rating just for ourselves," Matheney said.

The bill is on the fast track with support from House and Senate leaders. Only one committee in each house has been assigned to review the bill.

Critics argue Appalachian needs to do more to control costs, something environmentalists say can be done by passing a law requiring the company to do "least-cost planning."

Bill Howley, a frequent critic of the company, said Appalachian has refused to diversify its fuel sources and continues to rely on coal.

"Maybe (West Virginia) just can't afford the power Appalachian Power wants to sell us," Howley said on his blog devoted to state energy issues. "Just like the mortgage hustlers in the 2000s, AEP's Appalachian Power is pushing a loan program to hide the high cost of their coal-fired power."

Because they allow utility companies to avoid dramatic one-year rate increases, Howley worries these multi-year deals will become a habit.

"How long will it be until 'securitizing' rate increases for coal becomes a way of life for West Virginia power companies and the PSC?" he said, referring to the bonding authority the PSC and Appalachian power would have.

Ferguson said the bond plan would be unnecessary if ratepayers had simply seen a huge increase in 2009, instead of having a four-year deal that didn't work out as expected.

"If we had done a 44 percent increase in 2009, maybe we wouldn't have been here today," he said.

Even with the recent multi-year rate hikes, the average ratepayer in West Virginia pays about 2 cents per kilowatt hour less than the national average.

"We have very efficient rates," Matheney said. "It's just that they have gone up."

Even if the bond bill passes and the PSC approves a bond sale for Appalachian, the company may still have to ask for a 3 to 4 percent increase this year because of new costs associated with a construction surcharge for a natural gas-fired power plant coming online in Ohio.

 The company said the use of the plant, which is one of the few non-coal generating operations in its system, will reduce costs in the long-term.

Contact writer Ry Rivard at ry.riv...@dailymail.com or 304-348-1796. Follow him at www.twitter.com/ryrivard.