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PUCO modifies AEP electric security plan proposal and adopts distribution rate
agreement to the benefit of Ohio consumers

COLUMBUS, OHIO (Dec. 14, 2011) – The Public Utilities Commission of Ohio (PUCO) today adopted two agreements that will determine electric generation and distribution rates for AEP-Ohio customers beginning Jan. 1, 2012. Under today’s PUCO orders, AEP will merge its Ohio operating companies and transition to a new business model where competitive bid auctions set default generation rates.

“Our decisions in the AEP electric security plan case and distribution rate case move the utility and its customers in the right direction,” PUCO Chairman Todd A. Snitchler stated. “The Commission has significantly improved the customer benefits in the electric security plan. Taken together, the two agreements will provide shopping opportunities, rate stability, improved service reliability, and a clear path for customers to receive electricity from fully competitive markets as originally directed by the Ohio General Assembly.”

In September 2011, AEP and 19 other parties representing a wide range of interests filed an electric security plan (ESP) agreement with the PUCO. The agreement was signed by the PUCO staff, the Ohio Manufacturers Association, the Ohio Energy Group, environmental organizations, and energy suppliers among others. The PUCO publicly vetted the agreement during 13 days of hearings at which 30 witnesses provided testimony and faced cross-examination.

Under the modified ESP adopted by the Commission, AEP will merge its Columbus Southern Power and Ohio Power operating companies and transition to a market-based generation rate structure over a four and a half year period between January 2012 and May 2016. AEP will sell its generation assets subject to a PUCO approved corporate separation plan.

In modifying the ESP, the PUCO lowered the base generation rate increases to half of what was proposed in the agreement. While the total impact to monthly customer bills will not be known until AEP files new rate schedules consistent with today’s Commission order, customers will pay base generation rates of 2.27 cents/kilowatt hour (kWh) in 2012, 2.33 cents/kWh 2013, and 2.41 cents/kWh in 2014. These gradual increases from the current base rate of 2.1 cents/kWh allow for a smooth transition to market-based pricing in 2015. 

Beginning in June 2015 and through May 2016, standard generation rates will be set through a series of competitive auctions in which energy suppliers will bid for the right to provide electricity to AEP customers. Each auction will be conducted by an independent bidding manager, and the PUCO will review the process to ensure each auction was fair. Similar auctions have led to lower generation rates for customers of other Ohio electric utilities.

The PUCO increased the market-based capacity set-aside levels outlined in the ESP agreement to accommodate the load of communities that approved a governmental aggregation program for customers in the November 2011 election. This modification will allow all municipalities with recently passed governmental aggregation initiatives to take advantage of supplier generation rate offers that may be lower than AEP’s rate.

The Commission expanded the $10 per megawatt hour (MWh) credit offered to small business customers (GS-2 rate schedule) to the first 2,000,000 MWh of usage per calendar year. This change, when coupled with the base generation rate decrease, helps mitigate the potential rate impact to GS-2 customers by increasing the likelihood that GS-2 customers are provided with additional shopping credits.

The distribution rate agreement adopted by the Commission 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, resulting in zero base distribution revenue increase on residential customer bills. Residential customers will also receive additional credits totaling more than $14 million annually from January 2012 through May 2015.

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.

Under the ESP and distribution rate agreements, AEP will boost investment in energy efficiency, economic development, and customer assistance initiatives. The company will contribute $5 million annually from 2012 to 2015 to the Ohio Growth Fund for economic development, $3 million annually to the Partnership with Ohio program benefiting low-income customers, and $1 million annually to the Neighbor to Neighbor program for bill payment assistance. The company will also establish a 3-year revenue decoupling pilot program from 2012 to 2014 that encourages the implementation of additional plans to maximize energy efficiency.

To further shale gas development in Ohio, AEP will commit to competitively-priced long-term shale gas contracts with Ohio producers who commit to investment and employment growth in Ohio. AEP will also work with the Ohio Hospital Association to identify infrastructure projects that will improve electric service reliability to hospitals.

AEP filed an ESP application in January 2011 to set rates for the supply and pricing of electric generation service beginning Jan. 1, 2012. The PUCO held five local public hearings across Ohio, gathering input about the application from more than 60 customers.

Separate from the ESP case, AEP applied for an increase in distribution rates in February 2011. On Nov. 23, 2011, 14 parties including AEP, the PUCO staff and the Office of the Ohio Consumers’ Counsel filed an agreement in the distribution rate case. The PUCO held four local public hearings to gather public testimony about the application and as well as a hearing to examine the agreement.

Today’s Commission orders will be available online later today at www.PUCO.ohio.gov. Click on the link to the Docketing Information System (DIS) and enter case number 11-346-EL-SSO for the electric security plan or case number 11-351-EL-AIR for the distribution rate case.

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The Public Utilities Commission of Ohio (PUCO) is the sole agency charged with regulating public utility service. The role of the PUCO is to assure all residential, business, and industrial consumers have access to adequate, safe, and reliable utility services at fair prices while facilitating an environment that provides competitive choices. Consumers with utility-related questions or concerns can call the PUCO Call Center at (800) 686-PUCO (7826) and speak with a representative.

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