PUCO Staff to Support Merger of AEP Ohio Companies Under SEET Stipulation

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December 1, 2010

Staff of the Public Utilities Commission of Ohio, along with several end users, will support AEP Ohio's application to merge Columbus Southern Power and Ohio Power into a single operating company under a non-unanimous stipulation concerning the companies' significantly excessive earnings test (SEET, Case No 10-1261-EL-UNC).  The settlement would also eliminate a potential rate increase of 6%, on a total bill basis, at Columbus Southern Power for 2011.

Signing the stipulation are Staff, the Ohio Hospital Association (OHA), the Ohio Manufacturers' Association (OMA), The Kroger Company, Ormet Primary Aluminum Corporation, and AEP Ohio.  The Ohio Consumers' Counsel is opposed to the stipulation.

Acceptance of the settlement itself would not result in approval of the AEP companies' merger proposal, which is being addressed in Case No. 10-2376-EL-UNC.  However, stipulating parties agree to support the proposal as filed.

Aside from the operating companies' initial testimony, no other record in the merger proceeding has been developed yet.  

"The OCC believes the recently filed request to merge its two distribution utilities requires scrutiny which has not yet occurred," the Consumers' Counsel said.

Constellation NewEnergy and Direct Energy have sought intervention in the merger proceeding, raising a number of issues such as policies for supplier security, utility consolidated billing, and EDI functionality at the merged companies.

The AEP utilities have opposed the suppliers' petition to intervene, arguing that the distribution companies are not seeking to adjudicate any rate-related issues in the merger proceeding.  However, the suppliers noted that, "the nature of the merger itself will have [a] rate impact.  Failure to address the merger issues that affect [competitive] providers now may create a fait accompli when AEP seeks to collect the costs of the merger in rates."

Under the stipulation in the significantly excessive earnings test proceeding, Columbus Southern Power agrees that the Commission-authorized 6% rate increase allowance (for combined generation and distribution) for Columbus Southern Power for 2011 will be reduced to 0%.  Columbus Southern Power will utilize the current fuel adjustment clause (FAC) deferral mechanism approved in Case No. 08-917-EL-SSO to maintain the new rate cap, except that Columbus Southern Power agrees to voluntarily forego recovery of carrying charges that would otherwise apply to the deferrals created in 2011.

"Rates subject to the cap will change in accordance with the ESP [electric security plan], however, the FAC rate will be adjusted to maintain the reduced cap for 2011.  Rates not subject to the original rate cap remain eligible for increase," the stipulation states.

AEP Ohio also agrees to prospectively forego $18 million in carrying charges relating to 2010 environmental investment under the settlement.

Columbus Southern Power will contribute $1 million to each the Ohio Hospital Association and Ohio Manufacturers' Association for energy-related programs under the settlement.  Columbus Southern Power will also provide Kroger with $100,000 in energy efficiency funding.

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