More on the AEP Rate Increase in WV: the Old Switcheroo Returns to WV Rate Making

I posted a few days ago about AEP’s new request for a 4.4% rate increase.  Here is a link to the actual filing at the WV PSC.

There seems to be some kind of link between power companies purchasing generating plants for inflated prices and fake concern about “rate stability.” In this latest rate increase, we see AEP taking a page from FirstEnergy’s playbook on the Harrison plant.  Back in 2012, FirstEnergy made an unsuccessful bid to take away an ENEC rate decrease that the company owed to its WV rate payers.

In AEP’s latest filing, we also hear lots of talk about how important “rate stability” is.  AEP takes FirstEnergy’s scam a little further, however, because now they claim it is in the best interests of West Virginians to raise their electric rates so they won’t have to raise them even further in a future that hasn’t happened yet:

In this proceeding, the Companies are proposing that their ENEC rates be increased so as to produce an additional $68 million in annual ENEC revenues in order to achieve an appropriate balance between ENEC costs and revenues and to avoid what
otherwise is projected to be a significant ENEC increase for customers in the 2015 ENEC proceeding.

In electric rate cases, companies present the details of their case in testimony presented by their employees.  In this case, AEP’s basic position is stated in the testimony of APCo VP Steve Ferguson.

Mr. Ferguson argues that what he calls “traditional ENEC” rate calculations would result in the need for a very large rate increase next year if AEP doesn’t take some of that money from rate payers now.  Most of his claims about next year’s rate increase are based on the dumping of AEP’s coal fired Amos and Mitchell plants on WV rate payers.

The WV PSC’s rate making systems is based upon two categories of rates: base rates created to recover fixed capital and overhead costs and ENEC rates designed to recover variable costs such as fuel costs for coal and gas generating plants and energy that companies purchase on electricity markets.  The PSC’s past kowtowing to the corporate needs of WV’s Ohio-based utilities has resulted in a rate making mess of surcharges and “consumer rate relief charges” that has made WV’s simple rate making structure look like a Christmas tree horror show.

Now, Mr. Ferguson is proposing to deal ENEC rate making in WV a final blow by scrambling all kinds of base rate charges into the ENEC process.  He claims his main concern is with the delicate sensibilities of WV rate payers and their need for “rate stability.” Here is his account of AEP’s valiant efforts to do good in WV:

As this Commission is aware, the Companies’ overall rates increased significantly from 2008 through 2010. The Company tried to cushion the impact of a substantial increase in fuel and purchase power charges by spreading those costs over a period of time. The Commission and the parties to the Securitization Case agreed that securitizing the $380 million under-recovery balance over a period of 15 years was just and reasonable and in the public interest. Had the under-recovered ENEC balance not been securitized, APCo and WPCo customers could have experienced an approximately 40% increase in their rates. The ability to securitize $380 million and avoid a significant ENEC rate increase was the best option for the Companies’ customers.

In part because of the approach taken in the Securitization Case, the impact on the Companies’ customers has not included rate increases like those that have occurred in other states. The national average for a residential customer using 1,000 kWh per month is 12.2 cents per kWh, while the Companies’ West Virginia residential customers are only paying 9.4 cents per kWh. By contrast, the average residential customer being served in APCo’s Virginia service area pays 11.0 cents per kWh. The customers that the Companies serve in West Virginia have benefitted from the decisions made by this Commission over the past several years.

If the decision is made to return the full currently existing ENEC over-recovery this year it can be expected to create a yo-yo effect in the Companies’ 2015 ENEC case. This effect could be more pronounced if an increase in base rates results from the Companies’ 2014 base rate case. The way the Commission has been able to maintain relatively stable rates over the past couple years has been successful for all.

So to Mr. Ferguson, and also the WV PSC, turning short term rate increases into decades of increased rates through the magic of debt financing has been “successful for all,” including WV rate payers.  In order to save West Virginians from the “yo-yo effect” of the current over-recovery of ENEC rates, for which WV rate payers should receive a rate decrease, AEP is proposing to ignore that decrease and raise rates instead, based upon some claim of future possibilities.

If you detect a bit of sleight of hand here, I don’t think you would be mistaken.  Once again, it’s all about hiding the impacts of AEP’s coal plants on WV and its citizens.

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