WV PSC Raising Rates to Cover AEP Maintenance Costs

Yesterday, the WV PSC filed a final order approving Ohio-based AEP’s plan to maintain its rights of way in WV.  AEP’s plan for APCo and Wheeling Power grew out of PSC general investigations into failed power company responses to the moderate 2009 snowfall and the 2012 derecho storm.

An article in this morning’s Charleston Gazette claims that AEP has estimated that its WV customers will see their bills rise by $2.38 per month, if they use 1000 kwh of electricity in a month, once the company’s new vegetation management plan rate increase take effect.

The PSC did not approve AEP’s desire to add more surcharges to the Christmas tree horror show on its WV electric bills.  In its order, the PSC summarized testimony in the case concerning the company’s Vegetation Management Plan (VMP):

The WVEUG, CAD and Staff witnesses testified that the Companies should not be allowed a VMP Surcharge. They all stated that the proper way for the Companies to  recover costs of the VMP is in a Rule 42 base rate case. WVEUG witness Baron testified that it would be unreasonable to add another surcharge mechanism when the Companies already recover a significant portion of the overall revenue requirement through various surcharges. Exh. SJB at 6. Mr. Baron also stated that the addition of another surcharge would be particularly unnecessary given the expectation that the Companies will file abase rate case before the summer of 2014.

As a result of the testimony by the three main parties in the base besides AEP, the PSC ordered:

3. A rate recovery mechanism is not necessary at this time given the expected filing date of the Companies’ next base rate case being mid-2014.
4. The Commission has identified a public service need to implement an enhanced VMP, and it is reasonable to authorize the Companies to commence the enhanced VMP with the effective date of this Order and incur the related increase in costs in advance of a specific VMP cost recovery mechanism to be established in the upcoming general rate case, particularly when a rate case is to be filed in the near future.
5. The issues raised by the parties regarding cost estimates, capital costs versus maintenance expenses, and cost allocation of VMP related costs can and should be further analyzed in the context of a base rate case.
6. It is reasonable to defer the recovery of prudently incurred incremental increases for VMP O&M expenses that the Companies incur between the issuance of this Order and the conclusion of the upcoming base rate case.
7. It is reasonable for AEP to include in that deferral a carrying cost of four percent (annual rate) given the short timeframe between the effective date of this Order and the cost recovery mechanism for VMP costs to be established in the upcoming base rate case.

So AEP will get their rate increase, but it must come in the company’s next base rate case.  AEP can begin work under their VMP immediately, and they can recover interest on any money they need to borrow to operate the program until their new base rate increase takes effect.

And how much money are we talking about?

5. The Companies have spent between $14.050 million and $17.150 million on non-storm related vegetation management expenses and capitalized between $2.760 million and $6.8 million of vegetation management expenditures over the last three years.
6. VMP, both expensed and capitalized, will be approximately $5 8.02 million. The Companies project the total first year expenditures for the enhanced VMP, both expensed and capitalized, will be approximately $58.02 million.

So under the new Vegetation Management Plan, AEP’s expenditures for right of way maintenance will almost triple.  That is a clear picture of how underfunded the maintenance of WV’s centralized electrical infrastructure has been, likely for decades.  Once again, we see that WV’s relatively low electric rates are not the result of cheap coal but of serious neglect, paid for by customers and businesses during repeated power collapses.

And will AEP customers receive trouble free electrical service for this tripling of right of way costs?

The Commission concludes that the implementation of a four-year, cycle-based VMP will (i) enhance the ability of the Companies to identify and repair faulty or failed equipment, (ii) improve customer service and reliability, and (iii) will initiate a more proactive approach to vegetation management. The Commission did not require the utilities to adopt a program that would prevent every outage, especially from the most severe storms, but concludes that the enhanced VMP will lessen the impact of storms on numbers and duration of outages.

I agree that the expensive new VMP programs will help, but tripling spending will not eliminate the fundamental vulnerability of a centralized generation/transmission/distribution system to collapse from natural and human made causes.

PSC approval of FirstEnergy’s VMP and rate increases is still pending in case 13-1064-E-P.  In that case, FirstEnergy has filed for a surcharge (of course) that would increase monthly residential bills for 1000 kwh by $2.90 to cover new costs they estimate at $69 million per year.

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