The Virginia State Corporation Commission announced Monday that it has reduced the amount of a fuel factor rate increase sought by Appalachian Power Co. in an application the utility filed May 15.

Customer bills will still increase, but by a lesser amount. The increase will take effect seven days from Monday's order.

Appalachian has applied to the commission for two other rate adjustments that also could raise customers' bills -- a proposed base rate increase that could increase an average residential customer's monthly bill by about 19 percent, and a 3.5 percent increase in a surcharge that allows the utility to recover money spent on environmental compliance and maintenance of a reliable system.

The SCC attributed the fuel rate reduction to "several legal and factual findings" related to Appalachian's application and associated testimony. But it also referenced economic struggles of the utility's customers.

Appalachian did not protest the ruling. Instead, it said the commission's order tracked pretty closely to one alternative the utility had previously suggested.

The SCC provided an example of the effects of the lesser rate increase on a residential customer using 1,000 kilowatt-hours per month. Under Appalachian's original application, such a customer would have paid $12.21 more a month, or 13.1 percent. Instead, the customer cited will pay an increase of $7.16 per month, or 7.7 percent.

Todd Burns, a spokesman for Appalachian, said Monday that the result of the commission's ruling is nearly in line with a "mitigation" alternative the utility made in the beginning to defer recovery of some fuel costs as a way to limit the immediate impact on customers' bills.

The SCC said its order does not defer fuel costs but, instead, sets a fuel factor for a 14-month period.

The company's plan would have resulted in partial recovery of fuel costs through August 2010, leaving the remainder to be recovered in a future fuel factor case. Appalachian said its alternative proposal would have resulted in an increase of 9.6 percent for the same customer through August 2010 -- within range of the 7.7 percent increase the SCC approved Monday.

Appalachian had sought an estimated revenue increase of $226.8 million tied to the full fuel factor request. The commission's order will allow the utility to increase revenues by $129.5 million to recover fuel costs from July 2009 through August 2010.

Burns said that although Appalachian's case justified the request of $226 million, the utility's alternative had asked the SCC to "approve a reduced amount of $165 million, about a 9.6 percent impact on residential customers using 1,000 kilowatt-hours a month."

By Virginia law, Appalachian, a subsidiary of Ohio-based American Electric Power, is entitled to recover , dollar for dollar, "prudently incurred fuel costs." Coal is Appalachian's primary fuel. The fuel factor formula also includes costs for purchasing power from other utilities.

The SCC held two public hearings related to Appalachian's fuel factor application. A hearing in Richmond began June 30 and continued for two more days. Commissioners held a public hearing July 1 in Wytheville, where witnesses included several state politicians and Doug Bassett, an executive for Vaughan-Bassett Furniture Co. of Galax.

Bassett told the commission that night that continuing rate increases will hurt businesses and cost jobs.

The SCC said it received about 9,000 written and electronic comments about Appalachian's application before the June 30 hearing.

During hearings held to consider the rate increase, commissioners heard impassioned testimony from both residential and industrial customers that difficult economic conditions would render a significant fuel factor increase an additional burden.

In its statement released Monday, the SCC wrote: "We are concerned about the significant increase in Appalachian's requested recovery of fuel costs and its ultimate impact on customer bills, especially at this time of economic hardship for many people in Appalachian's service area."

The commission noted, "The SCC made several legal and factual findings that reduced the amount of rate increase that Appalachian will be allowed to charge customers at this time."

The order is not final and can be adjusted up or down after SCC staff audits the company's booked fuel expenses and income from its off-system sales -- electricity sold into the wholesale market. The commission's ruling credited a percentage of Appalachian's off-system sales against the fuel factor rate amount.

Appalachian had hoped also to recover costs associated with purchasing power from two wind projects. The commission denied the request. But its order said the utility could apply in the future to recover costs associated with Appalachian's renewable energy portfolio.

On Monday, Bassett said he feels the SCC order does not vary significantly from the alternative plan for a fuel factor increase Appalachian had included in its filings.

Bassett said, "It sounds like Appalachian got the lion's share of what they were requesting. Sounds like this will threaten many jobs in our area."

But Joe Crawford, vice president and general manager of Steel Dynamics Roanoke Bar Division, said in an e-mail that he believes the SCC ruling is a good thing for the company, which uses a lot of electricity.

"Obviously, we are relieved that the commission reduced the increase in the fuel factor, relative to Appalachian's initial application," Crawford wrote. "The commission shared the concerns that we and many other businesses and individuals had about the significant increase and its impact on customers' bills, especially at this time of economic hardship for many people and businesses in Appalachian's service territory."

In Virginia, Appalachian has about 500,000 customers. It also serves customers in portions of West Virginia and Tennessee.