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Consumers' Counsel requests PUCO to reconsider increases to AEP rates, asks Supreme Court of Ohio to halt retroactive rates

COLUMBUS, Ohio – April 17, 2009 – In two actions today, the Office of the Ohio Consumers’ Counsel (OCC) will ask the Public Utilities Commission of Ohio (PUCO) to reconsider a decision that is imposing a decade of rate increases on residential customers of American Electric Power’s (AEP) Ohio utilities, and ask the Supreme Court of Ohio to block AEP from collecting the retroactive portion of the rate increase currently being charged to customers.

The PUCO modified and approved AEP’s electric security plan on March 18. Based on annual caps established by the PUCO, in 2011 Columbus Southern Power customers could pay 20 percent more and Ohio Power customers could pay 25 percent more than rates prior to the electric security plan. In addition, the PUCO allowed AEP to defer, for recovery from customers beginning in 2012, the amount of costs that would cause rates to exceed those caps, estimated to be $900 million.

“Residential consumers cannot afford to give any more of their incomes to utilities than what is justified, fair and lawful,” said Consumers’ Counsel Janine Migden-Ostrander. “The PUCO should take a second look at its decision in light of our many arguments that major portions of the rate increase violate state law and regulatory rules.”

The following are among the many concerns addressed by the OCC in its request for the PUCO to reconsider its decision:

Deferrals and interest charges — The PUCO permitted the deferral of generation-related costs above the capped increases in the next three years. These deferrals are to be charged to customers from 2012 through 2018. The OCC estimates the deferred costs, plus interest, could cost all customers (residential, commercial and industrial) more than $900 million through 2018, of which approximately 30 percent of the cost is interest. Based on Ohio’s recently adopted electric policy law – Senate Bill 221 – deferrals are permitted under an electric security plan only if they would stabilize rates or provide rate certainty. The OCC believes that if the magnitude of the rate increases were appropriately reduced there will be no need for any deferrals. Further, the OCC objected to an excessive interest rate, estimated at 11.15 percent, that customers will have to pay.
Provider of last resort (POLR) charge &ndash The PUCO allowed AEP to recover 90 percent of its POLR charge request, which will cost all customers $456 million over three years. The POLR charge is based on AEP’s estimated financial risk that customers who shop for alternative suppliers will come back to AEP, and AEP will be required to serve them. The OCC contends the risk to AEP is practically nonexistent, and AEP’s current rates already compensate it for the risk. The new revenue to be collected by AEP for the POLR risk represents a 567 percent increase (Columbus Southern Power) and a 38 percent increase (Ohio Power) over the POLR charge collected from customers prior to the approval of the electric security plan.
Retroactive rate collection – AEP was permitted to collect all new charges under the electric security plan retroactive to Jan. 1, 2009. Legal decisions in Ohio prohibit such retroactive ratemaking. Additionally, the new law, adopted in 2008, does not allow electric security plan rates to be made retroactive and specifies that the utility can only collect the current rates in effect until a new rate is approved by the PUCO.
Smart grid costs – AEP is allowed to charge customers $54.5 million for smart grid improvements. While this represents half of what AEP asked to collect, the OCC asserts that evidence did not support a finding that the improvements will be cost effective and ultimately benefit consumers.
Increased vegetation management charges –AEP was granted $104.5 million for increased tree trimming and other vegetation management. The OCC believes the PUCO should first determine how much of the funds already collected from customers AEP has been spending on these programs before requiring customers to pay more money. AEP has provided no detail on past expenditures and what factors led to the deterioration of its distribution system.

In a related matter, the OCC – joined by Kroger, the Ohio Hospital Association and the Ohio Manufacturers’ Association – will ask today that the Supreme Court of Ohio act immediately to block AEP from collecting the retroactive portion of the rate increase currently being collected from customers. The OCC estimates that if the retroactive rates are not stopped, it will cost Columbus Southern Power customers approximately $30 million, while Ohio Power customers will pay $33 million. Earlier, the OCC had asked the PUCO to act to prohibit the retroactive rates. That request was denied by the PUCO on March 30.

The OCC’s action at the Court requests that immediate and extraordinary action from the Court in the form of a “writ of prohibition” be issued to stop the retroactive portion from being collected from customers. The writ would remain in place and prevent further collection until a final legal decision can be made regarding the lawfulness of retroactive ratemaking.

“The PUCO made an unlawful decision when it imposed a full year of rate increases to be paid by AEP customers in nine months,” Migden-Ostrander said. “Because the PUCO rejected our request to stay the decision, the rate increases have gone into effect and we are requesting the Supreme Court take immediate steps so consumers may be shielded from the continued and unlawful collection of retroactive rates. The retroactive increase is like charging a student an increase in tuition payments three months after the student has graduated. No one should stand for that.”

About the Office of the Ohio Consumers' Counsel

The Office of the Ohio Consumers' Counsel (OCC), the residential utility consumer advocate, represents the interests of 4.5 million households in proceedings before state and federal regulators and in the courts. The state agency also educates consumers about electric, natural gas, telephone and water issues and resolves complaints from individuals. To receive utility information, brochures, schedule a presentation or file a utility complaint, residential consumers may call 1-877-PICKOCC (1-877-742-5622) toll free in Ohio or visit the OCC Web site at www.pickocc.org.