Agency - AEP Settlement Would Increase Rates

Electricity refunds and rate reductions that American Electric Power customers are entitled to would be eliminated if the Public Utilities Commission of Ohio (PUCO) approves a settlement filed Sept. 7 by the utility, the Office of the Ohio Consumers’ Counsel (OCC) said in testimony filed late yesterday. The OCC and other parties did not agree with or sign the settlement.

The rate reductions are not part of the settlement and pose a major concern for the OCC. The OCC has advocated for the return of more than $787 million to residential customers as a result of a Supreme Court of Ohio ruling earlier this year. The Court ruled 7-0 that the PUCO improperly allowed AEP to charge customers for unjustified expenses. It sent the case back to the PUCO to reconsider. The case is still pending.

“The Supreme Court explicitly said AEP did not provide the evidence to justify collecting hundreds of millions of dollars in unjustified costs from consumers and they should be removed from current rates and returned to customers,” Consumers’ Counsel Janine Migden-Ostrander said. “The settlement should not preclude customers from recovering those unwarranted costs they have already paid.”

The settlement also unfairly burden residential customers by allocating up to 65 percent of the requested increase onto residential customers.  Based on the OCC’s analysis, AEP’s settlement would increase all Ohio customers’ rates by more than $1.4 billion from 2012 to 2014. Residential customers in the Columbus Southern Power territory would pay 65 percent of Columbus Southern Power’s total revenue increase ($520 million) over the three year period; and residential customers in the Ohio Power territory would pay 47 percent of Ohio Power’s total revenue increase ($911 million).

But the amount of electricity used by residential customers has been and is expected to be less than what they are being asked to pay. Columbus Southern Power residential customers are expected to use only 43 percent of the total electricity used by all Columbus Southern Power customers. The amount of electricity used by Ohio Power residential customers is expected to be only 28 percent of all the electricity used by Ohio Power customers.

The OCC also argues that a proposed distribution charge averaging $100 million per year over the term of the settlement is unneeded. The distribution charge should be removed because AEP currently has a pending rate case that would already recover these costs through August 2010.  There also is the potential that the charge could be collected from customers twice, if approved. This proposed charge would collect distribution costs at an accelerated rate but provides no benefits to consumers and has not been shown to be needed.

The OCC also believes there is a strong probability that AEP has been overcharging its customers for the costs of fuel and power purchased from 2009 to 2011 and the settlement should not preclude the return of such overcharges to the customers.  Audits were completed in 2009 and 2010, with the 2011 audit scheduled next year. The costs at stake are substantial. AEP customers should only pay for the actual cost to provide electricity and the settlement should not resolve these audits, the OCC said.

“This settlement offers little value for residential customers,” Migden-Ostrander said. “Customers instead are being asked to pay more than their fair share. The PUCO should reject the settlement.”

An evidentiary hearing on the AEP settlement is scheduled to begin Oct. 4. A decision by the PUCO is expected before the end of 2011.