Ohio Consumers' Counsel: AEP Rate Increase Includes Over $1 Billion in Unneeded Costs

The annual rate increases American Electric Power (AEP) has proposed for its three-year electric security plan are not justified and should be reduced by more than $1 billion, the Office of the Ohio Consumers' Counsel (OCC) said today in testimony filed with the Public Utilities Commission of Ohio (PUCO).

Columbus, OH (Vocus) November 3, 2008 -- The annual rate increases American Electric Power (AEP) has proposed for its three-year electric security plan are not justified and should be reduced by more than $1 billion, the Office of the Ohio Consumers' Counsel (OCC) said today in testimony filed with the Public Utilities Commission of Ohio (PUCO).

American Electric Power has not proven it needs increases over the next three years to its non-fuel generation and distribution rates, according to the OCC's testimony. In addition, AEP's proposal to defer any costs above a 15 percent annual rate increase is not necessary. Fuel costs also have been overestimated and should be recalculated to reflect current costs.

"The electric security plan that AEP has proposed is full of rates and charges the company has not proven it needs," said Janine Migden-Ostrander, Consumers' Counsel. "The company should not be granted increases above and beyond what is necessary to provide reliable electric service to its customers."

Included in the OCC's findings that would save money for consumers are:

- Eliminate increases to non-fuel generation charges: AEP included in its plan more than $600 million in increases over three years to recover carrying costs on environmental investment and to reflect inflation on its generation costs. The company has not justified that it needs this extra money.

- Removal of distribution reliability increases: AEP has asked customers to pay over $200 million in enhanced reliability improvements. AEP has not demonstrated that its current distribution rates are insufficient to maintain and improve reliability.

- Eliminate the Provider of Last Resort charge: AEP proposes to charge consumers approximately $500 million over three years to compensate it for an estimated financial risk to provide electricity to customers who shop for alternative suppliers. AEP is only required to buy power at market rates when it is needed and does not need to have it on-hand to service returning customers. AEP has not shown any specific costs it would incur related to this obligation to be the provider of last resort. Since Ohio's electric generation market was deregulated in 2001, competition has not come to fruition and a vast majority of consumers continue to buy electricity from AEP which reduces its risk to provide additional electricity.

- Dropping deferrals and carrying charges: The reduced rate increase which the OCC has recommended eliminates the need for AEP to defer any costs for collection from customers in future years. This will save consumers millions of dollars in unnecessary interest costs.

- Re-evaluate fuel cost estimates: AEP submitted its electric security plan with fuel costs estimates valued at a time of high market prices. Since then, there have been significant changes in the energy markets and fuel costs estimates should be recalculated and updated with current costs.

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.

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