In an unusually tough ruling, the Virginia State Corporation Commission yesterday rejected $28 million of a Virginia Electric & Power Co. rate increase earmarked to raise income of shareholders, and threw into doubt another $91 million Vepco seeks to cover the costs of a canceled nuclear unit.

"The 2-to-1 ruling of the State Corporation Commission in Vepco's pending rate case and the uncertainties it creates will impair the financial health of the company and its ability to provide adequate service to our customers," the utility said late yesterday in a prepared statement.

In a strongly worded decision, which Vepco denounced as "a clear violation of basic principles of due process of law," the SCC said it found no justification for increasing the allowed rate of return to shareholders by raising consumer electric rates by $84 million, as the utility had sought, and said it would consider an increase of only $56 million.

Hearings on that increase were scheduled for July 19. The SCC also rejected a proposed interim rate hike of $44 million, which the company wanted to take effect May 1.

In addition, the SCC said it needed more time and better evidence from Vepco before it could rule on Vepco's request for the $91 million increase to cover the cost of canceling the North Anna 3 nuclear generating unit. Vepco announced the cancellation, the fourth of a nuclear unit, last November.

The order violated due process by denying "much of the requested rate increase" without a hearing, Vepco said. "The action is without precedent and, we believe, clearly unlawful," the electric company said. The utility said it has not decided whether to appeal the order to the state supreme court, the only body that can override the SCC.

Regarding the recovery sought for the costs of the canceled nuclear unit, the SCC said "the magnitude of this write-off is unparalleled in Virginia." Consumers would end up paying $838 million for the abandoned units if the current request were approved and added to the rate relief already granted for three previously canceled nuclear units, according to the order.

The SCC said that "the sheer size of this write-off demands" a longer review period than provided for a normal rate increase request. The SCC said it would conduct a separate investigation but set no date for a hearing on the issue. It also noted that "the company's evidence regarding these complex issues consisted primarily of conclusory views of its officers."

It also noted that Vepco is seeking to recover $241 million in costs by charging its consumers more over a 10-year period and seeking a return on investment in the unit equal to an additional $408 million over the same period, without offsetting the costs by salvage income and tax credits related to the cancellation.

If Vepco had received the full $175 million in rate increases that it sought, the monthly bill for the typical residential user (who uses 1,000 kilowatt hours) would have been increased by $7.47. An increase of $56 million would amount to $2.35 additional in monthly payments for a typical residential customer, the SCC said.

In denying the $28 million sought to provide a better rate of return for shareholders, the SCC noted that several factors involved in Vepco's cost of capital--including the company's financial condition, interest rates and inflation--have improved.