Resolution Of AEP Ohio’s 2009 Significantly Excessive Earnings Test Creates Value For Customers

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Agreement recognizes 2009 earnings were not significantly excessive
GAHANNA, Ohio, November 30, 2010 – AEP Ohio, a unit of American Electric Power (NYSE:AEP), has reached an agreement today with several parties involved in the company’s Significantly Excessive Earnings Test (SEET) that will freeze rates previously authorized to increase up to 6 percent in 2011 for Columbus Southern Power (CSP) customers, create jobs, provide additional assistance for low-income customers, and increase investment in Ohio. The stipulation agreement requires approval by the Public Utilities Commission of Ohio (PUCO)

The agreement, signed by the Staff of the PUCO, the Ohio Manufacturing Association (OMA), the Ohio Hospital Association (OHA), the Kroger Company, Ormet Corporation, and AEP Ohio, identifies that 2009 earnings for both CSP and Ohio Power were not significantly excessive. The resolution recognizes AEP Ohio’s commitment of $45 million in new investment that creates more than 600 jobs for Ohioans, the company’s agreement to not raise rates for CSP customers in 2011, as well as additional support for economic development

“We believe this resolution strikes a critical balance for all parties, including the State of Ohio, our customers and our investors," said Joseph Hamrock, AEP Ohio president and chief operating officer. “This agreement concentrates on what Ohio needs the most … commitment to economic development and investment in the state that will promote job growth

The agreement includes the following:

  • Rate Stability for CSP Customers in 2011: AEP Ohio’s current Electric Security Plan (ESP) approved by the PUCO in 2009 allowed AEP Ohio to increase CSP rates up to 6 percent in 2011, depending on costs. The agreement will change the rate cap from 6 percent to 0 percent. Under the 6 percent cap, CSP rates could have increased up to $114 million next year or approximately $78 over the year for a residential customer using on average 1,000 kWh per month.In addition, under the rate cap mechanisms approved in the current ESP, certain costs can be deferred for future recovery.

However, under the new agreement recovery of such deferrals will not include carrying costs, and the deferrals will be reduced by additional mechanisms agreed to by AEP Ohio. Those mechanisms include an agreement to forego the first $18 million of recovery on 2010 environmental investments, which would have been collected beginning in 2011, and to further offset such deferrals using a portion of the gain on the future sale of certain company owned coal reserves.

  • Additional Capital Investment in Ohio: AEP Ohio announced in October its intent to purchase solar energy from a yet-to-be-built solar farm in southeast Ohio from Turning Point Solar. AEP Ohio also announced its intention to invest an additional $20 million in the development, ownership and operation of the plant. The project is expected to bring approximately 600 permanent and construction jobs to Ohio.

AEP Ohio also plans to spend $25 million in distribution investment, including the expansion of the company’s innovative gridSMART program that offers customers advanced technologies and programs that can help save money and energy. The program is designed to provide greater energy control to customers through enhanced usage information and improve electricity distribution efficiency and reliability. 

  • Economic Development Support: AEP Ohio has committed more than $2 million for an economic development fund to help provide energy related benefits to Ohio manufacturing and other industries.

  • Additional Low Income Coverage: AEP Ohio previously established the Partnership with Ohio fund that provides additional help in the areas of health, hunger and housing to Ohio’s needy families, including families with incomes up to 200 percent of the federal poverty level, a segment of the population that often does not qualify for state and federal aid. As part of this agreement, AEP Ohio will provide an additional $1 million in assistance for AEP Ohio customers who need help with electric bills.

“We are pleased that the PUCO Staff and other interested parties recognize the company’s commitment to considerable capital investment in Ohio,” added Hamrock. “These projects and additional support of economic development and customers in need will help this state in its economic recovery efforts.”

As part of the SEET proceeding, the PUCO can determine that a company’s previous year earnings are not significantly excessive when considering the capital requirements associated with a company’s commitments for future investment in Ohio

In addition, the parties agree to resolve the companies’ case pending before the PUCO regarding 2009 fuel and environmental cost recovery, and calls for the sale of certain coal reserves owned by the company to be applied to AEP Ohio’s fuel deferrals. The first $30 million of any gain from the sale will be credited to ratepayers’ benefit and used to offset any deferrals resulting from the 2011 rate cap. Any remaining balance will be shared between ratepayers and AEP Ohio. Sale of coal reserves is expected to be complete during 2011.

Finally, the resolution includes support of CSP and Ohio Power’s application to merge the two companies, as announced in mid-October. In recognition of this support, AEP Ohio will designate $50 million of additional consumer protection through a secondary earnings test to be applied in the first two years after the merger is completed. Should the combined companies earn in excess of 15 percent return on equity in the first two years following the merger’s close, AEP Ohio agrees to refund Ohio retail customers up to $50 million. Should the merged company earn less than 15 percent that first year, the shortfall will be deducted from the $50 million available by a corresponding amount.

AEP Ohio provides electricity to nearly 1.5 million customers of major AEP subsidiaries Columbus Southern Power Company and Ohio Power Company in Ohio, and Wheeling Power Company in the northern panhandle of West Virginia. AEP Ohio is based in Gahanna, Ohio. The company serves all or part of 61 counties in Ohio and two in West Virginia.

American Electric Power is one of the largest electric utilities in the United States, delivering electricity to more than 5 million customers in 11 states. AEP ranks among the nation’s largest generators of electricity, owning more than 38,000 megawatts of generating capacity in the U.S. AEP also owns the nation’s largest electricity transmission system, a nearly 39,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP’s transmission system directly or indirectly serves about 10 percent of the electricity demand in the Eastern Interconnection, the interconnected transmission system that covers 38 eastern and central U.S. states and eastern Canada, and approximately 11 percent of the electricity demand in ERCOT, the transmission system that covers much of Texas. AEP’s utility units operate as AEP Ohio, AEP Texas, Appalachian Power (in Virginia and West Virginia), AEP Appalachian Power (in Tennessee), Indiana Michigan Power, Kentucky Power, Public Service Company of Oklahoma, and Southwestern Electric Power Company (in Arkansas, Louisiana and east Texas). AEP’s headquarters are in Columbus, Ohio.

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Terri Flora
Director, Corporate Communications
AEP Ohio