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AEP's distribution rate case

In January 2011, AEP-Ohio filed an application at the Public Utilities Commission of Ohio (PUCO) to increase the charges the utility bills to deliver electricity to customers. These charges are known as distribution rates.

What are distribution rates?

Electric bills are comprised of two main parts – the cost of producing or purchasing electricity for customers and the cost of delivering electricity to customers’ homes and businesses. The cost of producing or purchasing electricity, known as generation rates, makes up about 75 percent of an average electric bill.

The distribution rate covers the cost of delivering electricity to your home. This rate pays for all the things like the cost of installing and maintaining the electric lines that run through neighborhoods, reading electric meters, processing bills, and fielding customer service calls.

What is the PUCO’s role in setting electric distribution rates?

Under Ohio law, a public utility is allowed to recover from customers its operating expenses, plus a reasonable return on its infrastructure investments. When a utility requests a rate increase from the PUCO, several steps are taken to review the company’s finances and to ensure that the company is fulfilling its responsibilities.

When evaluating proposed rates, the PUCO’s staff looks at whether the rates would provide the utility with adequate operating revenue. In general, the cost of providing service to customers, maintenance of infrastructure and equipment expenses, depreciation expense, taxes and a return on the company’s infrastructure investment are used to calculate the company’s revenue requirement. The revenue requirement is the amount of money a company is allowed to collect from its customers during a given year. The PUCO staff prepares a report that makes recommendations to the five PUCO commissioners. The commissioners are not bound by the staff recommendations and may implement some suggestions and reject others.

What did AEP request in its application?

AEP requested a rate increase of $93,815,000, or an average increase in total distribution revenue of 9.5 percent for Columbus Southern Power and 17.3 percent for Ohio Power.

What did PUCO staff recommend in its report to the PUCO commissioners?

For Columbus Southern Power, the PUCO staff recommended a total distribution revenue decrease range between $9,541,000 and $2,302,000, or -2.6 percent to -0.6 percent. For Ohio Power, the PUCO staff recommended a total distribution revenue increase range between $23,220,000 and $31,909,000, or 6.9 percent to 9.5 percent.

How did the PUCO rule on the rate increase?

The PUCO approved a plan that provides Columbus Southern Power and Ohio Power with revenue increases of $8.5 million and $38.1 million respectively. AEP will apply a $46.6 million credit to offset the company’s base distribution revenue increase. Residential customers will also receive additional credits totaling more than $14 million annually from January 2012 through May 2015.

How will my bills be affected?

AEP will collect a new charge called the Distribution Asset Recovery Rider to collect the deferred cost of distribution system improvements and expenses accrued over the past decade. As a result, the total bill impact of the distribution rate agreement is an increase of approximately $2 per month for an average Columbus Southern Power residential customer using 1,000 kWh of electricity and $1 per month for an average Ohio Power customer.

Did the PUCO consider public opinion in making its decision?

Yes. The PUCO held four local public hearings across AEP’s Ohio service area in Canton, Columbus, Lima and Marietta. The PUCO commissioners take the public testimony provided at these hearings into consideration when reviewing the rate case and carefully weigh the interests of all parties and the public at large.